Glossary

A

 

Abandonment: The optional relinquishment of a property or an interest in a property, where there is no intention of resuming possession of the property or of holding rights in it.

 

Accrued interest: Adjustment made to bond prices to allow for the fact that interest is paid at set intervals but earned on a daily basis.

 

Accumulation units: Units which do not pay income but roll the income into the value of the units.

 

Adjusted EPS: Deferred tax associate with invested capital. Earnings per share of revenue profits versus capital investment in property.

 

Adjusted figures: Reported amount adjusted to exclude the results of property sales and bid costs.

 

Adjusted NAV per share: Net asset value per share adjusted to add back deferred tax associated with investment property, together with any accounting deficits in joint ventures that do not represent actual liabilities.

 

Alternative investments: Any investment other than equities and fixed income, such as property, private equity and hedge funds.

 

Anchor tenant(s): One or more large shops or supermarkets introduced to a shopping centre in major positions to tempt shoppers into the centre and encourage other retailers to lease units.

 

Annual charge: A fund’s annual fee, calculated on a daily basis, which covers the cost of running the fund.

 

Annualised net rents: Gross rents plus, where rent reviews are outstanding, any increases to estimated rental value (as determined by external valuers), less any ground rents payable under head leases.

 

Annuity: A regular stream of payments made to an individual for a specified time period, such as a stream of payments made to a policyholder from an insurance company at retirement, or the payment of interest made to a bondholder.

 

Appraisal: The valuation of the expected future performance of an investment which can be used to determine value and/or the risk associated.

 

Appreciation: Increase in the value of an asset.

 

Ask price: Price at which a market maker will sell stock. Also known as the offer price.

 

Asset allocation: The proportion of investment or assets placed in a specific variety of geographic regions, industry sectors or types of security.

 

Asset class: Types of assets that have similar characteristics. Commonly known asset classes are; Cash, Equities, Fixed Income/Gilts and Property.

 

Assets: Any possession that has a resale value. The investments within a fund are assets; they may include shares, bonds and/or cash.

Authorised Unit Trust: UK-based unit trust that has applied to FSA for this status, enabling the units to be marketed to all types of customers. FSA rules regulate the assets in which an authorised unit trust is permitted to invest.

 

Average maturity: A statistic relating to bond funds which provides the weighted-average maturity of all the bonds within a fund. The maturity of a bond is the time at which the principal of a bond is repayable and it ceases to exist.

 

Average unexpired lease term: Excludes short term lettings such as car parks and advertising hoardings, residential leases and long ground leases.

 

B

 

Bear Investor: Bear investors think investments are going to fall, so they sell their investments in the hope of buying them back at a lower price. A bear market is a period of falling stock prices, over a period of time.

 

Benchmark: A target which investment fund performance can be measured against. A benchmark, usually specified at the start of the investment process; can be a stockmarket index or a stakeholder group.

 

Bid price: The price at which units or shares may be bought or sold.

 

Bid/offer spread: The difference between the buying and selling price of shares and units, largely attributable to the initial charge.

 

Bonds: Loan agreements with a company or government body where there is an arranged repayment to the investor when the loan matures and the investor receives interest throughout the life of the loan. Such bonds can be bought and sold.

 

Bonus issue: Free shares issued to a company’s existing shareholders. No money changes hands and the share price falls pro rata. Also known as a scrip issue.

 

Book value: The amount at which assets and liabilities are held in the accounting records.

 

Bottom-up approach: A procedure of portfolio construction determined primarily by stock selection. Fund managers will assess the quality and future prospects of a stock, analysing factors such as the strength of management, market share, pricing power; which will all determine future earnings growth.

 

Break clauses: Clause in a contract allowing one or both parties to terminate the agreed contract.

 

Brownfield site: A site which has previously been developed and is available for redevelopment. Such sites may be contaminated.

 

Bull Investor: Bull investors believe prices will rise, so they buy securities in the hope of selling them at a higher price than they paid. A bull market is any market in which prices are in an upward trend.

 

Buy-to-let: A type of property which is purchased with a view to renting it out.

