Key Investment Terms

Real Estate Investment Trusts

Interval Funds

General Finance




Real Estate Investment Trusts

Absolute Net Lease 
Lease in which the tenant pays all operating expenses, real estate taxes, insurance and repairs and maintenance costs in addition to a requirement to maintain the roof and structure. These obligations are in addition to their base rental obligation.

Adjusted Funds From Operations (AFFO)
AFFO is a financial performance measure primarily used in the analysis of traded REITS. The intention of AFFO as a supplemental performance measure is to make certain adjustments to the definition of FFO to provide a computation and measure by which analysts and investors can measure a real estate company’s cash flow generated by operations. AFFO is usually calculated by subtracting from FFO both (1) normalized recurring expenditures that are capitalized by the REIT and then amortized, but which are necessary to maintain a REIT’s underlying assets and its revenue stream and (2) “straight-lining” of rents. This calculation is also referred to as Cash Available for Distribution (CAD) or Funds Available for Distribution (FAD).

Build-To-Suit 
A property that is commissioned and custom-built to meet a specific tenant’s needs.

Capitalization Rate
The capitalization rate (“cap rate”) is the rate at which net operating income is discounted to determine the value of a property. It is a method that is used to estimate property value. Generally, higher cap rates indicate higher expected returns and higher perceived risk. The cap rate is determined by dividing the property’s net operating income by its purchase price.

Class "A" Property
A building that possesses exceptional location, high quality tenancy and superior maintenance. Building must be superior construction and finish, relatively new or competitive with new buildings, and providing professional on-site management.

Funds From Operations (FFO)
FFO is a non-GAAP performance measure applicable to REITs that has become widely used and adopted. FFO is calculated by adjusting net income (loss) (computed in accordance with GAAP, including non-recurring items) for gains (or losses) from sales of properties, real estate related depreciation and amortization, and after adjustment for similar items in unconsolidated partnerships, joint ventures and preferred distributions. However, industry observers have increasingly acknowledged certain shortcomings in FFO due in part to changes in accounting rules recognized under GAAP and to the continuing evolution of REIT activities. Although the measure continues to be widely used, it is more frequently supplemented with additional disclosures to clarify performance.

GAAP
Generally Accepted Accounting Principles. The common set of accounting principles, standards and procedures used to compile financial statements. GAAP are a combination of authoritative standards (set by policy boards) and are the commonly accepted ways of recording and reporting accounting information.

Modified Funds From Operations (MFFO)
MFFO is a performance measure that was adopted by the Investment Program Association (IPA), a leading industry association, in 2010 and has become the standard for supplemental FFO reporting among Non-Traded REITs since that time. The IPA-defined MFFO is designed to promote mechanisms for the assessment of operating performance reflecting both the stage of investment and the underlying financial results of the Non-Traded REIT; The starting point for MFFO is FFO to which an analyst would adjust for the following items included in the determination of GAAP Net Income:

    • Acquisition-related expenses from real property transactions;
    • Amounts relating to “straight-line” rents and amortization of above or below market lease assets and liabilities;
    • Accretion of discounts and amortization of premium on debt investments;
    • Non-recurring impairments of real estate-related investments;
    • Mark-to-market adjustments;
    • Non-recurring gains or losses;
    • Unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis

Net Lease
Generally, a lease in which the tenant pays for base rent as well as property taxes. The Landlord typically pays for all other expenses associated with the property.

Straight-Lining
Real estate companies “straight-line” rents because GAAP require it. Straight lining averages the rent payments over the life of the lease.

Triple Net Lease
A property lease in which the tenant pays all expenses normally associated with ownership, such as utilities, maintenance, repairs, insurance, and taxes.

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Interval Funds

Alpha 
Alpha is a measure of risk-adjusted return implying how much a fund/manager outperformed its benchmark, given its risk profile.

Annualized Return
The annualized return is the geometric mean of the returns with respect to one year. Annualized implies compounded returns for time periods greater than one year.

Beta 
Beta is a measure of systematic risk (volatility), or the sensitivity of a fund to movements in a benchmark. A beta of 1 implies that you can expect the movement of a fund’s return series to match that of the benchmark used to measure beta. A value of less than 1.0 implies that the fund is less volatile than the benchmark, and a value greater than 1.0 implies that the fund is more volatile than the benchmark.

