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Accumulated Depreciation:

In accounting, the total amount of depreciation or cost recovery expense that has been claimed for a specific asset since purchase of the property to date. Upon sale of a property, it is subtracted from the original cost plus capital additions to a property to find the adjusted basis. The adjusted basis is then subtracted from the sale proceeds to find the capital gain for income tax purposes

Acquisition Cost:

The outlay of funds needed to obtain rights in a property. In addition to the purchase price, it includes expenses such as closing costs, mortgage loan origination fees, legal and appraisal fees, and title insurance.

AFFO Payout Ratio:

This is the single best measure of a company's dividend paying ability. It is calculated by dividing a company's per-share annual dividend by the current year's per share AFFO estimate.

AFFO:

In part to cope with the limitations associated with the calculation of FFO, many portfolio managers and analysts calculate adjusted funds from operations, or AFFO. Some analysts, companies, and portfolio managers prefer the terms cash available for distribution (CAD), or funds available (FAD) to AFFO. More important than which acronym you adapt is how you get from FFO to AFFO. Though there is some debate, most industry veterans derive AFFO by adjusting FFO for the straightening of rents, as well as after establishing a reserve for costs which, though necessary and routine, aren't costs that can be recovered from tenants. This includes certain maintenance costs and leasing costs.

Amortization:

1. The process of retiring a debt through repayment of principal. Amortization occurs when the payment on the debt exceeds the required interest payment for a particular time period. For example, suppose a loan has a balance at the beginning of a year of $1000,000, annual payments of $12,000 and a 10% interest rate. Interest for the year would be 10% of $100,000, or $10,000. Amortization would be equal to $12,000 less $10,000 or $2,000 per year. 2. Annual deductions allowed in the calculation of federal income taxes.

Appreciation:

An increase in the value of an asset over a specific time period due to changes in economic or market conditions. An increase in the resale price of a property due to increase in demand or inflation. See also resale.

Basis Point:

One one-hundredth of one percent. Used to indicate a change in interest rates. For example, a rise in interest rates from ten percent to eleven percent would equal an increase of 100 basis points.

Capital Expenditure:

The cash outflow or creation of a liability used to invest in an asset, e.g. purchases of land, buildings, machinery, and equipment; as opposed to expenses that are considered a part of daily operations (capital expenses).

Capital Gain/Loss:

The profit/loss derived from the sale of a capital asset. It equals the sales price minus the total of sales costs and the adjusted basis; where the adjusted basis equals the original cost plus capital additions minus accumulated depreciation.

Capitalization Rate:

A "cap rate" is determined by dividing the property's net operating income by its purchase price.

Cash Flow:

The periodic income or loss arising from the operation and ultimate resale of an income producing property. The cash flow could further be classified as either before or after tax cash flow and could also reflect the impact of financing.

Central Business Bistrict (CBD):

The downtown area of a city or core that contains the primary business, retail, recreational and governmental activities of the community.

Common Area Maintenance (CAM):

Maintenance charges for items such as landscaping, snow removal, common area utilities, etc., that may be charged directly to tenants as reimbursement for these type expenses in an income property.

Comparables:

Properties that have been recently sold or leased and are similar to a subject property. Sale prices of these properties are used to estimate a value for the subject property. Comparable properties need not be identical to the subject but should be similar.

Construction Cost:

The cost to build a structure including direct costs of labor and materials, contractor's overhead and profit plus indirect costs such as taxes and construction loan interest.

Consumer Price Index (CPI):

A series of numbers released by the Bureau of Labor Statistics of the Federal Department of Labor that represents the change in price levels of a predetermined mix of consumer goods and services; it is often used to adjust rental payments in leases.

CPI Adjustment:

An adjustment used in leases in which the rent payment is periodically adjusted by a percentage of the increase in the consumer price index (CPI); it is used to help protect the lessor from unexpected increases in inflation.

Debt Coverage Ratio:

The ratio of annual net operating income divided by the annual debt service. Lenders usually specify a minimum DCR (e.g. 1.2) that they require the property to meet during the first year of a loan term.

Depreciation:

The loss in property value due to age, wear and tear, any negative functional superadequacy or deficiencies and/or external forces.

Development Cost:

The cost to create a project including direct costs of labor and materials, contractor's overhead and profit, plus indirect costs such as taxes and development loan interest.

Dividend Yield:

Dividend Per Share / Market price per Share

DRIP:

Dividend Reinvestment Program

EBITDA:

Earning before interest, taxes, depreciation, and amortization.

Fair Market Value:

Used synonymous with currently acceptable term market value.

FFO (Funds From Operations):

FFO is a non-Generally Accepted Accounting Principles (GAAP) measure that is commonly used in the real estate industry. The most directly comparable GAAP measure to FFO is net earnings. The National Association of Real Estate Investment Trusts (NAREIT) has published a definition of FFO that adjusts GAAP net earnings to exclude historical cost depreciation and gains and losses from the sales of previously depreciated properties.

