Active management: A proactive style of managing assets in terms of dealings with properties, tenants, and lenders. Through this approach we aim to take advantage of opportunities, avoid risks and achieve returns above a specific benchmark.
Amortisation: The even spreading of income or costs over a specified period. The timing of when income is received or costs are paid can result in an unfair benefit or loss for investors. Amortisation aims to avoid the artificial benefit or loss that could otherwise occur due merely to the timing of a known or contracted transaction.
Anchor tenant: The prime tenant in a shopping centre which is a main attraction to the centre.
Annualised distribution: This shows how much income an investor receives for each unit they own in a fund. We quote an annualised distribution rate to provide consistency and to facilitate comparison. Some funds pay distributions monthly, others quarterly and still others even less frequently. Furthermore, not all months or quarters have the same number of days. We therefore report a distribution on the basis that it will be paid for a year. For example a one cent per unit distribution for the month of June is divided by 30 (being the number of days in the month) then multiplied by 365 (being the number of days in the year) to arrive at an “annualised” distribution rate of 12 cents per unit.
Average lease expiry: The average lease term remaining to expire across all the tenants in a property (or across several properties) weighted according to gross rent of each tenant.
Capital expenditure (Capex): Those items that are significant replacements or additions to properties, as distinguished from expense items that are considered to be recurring items. Capital expenditure does not include general maintenance and repair items. For example the replacement of an air conditioning unit at a property would be an item of capital expenditure. However, the replacement of its fan-belt would not.
Capitalisation rate (Cap rate): Expressed as a percentage, the “cap rate” is used to calculate the value of a property by using its annual recurring income (rent). It represents the rate of return (or yield) an investor requires from the property by a given date. The calculation is: market net operating income/ capitalisation rate = market value of property.
Development assets: Properties that are, or are intended to be improved by additional building.
Divestment: Sale of a property or asset.
Earnings: Rental or interest income received by a fund.
Facilities: Generally this refers to loans.
Gearing (Leverage): Debt.
(Leasing) Incentives: Inducements offered by landlords to attract tenants to lease space. Incentives increase when supply exceeds demand.
Liquidity: The ability of an investment to be converted into cash with little or no loss of capital and minimum delay.
Loan covenant: A term, condition or restriction in a loan agreement. For example, a requirement by a lender that the borrower maintain a certain level of loan to value ratio.
Loan to value ratio (LVR): The proportion of debt compared to total asset value. Consider a home loan. If you borrow $400,000 to buy a $500,000 house you would have an LVR of 80 per cent.
Net lettable area (NLA): The area in respect of which a tenant can be charged for occupancy under a lease.
Net tangible assets (NTA): The total assets of the fund including property, cash, receivables less total debts or liabilities, intangibles such as the goodwill but excluding the loss or gain from fixing interest rates (interest rate swaps). NTA represents what an investor would receive if a fund was wound up at that point in time.
Interest Rate Swaps: In order to reduce interest rate volatility, funds often fix the interest rates on a substantial proportion of their borrowings. At times when these fixed interest rates are higher than the prevailing market rate of interest, the funds incur an unrealised loss. At times when they are lower, the funds receive an unrealised gain. This fixing of interest rates is commonly referred to as “interest rate swaps”. The loss or gain is represented in the NTA.
Occupancy rate: The proportion of lettable space at a property that is occupied by tenants paying rent.
Recapitalisation: Restructuring of a company’s or fund’s balance sheet by either increasing or decreasing the amount of debt or equity. The aim is to alter the capital structure of a company in order to improve its profitability.
Unit price: The price for each unit of a managed investment. This is calculated by taking the value of the net assets (after debt is paid) plus transaction costs of the managed investment, and then dividing it the by the total number of units issued in the fund.
Yield: This refers to the annual income return from an investment. It is calculated by dividing the annualised distribution or income from an investment by the value of that investment. For example, if a property is worth $100 and an investor receives $10 in annual income from it, the yield is 10 per cent.
