ABN – Australian Business Number

Active (as in Active Fund Manager) – Active portfolio management is when the manager selects investments with the objective of outperforming a benchmark index. APN Property Group is an active fund manager with a focus on value investing.

AFFO – Adjusted funds from operations

AFSL – Australian Financial Services Licence

ABN – Australian Business Number

Active (as in Active Fund Manager) – Active portfolio management is when the manager selects investments with the objective of outperforming a benchmark index. APN Property Group is an active fund manager with a focus on value investing.

AFFO – Adjusted funds from operations

AFSL – Australian Financial Services Licence

AML – Anti Money Laundering

Amortisation – The write-down in value over time of intangible assets such as intellectual property or property leases. Amortisation can also relate to the paying down of debt in regular instalments over a period of time.

Anchor tenant – The major or prime tenant in a shopping centre or building. Anchor tenants are strategically placed to maximise business for all tenants.

APIR code – A unique product identifier used in the financial services industry

AREITs – Australian Real Estate Investment Trusts. Formally known as Listed Property Trusts (LPTs). AREITs describe a managed portfolio of real estate that is listed on the Australian Securities Exchange (ASX). They are a highly liquid form of property investment.

Arm’s length transaction – A transaction between two parties who act independently as if they were unrelated, so that there is no question of a conflict of interest.

ARSN – Australian Registered Scheme Number

ASIC – Australian Securities and Investments Commission

ASX – Australian Securities Exchange

Basis point – One hundredth of a percentage point used in quoting movements in interest rates or yields on securities. (i.e. 50 basis points = 0.50%).

Bear market – A market where share prices fall against a backdrop of investor pessimism. A bear market tends to occur before economies are officially in “recession”. The market is a forward looking indicator. Many observers claim a 20% decline in prices represents a bear market.

Beta – A measure of the volatility, or systemic risk, of a security or a portfolio in comparison to the market as a whole.A beta of 1 indicates that the security’s price will move exactly with the market. A beta of less than 1 means that the security will be less volatile than the market. A beta of greater than 1 indicates that the security’s price will be more volatile than the market. For example, if a stock’s beta is 1.2, it’s theoretically 20% more volatile than the market.

Book value – The value of an asset as reflected in a company’s balance sheet. The value of the asset is based on its original purchase price, less depreciation, amortisation and other similar devaluing costs.

Borrowing maturity – Refers to the period when borrowings must be repaid.

Bottom up – A form of investment analysis that looks at the performance of individual companies to build a portfolio. The opposing style is described as a ‘top down’ approach which is an investment strategy that focuses on finding the best sectors to invest in and then locates the best companies within that sector.

BSX – Bendigo Stock Exchange

BTR – Build-to-rent is when a developer builds with the purpose of retaining the units and leasing out, rather than selling off. It is designed for the landlord to receive constant rental income.

Bull market – A market in which prices are rising and in which investor confidence in the continuation of rising prices is high.

Business day – Generally regarded as any day excluding a Saturday or Sunday on which Australian banks or the stock exchange is open for business in Melbourne. A business day or trading day is reflected in the ASX T+3 transaction times which mean trading day plus three ASX trading (business) days.

Buy/sell spread – Refers to the transaction costs incurred by a responsible entity of a managed fund in buying and selling assets when units in a fund are issued or redeemed. These transaction costs cover expenses such as: stamp duty, legal fees, stock broker commissions, finance costs and other government charges. Where a buy/sell spread exists in an APN fund, the buy/sell spread is deducted from application monies on the issue of units and the sell spread is deducted from the withdrawal proceeds on the redemption of units. The application of the buy/sell spread aims to ensure that each investor bears the same proportion of transaction costs associated with their entry to, or exit from a fund.

Capex – Capital expenditure. Expenditure by a company to purchase or upgrade physical assets.

Capital growth – An increase in the value of an investment.

Capital loss – A loss in value of an investment where it is sold for less than the amount it was purchased at.

Capital raisings – The offer of new units or additional shares to investors in order to raise capital. Capital raisings potentially dilute the yield for existing unitholders as dividends or distributions are divided amongst a greater number of units. The AREIT sector has seen a significant amount of equity raised since 2007. In 2008, $4.9 billion was raised and over $9.3 billion has been raised year to date in 2009 (as at 30 June). One of the key rationales for capital raisings employed by AREITs is to strengthen balance sheets by applying the additional capital raised towards reducing debt.

