REIT GLOSSARY​

Accretive Acquisition

An accretive acquisition is an investment that increases the acquiring entity’s earnings per share (EPS) or distribution per unit (DPU). It is also sometimes referred to as a yield-accretive acquisition.

In the context of REITs, a yield-accretive acquisition involves the purchase of a property that increases the REIT’s distribution. Acquisitions of this nature are generally viewed positively by investors, assuming other parameters remain stable.

The opposite of an accretive acquisition is a dilutive acquisition.

Adjusted Funds From Operations (AFFO)

AFFO refers to Funds from Operations (FFO) adjusted to more precisely reflect a REIT’s distributable income. The adjustment usually involves subtracting from FFO:

  1. normalised recurring expenditures that are capitalised by the REIT and then amortised, but which are necessary to maintain a REIT’s properties and its revenue stream (I.e., new carpeting and drapes in apartment units, leasing expenses and tenant improvement allowances); and,
  2. non-cash rents (I.e., straight-lining rent-free periods, etc.).

Anchor tenant

An anchor tenant is a lessee that rents a significant portion of a property. Due to their size, and often strong brand equity (which can help draw other tenants), anchor tenants are usually able to secure leases at favourable terms relative to other lessees.

Asset Enhancement Initiative (AEI)

An AEI is an enhancement to the property of a REIT typically made to maintain or improve the rentability of the property. AEI could range from minor refurbishments such as sprucing up the office lobby to major renovations such as developing new extensions to an existing shopping mall.

Capitalisation Rate

The capitalization rate (or “cap” rate) for a property is determined by dividing the property’s net operating income by its current market value.

Cost of Capital

The cost to a company, such as a REIT, of raising capital in the form of equity (common or preferred stock) or debt. The cost of equity capital generally is considered to include both the dividend rate as well as the expected equity growth either by higher dividends or growth in stock prices. The cost of debt capital is the interest expense on the debt incurred.

Dilutive Acquisition

A dilutive acquisition is used to describe a takeover that ends with the acquiring company or REIT ending up with lower earnings per share (EPS) than before the takeover. In the context of REITs, a dilutive acquisition happens when a REIT acquires a property that reduces its distribution per unit (DPU).

The opposite of a dilutive acquisition is an accretive acquisition.

Distribution Per Unit (DPU)

Payment paid to unitholders of a REIT. The distribution typically comes from the cashflow generated by the properties the REIT owns.

EBITDA

Earnings Before Interest, Taxes, Depreciation and Amortization. This measure is sometimes referred to as Net Operating Income (NOI).

Funds From Operations (FFO)

The most commonly accepted and reported measure of REIT operating performance. Equal to a REIT’s net income, excluding gains or losses from sales of property and adding back real estate depreciation.

Gearing Ratio

A measure of a company’s or REIT’s financial leverage. It is typically represented by the ratio of total debt to total assets. Some REIT jurisdictions cap the amount of leverage a REIT can take on.

Gross Floor Area (GFA)

A metric representing the total amount of space available within a building, inclusive of walls, corridors, and columns. GFA is not necessarily representative of usable space, so Gross Leasable AREA (GLA) is used to represent the floor space that can be leased out.

Net Asset Value (NAV)

The net “market value” of a company’s assets, including but not limited to its properties, after subtracting all its liabilities and obligations.

Occupancy Rate

The rented area or units of a building or portfolio of buildings as a proportion of the total.

Real Estate Investment Trust (REIT)

A REIT is a company dedicated to owning, and in most cases, operating income-producing real estate, such as apartments, shopping centres, offices and warehouses. Some REITs also engage in financing real estate.

Income Support

An arrangement where the vendor of a building guarantees a certain level of rental income for a fixed term when selling the property to a REIT. Often used in situations where a property is new, and the tenancy is not yet stabilised. There is some risk that the stable state rental situation may see rents below that of the rental support when the support expires.

RevPAR

Revenue per Available Room, or more commonly written as RevPAR, is a metric used in the hospitality industry to measure the average amount of revenue a hotel makes per room.

RevPAR is calculated by multiplying a hotel’s average daily room rate (ADR) by its occupancy rate. It can also be measured by dividing a hotel’s total revenue from rooms by the number of rooms available over the number of days being measured.

RevPAR does not consider other revenue-generating activities within the hotel compound such as leases of ballrooms, golf green fees, and sales of food and beverages.

Total Return

A stock’s dividend income plus capital appreciation, before taxes and commissions.

Vacancy Rate

The untenanted area or units of a building or portfolio of buildings as a proportion of the total.

Valuation

Assessed value or price of an asset, building or company.

Variable Rent

The variable component of a lease agreement where the landlord shares in a proportion of a tenant’s gross turnover. Most commonly seen in retail properties.

Weighted Average Lease Expiry (WALE)

The weighted average amount of time measured in years that it takes for a REIT’s leases to expire. The weighting can be via occupied area or rental income contribution.

Weighted Debt Maturity Profile

The weighted average amount of time measured in years that it takes for all the debt to mature in a REIT.