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Shopping Ctr. Finance Terms


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The amount of time covered by an operating statement; generally, a month, a quarter, or a year (which is called a fiscal year or, if it ends on December 31, a calendar year).
Accounting period
The detailed description of a company's assets, liabilities, equity, revenues, and expenses.
Cash amounts owed on open accounts, whereby, the buyer pays cash sometime after the date of sale.
Accounts payable
Cash amounts billed to customers and still owed by them.
Accounts receivable
The entry made to record a bill not yet received or an income item not yet collected.
An accounting method that, unlike the cash basis method, recognizes the impact of transactions on financial statements in the time periods when revenues (earnings) and expenses (costs) are incurred instead of when they are actually received or paid.
Accrual basis method of accounting
Amounts recognized for wages, salaries, interest, and similar items not yet payable.
Accrued liabilities
The portion of the original cost of fixed assets that has already been charged to operations as an expense.
Accumulated depreciation
The cost of actually administering the common area of a shopping center; a standard addition to the overall cost of common-area maintenance (CAM), typically set at 15 percent but ofter heavily negotiated.
Administrative fee
The way in which the value of a property is determined.
The repayment of a portion of the principal before the end of the term of the loan; the opposite of an interest-only load; such expenses, related to intangible assets, are recorded on an operating statement after net operating income (NOI), or "belo
Raising funds by offering ownership in a corporation through the issuing of shares of a corporation's common or preferred stock.
Equity offerings
Rent-paying tenants who discontinue their retail operations. A tenant that closes its retail store but continues to pay rent and abide by other terms of the lease.
Nonoperating tenants
A notice by a landlord to a tenant to vacate rented property. There are two types: for nonpayment of rent or a second type for any reason. Usually the notice for nonpayment allows less time to vacate.
Notice to quit
Usually a calendar year of January 1st through December 31st. Estimates and increases in landlord's operating costs run on this cycle as in a fiscal year.
Operating year
The sale of securities to a small group of investors (generally 35 of fewer) that is exempt from U.S. Securities and Exchange Commission (SEC) regulations.
Private placement
In matters involving political petitions, one landmark decision by the US Supreme Court, PruneYard Shopping Center vs. Robins, has had far reaching effects on shopping centers. Decided in 1980, the PruneYard decision, as it is known, held that the state
PruneYard court case
An amount based on sales potential as affected by the appraisal of a property at a given point in time; sometimes used interchangeably with market rent.
Appraisal rent
Economic resources expected to benefit a business's future activities; the things that a business owns and uses for its operations, with a useful life greater than a year.
A ratio determined by dividing net sales by average total assets.
Asset turnover
An explicit set of documentation by accountants illustrating how each entry made its way into the books.
Audit trail
The portion of a financial statement showing a company's financial position--its assets, liabilities, and equity--at a particular point in time, analogous to a scorecard. On a balance sheet, assets equal liabilities plus equity; equity equals assets minu
Balance sheet
The process of measuring a business's performance in a particular area against some standard, which can be that of the industry as a whole, that of a competitor, or one related to the same business's overall performance.
A measurement of profit (or loss) in a budget, expressed as net operating income (NOI), as earnings before interest, taxes, depreciation, and amortization (EBITDA), or as funds from operations (FFO).
Bottom line
Theoretically, the point at which a tenant breaks even on expenses and sales, and thereafter begins to make a profit (a percentage of which is sometimes required to be paid to the landlord); also called a _____ _____ or ______ ______.
An amount based on sales potential, and representing the target approved by ownership for its annual plan; sometimes used interchangeably with market rent.
Budgeted rent
A detailed, carefully prepared road map for the operation of a business for the coming year or years; it sets a direction and destination (strategy) for the business and plots the course (tactics) to get there.
Business plan
A maximum amount that a tenant must pay for certain expenses, no matter how much they actually increase; usually a set amount or a percentage of increase.
The ratio of income to price, determined by such factors as the market and the quality of a property, and used along with net operating income (NOI) to determine value; the ___ ____ equals net operating income (NOI) divided by value.
Cap (capitalization) rate
Payments for something expected to last for at least a year, and recorded on a balance sheet as assets; for a shopping center, these include tenant allowances, work by the landlord to improve a space, and commissions paid to a broker or management compan
Capital expenditures
An accounting method that, unlike the accrual basis method, recognizes revenues and expenses as they are actually received or paid, not as they are earned or owed.
Cash basis method of accounting
The amount of spendable income available after all payments have been made for operating expenses and mortgage principal and interest; it is a way of recognizing the timing of receipts and payments.