 

C

 

Call option: Option providing its holder with the right to buy an investment at a future date at a price agreed now.

 

Capital allowance: One of several kinds of benefit(s) available to an owner against income tax or corporation tax for capital expenditure on certain qualifying buildings.

 

Capital gain: Arises when an investment is sold at a higher price than originally paid.

 

Capital Gains Tax: Tax payable on a capital gain.

 

Capital growth: The focus of capital growth is to maximise the value of the capital invested rather than producing any income.

 

Capital value: The value of an asset (freehold or leasehold) as distinct from its annual or periodic rental value.

 

Capitalisation: The value of an asset assessed in relation to its projected rental income stream.

 

CFDs: Contracts for differences (CFDs) are an agreement between two parties to exchange the difference between the closing price of a contract and the opening price of a contract.

 

Chartered surveyor: A surveyor who is a qualified member of the Royal Institution of Chartered Surveyors, either a fellow (FRICS) or a member (MRICS).

 

Child Trust Funds (CTFs): Child Trust Fund (CTF) is a savings and investment account for children. Children born on or after 1 September 2002 will have received a £250 voucher to start their account. The account belongs to the child and can’t be touched until they turn 18, so that children have some money behind them to start their adult life. A CTF can invest in property. HM Revenue & Customs have approved providers of CTF accounts, some of which offer funds that invest in property.

 

Clean price: Bond price excluding accrued interest.

 

Closed-ended funds: Investment funds that issue a fixed number of shares, so to buy the shares there usually must also be someone wishing to sell shares.

 

Collective investment scheme: An investment method, such as a unit trust or OEIC, that pools the investments of many investors in a fund in order to reach defined investment objectives.

 

Contingent tax liability: In a property context, usually refer to the unprovided further taxation which would become payable if a company’s properties were sold at their current market value (including the valuation surplus on trading and development properties, net of any tax losses which had not been recognised in the balance sheet).

 

Contracts for Difference (CFDs): Contracts for differences (CFDs) are an agreement between two parties to exchange the difference between the closing price of a contract and the opening price of a contract. CFD trading is a way of trading shares or markets where you can potentially benefit from falling markets of share prices as well as rising ones.

 

Convertible bond: A bond distributed by a company that can be exchanged for a set number of shares, usually off the issuing corporation and at a pre-stated price.

 

Corporate bond: A corporate bond is a bond issued by a corporation in order to raise financing for a variety of reasons such as to ongoing operations, M&A, or to expand business. The term is usually applied to longer-term debt instruments, with maturity of at least one year.

 

Coupon: The periodic interest payment made to the ‘bond holders’ during the life of the bond.

 

Coupon rate: The percentage rate of interest payable on a bond/note or other fixed income security. The figure shown is always the pre-tax (gross) rate.

 

Covenant: A subjective assessment of the character and quality of a tenant in terms of being able and willing to comply with the terms and conditions of the lease.

 

Creation price: A term used in the UK to refer to the cost of creating a unit, based on buying the underlying securities within a unit trust. The actual buying (offer) price is usually the creation price plus the initial charge.

 

CTFs: Child Trust Fund (CTF) is a savings and investment account for children. Children born on or after 1 September 2002 will have received a £250 voucher to start their account. The account belongs to the child and can’t be touched until they turn 18, so that children have some money behind them to start their adult life. A CTF can invest in property. Providers have been approved by HM Revenue & Customs to provide CTF accounts and some offer funds that invest in property.

 

Currency hedging: The use of currency futures and options transactions to protect the value of investments and cash against fluctuations in exchange rates, relative to the currency in which the fund is denominated.

 

Cycles: The pattern of investment returns were strong or positive returns are followed by weak or negative returns on a regular basis.

 

D

 

Depreciation: Decrease in the value of property caused by change in the market, deterioration in its condition, or other factors.

 

Development: Making any material change in the use of any buildings or other land, not including internal alterations that do not materially affect its appearance.

 

Development construction cost: The total cost of construction of a project to completion, excluding site values and finance costs.

 

Development pipeline: Typically the combination of a development strategy, together with proposed schemes that are not yet included in the construction process however are more likely to proceed than not.

