This term refers to a computation made by analysts and investors to measure a real estate company's cash flow generated by operations. AFFO is usually calculated by subtracting from Funds from Operations ("FFO") both (1) normalized recurring expenditures that are capitalized by the REIT and then amortized, but which are necessary to maintain a REIT's properties and its revenue stream (e.g., new carpeting and drapes in apartment units, leasing expenses and tenant improvement allowances) and (2) "straight-lining" of rents. This calculation also is called Cash Available for Distribution ("CAD") or Funds Available for Distribution ("FAD").

The capitalization rate (or "cap rate") for a property is determined by dividing the property's net operating income by its purchase price. Generally, high cap rates indicate higher returns and greater perceived risk.

Cash (or Funds) available for distribution ("CAD" or "FAD") is a measure of a REIT's ability to generate cash and to distribute dividends to its shareholders. In addition to subtracting from FFO normalized recurring real estate-related expenditures and other non-cash items to obtain AFFO, CAD (or FAD) is usually derived by also subtracting nonrecurring expenditures.

The cost to a company, such as a REIT, of raising capital in the form of equity (common or preferred stock) or debt. The cost of equity capital generally is considered to include both the dividend rate as well as the expected equity growth either by higher dividends or growth in stock prices. The cost of debt capital is merely the interest expense on the debt incurred.

A calculation of the attractiveness of an investment opportunity using future free cash flow projections and discounting them to calculate a present value. Discounted Cash Flow ("DCF") analysis is used to assess investment potential. If the value calculated by DCF analysis exceeds the current cost of the investment, the security in question may be attractively valued.

A DownREIT is structured much like an UPREIT, but the REIT owns and operates properties other than its interest in a controlled partnership that owns and operates separate properties.

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

Enterprise Value ("EV") is essentially, the theoretical takeover value of a company, and is calculated using the following formula: The EV / EBITDA ratio, also called the "Enterprise Multiple" is calculated by dividing Enterprise Value by EBITDA, and is a way to understand how much a company is worth in relation to its EBITDA. Again, this is a way to look at a company in the way that a purchaser of the company might view it.

The process by which the economic benefits of ownership of a tangible asset, such as real estate, are divided among numerous investors and represented in the form of publicly-traded securities.

The market value of all outstanding common stock of a company.

A REIT which owns, or has an "equity interest" in, rental real estate (rather than making loans secured by real estate collateral).

Free Cash Flow ("FCF") is calculated using the following formula: FCF is the amount of cash that remains after a company has paid its operating expenses. In other words, FCF is cash that can be used to acquire other companies, pay for research and development, reduce debt, or pay dividends.

The most commonly accepted and reported measure of REIT operating performance. Equal to a REIT's net income, excluding gains or losses from sales of property, and adding back real estate depreciation.

A REIT that combines the investment strategies of both equity REITs and mortgage REITs.

The market value of all outstanding common stock of a company plus the value of all UPREIT partnership units as if they were converted into the REIT's stock. It excludes convertible preferred stock, convertible debentures and warrants even though these securities have similar conversion features.

The amount of debt in relation to either equity capital or total capital.

A REIT that makes or owns loans and other obligations that are secured by real estate collateral.

The net "market value" of all a company's assets, including but not limited to its properties, after subtracting all its liabilities and obligations.

The ability to raise funds (both equity and debt) at a cost significantly less than the initial returns that can be obtained on real estate transactions.

A ratio used to compare a company's total market capitalization, or total market value, to its book value. This is calculated using the following formula:

A ratio — also called a "P/E Ratio," "Price Multiple," or an "Earnings Multiple" &mdash used to value a company's stock that is calculated using the following formula: For example, a stock trading at $14 per share, and earnings for the trailing 12 months of $2.00 per share would have a P/E ratio of

The Price-to-Sales ratio is calculated by dividing the Price per Share by Revenue per Share.

The federal law that authorized REITs. Its purpose was to allow small investors to pool their investments in real estate in order to get the same benefits as might be obtained by direct ownership, while also diversifying their risks and obtaining professional management.

A REIT is a company dedicated to owning, and in most cases, operating income-producing real estate, such as apartments, shopping centers, offices and warehouses. Some REITs also engage in financing real estate.

Federal tax law change whose provisions allow a REIT to own up to 100% of stock of a taxable REIT subsidiary that can provide services to REIT tenants and others. The law also changed the minimum distribution requirement from 95 percent to 90 percent of a REIT's taxable income -- consistent with the rules for REITs from 1960 to 1980.

Relative Multiples Analysis is the process of comparing the values of various multiples against those values for other stocks or companies, and also against historical values for the same company or companies.

The Russell 2000 Index offers investors access to the small-cap segment of the U.S. equity universe. The Russell 2000 is constructed to provide a comprehensive and unbiased small-cap barometer and is completely reconstituted annually to ensure larger stocks do not distort the performance and characteristics of the true small-cap opportunity set. This index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represents approximately 8% of the total market capitalization of the Russell 3000 Index. As of the latest reconstitution, the average market capitalization was approximately $762.8 million; the median market capitalization was approximately $613.5 million. The largest company in the index had an approximate market capitalization of $1.9 billion and a smallest of $218.4 million. Source: Russell Investment Group

The Russell 2000 Growth Index offers investors access to the small-cap growth segment of the U.S. equity universe. The Russell 2000 Growth is constructed to provide a comprehensive and unbiased barometer of the small-cap growth market. Based on ongoing empirical research of investment manager behavior, the methodology used to determine growth probability approximates the aggregate small-cap growth manager's opportunity set. Source: Russell Investment Group

The Russell 2000 Value Index offers investors access to the small-cap value segment of the U.S. equity universe. The Russell 2000 Value is constructed to provide a comprehensive and unbiased barometer of the small-cap value market. Based on ongoing empirical research of investment manager behavior, the methodology used to determine value probability approximates the aggregate small-cap value manager's opportunity set. Source: Russell Investment Group

Securitization is the process of financing a pool of similar but unrelated financial assets (usually loans or other debt instruments) by issuing to investors security interests representing claims against the cash flow and other economic benefits generated by the pool of assets.

Real estate companies such as REITs "straight line" rents because generally accepted accounting principles require it. Straight lining averages the tenant's rent payments over the life of the lease.

Sum-of-the-Parts valuation involves determining the total value of a company by adding up the valuations of the company's divisions if they were sold off.

Federal law that substantially altered the real estate investment landscape by permitting REITs not only to own, but also to operate and manage, most types of income-producing commercial properties. It also stopped real estate "tax shelters" that had attracted capital from investors based on the amount of losses that could be created.

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

A stock's dividend income plus capital appreciation, before taxes and commissions.

In the typical UPREIT, the partners of the Existing Partnerships and a newly-formed REIT become partners in a new partnership termed the Operating Partnership. For their respective interests in the Operating Partnership ("Units"), the partners contribute the properties from the Existing Partnership and the REIT contributes the cash proceeds from its public offering. The REIT typically is the general partner and the majority owner of the Operating Partnership Units.

After a period of time (often one year), the partners may enjoy the same liquidity of the REIT shareholders by tendering their Units for either cash or REIT shares (at the option of the REIT or Operating Partnership). This conversion may result in the partners incurring the tax deferred at the UPREIT's formation. The Unit holders may tender their Units over a period of time, thereby spreading out such tax. In addition, when a partner holds the Units until death, the estate tax rules operate in a such a way as to provide that the beneficiaries may tender the Units for cash or REIT shares without paying income taxes.