REIT and Investment Terminology Glossary

AFFO: Adjusted Funds from Operations.  It is similar to FFO but it accounts for capex and will often include an add-back for stock-based compensation.  For some industries like offices and shopping centers, AFFO is the standard valuation metric.

Cap Rate:  Capitalization rates refer to the expected annual return on an acquisition.  It is calculated as rent/purchase price such that a property with $8 of annual rent acquired for $100 would be an 8% cap rate.

Capex:  Capital Expenditure is common among REITs and refers to the money spent on property improvements.  There is a distinction between improvement capex which adds to the asset value and maintenance capex which is more of a recurring expense.  Some analysts will deduct maintenance capex from FFO to get a more realistic cash flow figure.

EBITDAR:  EBITDAR is often used to discuss the lease coverage of healthcare facilities and it is the ratio of the operator’s EBITDA to the rent owed on the facility.  A higher number is better coverage. 

FFO:  Funds from Operations.  It is the REIT metric that approximates earnings per share and is believed to be more accurate for REITs than EPS because it adds back depreciation and removes certain one-time items like gain on sale of property.

NNN:   NNN means triple net which refers to a lease type where all expenses are paid by the tenant such that the rental payments flow directly to the REIT with minimal operating expense incurred by the REIT.

RevPAR:  Revenue per Available Room is the chief revenue metric of the hotel industry.  It is the product of ADR or average daily rate and occupancy.

SSNOI:  Same Store Net Operating Income is used to measure how the performance of properties changes year over year or quarter over quarter.  It is often the primary source of organic growth.

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