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Commercial property jargon simplified
Commercial property investing can be complex and the jargon can sometimes be overwhelming. In this article we try to demystify commercial property jargon for you:
Anchor Tenant: Key tenant(s), who attract other tenants and customers to a shopping centre.
A-REIT: Australian Real Estate Investment Trust is the pooled capital used to purchase and manage real estate investments to provide investors a return. Often traded on a stock exchange.
ASX: Australian Securities Exchange
Average Lease Term: see WALE.
Basis points: Generally used to define differences in yield. 1% is equal to 100 basis points.
Benchmark: Relative measure of performance. Often used as a synonym for Index.
Book Value: Value of an asset for accounting purposes, representing its cost plus any additions, less depreciation.
Capitalisation Rate: The rate at which the annual net income from an investment is capitalised to ascertain its capital value.
CHC: ASX ticker code for the Charter Hall Group.
Commercial Property: Office, industrial and retail investment property.
DA: Development Application
DD: Due Diligence
Direct Property Fund: An unlisted property fund, trust or syndicate investing in commercial property but not listed on the ASX. Available to all investors.
Distribution: Regular income payments made from the fund to investors.
DRP: Distribution Reinvestment Plan is the opportunity to reinvest distributions by purchasing additional units.
Effective Rent: Rental payments less landlord concessions or incentives.
EOI: Expression of Interest.
Gearing: Total interest bearing liabilities divided by the total assets.
GLA: Gross Lettable Area is the total amount of oor space available to be rented.
HOA: Heads of Agreement is the agreement with a prospective tenant before the lease is signed.
ICR: Interest Cover Ratio is revenue over the interest expense.
Independent Valuation: Actual value of a property from an independent, impartial property agent.
Initial Yield: The annualised property income expressed as a percentage of the property value.
IPD: Investment Property Databank provide research-based indexes and analytics.
Lease: Binding agreement where one party agrees to rent property from another party for a fixed period.
LVR: Loan to Value Ratio is a method of determining borrowing capacity, usually expressed as a %.
Major Tenant: Normally the largest tenant(s) in an of ce or industrial property.
Market Price: The price actually paid for a property.
Market Rent: Rent applicable to a property in the open market.
NABERS: National Australian Building Energy Rating Scheme
NAV: Net Asset Value is total assets minus total liabilities.
Net Absorption: Difference between space leased and space supplied over a set time period.
NGERS: National Greenhouse and Energy Reporting Scheme
NLA: Net Lettable Area is the total amount of floor space available to be rented.
Occupancy: The number of tenants at a given property, usually expressed as a % i.e. 98% occupancy.
PCA: Property Council of Australia is the industry body and leading advocate for Australia’s $600 billion property industry.
PDS: Product Disclosure Statement or Prospectus is the offer document containing information for assessment of a specific investment opportunity.
RE: Responsible Entity is responsible for managing an investment trust on behalf of scheme members.
Retail Property: Shopping centres including regional, sub-regional and neighbourhood centres.
Sqm: Measurement of square metres.
Tax Deferred: Portion of distributions that are income tax advantaged due to depreciation. The cost base of units for calculation of capital gains must be reduced by the amount of tax deferred income received.
Unlisted Property Fund: see Direct Property Fund.
WALE: Weighted Average Lease Expiry is a metric used to express the duration of lease commitments across a portfolio. The longer the WALE, the better.
Yield: The ratio of net income from an asset to value of the asset, expressed as a %. In terms of property trusts it can be calculated as distribution divided by market price, multiplied by 100.