 

Development programme: A schedule of major development schemes comprising projects that are completed but not yet fully on the market, in the addition to developments on site and committed developments.

 

Development surplus: Excess of latest valuation over the total development cost.

 

Dilution:When the number of shares outstanding increases, each existing stockholder owns a smaller, or diluted, percentage of the company, making each share less valuable.

 

Direct property fund: Direct property is the term commonly used to describe real estate investments, whether it be the purchase of a commercial, industrial, retail, residential or any other property asset, which can either be held directly (direct ownership on the title) or indirectly through collective ownership vehicles such as managed property investments: funds, trusts and syndicates.

 

Discounted cash flow: A discounted cash flow (DCF) is a valuation method used to estimate the attractiveness of an investment opportunity. DCF analysis uses future free cash flow projections and discounts them to arrive at a present value estimate, which is used to evaluate the potential for investment.

 

Distribution of capital: The income or capital gain made by a fund that is paid to the fund’s investors.

 

Distribution warehousing: Premises used by (mainly) retail companies for distributing goods, usually nearer in the chain of movement to the ultimate user of the goods e.g. the shop.

 

Diversification: The extent to which the performance of two or more assets are unrelated.

 

Dividend: A sum of money paid regularly (typically annually) by a company to its shareholders out of its profits (or reserves).

 

Dividend cover: Number of times dividend charge in the profit and loss account is covered by profit after tax.

 

Dividend reinvestment: A dividend reinvestment plan (DRIP) is offered by a corporation that allows investors to reinvest their cash dividends by purchasing additional shares or fractional shares on the dividend payment date. A DRIP is an excellent way to increase the value of an investment.

 

Dividend yield: A ratio that represents the amount of income a company pays in dividends compared with its current share price, calculated by dividing the annual dividend per share of a company by its current share price. The ratio does not take into account capital gains or losses associated with the stock.

 

Domiciled: A dividend expressed as a percentage of a current share price.

E

 

Earnings per share (EPS): Profit after taxation divided by the weighted average number of shares in issue during the year.

 

Equivalent yield: The internal rate of return from a property, making allowance for increases in rent to market levels, voids and expenditure, but making no allowance for any increase in the market rent.

 

Estimated rental value (or rental value) (ERV): The rent that a property might reasonably be able to command in the open market at a given time, subject to the terms of the relevant lease.

 

ETFs: Short for exchange-traded fund. Funds traded like normal shares which allow investors to easily spread investments by tracking the performance of an entire index.

 

F

 

Feuhold: Is the Scottish equivalent of what is known in England and Wales as freehold.

 

Financial Services Authority (FSA): The main financial services regulatory body in the United Kingdom. FSA is the designated agency under the Financial Services and Markets Act 2000 and the regulator of exchanges, clearing houses, recognised professional bodies, banks, wholesale money markets and certain investment businesses.

 

Fixed income securities: is a debt instrument issued by a government, corporation or other entity to finance and expand their operations. Fixed-income securities provide investors a return in the form of fixed periodic payments and eventual return of principal at maturity.

 

Flat yield: The most commonly used yield calculation, which divides the annual income paid by the market price.

 

Footfall: The number of pedestrians passing through a building or area, eg a shopping centre.

 

Freehold: The absolute ownership of land without burdens, encumbrances or which is overshadowed by a higher form of ownership. See feuhold below.

 

FTSE/EPRA NAREIT index: Global Real Estate Index Series is designed to present general trends in eligible real estate equities worldwide. Relevant activities are defined as the ownership, disposal and development of income-producing real estate. The index series now covers Global, Developed and Emerging indices, as well the UK’s AIM market.

 

Fund of funds: A fund investment strategy that simultaneously invests in several funds, thereby aiming to reduce the performance risk inherent in any one fund. The manager of the fund selects which funds to invest in, but not the individual stocks. This type of investment is also called multi-management investment.

 

Fund size: The total value of assets in fund plus the amount of uninvested capital.

 

G

 

Gearing: The use of debt financing. The debts of a company expressed as a percentage of its equity capital. If a fund is geared it means that it has the ability to borrow money and therefore take advantage of greater investment opportunities.