Cash flow
An organized list of a company's financial activity codes, the "financial DNA."
Chart of accounts
Special entries in a journal, made to reverse all account balances in preparation for the next accounting period.
Closing entries
Generally, the guaranteed backup source of a loan repayment if the investor does not repay the loan as specified in the loan documents; this security ranges from property to a personal guarantee.
The charge to tenant for a share of the costs of maintaining a common area in a shopping center, including cleaning, security, and utilities.
Common-area maintenance (CAM)
A method of quantifying the economic differences between a proposed lease and a baseline, such as the development pro forma, for the same space.
Comparative lease analysis
A U.S. government indicator of rising prices, used to measure the impact of inflation on consumers; this information, based on a broad survey of a large and widely varied number of items, is updated and published by the U.S. Bureau of Labor Statistics at
Consumer Price Index (CPI)
An account on a balance sheet that complements an asset account; additions to this type of account are recorded as credits, in the right-hand column.
Contra-asset account
Generally expressed as the interest rate one must pay to borrow the necessary capital to make an investment. If the capital is already available, the cost of the capital is the opportunity cost in terms of not being able to use that amount for alternativ
Cost of capital
The expected percentage of revenue that will be lost from one or more tenants due to nonpayment, or noncollection, or rent.
Credit loss
Entered in the right-hand column of each account, these are additions to a liability account, an equity account, or a revenue account, or reductions in an asset account or an expense account.
Generally, national chains with strong financial statements, to which an appraiser might apply a different rate, based on lower risk, than to smaller, local operators.
Credit tenants
The concept that each of the partners in a property with more than one owner is personally responsible for full repayment of a loan, even though each partner may own only a small percentage of the property. It also applies to a group of properties covere
Cash and other assets that are reasonably expected to be converted to cash or sold or consumed within one year.
Current asset
Usually debts that fall due within the coming year or within the normal operating cycle if longer than a year; also referred to as short-term debt.
Current liabilities
The ratio of current assets to current liabilities; a ______ ratio of 2:1 (meaning two dollars of current assets for every dollar of current liabilities) is generally considered adequate.
Current ratio
Debts, such as bonds, notes, and loans, that are formal certificates of indebtedness indicating a company's promise to pay interest at a specified annual rate.
Entered in the left-hand column of each account, these are additions to an asset account or an expense account, or reductions in a liability account.
The relationship between projected net operating income and expected debt service, expressed as NOI divided by debt service. A ratio of 1.0 (NOI equals debt service) means there is not margin of error, because any drop in NOI will leave insufficient cash
Debt coverage ratio
An indicator of whether a company is using debt excessively, this is calculated by dividing total liabilities by total equity.
Debt-to-equity ratio
Expenses, or lost value over time, related to tangible assets; this is recorded on an operating statement after net operating income (NOI), or "below the (bottom) line."
The principle that a dollar in the hand today is worth more than the same amount received in the future.
Discounted cash flow
The rate that measures return on investment compared with a risk-free rate of return such as that of U.S. Treasury notes; crucial in determining ____ ______.
Discount rate; crucial in determining lease value.
The foundation of bookkeeping, this refers to the fact that for every addition, there must be a subtraction, so that the totals remained balanced; credits and debits are listed in columns under the name of each account.
Double-entry bookkeeping
Claims against, or interest in, an entity's assets.
An acronym for earning before interest, taxes, depreciation, and amortization, this approximates the total cash from operations; used in the supplemental disclosures accompanying a financial statement, it is an attempt by analysts to measure a company's
A discount rate at which the present value (PV) of projected cash flow exactly equals the initial investment. This discounted cash flow technique is used to determine the single rate of return that equates capital outlays and cash flow to a present value
Internal rate of return (IRR)
The owner's interest in a company after all obligations are met; analogous to the difference between the value of your home and the balance of your mortgage.
What a company pays out to make a product or deliver a service; for example, the cost of utilities in a shopping center.
A summarized report of accounting transactions, composed of the balance sheet, the operating (or income) statement, and the statement of cash flows.
Financial statement
An accounting method that assumes inventory acquired earliest is sold or used up first. Thus, the "Monday" inventory item is deemed to have been sold before the "Tuesday" item, regardless of which actual item is delivered to the custo
First in, first out (FIFO)
Any twelve-month period for a lease (or any other financial purpose), such as July to June; if it is from January 1 to December 31, it is called a calendar year.
Fiscal year
An interest rate set at the time of a loan and unchanging over the life of the loan.
Fixed rate
An interest rate that fluctuates over the life of a loan, based on some relationship to a benchmark such as a bank's prime lending rate.