ProLogis' defined FFO measure excludes the following items from GAAP net earnings that are not excluded in the NAREIT defined FFO measure: 1. deferred income tax benefits and deferred income tax expenses recognized by our subsidiaries; 2. certain foreign currency exchange gains and losses resulting from certain debt transactions between us and our foreign consolidated subsidiaries and our foreign unconsolidated investees; 3. foreign currency exchange gains and losses from the remeasurement (based on current foreign currency exchange rates) of certain third party debt of our foreign consolidated subsidiaries and our foreign unconsolidated investees; and 4. mark-to-market adjustments associated with derivative financial instruments utilized to manage our foreign currency risks.

FFO Multiple:

Price per Share / Funds From Operations

Fixed Expense:

An operating expense that does not vary with the occupancy level of a property, e.g., property taxes, insurance, repairs and maintenance, advertising and promotions.

Floor Area Ratio (FAR):

Floor area of a building divided by its lot size; often specified in zoning ordinances to regulate land use.

Goodwill:

An intangible, salable business asset based on the reputation of a business; includes intangible assets such as trade name, expectations of continued success, and going-concern value. The sale price of a business often reflects its goodwill value.

Gross Leasable Area (GLA):

The total floor area of a building that is designed for the occupancy of tenants. It does not include common areas, but does include basements.

Ground Lease:

A lease for the use and occupancy of land only.

Implied Cap Rate:

Net operating income (NOI) divided by a REIT's total market capitalization (the sum of its equity market capitalization and its total outstanding debt).

Indirect Costs (Soft Costs):

Construction expenses for items other than labor and materials; e.g., financing costs, taxes, administrative costs, contractor's overhead and profit, legal fees, interest payments, insurance costs during construction, and lease-up costs.

Industrial Facility (Warehouse):

A structure that is designed and used for the storage of wares, goods, and merchandise, usually classified as industrial.

Infrastructure:

1. Facilities that are constructed in an urban area to support the majority of the population, e.g., roads, sewage and drainage systems. 2. The core of development in a building or complex which serves as the source of utilities and support services.

Interest Coverage Ratio:

Simplify referred to as the company's coverage ratio, it's the ratio of EBITDA to interest expense. Increasingly viewed as the best means of comparing and assessing REITs' financial Leverage among REITs.

Internal Rate of Return (IRR):

A rate of return that discounts all expected future cash flows to a present value that is equal to the original investment. An IRR can be calculated for any defined cash flows, e.g., for the whole property or for just the equity position.

Lease Option:

A clause in a lease that gives the tenant the right to purchase the property under specified conditions.

Lease Rollover:

The re-leasing of a space with the same tenant, after the expiration of a previous lease on the same space.

Lessor:

The owner of a property who transfers the right to use and occupy the property to a tenant as the result of the execution of a lease agreement; a landlord.

Leverage:

The use of borrowed funds in the purchase of an investment. If the addition of the mortgage increases the return to the equity, (equity dividend rate or equity yield rate), the addition of the mortgage has resulted in positive leverage.

Line Of Credit:

An agreement between a lender and a borrower in which the borrower can borrow up to a certain maximum amount of money from the lender without a formal loan submission; the borrower then has available a quick loan service without the delay of a credit review.

Liquidation Value:

The price received when a property is sold as a quick sale.

Management Fee:

A fee paid for the administration and supervision of a property; typically considered a variable operating expense.

Market Price:

The amount actually paid, or to be paid, for a property in a particular transaction. Market price differs from market value; it is an accomplished historical fact, whereas market value is and remains an estimate.

Market Rent:

The rental income that a property would command if exposed for lease in a competitive market.

Market Segmentation:

The identification and analysis of submarkets within a larger market.

Market Value:

According to the Uniform Standards of Professional Appraisal Practice, market value is the major focus of most real property appraisal assignments. Both economic and legal definitions of market value have been developed and refined.

Master Lease:

The dominant lease in a building or development that contains a sublease.

Mixed-Use Property:

A property having multiple property uses, e.g., office, retail, etc.

Net Asset Value (NAV):

When evaluating public companies, investors generally focus on price-to-book ratios as one valuation measure. Unfortunately, price-to-book ratios are inappropriate for REITs insofar as a company's book value, which is based on historic cost figures, may not accurately reflect the earnings capacity of otherwise well-maintained assets. Also, the balance sheet consolidations accompanying IPOs were often pursued using different accounting conventions, resulting in an apples-to-oranges comparison between companies. Thus, many analysts prefer to use net asset value as a surrogate for book value, which is appropriate insofar as book value is meant to represent an entity's liquidation value.

Net Operating Income (NOI):

The actual or anticipated income remaining during a year after deducting operating expenses from effective gross income but before any deductions for debt service payment or income taxes.

Off-Site Improvements:

Physical improvements that affect the use and the value of a parcel of land but that are not directly located on the land; e.g., streets, curbs, traffic signals, and water and sewer mains. See also on-site improvements.