 

Gilt edged security: Gilts are bonds issued by the UK Government which pay a fixed rate of interest for a set period of time. At the time of purchasing the bonds the purchaser knows the income that will be received over the life of the bond.

 

Global property securities funds: Fund that invests in shares of property companies around the world.

 

Greenfield site: An area of land which is, or is potentially, available for development but which has not been developed before, eg agricultural land. This is a highly contentious issue, particularly in the UK, where the development of land is split between Greenfield and brownfield sites.

 

Gross fund: A fund which does not pay corporation tax or any other type of tax on income or capital gains, eg pension funds.

 

Ground lease: Is an agreement in which a tenant is permitted to develop a piece of property during the lease period.

 

Ground rent: Rent paid for vacant land which is suitable for development. The ground rent disregards the value of any buildings or other improvements of the land.

 

Growth fund: A fund whose main objective is capital appreciation. Contrasts with an income fund where the main aim is to provide higher than average income in the form of a dividend payment.

 

H

 

Head rent: The rent paid by a head lessee to the freeholder/herbital owner.

 

Hedging: An investment that reduces the risk and or protects an existing position or commitment price movement.

I

 

Illiquid: an asset that is difficult to convert into cash

 

Index: The indicator/measure of the value of a sector of shares in a market. The most common index in the UK is the FTSE 100 which is an indication of the performance of the top 100 (by market capitalisation) UK companies’ shares. The index measure statistical changes in the market.

 

Index funds: Unit trusts which track the performance of an index. The value of the fund is linked to the chosen index so that if the index rises, so will the value of the fund. The index followers certain preset rules so that the fund can be specified to a group of underlying investments. Conversely, if the index falls so will the value of the fund. They are also known as tracker funds.

 

Indirect property fund: A fund that invests in indirect property vehicles, such as property shares, property investment companies, REITs, limited partnerships or property unit trusts, as opposed to holding direct commercial property in its portfolio (direct property fund).

 

Indirect property investment: Investment in vehicles that invest in property (e.g. shares, property investment companies, REITs, limited partnerships or property unit trusts) as opposed to investing directly in freehold and leasehold property.

 

Industrial sector (property): Sector of commercial property that is made up of distribution warehouses and industrial units.

 

Initial public offering (IPO): A company’s first sale of public stock to the market.

 

Initial yield: Initial yield is the annualised rents of a property expressed as a percentage of the property value.

 

Institutional Investor: Large scale investor such as a bank or pension fund.

 

Investment portfolio: Selection of assets held for investment purposes.

 

Investment property: Any property purchased with the primary intention of retaining it and enjoying the rental income and appreciation in capital value.

 

Investment Property Databank (IPD): The Investment Property Databank is a specialist company which provides information on the performance of the global commercial property market

 

Investment trust: A company whose sole function is to invest in the shares of other companies.

 

IPD: Independent organisation monitoring and supplying data on performance of property assets and indices.

 

L

 

Landlord: a person or organization that owns a building or an area of land and is paid by other people for the use of it.

 

Lease: The grant of a right to the exclusive possession of land for a definite period, usually in return for a periodic payment.

 

Limited partner: A partner within a limited partnership who has limited liability and a passive role in its management.

 

Liquidity risk: Is a financial risk over a period of time when an asset, security or commodity cannot be traded at a reasonable price that reflects the theoretical value in a quick enough time that won’t affect the market price.

 

Listed building: Within the United Kingdom, a listed building or structure is one that has been placed on the Statutory List of Buildings of special Architectural or Historic Interest. The owner may not alter extend or demolish without listing consent.

 

Listed firm/company: A company whose stock trades on a stock exchange.

 

M

 

Manager-of-manager funds: Fund whose investments are based on investing in funds managed by specific fund managers.

 

Market capitalisation: The value of a company that is traded on the stock market, calculated by multiplying the total number of shares by the present share price; a measure of corporate size.

 

Market indicators: A variety of indices (technical indicators) that give an indication to traders of the overall direction and strength of the market.