Correlation 
A statistical measure of how two securities move in relation to each other. A correlation ranges from -1 to 1. A positive correlation close to 1 implies that as one security moves, either up or down, the other security will move in “lockstep,” in the same direction. A negative correlation close to -1 indicates that the securities have moved in the opposite direction. If the correlation is 0, the movements of the securities are said to have no correlation; they are completely random.

Cumulative Return 
The aggregate amount that an investment has gained or lost over time, independent of the period of time involved.

Sharpe Ratio 
The Sharpe ratio measures risk-adjusted returns by calculating the excess return (above the risk free rate) per unit of risk (standard deviation). The higher the ratio, the better the risk-adjusted returns.

Standard Deviation 
Standard deviation of return measures the average deviations of a return series from its mean, and is often used as a measure of volatility/risk. A large standard deviation implies that there have been large swings in the return series of the manager.

Total Return 
When measuring performance, the actual rate of return of an investment or a pool of investments over a given evaluation period. Total return includes interest, capital gains, dividends and distributions realized over a given period of time.

Yield 
The income return on an investment. This refers to the interest or dividends received from a security and is usually expressed as an annualized percentage based on the investment’s price.

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General Finance

Appraisal 
A property valuation report that is typically completed by a professional who is accredited by an industry organization. The most widely known professional designation is the MAI designation from the Appraisal Institute. The appraisal approach values assets based on a number of factors, including cost, the income generated or fair market value as compared to similar assets. A different dollar value will be assigned to an asset depending on which of these factors the appraiser primarily bases their estimate on. Sometimes the appraised value will not coincide with an asset's market value and buyers will often pay more or less than an asset's appraised value based on what the asset is worth to them. No matter which appraisal approach is used, an appraisal is only an educated guess as to what price the asset would fetch in a free market.

Asset Allocation 
An investment strategy of diversifying investments across different types of assets, such as stocks, bonds, real estate, and cash with the goal of minimizing the risks of investing. Asset allocation strategies should be based on an investor's goals, time horizon, and risk tolerance.

Basis point (BPS) 
A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly used for calculating changes in interest rates, equity indexes and the yield of a fixed-income security.

Broker/Dealer
Any individual or firm in the business of buying and selling securities for itself and others that is registered with the SEC and FINRA.

Capital appreciation 
An increase in the valuation of an asset.

Capital Gain
The difference of an asset's selling price above its original purchase price.

Capitalization Rate
The capitalization rate ("cap rate") is the rate at which net operating income is discounted to determine the value of a property. It is a method that is used to estimate property value. Generally, higher cap rates indicate higher expected returns and higher perceived risk. The cap rate is determined by dividing the property's net operating income by its purchase price.

Chapter 7 Bankruptcy 
A bankruptcy proceeding in which a company stops all operations and goes completely out of business. A trustee is appointed to liquidate (sell) the company's assets, and the money is used to satisfy debt obligations.

Chapter 11 Bankruptcy 
A bankruptcy proceeding that involves a reorganization of a debtor's business matters and assets. It is generally filed by corporations which require time to restructure their debts. Chapter 11 gives the debtor a new start, subject to the debtor's fulfillment of its obligations under its plan of reorganization.

Common-Stock
A security that represents ownership in a corporation. Holders of common stock exercise control by electing a board of directors and voting on corporate policy. Common stockholders are on the lowest of the priority ladder for ownership structure. In the event of liquidation, bondholders, preferred shareholders and other debtholders are paid in full before common shareholders have rights to a company's assets.

Confidentiality Agreement 
Also referred to as a Non-Disclosure Agreement (NDA) is a legal contract between two or more parties that signifies a confidential relationship exists between the parties involved. The confidential relationship often will refer to information that is to be shared between the parties but should not be made available to the general public.

Consumer Price Index (CPI) 
Also referred to as the Cost of Living Index is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. The CPI is calculated by taking price changes for each item in the predetermined basket of goods and averaging them; the goods are weighted according to their importance. Changes in CPI are used to assess price changes associated with the cost of living.

Corporation
A legal entity that is separate and distinct from its owners. Corporations enjoy most of the rights and responsibilities that an individual possesses and shields the underlying owners from unlimited liability.

Cost of Capital
The cost of the funds (either through the form of equity or debt) employed as the result of an investment decision.

CUSIP (Committee on Uniform Securities Identification Procedures)
The committee that supplies a unique nine-character identification, called a CUSIP number, for each class of security approved for trading in the U.S.