Operating Expenses:

Expenditures necessary to maintain the real property and continue the production of income; includes both fixed expenses and variable expenses, but does not include debt service, depreciation, or capital expenditures.

Option To Renew:

In a lease, a clause that gives the tenant the right to lease the same property under specified conditions after the current lease has expired.

Positive Spread Investing:

Defined as when a REIT buys a property that has a higher initial yield than the current yield on the REIT's capital. For example, a REIT buys a property yielding 11% (property net operating income divided by the all-in cost of the property) at a time that its debt is borrowed at 8% interest and its equity is trading at an FFO yield (inverse of its FFO multiple) of 10%. If the REIT is funded half with equity and half with debt, it realizes a 200 basis point (11% minus 9%) positive spread.

Pro-Forma Statement:

A financial statement that contains forecasts of income and expenses from the operation of a real estate property based on a certain set of assumptions.

Property Management:

The process of overseeing the financial, physical and administrative aspects of property operations.

Property Tax:

An ad valorem tax issued by the government based on the assessed value of property; a government levy based on the assessed value of privately owned property.

Purchase Option:

A provision in a lease that gives the lessee an option to purchase the property.

Real Estate Investment Trust (REIT):

A real estate investment trust is a private or public corporation (or trust) that enjoys a special status under the U.S. tax code that allows it to pay no corporate income tax so long as its activities meet statutory tests that restrict its business to certain commercial real estate activities. Most states honor this federal treatment and do not require REITs to pay state income tax. By law, REITs must pay out 90% of their taxable income.

Renewal Option:

A lease clause that allows the lessee to extend the lease under specified terms for a certain period of time.

Rent Roll:

A report prepared periodically that lists units occupied, the tenant occupying each space, the rent paid for each space, and possibly other terms of each lease contract such as term of lease and specifications for overage rents.

Rent-Up Period:

The time period during which an income property is expected to lease up to a level of stabilized occupancy. Stabilized occupancy assumes rental achievement at market levels as well as physical occupancy at stabilized levels.

Rent:

The amount paid for the use of space or property as stated in a lease agreement.

Replacement Cost:

The cost of constructing a building today with a structure having the same functional utility as a structure being appraised. The cost would include modern materials constructed using modern techniques. See also reproduction cost, building cost.

Return Of Capital:

The portion of a REIT's dividend in excess of taxable income. Because REIT dividends are often higher than taxable income, principally due to depreciation, the amount by which the dividend exceeds taxable income is a return of capital to a shareholder, meaning that—for a taxpaying shareholder—it does not create currently taxable ordinary income, but instead reduces the shareholder's tax basis. At the final sale of the shares, the difference between tax basis and final net sales price is recognizable as a capital gain. To the extent the final capital gains rate is lower than interim ordinary income tax rates, REITs provide a tax shelter function for certain taxpaying investors, by allowing the deferral of tax on current cash received as dividends and taxing it at a lower rate upon disposition of the shares.

Sale-Leaseback:

A financing technique by which the owner sells a property and subsequently rents it from the buyer for continued use. .

Site Development Cost:

Direct and indirect costs incurred to prepare a site for use: e.g., clearing, grading, installing utilities, etc.

Site Plan:

A drawing showing the layout of a development including the location of the buildings and site improvements.

Site:

A plot of land improved for a specific purpose.

Straightlining:

REITs straight-line rents because generally accepted accounting principles, or GAAP, require it. Typically, a tenant's monthly rent will increase over the life of a lease; this applies to commercial properties, not usually residential properties. Straightlining averages the tenant's rent payments over the Lease's life. In other words, rental revenues are overestimated in the early years and underestimated in the later years.

Submarket:

A portion of a total market that is differentiated by buyers and sellers who have similar preferences.

Taxable Income:

Income that is taxable by law; calculated as the net operating income minus interest and depreciation. Taxable income from sale of a property equals the capital gain. Should not be confused with after-tax income or before tax cash flow.

Tenant (Lessee):

The occupant of a building who has been given the right to possess the building or tenant space through the execution of a lease; the lessee.

Tenant Improvements:

The interior finished components of a tenant space that may be installed either by the lessor or lessee.

Tenant Turnover:

The frequency with which a space is leased to new tenants.

Total Debt and Total Market Capitalization:

Together, these measures have been used to provide an assessment of leverage. Debt-to-Total Market Cap was the most often cited measure of leverage early on in the current REIT underwriting cycle (circa 1993). There are a number of problems associated with using it for that purpose, however. Chief among those is that it doesn't provide meaningful information regarding a company's ability to service its debt.

Triple Net Lease:

A net-net-net lease, where in addition to the stipulated rent, the lessee assumes payment of all expenses associated with the operation of the property. This includes both fixed expenses, such as taxes and insurance, and all operating expenses, including costs of maintenance and repair. In some cases, the triple net tenant even pays the interest payments on the lessor's mortgage on the property leased.