Adjusted Funds from Operations (AFFO)
An enhanced measure of a REIT’s financial performance, which deducts capital improvements and maintenance expenses from FFO, providing a clearer view of the REIT’s cash flow available for dividends.
Capitalization Rate (Cap Rate)
A metric used to evaluate the return on investment of real estate assets, calculated by dividing the property’s net operating income by the acquisition price.
Dividend Yield
A financial ratio that shows how much a company pays out in dividends each year relative to its share price, important for evaluating the income-generating potential of a REIT.
Equity REITs
These trusts invest in and own income-generating real estate properties and earn revenue primarily through leasing space and collecting rents.
Funds from Operations (FFO)
A measure of a REIT’s operating performance, calculated by adding depreciation and amortization to earnings, excluding gains or losses from property sales.
Hybrid REITs
Companies that combine the investment strategies of both equity REITs and mortgage REITs, owning properties and holding mortgages.
Interest Coverage Ratio
A metric used to determine how easily a company can pay interest expenses on outstanding debt, critical for evaluating a REIT’s financial health.
Leverage
The use of borrowed capital to increase the potential return of an investment, common in REIT financing to enhance property acquisition capabilities.
Loan-to-Value Ratio (LTV)
A measure of lending risk that financial institutions and others lenders examine before approving a mortgage, calculated as the mortgage amount divided by the appraised property value.
Mortgage REITs (mREITs)
These focus on financing real estate by purchasing or originating mortgages and mortgage-backed securities, earning income from the interest on these financial assets.
Net Asset Value (NAV)
The total value of a REIT’s assets minus the total value of its liabilities, often used to assess whether a REIT’s stock is under or overvalued.
Occupancy Rate
The ratio of rented or used space compared to the total amount of available space in a property, indicative of the property’s earning potential.
Private REITs
Real estate investment trusts that are not listed on a public exchange and are typically available only to institutional or accredited investors.
Publicly Traded REITs
REITs whose shares are listed on a national securities exchange, providing liquidity and the opportunity for investment by the general public.
REIT (Real Estate Investment Trust)
A company that owns, operates, or finances income-producing real estate, allowing investors to earn dividends without buying the properties themselves.
Real Estate Operating Company (REOC)
A company that invests in real estate but, unlike REITs, is not required to distribute a majority of its profits as dividends, allowing for reinvestment into the business.
Non-Traded REITs
REITs that are registered with the SEC but do not trade on national securities exchanges, offering less liquidity but potential for reduced volatility.
