Glossary
The following glossary of terms provides definitions of key terms associated with real estate investing, ownership and development.
The definitions have been sourced from organisations including the Australian Securities & Investments Commission, Investment and Financial Services Association, Property Council of Australia, the Green Building Council of Australia.
This Dictionary is regularly revised and was most recently updated in November 2009.
Disclaimer: The material in this online Glossary is of the nature of general comment regarding investment and real estate, and is not intended to constitute advice. Users should not act on the basis of any matter in this online publication without considering (and, if appropriate, taking) professional advice with due regard to their own particular circumstances. Equity Real Estate Partners Pty Limited expressly disclaims all liability and responsibility to any person who relies, or partially relies, upon anything done or omitted to be done by this online publication.
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Accumulation Index: An index which measures both the capital growth and income and assumes that dividends are reinvested. Non-accumulation indicies do not take income (dividends) into account. (See Index)
Alpha: Alpha is a coefficient that measures the risk-adjusted performance, or the excess return, considering the risk due to the specific fund and its underlying investments, rather than the overall market. A high alpha indicates that the fund has performed better than would be predicted given its beta (volatility).
Alternative Investments: An asset class that includes investments in private equity, real estate, infrastructure, and may include some varieties of hedge funds.
Anchor Tenant: The major or prime tenant of a building; typically used in retail real estate.
Annuity: An arrangement under which periodic payments are made to a person in return for the investment of a lump sum, usually for the purpose of providing retirement income.
A-REIT: Australian Real Estate Investment Trusts allow investors to purchase an interest in a diversified and professionally managed portfolio of real estate in the same way as you would purchase share in a company or a unit in a Managed Fund. A-REITs are listed on the ASX. (See REITs)
Arm's Length Transaction: Transaction in which the parties involved are entirely independent of each other, deals with each other as strangers, and have no reason for collusion.
Australian Financial Services Licence (AFSL): A license issued by ASIC under the Corporations Act 2001 that permits a company to issue a financial product and/or give financial product advice.
Australian Securities Exchange (ASX): The Australian Securities Exchange Limited operates Australia's primary stock exchange for equities, derivatives and fixed interest securities. It also provides comprehensive market data and information to a range of users.
Base Rent: A set amount used as a minimum rent in a lease with provisions for increasing the rent over the term of the lease. This can also be termed the "face" rent rate, with expense and reimbursement charges then negotiated.
Basis Point: A basis point is 0.01 of one percent. For example, 100 basis points equals 1.0%.
Beneficial interest: Although investors do not legally own the asset or pool of assets in a fund or trust, they do have an equitable interest, or beneficial interest. In a trust, the extent of each beneficial interest is usually measured by apportioning the value of the pool amongst all investors.
Beta: Beta is a quantitative measure of the volatility of a fund or portfolio, relative to the overall market. A beta above 1 shows that a fund is more volatile than the overall market, while a beta below 1 represents a fund which is less volatile. A beta measurement is commonly used to measure the risk level of a particular investment/investment portfolio.
Bond: An IOU (debt security) issued by a government, government body or corporation that pays a fixed rate of interest and returns the face value on the maturity date. A type of fixed interest investment.
Bottom Up Analysis: This is the investment style which considers individual assets as oppose to sectors which may be in or out of favour in general. (The opposite to Top-Down Analysis - consideration of sectors first and then leading assets in any sector).
Build-To-Suit: The new property or building is specifically designed and constructed to the unique needs of the tenant and is partially or fully leased before ground is broken on the project. Mostly found in the commercial real estate sector (industrial and office).
Buy / Sell Spread: The difference between the entry and exit price of a fund.
Capital Gains Tax (CGT): Applies to the profit on the sale of an asset acquired after 19 September 1985 - except for principal place of residence.
Capital Growth: Appreciation in the capital or market value of an investment, as opposed to income derived from the investment.
Capital Guarantee: An undertaking that the realisable value of an investment will not fall below the value calculated in accordance with the relevant product's governing rules.
Capital Guaranteed Product: Referring to an investment product, normally offered by a life insurance company, which includes some form of guaranteed return of capital.
Capital Improvements/Expenditure: Dollars spent to improve the physical condition of an asset such as a lobby renovation of an office building. These improvements are done for defensive reasons--to maintain tenancy and customer satisfaction, as well as offensive--normally following an acquisition, the new owner may upgrade and improve certain features to increase the appeal of the asset and its competitive leasing position in that submarket.