Floating rate
A measurement favored by real estate investment trusts (REITS) that approximates the cash-generating power of a company; analogous to net operating income (NOI), it consists of net income, excluding gains (or losses) from debt restructuring and sales of
Fund from operations (FFO)
An acronym for generally accepted accounting principles; an authoritative set of rules, adopted by the accounting profession, that dictates the way a business reports its financial condition and performance.
A way of determining the eventual value of an investment, based on the amount of the initial investment, the reinvestment rate, and the number of years under consideration; analogous to figuring out how much a bank account paying a particular interest ra
Future value (FV)
An acronym referring to sales of general merchandise, apparel, furniture and home furnishings, and other shopper goods.
The place--in a book or, today, in a computer--where an accountant or bookkeeper records, collects, and stores all accounts; also called a _________.
General ledger
The excess of the cost of an acquired company over the sum of the fair-market values of its identifiable assets less its liabilities.
Revenues before any expenses are deducted.
Gross income
The total area in a shopping center on which tenants pay rent, including storage and miscellaneous space as well as selling space; the total area in a center that produces income.
Gross leasable area (GLA)
A lease in which the tenant pays one flat amount and the landlord pays all other expenses of the shopping center, such as taxes, insurance, and property repairs and maintenance.
Gross lease
A ratio measuring the difference between sales and total cost of goods sold.
Gross margin
A figure used by appraisers to determine potential revenue, based on 100 percent occupancy.
Gross potential revenue
The brick-and-mortar elements of a redevelopment project, such as the land, the building, and building improvements.
Hard costs
An investor's minimum acceptable rate of return
Hurdle rate
An acronym for heating, ventilation, and air-conditioning needs, taken care of in a shopping center by large, powerful machines.
A class of long-lived assets that are not physical in nature; they are the rights to expected future benefits deriving from their acquisition and continued possession. Examples include tenant allowances, goodwill, franchises, patents, trademarks, and cop
Intangible assets
A type of loan, preferred by borrowers, in which there is no amortization--no principal is paid back prior to the maturity of the loan.
Interest-only loan
The additional return required by the lender to make a given loan, paid on a regular basis.
Interest rate
The safeguards a company puts in place to help detect accounting errors and prevent employee dishonesty on financial statements.
Internal controls
A ratio measuring the adequacy and efficiency of the inventory balance, calculated by dividing the cost of goods sold by the amount of the average inventory.
Inventory turnover
A process of recording detailed information about accounts in a journal.
Journal entry
Books used to record the original entries and details of various accounts; totals are then transferred to the general ledger.
An accounting method that assumes inventory acquired most recently is sold or used up first. This treats the most recent costs as the costs of goods sold, unlike FIFO, which associates the most recent costs with inventories. Many accountants believe that
Last in, first out (LIFO)
A short version of a lease, containing the most important facts about it in order to facilitate later reviews (for example by new employees).
Lease abstract
A business's economic obligations to non-owners; what a company owes.
The ease with which an investment of any kind can be converted to cash. A simple bank account, for example, is more liquid than real estate.
Properly, an amount based on sales potential rather than what is necessary to produce a desired return on investment or to cover development costs; the rate at which space would be leased if offered in a current competitive market; sometimes used interch
Market rent
The basic rent that a tenant will pay the landlord each year, in twelve equal, consecutive installments, computed based on an amount of rent per square foot; also called base rent.
Minimum rent
Any incentives offered by a landlord to persuade a tenant to commit to a lease. As known factors that will definitely occur, such as tenant construction allowances or free rent periods, these are quantifiable in terms of amount and timing.
Negotiated inducements
The difference between total income and total expenses.
Net income
A lease in which the tenant agrees to pay not only rent but also a share of other expenses, such as taxes, insurance, and property repairs and maintenance.
Net Lease
The difference between a business's revenues (or gross income) and its operating expenses (such as property taxes, insurance, utilities, management fees, heating and cooling expenses, repairs, and maintenance fees), and used in determining a company's va
Net operating income (NOI)
A method of calculating present value for multiple payments made in different future years and bringing together all of these amounts into today's dollars. A higher discount rate means a smaller NPV.
Net present value (NPV)
Depreciation and amortization; the amounts recorded in these accounts represent economic value received in the current year from an asset, not expenditures in the current accounting period.
Noncash charges
Debts that fall due beyond one year; also called long-term liabilities.
Noncurrent liabilities
A type of loan, preferred by borrowers, in which the lender can look only to the sale of a property as the source of repayment of a loan, not to the borrower's other assets, if the loan is not repaid.
