Leveraged Breakdowns

Public REIT Valuation Part Seven: Net Asset Value

Introduction

This is part seven of a series focused on Public REIT valuation. The first six posts were more qualitative in nature, contextualizing the information available in Aimco’s public filings. This seventh post begins a new thread where we focus on building our Excel model. If you’re looking for the best real estate private equity course in video format, you should check out Breaking Down REPE, available through our subscription membership.

New Quarter, New Filings

When we began this series, Aimco had most recently issued its 1Q20 financials. However, Aimco has since issued a set of updated 2Q20 documents. Go ahead and download everything on this page under the “investor kit” header, adhering to the naming conventions established in the third post. Read through the new filings, then proceed. If you have any questions, the comments on this post are open to anybody with an account!

Net Asset Value

Net asset valuations, or NAVs, are often the starting point when kicking off analyses along your real estate private equity career path. An NAV build will show everything about the company’s value, from its assets to its liabilities, outstanding shares, and ultimately its NAV per share. NAVs work to summarize your opinion of the company’s value per share.

Think of it this way. If your finished NAV suggests a valuation below the publicly traded share price, then the company is a buy. If the NAV is less than the share price, the company is a sell. This comparison grows more nuanced when you start targeting specific returns, but that’s the gist of it.

Start with High-Level Book Values, then move to Detailed Private Valuations

To begin, we will source all of our valuations from book value. Later on, we’ll replace these book values with our own private valuations. But right now, book value is easy to pull and will act as a solid placeholder.

If you’re confused on the distinction between book value and private value, here’s a quick example. Let’s imagine that Aimco values a particular apartment building on its books at $100M, the price it paid. But, what if you believe that the asset’s particular market has recently begun to underperform, and the asset is now only worth $90M? Or maybe on the flip-side, it’s now worth $120M. Either way, the book value will still show $100M.

Long story short, you’re trusting someone else for their opinion of value. Further, their own opinion is distorted by accounting methodologies. Despite all this, book value is a decent starting point whenever you need a high-level cut or need a strong placeholder while you’re waiting to finish your own asset-level valuations.

Conclusion

The next post will show you the most important steps we take in Excel when we fire up an M&A model. In the meantime, if you’re looking for other resources to prepare you for a real estate private equity career path, check out our interview guide and our other video courses. Our materials are made by real megafund investors dedicated to bringing the best real estate private equity courses and guides to hungry outsiders eager to put in the legwork to break into this notoriously exclusive industry.

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