Capitalisation rate – Also often referred to as ‘cap rate’, this is the rate of return implied by dividing passing net income by the value of the asset expressed as a percentage. The cap rate calculation incorporates a property’s selling price relative to gross rents and non rental income less operating expenses.

CAPM – Capital Asset Pricing Model. A model for calculating expected equity returns.

Carbon tax – The carbon tax is a tax on carbon paid by companies not consumers. The tax is designed to reduce the use of energy sources that emit carbon and increase the use of clean energy such as solar, gas and wind. The tax will be effective from July 2012.

Carry trade – Whereby investors borrowed in a foreign currency and bought assets in markets with higher yields.

CGT – Capital Gains Tax

CMBS – Commercial mortgage backed securities

Corporate earnings – Income that is not generated through earnings afforded by the legal obligation a tenant has to pay rent (detailed in the lease) and includes earnings from: funds management activities, development and construction. Rental income is what affords property investments their defining characteristic of generating secure, sustainable cash flows. Corporate earnings have been earmarked as one the causes of the recent problems AREITs have faced in light of the Global Financial Crisis.

Cost base – Generally the dollar amount that you pay for each parcel of units.

CPI – Consumer Price Index

CPS – Converting preference shares

CPU – Cents per unit

Credit facility – Refers to the maximum value available to be borrowed under a loan facility.

CY – Calendar Year

DDS – Discount department store

Derivatives – A collective term for securities whose prices are based on the prices of an underlying investment, such as cash, commodities, bonds or equities. Common derivatives include: futures, options, swaps, warrants and convertibles.

Direct tax – A tax paid directly to the Government by the persons on whom it is imposed.

Discounted Cash Flow (DCF) – Discounted cash flow is a valuation method that applies a discount rate to future cash flows to establish their present worth. This is one of the valuation methods used by APN Property Group.

Distributions – Payment of part of a fund’s assets (usually from profits, but may include part of the capital of the fund) to investors which is expressed as a number of cents per unit, often referred to as distribution per unit (DPU).

Diversification – The practice of spreading investments over several different asset classes or different fund managers to reduce risk and volatility.

Dividend discount model – A model valuing the net present value of the dividends from a trust or company expected to be received in the future. A simple version of the model assumes that the company’s dividend rate remains constant. A more complex model assumes that the dividends of the company grow at a consistent rate.

Dividend Per Share (DPS) – A dividend is a form of profit distributed to shareholders. DPS is the sum of the dividends paid to shareholders and is calculated by dividing the total amount of dividends paid by the total shares outstanding.

DPS – Distribution per share

DPU – Distribution per unit

DRP – Distribution reinvestment plan

Earnings Per Share (EPS) – The portion of a company’s profit allocated to each share of common stock. EPS is an indicator of a company’s profitability.

EBIT – Earnings before interest and tax

EBITDA – Earnings before interest, tax, depreciation and amortisation

EOI – Expression of interest

EPU/EPS – Earnings per unit (EPU) for trusts and earnings per share (EPS) for a stapled security.

Equilibrium – Is the situation that arises when demand and supply of a product are equally matched.

ERV – Estimated Rental Value

Fixed term funds – Often referred to as ‘syndicates’, fixed term funds have a definitive start and end date. Investors are generally unable to redeem their investment until the end date.

FUM – Funds under management

FX – Foreign exchange

FY – Financial Year

Gearing – A fundamental analysis of a fund’s level of debt compared to its total asset investments. Gearing is expressed in percentage form. Funds with high gearing levels are generally considered to be more risky. Gearing is also referred to as ‘financial leverage’.

GFC – Global Financial Crisis

GFC – Global Financial Crisis – The global financial crisis of 2007-2010 has been called by leading economists the worst financial crisis since the Great Depression of the 1930s. The crisis contributed to the failure of key businesses, particularly in the US with the collapse of investment bank Lehman Brothers in September 2008.

Fundamentally, the root of the problem was a case of too much lending. Individuals and entities around the world were borrowing excessively. In the US, borrowers with poor credit histories were enticed into home loans subsequent to US Government policy to increase home ownership amongst low income earners.

Inevitably, many mortgagees in the US defaulted when their low interest rates ended and unemployment increased. Housing prices then plummeted. The banks, weighed down with mounting debts, simply ceased lending to each other. When Lehman Brothers collapsed, share markets around the world were engulfed by a wave of selling which led to a devaluation in all asset classes. Governments (including Australia) and central banks responded with unprecedented fiscal stimulus, monetary policy expansion, and institutional bailouts.