Nonrecourse loans
A comparison of a retailer's annual sales volume to its annual occupancy costs (including base rent, real estate taxes, common-area maintenance, or CAM, building insurance, marketing/promotion funds, and percentage rent), expressed as a percentage.
Occupancy cost ratio
The portion of a business plan that generally deals with the upcoming year, as opposed to the longer-term strategic plan; sometimes simply called a budget.
Operating budget
The complement of the operating margin, frequently used by analysts; the two add up to 100 percent.
Operating cost ratio
All expenses, occurring periodically, used to produce the sales or revenue of a company, except for depreciation.
Operating expenses
A ratio measuring the operational efficiency of a company, this is calculated by dividing operating income by net sales; the result describes what percentage of every dollar of sales was retained as profit from operations.
Operating margin
The portion of a financial statement showing, by specific categories, the revenues earned by a business, the expenses incurred in earning the revenues, and the resulting net income or loss (revenue minus expense) for the current accounting period; also c
Operating statement
Percentage rent paid on gross sales in excess of a stated breakpoint for that tenant.
Overage rent
An amount of rent paid annually, in addition to the tenant's minimum base rent, based on a percentage of gross sales; the rate is defined in the lease.
Percentage rent
A summary. A shortened version outlining the main points of a document.
Grants the premium discount while eliminating the co-insurance penalty clause.
Agreed amount endorsement
The legal term describing a situation in which a lessor's breach of a lease contract causes the lessee to cancel the contract and vacate.
Constructive eviction
Insurance which covers the insured not only for his own liability but also for any liability of others that he assumes under contract.
Contractual liability insurance
The rate of penalty charge tenant is charged when tenant is in default.
Default rate
In shopping center valuation, income attributed to the final year of the investment is divided by a capitalization (CAP) rate yielding the?
Exit cap rate
Development cost x (1 - Loan/Value ratio) =
Equity capital
Equity capital x Hurdle rate =
Equity cash flow
Equity cash flow + Debt service =
Net operating income
The process of transferring information from a journal to a general ledger; when doing this there must be a credit for every debit and vice versa.
Advance payments to suppliers. Examples include rent and insurance. They belong in current assets because if they were not present, more cash would be needed to conduct current operations.
Prepaid expenses
Unlike future value (FV), this is a calculation that relies on the discount rate to determine what the current value of a known future amount of money should be.
Present value (PV)
A compilation of all potential outcomes of a transaction, along with the probability, or degree of certainty that each will occur--ranging from zero, or no possibility, to one, or complete certainty. The sum of all values in such a distribution must equa
Probability distribution
A type of sales created by a store or category that has existed for at least two full years in the same space.
Comparative Sales (Comp sales)
A developer's estimates of all costs of planning, developing, building, and operating a shopping center, an expansion, or a redevelopment. Based on estimates of revenue and expense, the developer is able to compute anticipated net income and projected va
Pro forma
In proportion, according to some exactly calculable factor.
Pro rata
What is available to cover a sudden emergency--in other words, readily available cash; determined by taking current assets and deducting inventories, prepaid expenses, and any other illiquid current assets (ones that cannot be readily converted to cash).
Quick assets
A ratio determined by dividing quick assets by current liabilities; the result measures the adequacy of available working capital.
Quick ratio
The rates calculated for common-area maintenance (CAM), real estate taxes, and other charges based on budgeted expense and budgeted occupancy.
Quote rates
The rate at which existing tenants renew their leases in their existing spaces.
Rate of retention
The tenant's share of add-on charges, stated on a per-square-foot basis.
A ratio determined by dividing average accounts receivable by net sales over 365 days.
Receivable collection
A type of loan, preferred by lenders, that obliges the borrower to use personal assets as a secondary means to repay a loan, if the proceeds from a sale of the property are not sufficient to cover the amount owed on the loan; ofter referred to as a perso
Recourse basis
The relationship between related revenue and expense.
Recovery ratio
The rate at which an investment will grow each year, analogous to the interest rate on a bank account; used to determine future value (FV).
Reinvestment rate
An acronym for a real estate investment trust, a relatively recent means of ownership of shopping centers and other properties.
A purely accounting process by which average rent is deemed income in each year throughout a lease, regardless of the actual schedule of payments.
Rent leveling
A summary schedule listing all spaces in a shopping center, vacant as well as occupied, for quick reference and full disclosure. Information listed here includes tenant names, retail category, size of each store, fixed minimum annual rent, the term of ea
Rent roll
The schedule increases in rent that are specified in a tenant's lease, and budgeted in the appropriate month.
Rent steps
This represents the profit or loss held in a company, based on accumulated income minus whatever is distributed to stockholders or transferred to capital accounts; also referred to as ________ _______.