Capital Protected: Referring to a type of investment portfolio which is managed in such a way as to reduce or eliminate the risk of capital losses, usually through the use of quantitative techniques such as protection overlays. See also Capital Guaranteed.
Capitalisation Rate: The rate of return utilised to value a given cash flow. Similar to the inverse of a price-to-earnings ratio, it is used as the discount rate to determine the current value or prospective cash
return on an investment property. "Cap rate" also refers to net operating income (NOI) yield, or "yield on cost" of investment properties. The capitalisation rate (or cap rate) for a property is determined by
dividing the property's net operating income by its purchase price. Generally, high cap rates indicate higher returns and greater perceived risk.
Cash: As an investment term, cash is not just money held in the bank, or in your hand. Cash includes liquid investments made in the money markets with terms that are less than 1 year. Cash is one of the major asset classes and is considered a defensive investment.
Certificate Of Occupancy: A document from a local government agency or building department certifying that a building and the leased premises has been inspected and is in a condition suitable for occupancy.
Change in Control means a change in the identity of a person or persons who are able to Control an entity.
Closed End Real Estate Fund: A unlisted private real estate fund with a fixed fund size and a limited term, typically 5-10 years.
CMBS: (Commercial Mortgage Backed Securities) Securitised form of commercial real estate debt in which multiple loans are placed in a pool, which typically secures multiple tranches of rated publicly traded bonds plus lower rated or unrated bonds with limited liquidity.
Collar: Referring to a loan facility in which both maximum and minimum interest rates are specified. The maximum acts as a cap while the minimum rate is a floor below which the interest rate will not be allowed to fall.
Collateral: assets pledged to the lender in case of default.
Common Area: Areas within a building that are available for common use by all tenants. These areas include lobbies, corridors, parking facilities, sidewalks, landscaped areas, public bathrooms, truck and service facilities, and the like are included in the term "common area" when calculating the tenant's pro-rata share of building operating expense.
Compliance Plan: A document lodged with ASIC by a managed investment scheme. It describes the measures that the responsible entity (the operator of the scheme) has put in place to ensure that the scheme operates within the law and the scheme's constitution.
Compounding interest: Interest paid on interest, resulting in a geometric rate of increase on the initial investment. For example, a $100 investment that earns 5% generates $5 per year. With compounding, it would generate $5 the first year, making a new basis of $105; then $5.25 the next year, for a basis of $110.25; $5.51 the next year and so on. In a managed investment, reinvesting dividends and capital gains takes advantage of the power of compounding.
Co-investment: Investments by the manager of a fund to align interests between the manager and other investors in the fund.
Core Real Estate Fund: An unlisted real estate fund that targets investment in well leased and located institutional grade properties and utilises modest levels of debt. Such funds have typically targeted 9-11% total returns with the objective of providing investors with stable, ongoing operating income plus modest appreciation.
Credit Rating: A grade assigned by a rating agency, designating the credit quality or credit worthiness of the underlying asset or pool of assets (issue) or the issuer. For example, Standard and Poors are one of the major ratings agencies. They issue ratings from AAA (the highest rating) to D (the lowest).
Credit Risk: The risk of suffering loss due to another party defaulting on its financial obligations.
Cross collateralisation: a grouping of mortgage assets that serve to jointly secure one debt obligation. Any deficiency in income or loss on the sale one asset, can be made up by the income, or sale of another asset.
Cum Dividend: This refers to a share which is trading such that buyers rather than sellers qualify to receive the next dividend payment.
Custodian: An organisation which holds assets (eg. cash, shares) and settles transactions on those assets on behalf of third parties. A custodian is not subject to the same fiduciary duties as a trustee.
Debt Service Coverage Ratio (DSCR): The annual net operating income (NOI) from a asset divided by annual cost of debt service, including principal repayments. A DSCR below 1.0 means there is insufficient cashflow generated by the asset to cover debt payments.
Development Property: A property investment involving substantial new construction leading to the creation of a physical asset.
Dilution: The creation of new shares or conversion of convertible stock which dilutes the shareholding of other ordinary shareholders.
Distressed Debt: Purchase of the debt of an asset, portfolio or a company, or trade credits of a company, when the borrower is in financial difficulty.