Locally, the Australian Real Estate Investment Trust (AREIT) sector felt the brutal force of the GFC throughout 2008 and 2009, which delivered a particularly painful blow to AREITs causing the sector to behave in an uncharacteristic non-defensive style. Throughout this period the AREIT Index fall from its peak of 2,570 points in February 2007 to 546 points in March 2009.

The issues the sector confronted largely stemmed from the increased level of debt many AREITs carried prior to the onset of the GFC. Debt then became scarce when non-bank lending markets virtually shut down. As a consequence, few buyers of direct property resulted in falling property values. Lenders debt limits (also referred to as covenants) were then at risk of being breached. To relieve pressure on debt covenants, AREITs were forced to raise more equity, unfortunately causing AREIT prices to fall.

GLA – Gross lettable area

Government bond – The generic name for a tradable loan security issued by governments and companies as a means of raising capital. A bond is a debt investment in which an investor loans money to an entity (usually a government body) that borrows the funds for a defined period of time at a fixed interest rate. Bonds are commonly referred to as fixed-income securities and are one of the three main asset classes, along with stocks and cash equivalents. Government Bonds offer the greatest certainty of income, but may fail to keep pace with inflation.The Australian Government 10 year Bond yield is widely regarded as a measure of the long term, risk free rate.

GST – Goods and Services Tax

Hedging – Hedging is a method of reducing the risk of adverse price movements. Hedging strategies can be applied to currency exposures and interest expense. Hedging is done to create certainty in regard to cash flow, expenses or capital value.

HOA – Heads of agreement

ICR – Interest cover ratio

IDPS – Investor Directed Portfolio Service

Illiquid – An investment which cannot easily be sold or converted into cash. Examples include: unlisted fixed term funds, real estate, collectables and private company interests.

In specie – A Latin phrase which means ‘in its actual form’. It is used to indicate that distribution of an asset will be in its actual form, rather than transferring it into cash or another form. It may be used to refer to a ‘transfer’ exchange of securities (units or shares) between two parties.

Initial Yield Analysis – A screening process used by fund managers to identify high yielding stocks for their portfolios. APN Property Group attempts to provide a high level of distributable income by achieving a gross annual income yield (before management fees and expenses) that is equivalent to at least 110% of the average yield of the S&P/ASX200 Property Trusts Dividend Yield series.

Input cost – Cost of direct material, direct labour and other overhead items devoted to the construction of a property.

AFFO – Adjusted funds from operations

AFSL – Australian Financial Services Licence

AML – Anti Money Laundering

Interest rate swap – Interest rate swaps are financial instruments that allow two parties to swap their form of borrowings (they do not exchange principal amounts) because the interest-rate structure of each suits the other party better. For example, a borrower with fixed-rate funds could swap with another for floating-rate payments. Interest-rate swaps are used either to achieve lower borrowing costs or to gain entry to fixed-rate markets that would otherwise be inaccessible or too expensive.

The APN European funds use interest rate swaps to swap cash flows on the variable rate borrowings for fixed rate cash flows. The intention is to limit the unit holders’ exposure to interest rate variations and deliver greater predictability over the fund’s cash flows.

IPO – Initial public offering

IRR – Internal rate of return

IRS – Interest rate swap

Lease reversion – Lease reversion is when the rent paid on a lease re-sets towards the prevailing market level.

Leverage – Leverage is the use of borrowed funds in order to potentially improve the returns the investor or a business is able to generate. This practice however can involve taking on more risk. Leverage can increase an investor’s return on their investment and often there are tax advantages associated with borrowing.

LIBOR – London Interbank Overnight Rate

Loan covenants – A loan covenant is a condition in a commercial loan that requires the borrower to fulfil certain conditions or which forbids the borrower from undertaking certain actions. Typically, breaching a covenant may result in a default on the loan conditions which can result in penalties being applied or a demand for immediate repayment of the loan. Covenants may also be waived, either temporarily or permanently, usually at the sole discretion of the lender.

Loan to Value Ratio (LVR) – The amount borrowed expressed as a percentage of the value of the property used as security for the loan, usually expressed as a ratio in percentage terms.

Look-through – Where a fund invests in other external funds (listed and/or unlisted), the underlying investments of these external funds are shown on a look-through basis for the purposes of asset allocation by sector or geographic location. The look-through amounts are calculated as a proportion of the fund’s total investments.

A ‘look-through’ approach can also be used for lending calculations such as gearing ratios, in circumstances where the underlying funds in which the head fund invests also have direct borrowings. In this case, the borrowings are weighted on a proportional basis to the amount that each fund represents of the head fund’s total investments.