Custodian 
A financial institution that maintains and safeguards an individuals, mutual fund's, or investment company's assets for them.

Depreciation 
A decrease or loss in property value from age, wear or other factors. For accounting purposes, depreciation is a periodic allowance made for this real or implied loss.

Due Diligence 
The practice of investigating a potential investment. This comprises of reviewing financial records and anything else deemed material to an investment. Sellers also typically perform a due diligence analysis on the buyer. Items that may be considered are the buyer's ability to purchase, as well as other items that would affect the purchased entity or the seller after the sale has been completed.

EBITDA
Earnings Before Interest, Taxes, Depreciation and Amortization.

The Electronic Data Gathering and Retrieval System (EDGAR) 
The electronic filing system created by the Securities and Exchange Commission (SEC) for the purpose of increasing efficiency and accessibility to corporate filings. This system is used by all publicly traded companies when submitting required documents to the SEC. Corporate documents are time sensitive, and the creation of EDGAR has greatly decreased the time it takes for corporate documents to become publicly available.

Equitization
The process by which the economic benefits of ownership of a tangible asset, such as real estate, are divided amongst numerous investors and characterized in the form of publicly-traded securities.

Equity Market Capitalization
The market value of all outstanding common stock of a company.

FINRA
The Financial Industry Regulatory Authority - formerly the NASD and NYSE Member Regulation - is the largest non-governmental regulator for all securities firms doing business in the United States.

GAAP
Generally Accepted Accounting Principles.

Individual Retirement Account (IRA) 
A type of retirement investment account whose contributions and interest are tax-deferred until a certain age requirement is reached. An individual is able to contribute pre-tax dollars to this account up to a certain amount each year.

Index
A collection of unmanaged securities whose total financial or economic performance is used as a point of reference, such as the S&P 500 or the Consumer Price Index.

Index Mutual Fund
A passively managed mutual fund that attempts to reduce the risk associated with the selection of specific securities for investment though paralleling the performance of a specific index, for example, S&P REIT Composite Index.

Internal Rate of Return (IRR)
The overall compounded annual rate of return of an investment including any cash flow derived during the holding period and the net sales proceeds upon disposition.

Investment Advisor
As defined by the Investment Advisors Act of 1940, any person or group that makes investment recommendations or conducts securities analysis in return for a fee, whether through direct management of client assets or via written publications.

Investment Bank
A financial intermediary that performs an assortment of services. These include underwriting, acting as an intermediary between an issuer of securities and the investing public, facilitating mergers and other corporate reorganizations, and also acting as a broker for institutional clients.

IPO 
Initial Public Offering. The first sale of stock by a company to the public.

Lease
An agreement in which one party gains a long-term rental agreement and the other party receives a form of secured long-term debt.

Letter of Intent (LOI)
A letter that describes in detail an intention to act on something. Normally it is a bid or offer to purchase a facility or facilities, which includes such information as the proposed purchase price, lease term and type of lease, renewal options, mortgage contingency, terms of a security deposit, warrant position, fees and expenses, etc.

Leverage
The amount of debt utilized to finance an investment. The leverage ratio is typically reflected in relation to either equity capital or total capital.

Limited Partnership 
A business organization with a general partner who is responsible for managing the business and assumes legal debts and obligations, and one or more limited partners who do not participate in day-to-day operations and are liable only to the extent of their investments.

Liquidate 
To convert assets into cash.

Liquidity 
The ability of an asset to be converted into cash quickly.

Listed
Being included and traded on a given exchange.

Mezzanine Financing
A hybrid of debt and equity financing and is typically used to finance the growth of existing companies, and it is essentially debt capital that gives the lender the rights to convert to an ownership or equity interest in the company if the loan is not paid back in time and in full. It is generally subordinated to debt provided by senior lenders.

Modified Funds from Operations (MFFO)
The standard measure of MFFO varies depending on agency and accounting principles but generally is a measure that takes net income in accordance with GAAP, excluding gains and losses from sales of depreciable property and adds depreciation and amortization.

Money Market 
Market for short-term debt securities with maturity of one year or less. Money Market securities can be Certificates of Deposit, U.S. T-bills, and municipal notes and are highly liquid investments.

Money Market Fund
A mutual fund that invests only in money markets while maintaining a Net Asset Value (NAV) of $1.00.

Mortgage
A debt instrument that is secured by the collateral of specified real estate property. The borrower is obliged to pay back with a predetermined set of payments and date. Mortgages are used by individuals and businesses to make large purchases of real estate without paying the entire value of the purchase up front but over time.

