Accumulation Fund

A superannuation fund where the member receives a sum of money that is equal to the accumulated value of contributions paid into the Fund by the member or their employer plus net earnings on the investment amount. The investment risk is borne by the member which means the value of the member’s superannuation amount will go and up down depending on the investment performance of the assets of the fund. See also Defined Benefit Fund.

Absolute Return Funds

Funds aiming to deliver returns in both rising and falling markets. Compared to traditional fund managers these funds have greater scope to use derivatives, short positions, and exotic securities.

Acquisition Costs

The total cost of acquiring an asset. This may include legal fees, stamp duty, legal fees, valuation fees, building, engineering and environmental reports, survey fees and any other due diligence costs directly related to the acquisition.

Adjusted Funds from Operation (AFFO)

Is determined by adjusting Funds from Funds Operation (FFO) for other non-cash and other items which have not been adjusted in determining FFO. AFFO has been determined based on guidelines established by the Property Council of Australia and is intended as a supplementary measure of operating performance of an a real estate organisation including an A-REIT. See FFO.

Alternate Investments

An alternative investment is one that does not involve the traditional investments of equities, bonds and cash. It includes tangible assets such as real estate as well as financial assets such as commodities, private equity, and hedge funds. Such investments are often used to diversify an investment portfolio, thereby reducing overall risk.


The reduction in the value of an asset by prorating its cost over a period of years.


An investment where you invest a lump sum in return for a pre-determined, regular income. An annuity can be purchased with either superannuation or non-superannuation money.

Asset Management Fee

Typically charged by investment managers, for their services regarding the management of the vehicle’s assets. Asset management fees generally covmanagement of assets including refurbishment;  appointment of third party service providers at asset level;  reporting activities at asset level. Occasionally, asset management fee and fund management fee are combined. See Asset Management Fee Source: ANREV, INREV and services such as: strategic input and production of asset level business plans; management of assets including refurbishment;  appointment of third party service providers at asset level;  reporting activities at asset level. Occasionally, asset management fee and fund management fee are combined. See Asset Management Fee Source: ANREV, INREV and NCREIF.

Attribution Analysis

An investment performance analysis based on comparisons with agreed benchmark(s).
Allocation Effect: Measures the impact of the decision to allocate assets differently than those in the benchmark.
Security Selection Effect: Measures the effect of choosing securities, which perform differently from those in the benchmark.
Interaction Effect: Jointly measures the effect of allocation and selection decisions. Interaction is positive if the overweight sectors outperform, or underweight sectors under-perform.

Acquisition Fee

Fee charged by investment advisors, or managers, associated with the closing of a new investment. The fee compensates the real estate investment advisor, or manager, for services rendered in an investment acquisition, including sourcing, negotiating and closing the deal. Source: ANREV, INREV and NCREIF.

Authorised Representative

An authorised representative of a financial services licensee means a person authorised in accordance with section 916A or 916B to provide a financial service or financial services on behalf of the licensee.

Source ASIC

Basis Point

The basis point is commonly used for calculating changes in interest rates and cap rates. The relationship between percentage changes and basis points can be summarised as follows:

• 1.0% = 100 basis points
• 0.1% = 10 basis points
• 0.01% = 1 basis point

A property whose yield increases from 6.0% to 6.5% is said to have increased by 50 basis points; or whose yield has moved from 8.0% to 7.75% is said to have decreased by 25 basis points.


A measure of the extent to which a security’s return moves with the market portfolio. It is a relative measure of the contribution of a security to the risk of the market portfolio.

Bottom-up Research

A valuation approach based on bottom-up A-REIT level) research to determine the value of an A-REIT.

Call Option

An option to buy an asset at a specified price on or before a specified date.

Capital Expenditures (Cap-ex)

Those items that are significant replacements or additions to existing properties or for new developments, as distinguished from cash outflows for expense items that are normally considered part of the current period’s operations. Capital expenditure does not include general maintenance and repair items. Maintaining the competitive position of an asset usually requires a substantial capital reinvestment by the owner. Many of these expenditures are capitalised – not expensed – for accounting purposes.

Capital Stack

Refers to all of the capital invested in an asset or development project, including senior debt, mezzanine debt, preferred equity and equity. The stack going from bottom (senior debt) to top (equity). The higher the position in the capital stack — the higher the returns that can be expected for that capital because as you move up the stack the risk of loss increases.

Seniority becomes important in the event of bankruptcy or restructuring with senior debt having the highest priority i.e they get paid out first.  More complex real estate deals involve additional layers of capital added to the stack that often act as a hybrid between equity and debt. This category is often referred to as preferred equity or mezzanine debt which are senior to traditional equity investment but subordinate to the debt.

Typically, the capital stack is arranged as follows.

