Adjusted Funds From Operations (AFFO)
This term refers to a computation made by analysts and investors to measure a real estate company’s cash flow generated by operations. AFFO is usually calculated by subtracting from Funds from Operations (FFO) both (1) normalized recurring expenditures that are capitalized by the REIT and then amortized, but which are necessary to maintain a REIT’s properties and its revenue stream (e.g., new carpeting and drapes in apartment units, leasing expenses and tenant improvement allowances) and (2) “straight-lining” of rents. This calculation also is called Cash Available for Distribution (CAD) or Funds Available for Distribution (FAD).
Cap Rate (Capitalization Rate)
The cap rate (or capitalization rate) is a measure of an expected return on an investment in a commercial property. The cap rate for a property is determined by dividing the property’s net operating income by its purchase price. Generally, higher cap rates indicate higher returns paired with greater perceived risk.
Cash (or Funds) Available for Distribution
Cash (or Funds) available for distribution (CAD or FAD) is a measure of a REIT’s ability to generate cash and to distribute dividends to its shareholders. In addition to subtracting from FFO normalized recurring real estate-related expenditures and other non-cash items to obtain AFFO, CAD (or FAD) is usually derived by also subtracting nonrecurring expenditures.
Cost of Capital
A measure of the cost a company incurs to operate its business. Many companies use a weighted average of the cost of borrowing money from creditors (debt) and raising money from investors (equity) to determine their strategy for using funds. At NNN, we maintain an internal cost of capital threshold to conclude if capital is being deployed in a manner that sufficiently benefits shareholders.
EBITDA
Earnings before interest, taxes, depreciation and amortization. This measure is sometimes referred to as Net Operating Income (NOI).
Enterprise Value (also referred to as Total Market Cap)
The total market value of a REIT’s (or other company’s) outstanding common stock and indebtedness.
Equity Market Cap (also referred to as Market Cap)
The market value of all outstanding common stock of a company.
Equity REIT
A REIT which owns, or has an “equity interest” in, rental real estate (rather than making loans secured by real estate collateral).
Freestanding Retail
The category of retail stores in which NNN REIT invests. Freestanding retail, also known as stand-alone stores, are a sublevel of the retail niche and different than strip centers, power centers or regional malls.
Funds From Operations (FFO)
The most commonly accepted and reported measure of REIT operating performance. Equal to a REIT’s net income, excluding gains or losses from sales of property, and adding back real estate depreciation.
Leverage
The amount of debt in relation to either equity capital or total capital.
Net Lease
A type of lease that requires the tenant to pay operating expenses directly.
Real Estate Investment Trust (REIT)
A REIT (pronounced Reet) is a company dedicated to owning, and in most cases, operating income-producing real estate, such as freestanding retail stores, apartments, shopping centers, offices and warehouses. Some REITs also engage in financing real estate.
Single Tenant Retail
A store with one tenant occupying the entire building.
Total Return
A stock’s dividend income plus capital appreciation, before taxes and commissions.
Triple Net Lease
A type of lease that requires the tenant to pay taxes, maintenance and insurance costs at the property level directly to vendors rather than the landlord.