 

Market maker: A market maker is someone appointed by a company to deal in its shares. The market maker must offer the shares, is obliged to quote buy and sell prices and must deal in them at the quoted prices throughout the mandatory specified time.

 

Market value: The estimated amount for which a property can be sold on a given date.

 

Marriage value: Is applicable to leasehold properties. Marriage value refers to the increase in greater total property value following a lease extension or collective enfranchisement.

 

Mid price of shares: The value midway between the best selling (bid) price and the buying (offer) price of shares. It can simply be defined as the average of the current bid and ask prices being quoted.

 

N

 

Net absorption: The decrease in the amount of property available over a particular period of time, taking account of both the amount of property let and the amount of new property coming on to the market (eg through development completions and vacated space). It is calculated by dividing the average number of sales per month by the total number of available homes.

 

Net asset value (NAV): The total assets of a company less all its liabilities including loan capital, and preference shares. NAV is usually expressed on a per share basis.

 

Net asset value (NAV) per share: Equity shareholders’ funds divided by the number of shares in issue at the period end.

 

Net rental income: Rental income after deduction of operating and other direct costs.

O

 

Offer price: The price at which units may be bought. Please change to… The price at which units may be bought in a unit trust.

 

Over-rented: A property that is let at a rent price which is greater than the current open market value.

 

P

 

Passing rent: The annual rental income currently experienced on a property as at the balance sheet date. Excludes rental income where a rent free period is in operation and excludes service charge income.

 

Personal allowance: In the UK tax system, personal allowance is the threshold above what a person is allowed to earn which is not liable to income tax.

 

Portfolio: The combination or spread of investments held by an investor or by a fund.

 

Pre-let: A legally enforceable agreement for letting to take effect at a future date, upon completion of a development that is proposed or under construction at the time of the agreement.

 

is a contract between a potential tenant and a commercial property developer which allows the tenant to agree to lease a building before the construction has started.

 

Price/earnings (P/E) ratio: The share price of a company divided by its earnings per share. The price earning ratio is usually used for comparing companies’ investment potential.

 

Prime property: A property investment regarded as the best in its class and location.

 

Prime yield: The current yield used in the valuation of property let at full market value and which is of the best physical quality, in the best location and with the best tenants covenant and contemporary lease terms.

 

Publicly listed property companies: Property company whose shares are listed on a public stock exchange.

 

Q

 

Quartile ranking: Fund rankings broken down into four sections, each of 25%. For example, in a sector of 12 funds, the top three performing funds would be classed as first quartile, the bottom three as fourth quartile, etc.

 

R

 

Rack rent: The rent that represents the full open market annual value of a holding.

 

Redemption yield: The rent that represents the full open market annual value of a holding.

 

Redevelopment: Development of land which entails or follows the removal of all or most of the already existing buildings or structures.

 

Rent review: A provision in a lease whereby the amount of the rent is reconsidered at stated intervals (often every five years). The method and procedure for reviewing the rent are outlined in the lease.

 

Rental growth: The rate of growth, over a specified period, of the estimated rental value (ERV) of a property.

 

Retail sector (property): Sector of commercial property including high street shops, shopping centres and retail warehouses.

 

Retail warehouse: A retail store selling non-food goods occupying a warehouse. These are usually situated out of town, and are either solus (single) units or comprise several units in an open format, not under one roof.

 

Return: The amount by which an investment may change due to a combination of capital growth and/or interest dividend income. This is normally expressed as a percentage.

 

Revenue profit: Profit before tax, excluding the impact of exceptional costs or profits including bid costs, FRS3 profits, interest charges on termination of financial instruments and group reorganisation costs.

 

Reversion: The process by which a right in a property transferred by a deed of trust, mortgage or pledge, etc., is returned to the original owner after the interest held by others on the property is exhausted.

 

Reversionary rent/income: A change in income that which will arise following a rent review or renewal of a lease or re-letting of a property.

 

Reversionary yield: In a valuation for a term and reversion, the discount rate applied to the reversionary income.

 

Rights issues: Further issue of shares by an existing company to raise funds. Shares are offered to existing shareholders who can sell the right on to other people.

