Commercial Real Estate Facts

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).

Capitalization Rate (Cap Rate)

The capitalization rate (or “cap” 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.

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

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.


Earnings before interest, taxes, depreciation and amortization. This measure is sometimes referred to as Net Operating Income (NOI).

Enterprise Value (also called Total Market Cap)

The total market value of a REIT’s (or other company’s) outstanding common stock and indebtedness.

Equity Market Cap (also called Market Cap)

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 National Retail Properties 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.


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 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.