- book valueNet asset value (NAV) is the value of all an entity's assets minus the value of all its liabilities and is expressed as a single number. NAV is especially relevant to open-end or mutual funds since their shares are redeemed at their net asset value. Net asset value may be stated as the value of the total equity, or it may be divided by the number of shares outstanding held by investors, in which case it is described as the net asset value per share.
- Current RatioEqual to Current Assets / Current Liabilities, this is a measure of a REIT’s ability to pay its short-term obligations. A Current Ratio with a value below 1.00 is a red flag that a REIT might have insufficient capital on hand to pay its debts. A value above 2.00 might indicate inefficient use of assets.
- Debt/EquityEqual to Total Debt divided by Total Equity. The Debt/Equity ratio expresses the degree to which a REIT uses leverage. A value above 2.0 indicates aggressive use of debt, which might increase investor risk.
- Dividend YieldThis is the annual dividend divided by the unit price. The higher the dividend yield, the more of your investment is returned to you each year in the form of dividends. REITs have relatively high dividend yields. The higher the yield, the less money remains in the REIT for reinvestment.
- Dividends per UnitDividends per Unit are the annual dividends distributed for each REIT unit. Dividends are not guaranteed and can be raised, lowered, suspended or canceled.
- Earnings per ShareEarnings per Share is the net income for a period divided by the average outstanding number of shares for the period. REIT shares are called units. A negative earnings/share number indicates a loss.
- EPS GrowthEarnings Per Share Growth is the change in earnings per share over a period of time. Earnings are net income, and for REITs, shares are called units. A negative number indicates contraction rather than growth.
- Financial Leverage RatioThe Financial Leverage ratio is a measure of debt, expressed as Net Debt / EBITDA. The numerator is the REIT’s interest-bearing debt minus unallocated cash, while the denominator is earnings before interest, taxes, depreciation and amortization. The ratio expresses how many years a REIT needs to repay its debt. Values above 4 might indicate insufficient earnings to handle its debt or take on additional debt.
- Free Cash Flow (FCF)Free Cash Flow (FCF) is the cash remaining after outflows to pay for operations and maintenance of capital assets. Free Cash Flow measures profit excluding non-cash and interest expenses, and including spending on equipment and working capital changes. FCF is available to lenders and unitholders.
- Free Cash Flow/Net IncomeThe Free Cash Flow/Net Income ratio indicates how free cash flow (FCF) compares to net income. The higher the number, the more FCF is generated by net income, indicating efficient use of cash.
- Gross MarginGross Margin is the percent of total sales revenue retained by the REIT. Its equal to (Total Revenue – Direct Costs) / Total Revenue). Gross Margin measures operating efficiency, and the higher, the better. A negative number indicates an operating loss.
- LiquidityThe ease with which a financial instrument or asset can be quickly converted to cash without suffering a loss in value. Assets that are liquid or “marketable” have many buyers and sellers and/or trading activity is high, while illiquid assets either take a long time to sell and/or suffer a higher loss in value. Liquidity may also describe the degree to which the collective assets of a market, company or investor’s portfolio can be sold quickly without significant loss of value.
- Market CapitalizationThe market cap is equal to the current unit price times the number of outstanding units. Market capitalization indicates the size of the REIT.
- NAREITThe National Association of Real Estate Investment Trusts or NAREIT® is the world’s leading organization dedicated to the promotion of REITs and publicly traded real estate companies. While NAREIT is an American organization, it includes members from around the globe and is influential in setting best practices and public policy regarding REIT-related accounting, governance, insurance, regulations and taxation. NAREIT is the leading source of industry data.
- NAVNet asset value (NAV) is the value of all an entity's assets minus the value of all its liabilities and is expressed as a single number. NAV is especially relevant to open-end or mutual funds since their shares are redeemed at their net asset value. Net asset value may be stated as the value of the total equity, or it may be divided by the number of shares outstanding held by investors, in which case it is described as the net asset value per share.
