FYI I did buy PLD puts today. Lucky for me I sold my ARE puts Friday.

My valuation techniques are my secret sauce. If you believe their assets will be worth more than the book value, we will simply have to disagree.

PLD’s debt service is increasing and the current stable operating cash flows can’t cover that service. Unless they are able to raise cash through property sales, they will crater. You are absolutely correct that I am pricing a 99% chance of failure - it is a foregone conclusion because the math says so.

If you are interested in going long on PLD, you should look at the convertible debt. There might be a play there - possibly a very good play. I have not spent a lot of time analyzing the convertible value and I don’t know what it’s trading at today but I suspect there is a price at which I am a buyer. I am not a buyer of the common stock at ANY price.

By the way, look at the preferred stock and how it has decreased in value. Remember that preferred is higher in priority than the common. The decline should be enough of a signal to common shareholders that the common is worthless.

Richard

Good question - I’ll answer it vaguely and in a roundabout way.

An Asset is only an asset until it’s a liability. Is a piece of land that you have to carry vig on, but receive no income from, an asset? Just because the company paid an exhorbitant price for something it thought would generate income later does not always make it so. If nobody will buy it, what’s it worth? Effectively, it’s worth ZERO or NEGATIVE when you have to carry the loan. Who wants to take on another payment in these times?

Based on operating cash flows, the company cannot recover without hitting a home run. A home-run is unlikely in these times. Real estate and the economy are getting worse, not better. That’s all I need to know to know it’s going to “0″.

Thanks for the comment. If the company ever goes above $25 in the next 6 months, I’ll owe you a dinner. (just you, other restrictions may apply*)

Richard

It seems to me that even with some mild inflation next year, this company would move back to well over $25. You are pricing in what probability that their assets will not recover in price before they have to default on their debt?