Leveraged Breakdowns

Public REIT Valuation Part Six: Subsequent Events and Financial Statements

Introduction

This is part six of a series teaching real estate private equity for beginners, specifically focused on public REIT valuation. If you’re just joining us, you should probably flip back to part one. And if you’re looking for immediate prep before an upcoming real estate private equity interview process, you might find these resources helpful in a pinch. But if you’re here to continue the series, welcome back. This is the last post of preparatory reading before we start building our financial model for Aimco. 

Subsequent Events

Each quarter, Aimco provides a snapshot of its balance sheet and a summary of its trailing quarterly results. The filings we’re working with are all as of 1Q20, so they reflect Aimco specifically on 3/31/20. Management doesn’t start preparing these financial reports until 3/31/20 is in the past, and Aimco specifically took until 5/11/20 to publish their financials. During that month and a half, material “subsequent events” occur that Aimco is compelled to share with its investors.

The nuance with subsequent events is that they are not part of the reported financial statements. For instance, per Supp doc4/pdf5, Aimco sold an apartment community in Annandale, Virginia for $58.9M. But if you open that nifty 1Q20 Apartment List file, you’ll see the Annandale asset is still included in the total property count of 124 (which is the same property count on doc18/pdf19). So in our model, we’ll need to make sure we properly represent this asset as sold, which generally entails:

  • Removing the asset from our property list
  • Increasing the cash balance for the net sale proceeds (after paying off the mortgage, if any)
  • Decreasing the total debt balance for the mortgage, if any

The 10Q / 10K also have subsequent events sections. Specifically in the 1Q20 10Q financials, they’re listed on doc20, but it’s mostly general color on the COVID-19 situation and no hard facts. You should understand that scrubbing the financials for all relevant subsequent events requires manual focus. But once you’ve built a full-scale REIT model, you’ve probably read each of the statements enough times over that you’ll catch everything.

Financial Statements

The financial statements are truly the meat of the reporting package. I always look to the 10Q for the financials, especially the Balance Sheet and the Income Statement. But since we’re looking at the supp, you can flip to doc11/pdf12 and doc12/pdf13 to see the balance sheet and income statement, respectively. These will have the same figures as the 10Q. You should glance at these metrics to understand the business from a high-level. We will make much more fruitful use of these financials in the next installment when we start to build our model.

Closing Notes on the Review

In the next post, we will start to build our Excel model for this company. You’ll probably notice there are a lot of schedules in here that we haven’t yet referenced. Feel free to get chopping ahead of us, but we will make use of everything shortly enough. In fact, our task in the next post will be to cut through this supplemental and input all relevant data into the beginnings of our Excel model. At that point, we’ll make a lot more use out of the detail provided in the back pages of the supplemental.

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