Real Estate Investment Trust Holding Company Key Terms

Learn terminology used to evaluate real estate investment trust holding companies

Real estate investment trust holding companies are also known as REITs. There are many types of these investment holding firms that work in different areas of real estate. From purchasing and holding land to building and leasing and fixing and flipping, real estate investment trust holding companies deal with many types of investment properties. When deciding whether to work with a REIT or real estate holding company, you need to be aware of the different types of REITs and learn about some key terms so you can evaluate whether a company is worth the investment risk.

 

Hybrid REIT

Hybrid REITs are a combination of an equity and a mortgage REIT. These real estate investment trusts own properties and make loans to finance other individuals' real property.
Try: National Payday has an in-depth definition of hybrid REITs.

Equity REIT

Equity REITs own a portion of the real property with which they are dealing. The activities of these REITs include leasing, tenant and property services and real property development.
Try: RiskCenter offers a tutorial on equity REITs.

Mortgage REIT

Mortgage real estate investment trusts extend mortgage credit on their own properties. They can also lend or own loans with real property as the collateral.
Try: Morningstar publishes a financial outlook on mortgage REITs that explains the business model.

Funds From Operations (FFO) and Adjusted Funds From Operations (AFFO)

The AFFO is a calculation meant to determine a real estate investment company's cash flow from its operations. It is a complicated formula, but simply put, you take funds from operations, or FFO, and subtract maintenance or capital expenses.
Try: Investopedia has an entry on REITs that explains the importance of the FFO.

Equivalent yield

The equivalent yield refers to an investment property's rate of return. This rate or yield is an attempt to discern actual cash flow rents and is based on the gross purchase costs of an investment property.
Try: The Urban Land Institute has an excellent article for REIT investors that includes a discussion of the equivalent yield.

Net Asset Value (NAV), or liquidating value

NAV describes the value of a company or corporation's assets minus the its liabilities. The NAV is calculated in different ways, depending on the type of company and the areas of business involved. The NAV is an important ratio to look at when determining how well a REIT is doing.
Try: Forbes.com has an article on evaluating REITs that points out various figures to look at, including the NAV.

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