Distribution: Payment of a dividend or capital gain. Shareholders or unit holders may take their distributions in cash or reinvest them in additional shares of the same fund or another fund.
Diversification: Investing in many different asset classes or individual assets. This reduces the reliance of a portfolio on the performance of any single asset class or asset; if one investment is performing poorly, another may perform well and make up for the loss. Diversification generally smooths the return of a portfolio.
Dividend: A payment of cash from a company's profits to its shareholders. Dividends received by a managed fund from its portfolio are distributed to its unit holders as fund distributions.
Dividend Re-investment Plan (DRP): A plan offered by a REIT or fund that allows investors to reinvest their dividends in additional securities or Units, sometimes at a discount to the current price.
Dollar-cost averaging: An investment strategy based on making investments of equal amounts at regular intervals in the same fund or security. Because the investor buys more units/securities at lower prices and fewer units/securities at higher prices, the average cost of the units/securities purchased will generally be lower than the average price over the investment period. However, dollar-cost averaging does not ensure a profit or protect against a loss in a declining market.
Due Diligence: The detailed research prior to acquisition or committing capital of a business, fund or property, the management team, and other factors to insure their accuracy, completeness, and soundness; or the investigation and evaluation of a management team's characteristics, investment philosophy; or an assets individual characteristics such as leases, environmental etc and the legal, tax and accounting terms and conditions of the deal.
EBITDA: Earnings before interest, taxes, depreciation and amortisation.
Effective Rent: The actual rental rate achieved after deducting concessions from the base rental rate. Usually expressed as an average rate over the term of the lease.
Entry Fee: The fee set by a fund manager for buying units in a managed investment, which is expressed as a percentage of the total amount invested. This fee is deducted from the amount invested. Also known as a contribution fee.
Equity Risk Premium: The difference between the forecast rate of return from a risk-free investment (such as government bonds) and that available from a riskier investment such as shares. Otherwise known as the risk/reward ratio.
Excess Return: The return achieved by a security over and above that obtained from a risk-free asset (such as a short-term government bond) held over the same period.
Ex-Dividend: A term meaning "without dividend" which denotes a share price which is quoted on the basis that the seller, not the buyer, is entitled to the current dividend on the share. (As opposed to Cum Dividend).
Exit Fee: The fee set by a fund manager for selling units in a managed investment, which is expressed as a percentage of the total amount invested. This fee is deducted from the amount invested. Also known as a withdrawal fee.
Financial Product: A financial product includes any of the following: interests in a managed investment scheme, derivatives, general insurance, life insurance, superannuation, basic deposit products and retirement savings accounts. For some purposes shares and debentures are also classed as financial products.
First Closing: The point at which a manager receives and executes the subscription documents and can begin drawing capital from investors.
First Loss Position: The position in a security that will suffer the first economic loss if the underlying asset(s) lose value or a foreclosed on. The first loss position carries higher risk and therefore a higher yield.
Floating Rate: Debt capital that is borrowed at a rate of interest that changes (varies) over the term of the loan. The rate is usually expressed as a percentage over a dynamic base rate like BBSW or LIBOR
and can cause interest expense fluctuations for borrowers if the base rate changes (in direct relation).
Free Rent Periods: The tenant does not have to pay rent on the space for a specified period of time as an incentive to sign the lease.
Fully Paid Unit: A unit/security on which the application price has been fully paid (See Partly Paid Unit).
Green Star: Green Star is a comprehensive, national, voluntary environmental rating system that evaluates the environmental design and construction of buildings. The rating system is overseen by the Green Building Council of Australia. The following Green Star Certified Ratings are available:
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4 Star Green Star Certified Rating (score 45-59) signifies 'Best Practice' in environmentally sustainable design and/or construction
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5 Star Green Star Certified Rating (score 60-74) signifies 'Australian Excellence' in environmentally sustainable design and/or construction
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6 Star Green Star Certified Rating (score 75-100) signifies 'World Leadership' in environmentally sustainable design and/or construction
Gross Lease: A lease in which the tenant pays a flat sum for rent out of which the landlord pays all property operating expenses like taxes, insurance, maintenance, utilities, etc.
Ground Rent: Rent paid to the owner for use of land, normally on which to build a building. Generally, the arrangement is that of a long-term lease (99 years) with the lessor retaining title to the land.