Retained earnings
A ratio calculated by dividing net income by average total assets.
Return on assets
A measurement of profitability, often used as return on investment (ROI), and calculated by dividing net income by the average equity over a two-year period; this ratio helps an investor determine if a business would make an attractive investment.
Return-on-equity (ROE)
The amount that goes to the owner beyond the return of the investment's capital.
Return on investment (ROI)
A ratio determined by dividing the difference between this year's net sales and last year's net sales by the amount of last year's net sales.
Revenue growth
Net operating income / (1 - Vacancy reserve) =
Required gross income
What a company receives for its products and services; for a shopping center, its rents and other charges paid by tenants.
The difference between a discount rate and a risk-free, or safe, rate of return such as that of a U.S. Treasury note; this factor, often referred to as the marginal cost of capital, compensates the investor for inherent market risks, business risks, port
Risk premium
Architectural fees, interest on loans, payroll, and indirect expenses in a redevelopment or development project.
Soft costs
The portion of a financial statement that reports only on cash receipts and cash payments; it reveals the relationship of net income, shown on the operating statement, to changes in cash balances.
Statement of cash flows
A description of changes on a balance sheet from one accounting period to another; a measurement of the resources provided during an accounting period and the uses to which they were put.
Statement of changes in financial position
This reconciles the balance of retained earnings from the beginning of the year to the end.
Statement of retained earnings
A method of depreciation in which an expense is recognized in equal amounts over the useful life of the asset.
Straight-line depreciation
The amounts recorded to amortize rents evenly over the term of a lease.
Straight-line rents
These are junior to the other creditors in exercising claims against assets.
Subordinated bonds or debentures
Physical items that can be seen and touched, such as property, plant, and equipment; usually called fixed assets.
Tangible assets
Provisions in a lease in which the landlord agrees to pay for certain changes to enhance a tenant's space.
Tenant improvement allowance
The required annual filing of a publicly owned and traded company's financial statement, and all supporting schedules, with the Securities and Exchange Commission (SEC) for public disclosure.
The required filing by a publicly owned and traded company of a quarterly financial statement with the Securities and Exchange Commission (SEC) for public disclosure.
The length of a loan
The concept that the same amount of money is better to have now than at some future date, because now that amount can be invested or used immediately.
Time value of money
A transfer of value to or from a company, the most basic kinds being sales and purchases.
A list of all open accounts in a general ledger, with their balances, used in the preparation of financial statements; when it is complete, debits and credits will prove equal.
Trial balance
A lease in which, unlike a gross lease or a lease with caps, the tenant pays 100 percent of its share of all taxes, insurance, and maintenance associated with a shopping center.
Triple net lease
Required gross income / Gross leasable area =
Break-even rent per square foot
Present value formula for determing present value of an income stream. Explain what each variable represents.
PV = CFš/(1+i)+CF²/(1+i)²+CF³/(1+i)³+CFn/(1+i)n **** whereas CF is the annual rent or NOI, i is the discount rate, and n is the number of years in the lease.
A set sales hurdle, negotiated and entered in a lease, that can be used to determine payments by a tenant to the landlord unrelated to the tenant's actual breakpoint.
Unnatural breakpoint. Also referred to as negotiated breakpoint and artificial breakpoint
The period of time that a purchaser expects to get value for a particular purchase, regardless of how long it is actually in use.
Useful life
A rate, which an appraiser applies to gross revenue, that recognizes that a property will not always be 100 percent leased; for example, a 5 percent _______ ____ rate anticipates that the shopping center is likely to be 95 percent occupied.
Vacancy loss
A determination about a company, set in the marketplace, that is based on the income it produces year after year; it is calculated by dividing net operating income (NOI) by the cap (capitalization) rate.
The difference between current assets and current liabilities.
Working capital
A method of developing a budget without basing it on any previous year's budget; the starting point for each item is zero, and the requirements for the next year's operation must be defined, contracts rebid, and other research performed to come up with t
Zero-based budgeting
Give the formula for Future Value (FV) and explain how to work it.
FV = I x (1 + R)n

You multiply the income times 1.05 for 5% and keep multiplying times 1.05 the number of years out for which you are obtaining FV. for example $100 x (1 + 5%) for two years yields $110.25
For Present Value (PV) show how to obtain PV for income of $40,000 in years one and two and $50,000 in year three. Using a discount rate of 12% for all years, what is the PV for the three years?
$40,000 /(1 + 12%) + $40,000 / (1 + 12%)² + $50,000 / (1 + 12%)³ = $103,191


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