LVR – Loan to value

Majors – Department retail shopping store or supermarket.

Market capitalisation – The number of shares issued by listed corporations multiplied by current share price.

Mark-to-market – The act of recording the price or value of a security, portfolio or account to reflect its current value rather than its book value.

MAT – Moving annual turnover

MER – Management expense ratio

Net Absorption – Refers to the leasing of space in a specific geographic area over a set period of time after deducting space vacated in the same area throughout the same period.

Net Asset Value (NAV) – This is a term used to describe the value of an entity’s assets less all its liabilities and intangible assets. NAV is usually expressed on a per share basis.

Net Operating Income (NOI) – A company’s operating income after operating expenses are deducted, but before income taxes and interest are deducted.

Net Tangible Assets (NTA) – Describes the value of an entity’s assets less all of its liabilities and intangible assets (ie goodwill, patents, and trademarks). Also called net asset value and book value.

NI – Net income

NLA – Net lettable area

NOI – Net operating income

Nominal Bond Yield – A bond’s nominal yield, depicted as a percentage, is calculated by dividing all the annual interest payments by the face, or par, value of the bond. Two components combine to determine the nominal yield on a debt instrument: the prevailing rate of inflation and the credit risk of the issuer. The nominal yield does not always represent the annual return because it is a percentage based on the bond’s par value and not the actual price that was paid for that bond.

NPI – Net Property Income

NPAT – Net profit after tax

NPBT – Net profit before tax

NPV – Net present value

NTA – Net tangible Assets

Optimised income – Is the objective of maximising the income earning capacity from an investment asset or asset class.

Passive (as in Passive Fund Manager) – Passive (or Index) portfolio management is when the manager selects investments purely based on their Index weighting and aims to replicate as close to possible the returns of that Index.

PDS – Product Disclosure Statement

Price to earnings ratio – Price to earnings ratio or P/E ratio. A share market price divided by its current or estimated future earnings per share. A higher ratio indicates that investors are paying a high price compared to the potential income they may receive. Generally, higher growth securities have a higher P/E ratio.

Prime assets – Those assets with premium tenants on long leases in the best locations for their use.

Property securities – Describes investment in listed (AREITs) and unlisted property trusts and companies.

RE – Responsible Entity

Real Bond Rate – A bond’s “real return” accounts for the inflation rate and more accurately describes the gain or loss on your investment over time. Without including the effects of inflation, the return on an asset is its percent increase in value over the original cost.

Recapitalisation – The process of strengthening AREITs balance sheets by adding equity in place of less certain debt with a variable cost.

Regional Shopping Centre – Retail shopping centre anchored by a department store (or two), a Supermarket (or two) and possibly a Discount Department Store (like a Target or a KMart) .

REIT – Real Estate Investment Trust

Releasing Spreads – Describes the spread between lease rates on expiring leases and the rates on new leases. The metric measures rent growth from the time the lease was initially signed offset by rent bumps that occurred during the course of the lease.

Rent Reversion – Is the adjustment of rent to market rentals, either at lease expiry or at predetermined stages as the lease terms may dictate.

Rent review – Leases generally contain clauses providing for a periodical review of the rent, for example at two yearly intervals. The lease will generally specify the basis of the review.

Rights issue – An offer of additional shares to existing shareholders, in proportion to their unitholdings, to raise capital for the company or trust.

Risk adjusted returns – All investments have different levels of risk. The best investments have the highest return and the lowest risk. Risk is measured by the volatility of returns such as Standard Deviation.

RMBS – Residential mortgage backed securities

ROE – Return on equity

RSP – Regular Savings Plan

Running Yield – Running yield is used to describe the income investors receive annually from their investment, expressed as a percentage. The running yield is calculated by annualising the current distribution rate, then dividing it by the latest exit unit price for the given fund.

Secondary assets – Those assets that do not have long leases, have fewer tenants than a prime asset or are located in less prominent locations.

SGX – Singapore Stock Exchange

Sharpe ratio – The Sharpe ratio highlights whether a portfolio’s returns are due to smart investment decisions or a result of excess risk. This measurement is very useful because although one portfolio can reap higher returns than its peers, it is only a good investment if those higher returns are not a result of too much additional risk. The greater a portfolio’s Sharpe ratio, the better its risk adjusted performance.

