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- Terms Used in the Real Estate
Investment Trust Industry
- Capitalization Rate (Cap Rate)
- The capitalization rate for a property is
determined by dividing the property's net operating income by its
purchase price. Generally, high cap rates indicate higher returns and
greater perceived risk.
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- 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.
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- Cost of Capital
- The cost to a company, such as a REIT, of raising capital in the form
of equity (common or preferred stock) or debt. The cost of equity
capital generally is considered to include both the dividend rate as
well as the expected equity growth either by higher dividends or growth
in stock prices. The cost of debt capital is merely the interest expense
on the debt incurred. Variously defined as the weighted average of the
cost of equity and debt capital employed by a REIT. Note: A
company's "true" cost of capital is the investor's expected
rate of return on his/her investment.
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