Gross Asset Value (GAV): The Gross asset value of a fund is the gross property value plus the value of any further assets at market value as per the chosen valuation principles. Typically further assets to be included are other fixed assets and current assets such as:
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investments in other funds, securities and plant, machinery etc; and
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cash for long term investments, cash derived from income, debtors, short term investments (i.e. less than 1 year) and prepayments.
Hedge: An investment strategy used to offset risk. Hedging involves the purchase of an offsetting position, such as a put option or futures contract, to guard against the risk of a market decline. Often used as a defensive strategy in portfolios investing in non-Australian securities to reduce the negative effects of unfavourable moves in currency exchange rates.
Holding Period: Amount of time an investment remains in a portfolio from initial financing to final liquidation.
Index: A numerical measure of price movement in financial markets, such as the S&PASX/300 REIT Index which measures the performance of REITs listed on the ASX. An index can be used as a benchmark against which to measure fund performance.
Initial Public Offering (IPO): The initial raising of capital of a company or REIT by public subscription to securities, such as shares offered on the share market for the first time. Also known as a float.
IRR (Internal Rate of Return): Standard return calculation methodology in investing which is the discount rate that equates the net present value (NPV) of an investment's cash inflows with its cash outflows, or the annual effective compounded rate of return.
LBO (Leveraged Buyout): Fund investment strategy involving the acquisition of a product or business, from either a public or private company, utilising a significant amount of debt and little or no equity.
Lead Investor: Investor in a syndicate (group of investors) that works most closely with management and negotiates on behalf of the other investors for the price and terms of an initial investment in a company or property or a subsequent financing round.
Lease Renewal Rates: The rate at which a landlord is able to retain tenants after their scheduled lease expiration.
Leasehold Improvements: The cost of improvements to property leased for a period of years, often paid for by the tenant.
Leverage: The use of debt to finance an asset.
Line Of Credit: An agreement established with a bank, insurance company, or financial services company to lend funds for acquisition, development projects, or other operating purposes. The agreement usually specifies a maximum amount the bank will lend, the term of the agreement and the interest rate to be paid by the borrower.
Liquidity: The ability to easily turn assets into cash.
Liquid Assets: Assets which can be easily sold. An investor should be able to sell a liquid asset quickly with little effect on the price.
Loan-To-Value (LTV) Ratio: The amount of a loan extended to a borrower divided by the value of the Asset.
Loan-To-Cost: Ratio of the current level of financing for a property investment to the cost basis for that investment.
Managed Investment Scheme: Managed investment schemes are also known as 'managed funds', 'pooled investments' or 'collective investments'. Generally in a managed investment scheme:
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people are brought together to contribute money to get an interest in the scheme ('interests' in a scheme are a type of 'financial product' and are regulated by the Corporations Act 2001)
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money is pooled together with other investors (often many hundreds or thousands of investors) or used in a common enterprise
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a 'responsible entity' operates the scheme. Investors do not have day to day control over the operation of the scheme.
Management Expense Ratio (MER): A ratio, expressed as a percentage per annum, used to capture expenses incurred by an unlisted managed investment scheme. Charges incurred by a direct investor in the same assets should be excluded where these can be identified.
Manager Risk: The risk that a particular fund manager will under-perform.
Margin Call: A margin call is triggered when the ratio of margin loan amount to the value of the assets which secure that loan exceeds the permitted loan to value ration plus the permitted buffer. The permitted LVR will depend upon the particular shares and managed funds which comprise the security. For example, most margin lenders will permit a LVR of up to 70-75% against large blue chip shares eg BHP, NAB or Woolworths, but may permit only 40% against smaller, less liquid or more speculative stocks. When a margin call is made the margin lender will require the borrower to lodge additional security, either in the form of shares/units or cash to bring the LVR back below the permitted threshold. If the borrower fails to do so within the permitted timeframe, the margin lender's security permits them to sell some of the secured assets to reduce the loan. Generally, that will be a particularly poor time to be realising those assets as a decline in their value is the very trigger for the margin call in the first place.
Market Capitalisation: Issued units of a trust or security listed on the ASX, multiplied by the market price of the security.
Market Timing: A (potentially dangerous) strategy of buying or selling securities in anticipation of changes in market or economic conditions.
MBO (Management Buyout): Private equity investor finances a management team to acquire control of a company from the former ownership group.