  1. Equity – represents ownership of the asset. Equity differs from debt in that an equity investor participates in the success of the investment by receiving a higher return as the asset performs better whereas a lender is entitled to an interest rate that does not depend on the investments success of the asset. The equity holds an unsecured position and thus there is no collateral to protect an equity investor like there is for a debt holder.
  2. Preferred equity – Preferred equity, on the other hand, usually takes the form of a direct equity investment in the real estate, but with a fixed, preferential return that is paid prior to distributions to the equity interests of the real estate owner. Mezzanine debt and preferred equity can — and often do — have similar terms and conditions.
  3. Mezzanine debt – Mezzanine lenders are less secure than the senior lender but more secure than the equity. Typically the mezzanine lender takes a second ranking mortgage behind the senior lender and because of the higher risk, the interest rate paid by the borrower is higher than the interest rate on the senior debt. Because of its high cost and the risk involved, mezzanine debt is not always used.
  4. Senior or first ranking debt – The senior lender position (typically a bank) is the safest in the capital stack because it is the lowest risk position and is secured by the actual real estate and sometimes the assets of the borrower. Given debt’s position at the bottom of the capital stack, it gets the first claim to any capital proceeds. The lower position on the capital stack (and therefore first claim to profits) means that debt is “senior” to equity ( and other positions up the capital stack).

Cash on Cash Return

Cash on cash return is the property’s annual net cash flow divided by you’re net investment (the cost of the property less the amount you borrowed i.e. your equity) invested in the property, expressed as a percentage.


If the net cash flow from a property is $1,000,000 and the value of the property is $20,000,000 with 50% gearing (debt), then the cash invested (equity) in the property is $10,000,000. The cash on cash return is calculated as 10% ($1,000,000/$10,000,000).

Cash Rate

The interest rate which banks pay to borrow funds from other banks in the money market on an overnight basis. The cash rate is the Reserve Bank of Australia’s operational target for the implementation of monetary policy. It is also an important financial benchmark in the Australian financial markets. It is used as the reference rate for Australian dollar Overnight Indexed Swaps (OIS) and the ASX 30 Day Interbank Cash Rate Futures. The Reserve Bank of Australia is the administrator of the cash rate. The cash rate is calculated as the weighted average interest rate on overnight unsecured loans between banks settled in the Reserve Bank Information and Transfer System (RITS). Source RBA

Certificate Of Occupancy / Occupation

A certificate which establishes that a building or major refurbishment project has reached a stage where it complies with all relevant statutory approvals and is ready for occupation.

Certificate Of Practical Completion

A certificate issued to the contractor by the superintendent or the superintendent’s representative when the works under the contract have reached the stage of completion described in the general conditions of contract. Minor omissions or defects that will not inhibit the use of the works are usually accepted. Also known as Notice of Practical Completion.

Closed-End Fund

A fund with a stated maturity (termination) date which typical does not allow new investors into the fund after the initial formation of the fund. Closed-end funds typically purchase one or more properties to hold for the duration of the fund and, as sales occur, typically do not invest the sales proceeds.


Any property or physical asset (such as vehicles or equipment) with monetary value, given as security for repayment of a debt and which will be forfeited in the event of a default.

Collateralised Debt Obligations (CDOs)

Are investment vehicles designed to raise money by issuing securities using the proceeds to invest in a pool of assets including bonds, leveraged loans, asset-backed securities and private placements. A CDO’s cashflows are split into tranches with different risk/return profiles and distributed to investors. The credit rating of each one indicates the quality and diversity of the underlying assets and its level of protection from lower-ranked tranches. If there are any defaults in the portfolio of assets, the lowest-ranking tranches will be hit first. As a result, the principle and coupon generated by the portfolio assets is applied to the tranches in descending order of seniority, with equity the lowest in the pecking order, and senior debt the highest.

Commingled Fund

An open-end or closed-end pooled investment vehicle designed for investors to pool their capital into one investment vehicle. A commingled fund may be structured as a trust, a partnership, or a company.

Contributory Mortgage Scheme

The key difference between a pooled mortgage scheme and a contributory mortgage scheme is that for pooled mortgage schemes, all investors’ investments and returns are linked collectively with a pool of mortgages, whereas for contributory mortgage schemes each investor’s investment and return is linked with the performance of a particular mortgage. Source: ASIC – Regulation Impact Statement: Mortgage schemes: Strengthening disclosure under RG 45.


The rate of interest paid on a fixed income investment or bond. Coupons can be paid annually, semi-annually or quarterly or as agreed by the issuer. The coupon rate can be fixed or floating for the term of the security.


Provisions contained in loan agreements. Covenants are designed to protect the lender and include such items as limits on total indebtedness, restrictions on dividends, minimum current ratio and similar provisions.

