Glossary of REIT terms

Adjusted Funds from Operations (AFFO)
This term refers to a working out made by market analysts and investors to calculate a real estate company’s cash flow produced by operations. AFFO is usually considered by taking away from Funds from Operations (FFO) equally from those two:
1. Standardized chronic expenditures that are capitalized by the REIT and then amortized, but which are essential to keep a REIT possessions and its income stream. For example up-to-the-minute rug and long curtains in apartment units, leasing expenses and renter improvement payment
2. And the second is “straight-lining” of rents. This operation is also called Cash Available for Distribution (CAD) or Funds Available for Distribution (FAD).

Capitalization Rate
The capitalization rate (or “cap” rate) for an asset is determined by separating the property’s net operating income by it’s acquisition price.  In general, high cap rates point to higher returns and greater apparent possibility.

Cash (or Funds) Available for Distribution
Cash (or Funds) easy to get to for distribution (CAD or FAD) is a measure of a REIT skill to produce cash and to hand out dividends to its shareholders. In addition to subtracting from FFO standardized returning real estate-related expenditures and other non cash things to obtain AFFO, CAD (or FAD) is frequently derived by also subtracting nonrecurring expenditures.

Cost of Capital
The cost of capital is the cost to a business, such as a REIT, of increasing funds in the form of equity (common or preferred stock) or debt. The cost of equity capital usually is considered to take in both the dividend rate and also the probable equity growth. The growth could be cause either by higher dividends or growth in stock prices. The cost of debt capital is only the interest expense on the debt incurred.

Down REIT
A Down REIT is ordered to a large extent as an UPREIT. The difference is that the REIT owns and operates properties other than its interest in a controlled partnership that owns and operates separate properties.

Equity REIT
This is a REIT which possess or has an “equity interest” in rental real estate, instead of making loans secured by real estate collateral.

Funds from Operations (FFO)
This term is the most frequently accepted and reported measure of REIT operating performance. More or less it is equivalent to a REIT net profit, not including gains or losses from sales of property and adding back real estate fall.

Hybrid REIT
Hybrid REIT it is a form of REIT that joins the investment policies of both equity REIT and mortgage REIT.

Leverage
Leverage represents the quantity of debt in connection to either equity capital or whole capital.

Mortgage REIT
Mortgage REIT is a REIT that makes or owns loans and other obligations that are protected by real estate guarantee.

Net Asset Value (NAV)
Net Asset Value stands for the net market worth of all a company’s assets, together with but not restricted to its properties, after taking away all its charges and obligations.

REIT
A Real Estate Investment Trust