Mixed-Use: Space within a building providing for more than one use (i.e., a residential project with retail, an office complex with a hotel attached, an office building with retail space).
Negative Gearing: The purchase of an investment using borrowed funds, where the interest on the borrowing exceeds the income derived from the investment. For tax purposes, this negative net income can be offset against income gained from other sources. Negative gearing is most often associated with purchases of investment real estate, but can also apply in the case of shares or managed investments.
Net Absorption: Net Absorption measures the change in occupied office space between two survey periods. It takes account of losses from total stock due to demolition, refurbishment, change of use (or change in a building's grade).
Net Asset Value: The Net asset value of a fund is its Gross Asset Value less all liabilities as per the chosen valuation principles. The unit / share value of a fund is the net asset value divided by the number of units / shares on issue. (See Gross Asset Value)
Net Lease: A lease in which the tenant pays certain costs associated with the operation of the property in addition to its rent payment. These costs may include property taxes, insurance, repairs, utilities,
and maintenance. There are "NN" (double net) and "NNN" (triple net) leases. The difference between the three is the degree to which the tenant is responsible for operating costs.
Net Rents: Term used for commercial property leasing, which takes the aggregate rent charges less the building operating and tax expense. This nets to the landlord's property income before corporate and interest expense. Net rents represent the net operating income per square foot to the landlord.
Net Tangible Assets (NTA): The value of the total assets (assets, cash & receivables) less liabilities and intangibles, divided by the number of units on issue.
Non-discretionary Funds: Funds allocated to an investment manager requiring the investor's approval on each transaction
Non-compete Clause: A lease clause specifying that the business of the tenant is exclusive in the property and that no other tenant operating the same or similar type of business can occupy space in
the building.
Non-investment Grade CMBS: Securities rated "BB" or "B," also referred to as high-yield CMBS.
Non-performing Loan: A loan that is presently unable to meet its contractual principal and interest payments.
Non-recourse Debt: A loan that, in the event of a default by the borrower, limits the lender's remedies to a foreclosure of the mortgage, realisation on its assignment of leases and rents, and acquisition of the real estate.
Open End Real Estate Fund: A real estate fund with a long term life during which new investors can be admitted on an ongoing basis, and existing investors can make contributions or withdrawals at their discretion. Open end funds typically re-invest all operating and capital cash flows, unless required to meet withdrawal requests.
Opportunistic Real Estate Funds: Real estate funds, typically structured as closed end funds, that target higher risk strategies such as development, highly leveraged financing or transactions involving highly omplicated legal or environmental skills. Such funds usually use higher levels of leverage and have typically targeted net internal rates of return of 15-25%+.
Optimisation: A form of risk management aimed at optimising the performance of your investment funds by creating a mix to give maximum potential return, or minimum potential loss.
Optimised Portfolios: These are portfolios where the spread of investments are optimised to any one investment objective. Traditionally fund manager offer a range of investment funds with exposure to a wide array of investments and risk profiles.
Option: An option but not the obligation to buy or sell an asset in the future.
Ordinary Resolutions: A resolution that requires only a simple majority to pass (i.e. more than 50% of the members present at the meeting, either in person, or by proxies, if allowed by the constitution) (See Special Resolution).
Overweight: Having a greater exposure to a particular sector or asset in an investment portfolio compared with a neutral or benchmark position (As opposed to Underweight).
Partly Paid Unit: A unit/security on which the application price has not been paid in full (see Fully Paid).
Passive Management: A style of investment management that aims to achieve investment returns in line with those of a specified market or index. May also refer to a style of investment management that focuses on holding investments for an extended period rather than trading to maximise gains.
Percentage Lease: A lease (generally for retail property) in which the landlord is paid a percentage of the tenant's gross sales as a component of rent over and above the base rent paid.
Percentage Rent: A percentage of the tenant's total annual sales paid as rent. Percentage rent is normally paid after a predetermined sales level has been achieved. The percentage factor is then applied to all sales over the preset level (breakpoint).
Portfolio Manager: A person or organisation engaged to manage investment portfolios and make investment decisions on behalf of others. Also known as an Investment Manager.
Portfolio Optimisation: The process of selecting an investment portfolio that minimises risk for a given level of return - directly connected to the investment strategy of the underlying investor.