 

Risk: Degree of uncertainty of return on an asset.

 

Risk/return factor: The relationship between an investment’s growth potential and its exposure to loss.

 

RSL: Registered Social Landlord.

 

S

 

Secondary units (property): Properties that are not deemed to be prime, either because of poor location, configuration or tenant.

 

Sector: The category in which funds or companies are grouped.

 

Securities: Another name for stocks and shares; also applies to any approved or registered financial instrument, such as unit trusts.

 

Securitisation: A financing technique where the income stream of an asset is used to service the interest and principal repayments on the relevant debt instruments.

 

Speculative development: The construction of a building or buildings where there is no known buyer or tenant at the outset; the scheme is offered for sale or to let, usually at or near completion.

 

Swaps: An agreement in which two counterparties agree to exchange one cash flow stream for another.

 

T

 

Tax transparent: Investment or organisation who’s return or activities are not subject to taxation or where tax due is levied on the investors.

 

Tenant: An individual or corporate body holding a tenancy.

 

Top-down approach: Investment management technique that bases portfolio construction on macroeconomic views rather than stock specific views. Top-down factors will apply to both country and sector allocation.

 

Total development cost: All capital expenditure on a project including the opening book value of the property on commencement of development, together with all finance costs.

 

Total investment property return: Valuation surplus, profit or loss on property sales and net rental income expressed as a percentage of opening book value of the investment property portfolio.

 

Total return: The growth in value of a share holding over a specified period, assuming that dividends are re-invested to buy additional units of the stock.

 

True equivalent yield: The internal rate of return from an investment property reflecting reversions to current market rent, allowing for items such as voids and expenditure but disregarding potential changes in market rent.

 

U

 

Underlying profit before tax: The profit on ordinary activities before taxation, after excluding trading profits, profits on disposal of fixed assets, one-off gains relating to other investments and exceptional items.

 

Unit trust: A mutual fund structure that allows investors to pool together and invest collectively in investments such as shares and bonds. The investor effectively the beneficiary under the trust.

 

Unoccupied rate (or empty rate): The rate chargeable by an authority on empty non-domestic properties.

 

Upward only rent review: A rent review that has an ‘upward only’ rent review clause, then the rent can never go down; it either increases at the point of review or remains the same.

 

V

 

Vacancy rate: Is the percentage of all units available on the market such as a development, hotel or apartment complex that are vacant or unoccupied at a particular time.

 

Venture capital trusts (VCT): A highly tax efficient UK closed-end collective investment scheme. They are designed to help new enterprising companies in order for them to get started.

 

Volatility: In investment terms, volatility refers to the degree of variation of trading price trends over a period of time given the security or market index.

 

W

 

Warrant: Is a security that entitles the holder to buy the underlying stock of the issuing company at a fixed price. Warrants are traded on the Stock Exchange and tend to have a more volatile price than company shares.

 

Y

 

Yield: The amount of income return on an investment such as interest, rent, dividends or from holding a particular security. The yield is typically expressed as an annual percentage rate based on the investment’s cost, current market value or face value.

 

Yield compression: The rate of growth; a combination of rental and capital growth. Capital growth is often rental dependant. Yield compression is essentially a gamble between interest rates, taking into account the cost of borrowing versus the yield.

 

Yield curve: A curve on a graph in which the yield of fixed-interest securities is plotted against the length of time they have to run maturity.

 

Yield hardening/softening: The movement of yields (usually, but not always, referring to equivalent yields) over a period of time. A hardening of yields refers to yields falling (ie capital values are rising) while a softening refers to yields rising (ie capital values are falling).

 

Yield to maturity (YTM): Overall internal rate of return earned by an investor who buys a share/bond at today’s market price, assuming that the value will be held until maturity. The YTM is often given in terms of Annual Percentage Rate (APR).

 

Z

 

Zoning method/Zone A: A standardised method of analysing the rental value of retail space by dividing into strips of equal depth parallel with the frontage in order to compare their values. The most valuable area of a shop is at the front and each successive zone is ‘halved back’ in value. Zone A is the unit of comparison for rental purposes attributed to the front zone.

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