Mutual fund 
A fund operated by an investment firm that raises money from shareholders and invests in a group of assets, in accordance with the prospectus's stated set of objectives. Typically highly diversified.

NASD
National Association of Securities Dealers - consolidated with NYSE Member Regulation in 2007 to form FINRA, the Financial Industry Regulatory Authority.

NASDAQ
National Association of Securities Dealers Automated Quotation. US electronic securities market that quotes prices through a computer network, and allows brokers to conduct trades online or via telephone.

Net Asset Value (NAV)
The net market value of a company's assets, including its properties, after subtracting all of its liabilities and obligations. Total net asset value can be divided by the total number of common shares outstanding to calculate net asset value per share.

Net Income
The amount of money remaining after subtracting total expenses from total revenue.

Net worth
Total assets minus total liabilities of an individual or company.

Note
A debt security.

NYSE
New York Stock Exchange. A corporation responsible for listing securities, setting policies and supervising the stock exchange and its member activities. The NYSE, operated by a board of directors, also oversees the transfer of members' seats on the Exchange, evaluating whether an applicant is qualified to be a specialist.

Operating costs 
The actual costs associated with operating a property, including maintenance, repairs, management, utilities, taxes and insurance

Ordinary income 
Income received that is taxed at the highest rates. Ordinary income is composed generally of wages, salaries, commissions and interest income.

Passive income 
Income derived from business investments in which the individual is not actively involved, such as a real estate investment.

Positive Spread Investing (PSI)
The ability to raise funds (both equity and debt) at a cost significantly less than the initial returns that can be obtained on real estate (or other) investments.

Prospectus
A formal legal document, which is required by and filed with the Securities and Exchange Commission. The document provides the details about an investment offering for sale. A prospectus should contain the facts that an investor needs to make an informed investment decision.

Proxy
A formal power of attorney document that authorizes another shareholder, a representative of the shareholder or the company's management, to vote on behalf of the shareholder at the annual meeting.

Real Estate Investment Trust (REIT)
A REIT is a corporation or business trust that combines the capital of many investors to acquire or provide financing for all forms of income-producing real estate. A REIT generally is not required to pay corporate income tax if it distributes at least 95 percent of its taxable income to shareholders each year. (The distribution requirement was reduced to 90 percent effective January 1, 2001.)

Registered Representative 
An individual who is licensed to sell securities on commission and works for a FINRA member firm.

Secondary Market
Financial market where previously issued securities (such as bonds, notes, shares) and financial instruments (such as bills of exchange and certificates of deposit) are bought and sold. All commodity and stock exchanges, and over-the-counter markets, serve as secondary markets which help in reducing the risk of investment and in help maintain liquidity in the financial system.

Securities and Exchange Commission (SEC) 
The primary federal regulatory agency for the securities industry, whose responsibility is to promote full disclosure and to protect investors against fraudulent and manipulative practices in the securities markets.

Securities Exchange Act of 1934
The Securities Exchange Act of 1934 was created to provide governance of securities transactions on the secondary market (after issue) and regulate the exchanges and broker-dealers in order to protect the investing public.

Securities Investor Protection Corporation (SIPC) 
A nonprofit membership corporation established by Congress that insures securities and cash in customer accounts up to $500,000 (up to $100,000 in cash) in the event of a failed brokerage.

Securitization
The process of financing a pool of similar but unrelated financial assets by issuing to investors security interests representing claims against the cash flow and other economic benefits generated by pooling the assets.

Stock 
A type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings. There are two main types of stock: common and preferred. Common stock usually entitles the owner to vote at shareholders' meetings and to receive dividends. Preferred stock generally does not have voting rights, but has a higher claim on assets and earnings than the common shares.

Total Market Cap
The total value of a company's capital, including the market value equity and all debt.

Total Return
The actual rate of return of an investment or a pool of investments over a given evaluation period. Total return includes interest, capital gains, dividends and distributions realized over a given period of time.

Value-Added (Investment) 
A phrase generally used by advisers and managers to describe investments in underperforming and/or undermanaged assets.

Volatility
The rate at which the price of a security or asset moves up and down.

Warrants
An instrument that gives the holder the right to purchase securities (usually equity) from the issuer at a specific price within a certain time frame.

Yield
The annual rate of return on an investment paid to investors in the form of dividend income and expressed as a percentage.

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