- Net Asset Value (NAV)Net asset value (NAV) is the value of all an entity's assets minus the value of all its liabilities and is expressed as a single number. NAV is especially relevant to open-end or mutual funds since their shares are redeemed at their net asset value. Net asset value may be stated as the value of the total equity, or it may be divided by the number of shares outstanding held by investors, in which case it is described as the net asset value per share.
- Payout RatioCalculated as 100 x Dividends per Unit / Earnings per Unit, the Payout Ratio is the percentage of earnings paid out to unitholders as dividends. A high payout ratio helps support a higher, less volatile unit price.
- Price/Book ratioThe Price/Book ratio is the current market price per unit divided by the book value per unit. The book value is based on the original purchase price of assets after adjusting for depreciation and amortization. It indicates how much of the price is supported by the most conservative estimate of value.
- Price/Earnings (P/E) ratioThe Price/Earnings or P/E ratio is the current market price of units divided by annual earnings per unit. It indicates how many years of earnings you require to pay back the purchase price of the units. High P/E ratios might indicate overpriced units.
- Price/UnitPrice/Unit is simply the current market price of units.
- Private Real Estate Investment Funds (PREIFs)
Private real estate investment funds are professionally managed private funds that invest directly in real estate properties. They are available to accredited (i.e., high-net-worth) investors and usually require a substantial minimum investment. They are most directly comparable to private REITs.
- Real Estate Closed-End Funds (CEFs)
Closed-end funds are not vastly different from ETFs. They trade actively on the secondary market, own diversified real estate assets, and can be shorted.
- Real Estate Exchange-Traded Funds (ETFs)
Real estate ETFs own the shares of real estate corporations and REITs. Both ETFs and public REITs trade at their share price on public exchanges, just like normal corporate stock. Both have a fixed number of shares that can increase only through a secondary public offering. Both types of securities trade publicly in the secondary market on stock exchanges and can be shorted.
- Real Estate Open-End Mutual Funds
These are funds that own the shares of corporations within the real estate sector, including REITs. Shares do not trade on secondary exchanges. Instead, you purchase or redeem shares directly with the mutual fund company after the market closes. The mutual fund company creates or cancels shares to match demand. Shares are valued at their NAVs and have no separate trading price. Mutual funds can own REITs, REIT-index ETFs, and corporations within the real estate industry.
- Real Estate Investment Trust (REIT)A REIT is a company that owns and manages commercial properties that produce rental income and is contractually obligated to return the majority of its income (usually 90% or more) to its investors. In exchange for this guarantee, governments grant REITs a trust status which allows investors to avoid the double taxation of dividend income (i.e., in both the hands of the corporation and individual investors). While REITs were historically dominated by property categories such as Residential (e.g., apartments), Offices and Retail space, additional REIT categories include Mortgages, Data Storage, Entertainment complexes, Healthcare, Hospitality, and Timber. REITs can either be sold privately or publicly through securities exchanges. REITs are typically total-return investments, offering investors a combination of modest capital long-term capital appreciation with high dividend yields. Variations on REIT corporate structure include UPREITs and DownREITs.
- Return on Assets (ROA)Return on Assets (ROA) is equal to Net Income divided by Total Assets. ROA indicates how efficiently a REIT uses its property base to generate income. Since REITs are asset intensive, you’d expect lower ROA values (often below 5 percent) than those of service companies.
- Return on Equity (ROE)Equal to Net Income / Shareholders’ Equity, this is a measure of how well a REIT uses its equity to generate income. Return on Equity excludes debt, instead using only the equity portion of capital averaged over the period. Net income is from the trailing twelve months. REITs typically have large equity bases, so a figure of 10 percent should be considered good.
- Revenue Growth Latest QuarterRevenue Growth Latest Quarter compares the latest quarter’s revenue to that of the previous quarter or same quarter last year. You can extrapolate the growth rate using this figure. Because quarterly results can vary significantly from one quarter to the next, it requires several quarters of data to understand the revenue growth rate.
- Securities and Exchange Board of India (SEBI)The primary regulator of securities for India including for REITs, for which regulations have been proposed, but not yet adopted.
- Total Return InvestmentTotal Return Investment is an investment whose appeal to investors lies in its combination of dividend income and capital appreciation of the underlying assets.