Credit Risk

The risk that a counterparty will not settle an obligation for full value, either when due or thereafter. In ‘exchange-for-value’ systems, the risk is generally defined to include replacement risk (the risk of having to replace a contract at a potentially unfavorable price) and principal risk. Source RBA


The purchase of a share where the buyer is entitled to the current dividend.

Debt Service Coverage Ratio (DSCR)

Measures your ability to pay the property’s mortgage payments from the cash generated from the property. Lenders use this ratio as a guide to help them understand whether the property will generate enough cash to pay the property’s expenses and whether the borrower will have enough left over to pay the mortgage payments.

The DSCR is calculated by dividing the property’s annual net operating income (NOI) by a property’s annual debt repayment amount (mortgage payments).


Assume NOI of $1,000,000 and debt payments of $500,000. The DCR is 2, ($1,00,000/$500,000 = 2).

A debt service coverage ratio of less than 1 indicates that there is not enough cash flow from the property to pay the property’s expenses and have enough left over to pay mortgage payments. A lender will not be willing to loan money to purchase a property not generating enough cash to make the repayments. In the above example, the DSCR of 2 means that the property will generate 2 times more (or 100% more) in cash that is required to pay the mortgage payments.

Defects Liability Period

The specified period of time within which the contractor is required, at his or her own cost, to rectify any defects in the completed works, arising due to faulty materials or workmanship and notified in writing. The period commences from the date of issue of the ‘certificate of practical completion’ and lasts for the period stated in the contract.

Deferred Consideration

The purchaser agrees to pay part of the purchase price at a future date rather than paying the full purchase price at completion. It usually has conditions attached to the instalments such as whether certain performance criteria are met by the newly acquired company or asset. The consideration can be made in different ways such as cash or shares.

Defined Benefit Fund

A superannuation fund where the member receives a benefit that is defined by the trust deed of the superannuation fund which is typically based on a member’s age, final salary and the time they have worked for the employer. Unlike a defined contribution fund, the employer or the fund generally takes on the investment risk rather than the member. See also Accumulation Fund.

Direct Investments

Investments that involve the outright purchase of properties not done through other investment vehicles and include any co-investments.


A measure of interest rate risk exposure of the underlying asset. Duration links the variability of interest rates and the variability of the rates of return on a firm’s assets. Duration is a measure of price elasticity.

Exchange Traded Funds (ETFs)

A type of managed fund which can be traded on the ASX. ETF’s hold a portfolio of securities, which may include Australian or international shares, fixed income, commodities, A-REITs or a combination of these. Most ETFs track an Index such as an equity or bond index. ETF’s offer efficient, low-cost diversification, combined with liquidity. Priced throughout the trading day, ETFs can be bought or sold like a share, through any broker, investment adviser or online trading platform.


The purchase of a share where the buyer is not entitled to the current dividend.

Ex-dividend Date

The date on which the right to the current dividend no longer accompanies a share.

External Leasing Commissions

Commissions charged by the listing agent/broker and tenant representative after a new lease or a renewal lease is signed. These include marketing of vacant space. Commission ranges vary and may depend on the market and/or the value of the transaction. Source: ANREV, INREV and NCREIF.

Face Value

The amount at which securities or debt instruments are issued. In relation to bonds and other debt instruments it also refers to the value at maturity.

Financial Product Advice

A recommendation or a statement of opinion, or a report of either of these things, that:

  • Ÿ is intended to influence a person or persons in making a decision about a particular financial product or class of financial product, or an interest in a particular financial product or class of financial product; or
  • Ÿ could reasonably be regarded as being intended to have such an influence.

This does not include anything in an exempt document. See Personal Advice and General Advice

Source: ASIC

Financial Services Guide (FSG)

An FSG explains any financial service that an investor is being offered. It is a legal requirement that an investor receive an FSG before receiving any financial service.  The FSG provisions are designed to ensure that retail clients are given sufficient information to enable them to decide whether to obtain financial services from the providing entity.

An FSG must include various information, including how the providing entity and its associates will be paid for the advice.

First Loss Piece

The most junior class (position) in a securitisation that provides support to the pool of assets such that any losses are applied firstly to this class of debt securities.


A legal procedure by which mortgaged property is sold by the lender in full or partial satisfaction of the mortgage debt. For example, if the borrower fails to pay the monthly mortgage payments, the lender takes the property back and sells it to recover some or all of the debt including the principal, unpaid interest and the costs of foreclosure.

Foreign Exchange Contract

Foreign Exchange Contract means a contract:

(a) to buy or sell currency (whether Australian or not); or

(b) to exchange one currency (whether Australian or not) for another (whether Australian or not).

Source ASIC

Forward Rate Agreement (FRA)

An agreement between two parties fixing an interest rate for a period commencing on a future date. No commitment is made by either party to lend or borrow the principal amount.