Positive Spread Investing: A profitable property investment strategy where the buyer buys a property that has a higher return on the invested capital than the cost of that captial to the buyer. For example,
a fund buys a property yielding 11% (property net operating income divided by the all-in cost of the property) with funds it borrowed at 8% interest, thereby realising a 300-bp (11% minus 8%) positive
spread.
Pre-commitment: A contractual commitment to occupy office space prior to a building's completion or refurbishment.
Private Equity Real Estate: Privately owned equity real estate investments that may be held directly or owned through participation in a professionally managed real estate fund.
Product Disclosure Statement (PDS): A document offering investment in a financial product to retail clients and which contains key information about the features of a financial product being issued or sold including details about the issuer, benefits, risks and costs of the product. and certain other information.
Property Net Operating Income: Rental income collected from properties minus expense incurred in operating those properties.
Redevelopment: A property project involving tenant space expansions, and/or building retrofit. A redeveloped/renovated property could also include complete destruction of the interior space as well
as exterior refacing.
Re-development Property: A property investment that entails the substantial renovation of an existing building, sometimes involving conversion of the property to a new use.
Refurbishment: Refurbishment is the upgrading of a building's fabric and services with the aim of enhancing its ability to compete effectively for tenants, improve rental growth, and maximise market value. In most cases, this involves the modernisation of services, such as air conditioning, lifts, electrical load capacity, and some cosmetic work to facades and interiors. A Full Refurbishment occurs where a building is wholly vacated for the purpose of refurbishment and a Partial Refurbishment occurs where a building is partially vacated for the purpose of refurbishment.
Registered Scheme: A trust/fund which is registered with ASIC as a managed investment scheme under Chapter 5C of the Corporations Act.
Risk Tolerance: A person's ability or willingness to tolerate declines in the value of their investments while they wait for them to return a profit.
Sale/Leaseback: An arrangement in which the owner and occupant of a property sells its property to an investor and then simultaneously leases it back and continue to occupy space as a tenant.
Speculative Development: Speculative development projects that are not fully leased before ground is broken or initial construction has begun. These developers assume the demand for the property exists and the space will be mostly leased by the time the project is finished.
Special Resolution: Special Resolution means a resolution passed by 75% of the Unit Holders/Securityholders who are entitled to vote on the resolution of a Trust, Fund or Company.
Strip Center: A shopping centre, generally with common parking, comprised of a row of stores.
Stabilised Property: A substantially leased property.
Standard Deviation: A statistical measure of the extent to which returns deviate from the mean or average. The smaller the difference, the lower the standard deviation will be and the greater the degree of stability you can expect from the investment. It is the most common way to measure the risk of an investment.
Stapled Security: Stapling is an arrangement under which different securities (usually a share in a company and a unit in a unit trust or managed investment scheme) are ‘effectively stapled together' and traded as one entity on the ASX. The stapled securities cannot be traded separately. Stapling is common for a number of REITs such as Westfield or Mirvac. They are structured in this way so that the "trading" activities (generally property development or construction) are conducted by the management company whilst the passive investment activities i.e. holding property for rent are held within the trust.
From an investor's perspective this is advantageous because the pass through tax nature of the trust gives the securityholder the trust distributions being passed through and taxed at the investors marginal rate and any tax deferred income (generally due to depreciation allowances) as well as taxed income via dividends on the shares (which may have franking credits).
Subordinated Debt: Debt with inferior liquidation privileges to senior debt in case of a bankruptcy; sub debt will carry higher interest rates than senior debt, to which it is subordinated, to compensate for the added risk, and will typically have attached warrants or equity conversion features.
Tax Deferred Income: Generally tax deferred income is not taxable when received. Tax deferred income Tax deferred income derives from depreciation and building allowances on the direct property assets in a fund. The tax deferred income received reduces the capital gains tax cost base of an investors units. Once the total Tax Deferred Income amounts received by an investor during the total period they hold their units exceeds your cost base in respect of those units, the excess distributions will be subject to tax under the capital gains tax provisions. In addition, if the acquired units were after 19 September 1985, and they were sold, the capital gain or loss will be calculated by subtracting from the sale proceeds, the cost base of the units reduced by the total Tax Deferred Income amounts received by the investor from that investment.
Tenant Improvements ("TI"): Cost incurred in making physical improvements to the space occupied by either new or releasing tenants. Improvements made to the leased premises by or for a
tenant. This could also include the result of "free" rent periods, which reduces the net effective rent over the term of the lease contract
Third-Party Management: An arrangement where a company will assume the day-to-day management of a property or package of properties it does not own for another company or institution in
return for a fee.
