Common terms used in commercial property investment

Gearing

A measure of how much an investment is funded using debt versus the equity provided by investors. Also known as Leverage or LVR.

Diversification

A risk management strategy that mixes a wide variety of investments within a portfolio.

IM (or Information Memorandum)

An offer document produced for the sale of a product or asset to wholesale investors.

Leverage

The ratio of a company’s loan capital (debt) to the value of its equity. Also known as Gearing or LVR.

Liquidity

Refers to how easy it is to convert assets into cash.

Listed property trust/fund

An unitised portfolio of property assets, listed on the New Zealand Stock Exchange (NZX).

LVR (or Loan to Value ratio)

The amount borrowed to purchase an asset (e.g., building/property), represented as a percentage of the value of the asset. Also known as Gearing or Leverage.

PDS (or Product Disclosure Statement)

A legal offer document for a financial product.

Property syndicates

Property syndicates are a pooled property investment usually facilitated by a fund manager. Many investors are able to pool their money to buy a property that alone they would not have the funds to purchase.

REIT (or Real Estate Investment Trust)

Pools the resources of investors together to buy a range of property assets, which the trust then manages for a profit. They are listed and can be exchanged on local Securities Exchanges. Also known as a listed property trust/fund.

Triple net lease

A triple net lease means that the landlord is insulated from all liability in relation to the initial properties to the maximum extent permitted by law. For example, any capital expenditure, repair, maintenance and other works whether structural or otherwise are not the landlord’s responsibility. Each lease stipulates the tenant is responsible and has the same liabilities in regards to the premises as if the tenant was the “owner”. This is widely considered the most landlord friendly form of lease.

Unlisted property fund

A form of property investment that provides investors the opportunity to gain access to commercial property assets through an investment in a fund.

WALE (or Weighted Average Lease Expiry)

Is the way to measure the average time period that all leases in a commercial property will expire.

Yield

A measure of returns to investors that is expressed as a percentage over a set period of time