Franked Dividend

Dividend paid by a company out of profits on which the company has already paid tax. The investor is entitled to an imputation credit, or reduction in the amount of income tax that must be paid, up to the amount of tax already paid by the company.

Fund Management Fee

Also known as investment management fees, fund management fees are typically charged by investment advisors, or managers, for their services regarding the management of the vehicle. They generally cover services such as appointment of third party service providers, reporting activities to investors, cash management and dividend payment, managing the vehicle level structure, arrangement of financing, fund administration, investor relations. Occasionally, fund management fee and asset management fee are combined. See Fund Management Fee Source: ANREV, INREV and NCREIF.


Funds from Operation (FFO)

FFO is the A-REITs underlying and recurring earnings from its operations. This is determined by adjusting statutory net profit (under AIFRS) for certain non-cash and other items. FFO has been determined based on guidelines established by the Property Council of Australia and is intended as a supplementary measure of operating performance of an A-REIT. See also AFFO.

General Advice

General advice is financial product advice that is not personal advice. The following advice is not financial product advice:

(a) advice given by a lawyer in his or her professional capacity, about matters of law, legal interpretation or the application of the law to any facts;

(b) except as may be prescribed by the regulations—any other advice given by a lawyer in the ordinary course of activities as a lawyer, that is reasonably regarded as a necessary part of those activities;

(c) except as may be prescribed by the regulations—advice given by a tax agent registered under Part VIIA of the Income Tax Assessment Act 1936, that is given in the ordinary course of activities as such an agent and that is reasonably regarded as a necessary part of those activities.


Whenever general advice is provided to a retail client, s949A of the Corporation Act requires the providing entity to warn the client that:

(a) the advice has been prepared without taking into account the client’s objectives, financial situation or needs;

(b) the client should therefore consider the appropriateness of the advice, in light of their own objectives, financial situation or needs, before following the advice; and

(c) if the advice relates to the acquisition or possible acquisition of a particular financial product, the client should obtain a copy of, and consider, the PDS for that product before making any decision.

Source: ASIC

General Security Agreement (GSA)

A document giving a lender a security interest in the assets pledged by the borrower as collateral. This agreement describes the collateral and its location in sufficient detail so the lender can identify it, and assigns to the lender the right to sell or dispose of the collateral if the borrower is unable to pay the obligation. The agreement contains provisions regarding preservation of the assets, including the maintenance of such insurance cover as the secured party may require, the secured party’s right to inspect the assets and the debtor’s obligation to make the assets available for inspection to the secured party. The agreement also contains default provisions and provision for the expiration of the agreement on repayment of the debt.

Going Concern Value

The value of a business entity rather than the value of a real property. The valuation is based on the existing operations of the business and its current operating record, with the assumption that the business will continue to operate.

Green Building Council Australia

Green Building Council of Australia (GBCA) was established in 2002 to develop a sustainable property industry in Australia and drive the adoption of green building practices through market-based solutions. They key objectives of the GBCA are to drive the transition of the Australian property industry towards:

• sustainability by promoting green building programs, technologies, design practices and operations
• integration of green building initiatives into mainstream design, construction and operation of buildings.


Green Star Certification

Green Star Certification is a process where a building, fitout, or precinct is awarded a Green Star certified rating.


Green Star Rating

Green Star rating can be obtained for building, fitout and community design and construction reward projects that achieve best practice or above sustainability outcomes. This means that: Green Star – Design, As Built, Interiors and Communities projects can achieve a Green Star certification of between 4 and 6 Star Green Star.

Buildings assessed using the Green Star – Performance rating tool can achieve a Green Star rating from 1 Star = minimum practice, 2 Star = Average Practice, 3 Star = Good Practice, 4 Star = Best Practice, 5 Star = Australian Excellence and 6 Star = World Leadership


Gross Realisable Value (GRV)

This is the gross amount of sales a development could achieve. For example, if you have 200 units to sell at $500,000 each, then your GRV would be $100 million. Gross realisable value is particularly important in development finance as lenders will typically look to loan up to 85% of Total Development Costs (TDC) and/or 70% of Gross Realisable Value (GRV) whichever is the lesser. The actual percentage of TDC and GRV will vary depending on the quality of the borrower, location of the project, loan size, level of pre-sales or pre-leases, type of security and quality of the overall transaction.

Hard Costs

The direct costs relating to construction or improvement of a building or other structure, as opposed to other “soft costs” such as legal, financing, architects’, and similar fees required for the project. See Soft Costs.

Hurdle Rate

In investment appraisal, the minimum acceptable rate of return on an investment. If the internal rate of return is below the hurdle rate, the investment is not accepted. The hurdle rate should be the required rate of return.

Hybrid Securities

Hybrid securities blend some of the features of debt (fixed interest) and equity (shares). They make interest payments until a certain date. Some hybrids convert into shares after a period of time.