Time-weighted Returns: A time-weighted return is determined by calculating the rate of return between two or more periods, multiplying those returns together geometrically, and then taking the geometric mean of the result. Example: [(1.15*1.20*1.25)1/3]-1 = 20% return. Time-weighted returns are an approximation of an IRR and are usually easier to calculate than the IRR. The term is a misnomer as it does not consider the time value of money, but rather produces a return that does not penalise fund managers for timing decisions; the calculation treats a dollar distributed today the same as a dollar distributed ten years ago. Time-weighting was created to overcome the fact that the public securities manager has no control over the timing of the cash flow into or out of his management by his clients due to liquid secondary markets. The investment manager's performance is therefore measured strictly on the investment decisions they make, not on the timing of cash flows.
Trade Area: The surrounding area from which a shopping center or other property typically draws its customers.
Tranche: A class of securities. CMBS offerings are generally divided into rated and unrated classes, or tranches, according to seniority and risk. Higher-rated tranches allow for internal credit enhancements; lower-rated classes offer higher yields. (See CMBS)
Triple Net Lease: A lease that requires the tenant to pay all expenses of the property being leased in addition to rent. Typical expenses covered in such a lease include taxes, insurance, maintenance and utilities.
Total Return: The percentage change of a portfolio over a period assuming the reinvestment of all distributions back and adjusting for any capital re-organisation.
Trustee: a person or company (corporate trustee) appointed under the terms of the trust deed to hold the trust property for the beneficiaries and to make sure that the plan is operated in accordance with the trust deed. Generally, trustees owe a fiduciary duty to the beneficiaries.
Trust Deed: A document which sets out the rules for the establishment and operation of a superannuation fund or non-registered scheme. In relation to a managed investment scheme the Scheme Constitution may be a trust deed.
Unanimous Resolution: Unanimous Resolution means a resolution passed by 100% of the Unitholders/Securityholders who are entitled to vote on the resolution of a Trust/Fund/Company (See Special Resolution).
Unimproved Capital Value: The value of a block of land, if no structural improvements had been made. The Unimproved Capital Value is typically used by State Revenue Offices to determine the amount of Land Tax to be paid on a parcel of land. The valuation is usually performed by a government body such as the valuer-general.
Vacancy Rate: The total amount of space available for lease expressed as a percentage of the total inventory of space. The amount of nonrented space compared with the amount of total space available.
Often used as measure of market softness or development/capacity potential.
Value-Added: A style that represents moderate risk real estate. An owner typically increases the future value of the investment by undertaking activities such as refurbishment, re-development, lease-up of vacant space, etc.
Value Added Real Estate Fund: A term used to describe a broad range of real estate funds that engage in active strategies to create value in their underlying property investments - refurbishment, re-development, lease-up of vacant space, etc. Such funds target a broad range of returns and typically use modest to high levels of leverage (gearing).
Venture Capital: Financing and operational added-value for younger, start-up companies with high growth potential.
Volatility: Changes in the price of a security, the variability (fluctuation) of returns, both positive and negative, usually expressed in percentage per annum terms. Rapid, wide price swings indicate a high degree of volatility.
Weighted Average Cost Of Capital: The average of the cost of debt capital and cost of equity capital taking into consideration the weighting of each (i.e., debt and equity) in the capital structure. Used to compare the average return on real estate assets with the cost of the capital to acquire those assets.
Wholesale Fund: A managed fund typically designed for institutional investors, investing platforms, and high-net worth individual investors. Wholesale funds usually have no entry or exit fees, and have a lower ongoing management fee compared to a retail fund equivalent. There is often a much higher minimum investment amount compared to retail funds - for example, some wholesale funds require minimum investments of $100,000 or $500,000. A wholesale fund does not need to issue a Product Disclosure Statement (See Product Disclosure Statement).
Workout: The process by which a borrower attempts to negotiate with a lender to restructure the borrower's debt rather than go through foreclosure proceedings.
Yield: The annual rate of return on an investment, expressed as a percentage. Gross initial yield is the passing rent divided by the gross property value. Net initial yield is the passing rent or net operating income divided by the gross property value plus notional acquisition costs. Reversionary yield is the estimated rental value as a percentage of gross property value.