Standard deviation – Standard deviation is a statistical measure of the range of a fund’s performance. When a fund has a high standard deviation, its range of performance has been very wide, indicating that there is a greater potential for volatility. In finance, standard deviation is applied to the annual rate of return of an investment to measure the investment’s volatility.

Stapled security – A stapled security is a security that is contractually bound to one or more other securities to form a single saleable unit. They typically combine a trust structure along with a company structure. The combination provides the manager with greater flexibility in terms of balance sheet management and general operations. Examples of AREIT stapled securities are: Westfield, Stockland, Goodman Group, Mirvac and our own AREIT fund. Currently over 80% of AREITs (by market cap) are a stapled structure.

Sublease – In commercial real estate, a sublease is a lease (rental agreement) between a tenant who already holds a lease to a commercial space or property and someone (the sublessee) who wants to use part or all of the tenant’s space. Sublessees pay rent directly to the tenant (sublessor).

Sub-prime – Refers to the poor credit status of the user of credit instruments, i.e. the person taking out a loan or mortgage, based on credit scoring. Sub-prime borrowers do not qualify for competitive interest rates because of their poor credit history and are therefore charged a higher interest rate. Sub-prime debt is considered a risky investment for fund managers but also potentially very profitable.

The crisis that emerged from sub-prime mortgages in the United States was triggered by a dramatic rise in mortgage delinquencies and foreclosures with major adverse consequences for banks and financial markets around the globe. The crisis, which has its roots in the closing years of the 20th century, became apparent in 2007 and has exposed pervasive weaknesses in financial industry regulation and the global financial system.

Sub-regional – Shopping centre anchored by a discount department store and a supermarket.

Super regional – A major shopping centre typically incorporating two full line department stores, one or more full line discount department stores, two supermarkets and approximately 250 specialty shops.

Systemic risk -The risk inherent to the entire market or entire market segment. Interest rates, recession and wars all represent sources of systematic risk because they affect the entire market and cannot be avoided through diversification. Also known as market risk.

Tax deferred – A portion of distribution income that investors do not pay tax on until they sell their units. The tax deferred portion of the distribution reduces the investors cost base (original investment amount), meaning investors do not pay tax on this portion of the distribution until they sell their units. The concessional capital gains tax rate can be applied if the investment has been held for more than a year.

Tax deferred income – This is a feature of property securities investments whereby investors do not pay tax on the tax deferred portion of the income until the investment is sold.

Tax exempt – A portion of distribution income derived from a security may not be subject to taxation.

Top down – An investment approach that involves looking at the “big picture” macroeconomic factors and financial market factors and then breaking those components down into finer details. This “big picture” analysis then becomes more focussed on the relevant industry or sector that the investor is analysing.

Tracking error – Measures the divergence between the price behaviour of a portfolio and a benchmark. A fund with a high tracking error is usually regarded as carrying higher risk than a fund with a low tracking error such as an index fund. For example, the APN Property for Income Fund’s investment strategy focuses on an active investment approach (predominately index unaware) meaning the fund does not invest in stocks based on index weightings and therefore has historically recorded a high tracking error to the AREIT Index.

Triple net leases – The tenant is solely responsible for all the costs relating to the asset being leased (net real estate taxes, net building insurance and net common area maintenance). Many commercial real estate Landlords are protected by triple net leases in Australia.

Unlisted property trust – Unlisted property trusts seek to provide investors with secure long term income streams over a 5-10 year investment term. Unlisted trusts aim to raise a specific amount of money within a defined period of time. Once the required funds have been raised the offer is closed.Investor’s funds are pooled together to purchase one or multiple direct properties which may be either retail, industrial or office type properties.

Examples of unlisted property trusts are the APN National Storage Property Trust which invests in a portfolio of storage properties or the APN Retirement Properties Fund which invests in a portfolio of retirement villages in Melbourne.

WACR – Weighted average cap rate

WALE – Weighted average lease expiry. The average time period in which all current leases expire meaning that the longer the WALE the better.

WALE (or WALT) – Weighted average lease expiry (or Weighted Average Lease Term). This measures the average time period in which all current leases expire. A long WALE is considered more attractive for property buyers as it enhances the security of the overall property portfolio income.

WALT – Weighted average lease term

Weighted Average Capitalisation Rate (WACR) – The weighted average of capitalisation rates across a portfolio of assets.

XPJ – The Australian Stock Exchange index code for the AREIT sector

Yield – The total rate of return on an investment. Refers to dividends or distributions received from a security and is usually expressed annually as a percentage based on the investment’s cost, its current market value or its face value.

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