Index Fund

A Fund that structures its portfolio with the objective of matching the return of a specified financial market index.

Index Management

A style of investment management that seeks to attain performance equal to index returns. In pure Index Funds, no judgments are made about future market movements.

Inflation Target

A tool to guide monetary policy expressed as a preferred range or figure for the rate of increase in prices over a period. In Australia, the inflation target is between 2 and 3 per cent per annum on average over the course of the business cycle. Source RBA

Intercreditor Agreement

An agreement between one or more creditors who have shared interests in a particular borrower. The agreement spells out aspects of their relationship to each other and to the borrower so that, in the event a problem emerges such as a bankruptcy or default, there will be rules around how it is handled. The specifics of an intercreditor agreement vary depending on the borrower and the type of debt. Intercreditor agreements provide information about priority (lien) positions and security interests. The intercreditor agreement also discuss the liabilities and rights of the parties involved.

Interest Cover Ratio (ICR)

For a property, the interest cover is equal to the net income of the property divided by interest (finance) costs. An example of this is where the rental return is $1.5 million per annum and the interest on the loan is $1.0m per annum, the interest cover is 1.5 times.

Under ASIC’s Regulatory Guide 46: Unlisted Property Schemes: Improving Disclosure for Retail Investors (click here ), defines the interest cover ratio for a property fund as the EBITDA less unrealised gains plus unrealised losses divided by the interest expense where EBITDA is the earnings before interest, tax, depreciation and amortisation of the fund.

The interest cover ratio is a key indicator of its financial health. The lower the interest cover, the higher the risk that the property or fund will not be able to meet its interest expense. A property or fund with a low interest cover ratio only needs a small reduction in earnings (or a small increase in interest rates or other expenses) to be unable to meet its interest expense.

Internal Rate of Return (IRR)

The internal rate of return (IRR) is a widely used investment performance measure in real estate investing and developing. It is the interest rate at which the net present value of all the cash flows (both positive and negative) from an investment or project equal zero.

The IRR is used to evaluate the attractiveness of an investment or project. If the IRR of an investment or project exceeds the investor’s required rate of return, the investment or project is attractive. If IRR is lower than the required rate of return, the investment or project does not meet the investor’s required rate of return.

How it works?

The formula for IRR is:
PV of future cash flows − Initial Investment = 0; or

− Initial Investment

+ ( 1 + r )1 +

+ (1 + r)2 +

+ (1 + r)3 +

+ (1 + r)n +

= 0


r is the internal rate of return;
CF1 is the period one net cash inflow;
CF2 is the period two net cash inflow,
CF3 is the period three net cash inflow
CFn is the periods beyond

Let’s look at an example to illustrate how to use IRR.

Assume an investor is considering buying a property for $10 million and expects to hold it for 5 years. During that time the investor expects to receive a 7.0% annual yield on the initial investment. In this case, $700,000 per year. At the end of the 5 year period, the investor expects to sell the property for $12 million. The investor’s required rate of return is 10.0%.

Using IRR, the investor can determine whether the investment, based on the forecast cashflows and sale price, is a good investment based on their required rate of return.

Here is how the IRR equation looks in this scenario:

0 = -$10,000,000 + ($700,000)/(1+.1026) + ($700,000)/(1+.1026)2 + ($700,000)/(1+.1026)3 + ($700,000)/(1+.1026)4 + ($700,000)/(1+.1026)3 + $10,000/(1+.1026)4 + $12,700,000/(1+.1026)5

The investment’s IRR is 10.26%, which is the rate that makes the present value of the investment’s cash flows equal to zero. Based purely on the IRR (of course, other factors will need to be consider as to whether the investor should buy the property), the investor should purchase the property since it is forecast to generate 10.26% return which is above the investors 10.0% required rate of return.

Three key drawbacks in using IRR are:

1. IRR does not take into account of the cost of capital, thus it should not be used to compare investments or projects of different duration; and
2. it fails to recognise the varying size of different investment or projects ie the amount of capital required in each. Cash flows are simply compared to the amount of capital outlay generating those cash flows. This can create issues when comparing two investments or projects that require a significantly different amount of capital outlay, but the smaller project returns a higher IRR. For example, an investment with a $1,000,000 purchase price and projected annual cash flows of $110,000 in the next five years and is sold at the same price ie $1 million has an IRR of 11.0%, whereas the investment in our example above with a $10,000,000 capital outlay and projected cash flows of $3.5 million and $2 million profit has an IRR of 10.26%. Using the IRR method alone makes the smaller investment more attractive, and ignores the fact that the larger investment is forecast to generate significantly higher cash flows and perhaps larger profit.
3. The IRR ignores reinvestment rates – Although the IRR allows an investor to calculate the value of future cashflows, it makes an implicit assumption that those cashflows can be reinvested at the same rate as the IRR. As investor’s often find it is not practical to be able to reinvest at the same return as such a return may not be available at the time of reinvestment.


Leverage: A measure of a property, fund or A-REITs use of debt.

Leverage = Total Liabilities/Total Assets


An encumbrance on the property which acts as security for the payment of a debt or the performance of an obligation.

Loan to Value Ratio (LVR)

The amount of a loan or mortgage divided by the market value of the property. For example, if your property is worth $10,000,000 and you have a mortgage balance of $5,000,000, the Loan-to-Value ratio on your property would be 50%.

Make Good

The obligation of a lessee at the end of their occupation to ensure that premises are returned to the same condition as at the commencement of the lease; for example, painting and restoring partitions.

Managed Investment Scheme

Also known as ‘managed funds’, ‘pooled investments’ or ‘collected funds’, managed investment schemes generally:

• bring people together to contribute money to get an interest in the scheme
• pool money together with that of other investors (often many hundreds or thousands of investors) or use money in a common enterprise, and
• are operated by a ‘responsible entity’. Investors do not have day to day control over the operation of the scheme.

Common types of managed investment schemes include:

  • Managed funds
  • Real estate investment trusts
  • Exchange traded funds
  • Listed investment trusts
  • Mortgage schemes
  • Hedge funds
  • Financial assets schemes
  • Master funds
  • Funds of funds

Most managed investment schemes in Australia are provided through a trust structure where trustees hold the managed investment scheme assets in trust on behalf of members of the managed investment scheme. Managed investment schemes may be registered or unregistered schemes. Managed investment schemes offered to retail clients must be registered. Operators of managed investment schemes are required to hold an Australian financial services licence (AFS licence). A registered managed investment scheme must have a responsible entity that operates the scheme. Unregistered Managed Investment Schemes do not require a separate registration process with ASIC and can only be offered to wholesale clients. The operator of an unregistered managed investment scheme must have a hold an AFS licence.


Mark to Market

The accounting process to adjust the value of an asset to reflect the current market value rather than the accounting book value. Mark to market values are typically obtained for financial instruments quoted on an exchange or valued using an industry-accepted valuation model.


Fixed or floating rate mortgage on a commercial property with¬out provisions for yield enhancement beyond the stated loan rate.

Mortgage-Backed Securities

A type of asset-backed security that is secured by a mortgage or collection of mortgages. These securities are grouped and rated by an accredited credit rating agency, and usually pay periodic payments that are similar to coupon payments.

Mortgage Scheme

A ‘mortgage scheme’ is a managed investment scheme that has or that is likely to have at least 50% of its non-cash assets invested in mortgage loans and/or unlisted mortgage schemes. Mortgage loans are loans secured by a mortgage over real property (including residential, commercial, industrial or retail property, or vacant land). Mortgage schemes have historically been an important alternative source of financing for real estate owners and developers who have competed with banks for business. They have also provided financing to borrowers such as developers who may not have been able to obtain financing from traditional sources, such as banks. A mortgage scheme operates on the basis that:

  1. the scheme raises funds by issuing interests to investors. These funds are either pooled and lent by the scheme to various borrowers (pooled schemes) or lent in relation to a specific property (contributory schemes). In both pooled and contributory schemes, loans are secured by mortgages over real property and security may be a first or subsequent mortgage. For pooled schemes, investors do not have an interest in a particular mortgage loan, but have an interest in scheme property as a whole;
  2. the return to investors is generally generated by interest payments made by the borrowers to the scheme;
  3. investments are either for a fixed term or can be withdrawn following a withdrawal request; and
  4. the value of an investor’s investment may be subject to change depending on the asset position of the scheme.

Some mortgage schemes may lend funds for construction or property development. For these schemes, the skills and experience of the responsible entity in assessing these activities and selecting appropriate loans are particularly important to the performance of the scheme.

The key difference between a pooled mortgage scheme and a contributory mortgage scheme is that for pooled mortgage schemes, all investors’ investments and returns are linked collectively with a pool of mortgages, whereas for contributory mortgage schemes each investor’s investment and return is linked with the performance of a particular mortgage.

Source: ASIC – Regulation Impact Statement: Mortgage schemes: Strengthening disclosure under RG 45.


A national rating system that measures the environmental performance of Australian buildings, tenancies and homes. Put simply, NABERS measures the energy efficiency, water usage, waste management and indoor environment quality of a building or tenancy and its impact on the environment. NABERS provides four environmental rating tools – NABERS Energy, NABERS Water, NABERS Waste and NABERS Indoor Environment – to measure the actual operational performance of existing buildings and tenancies. NABERS is managed nationally by the NSW Office of Environment and Heritage, on behalf of Commonwealth, state and territory governments.

Net Present Value (NPV)

The rate of return on the best alternative investment that is available. It is the highest return forgone if the funds are invested in a particular project rather than the next best project. For example, the opportunity cost of investing in bond A yielding 8% might be 7.99% which could be earned on bond B.

Net Realisable Value (NRV)

This amount is the net value of sales; less the amount of GST (if applicable) paid on sales, less any selling costs (commissions paid to real estate agents). For example, if you have 200 units to sell at $500,000 each, then your GRV would be $100 million and if selling costs are 5 per cent, then the NRV is $95 million. See Gross Realisable Value.

Net Rent

Refers to rent that does not include property expenses that are paid by the tenants directly rather than the landlord. In the case of “triple net” (NNN) leases, the tenant agrees to pay all expenses associated with the property (e.g., real estate taxes, insurance, repairs and maintenance). In most cases net rent should be roughly equal to NOI.

Non-recourse Debt

The borrower is not personally liable and repossession of the mortgaged property, for example, will generally satisfy the outstanding debt.

Open-End Fund

A fund with no finite life that allows continuous entry and exit of investors and typically engages in ongoing investment purchase and sale activities.

Operating Company

A privately held real estate operating company.

Opportunity Cost

The rate of return on the best alternative investment that is available. It is the highest return forgone if the funds are invested in a particular project rather than the next best project. For example, the opportunity cost of investing in bond A yielding 8% might be 7.99% which could be earned on bond B.

Passive Management

A style of investment management that aims to achieve investment returns in line with those of a specified market or index. May also refer to a style of investment management that focuses on holding investments for an extended period rather than trading to maximise gains.

Personal Advice

Financial product advice given or directed to a person (including by electronic means) in circumstances where:

  • Ÿ the person giving the advice has considered one or more of the client’s objectives, financial situation and needs; or
  • Ÿ a reasonable person might expect the person giving the advice to have considered one or more of these matters

Note: This is a definition contained in s766B(3) of the Corporations Act.

Source: ASIC

Also see General Advice

Pooled Mortgage Scheme

The key difference between a pooled mortgage scheme and a contributory mortgage scheme is that for pooled mortgage schemes, all investors’ investments and returns are linked collectively with a pool of mortgages, whereas for contributory mortgage schemes each investor’s investment and return is linked with the performance of a particular mortgage. Source: ASIC – Regulation Impact Statement: Mortgage schemes: Strengthening disclosure under RG 45.

Present Value (PV)

The value today of a future payment, or stream of payments, discounted at the appropriate discount rate.

Project Management Fee

Fee charged to the vehicle by the advisor, or manager, for guiding the design, approval, and execution of a renovation project, as well as the construction process of a development project. These costs may be expensed or capitalised at the property level. Source: ANREV, INREV and NCREIF.

Property Acquisition Fee

Direct costs related to a specific property acquisition such as tax, legal costs, due diligence or other closing costs. These exclude costs of running an acquisition program such as general and administrative costs, costs incurred in analysing proposals that are later rejected, joint-venture organisational costs and fees paid to the manager for execution of the deal. Source: ANREV, INREV and NCREIF.

Ratchet Clause

A minimum rental provision in leases, which protects the lessor from a drop in rental below an agreed lower limit in the event of a reduced market value or CPI. Has effect during rent reviews.

Real Interest Rate

The real interest rate refers to the cost of borrowing money (i.e. the nominal interest rate) net of inflation. It takes account of the fact that part of the nominal interest that borrowers pay to lenders represents compensation for anticipated inflation. The remaining ‘real’ component better reflects the economic cost of borrowing and the return to lending. Source RBA

Record Date

The date used in determining who is entitled to a dividend or other entitlement associated with a security. Those on the register on the record date are eligible for the entitlement. To allow for settlement of trades, ex-dividend dates and other ex-entitlement dates are usually set to two business days prior to the record date. Source: ASX

Recourse Debt

The borrower is personally liable for the loan. Meaning, the lender can access other assets of borrower for any outstanding balance that is not satisfied through a foreclosure sale.

Registered Managed Investment Schemes

Managed investment schemes offered to retail clients must be registered. Operators of managed investment schemes are required to hold an Australian financial services licence (AFS licence). A registered managed investment scheme must have a responsible entity that operates the scheme. See Managed Investment Schemes.

Reinvestment Rate

The rate of return at which cash flows from an investment are reinvested. The reinvestment rate may or may not be constant from year to year.

Releasing Spreads

The spread between lease rates on expiring leases and the rates on new leases.

Rent Free Period

A period of occupancy where no rent is demanded, normally used as an incentive to a new tenant at the commencement of a lease and varies according to market conditions.

Residential mortgage backed securities (RMBS)

RMBS is a collection of interrelated bonds that are secured by a dedicated pool of residential mortgages (the ‘mortgage collateral pool’). The payments of principal and interest on these bonds are funded from the payments of principal and interest made on the underlying mortgage collateral by the mortgagors. Historically, RMBS have provided an alternative to bank deposits as a source of funding for residential mortgages.

Responsible Entity

The company named in ASIC’s record of the Scheme’s registration as the Responsible Entity. The Responsible Entity of a registered Scheme is required to operate the Scheme and perform the functions conferred on it by the Scheme’s constitution and the Corporations Act 2001. The Responsible Entity of a Scheme must be a public company under the Corporations Act 2001 and must hold an Australian Financial Services licence from ASIC.

Retained Earnings

That portion of earnings not paid in dividends. The figure that appears on the balance sheet is the sum of the retained earnings for each year throughout the company’s history.

Reversion Value or Terminal Value

The lump-sum amount an investor expects to receive when an investment is sold. In property valuation, the reversion, or terminal value, is determined by capitalising the projected NOI for the last year of the holding period. This value is then discounted back to present value at the chosen discount rate and added to the net present value of the periodic cash flows.

Rights Issue

An issue of ordinary shares to existing ordinary shareholders, where each shareholder receives the right to an additional number of ordinary shares in a fixed proportion to current holding.

Risk Aversion

A term to describe an investor’s dislike for risk, other things being equal.

Senior Debt (First Mortgage)

A mortgage whose lien (a form of security interest granted over an item of property to secure the payment of a debt or performance of some other obligation) is superior to the lien of any other mortgage on the same property. Senior debt or first mortgage has priority over all other liens or claims on a property in the event of default. Senior debt is secured by collateral, and that collateral can be sold to repay the senior debt holders (lender). As such, senior debt is considered lower risk and carries a relatively low interest rate. Even though senior debtholders are the first in line to be repaid, they will not necessarily receive the full amount they are owed in a default situation ie if the property is sold for less than the amount of the outstanding senior debt.

S&P/ASX 300 A-REIT Index

A sector sub-index of the S&P/ASX 300 Index, this index provides investors with exposure to Australian Real Estate Investment Trusts (A-REITs) which is captured under the Global Industry Classification Standard(GICS® Tier 3).


Short Selling

Selling a security that is not owned by the seller at the time of the sale. The seller borrows the security from a broker and must at some point repay the broker by buying the security on the open market.

Soft Costs

The consulting costs and fees such as legal, financing, architects’ in the construction of a building. See Hard Costs.

Spatial Polarisation

Occurs when economic and social forces cause different demographic groups to separate into different areas of a city.

Sublease Vacancy

Vacant office space being offered for lease by a tenant holding a head lease as opposed to an owner.

Subordinated Debt

Debt that has a lower rank than senior debt. In the event of default, subordinate debt has a lower priority for repayment than senior debt. The capital structure of a company or fund may be structured with senior debt (highest priority) followed by subordinated debt (lower priority) with equity at the bottom (lowest priority). As a result subordinated debt usually carries with it a higher rate or return than senior debt to compensate investors for the increased risk.

Systematic Risk

The risk that the failure of one participant in a payments system, or in financial markets generally, to meet its required obligations when due will cause other participants or financial institutions to be unable to meet their obligations (including settlement obligations in a transfer system) when due. Such a failure may cause significant liquidity or credit problems and, as a result, might threaten the stability of financial markets. Source RBA

Unregistered managed investment schemes

Also known as managed funds, pooled investments or collective investments that are offered only to wholesale clients. As the name suggests, these schemes do not require a separate registration process with ASIC. The operator of an unregistered managed investment scheme must have a hold an AFS licence. See Managed Investment Schemes.

Unsystematic Risk

That part of a security’s risk associated with random events. Unsystematic risk can be minimised by diversifying.

Venture Capital

Equity finance in an unquoted, young company which allows it to start-up, expand or restructure. It is cheaper that bank finance but does involve handing over some control of the company.

Warehouse Facility

An issue of debt securities, to a warehouse funder (typically a bank), under a warehouse facility structure, whereby the originator has the ability to continue to add securities into the pool, to build the volume up to a size at which they can “do an issue” ie refinance the pool of mortgages typically by issuing rated debt securities into the capital markets.

Warranties and Indemnities

Legal confirmation by the seller that certain matters including those regarding tax and contingent liabilities, to assure the buyer that any undisclosed liabilities which come to light after the sale will be settled by the seller.

Weighted Average Lease Expiry

The weighted average lease term remaining to expire across a portfolio, it can be weighted by rental income or square metres.

Yield To Maturity (YTM)

The expected return on a fixed interest security such as a bond if it is held to its maturity date. The YTM is expressed as an annual percentage figure and assumes that all interest payments are reinvested at the same rate as originally invested. To calculate the yield to maturity, the investor must take into account the coupon rate, time to maturity and the market price at which the security was purchased.

Contact Us

Join Our Distribution Lists

Subscribe to Blog

Subscribe to White Papers