GLOSSARY OF TERMS - D

Ratio of net operating income to annual debt service. Expressed as net operating income divided by annual debt service.

payments on debt and principal payments to retire debt. For accounting purposes, interest payments are considered to be expenses while principal payments are treated as capital expenditures.

The annual net operating income (NOI) from a property divided by annual cost of debt service, including principal payments. DSCR below 1.0 means that there is insufficient cash flow generated by the property to cover debt payments. Also called Coverage Ratio.

Covenants, conditions, private agreements that affect the use of the land.

Is a substitution of collateral to remove liability by pairing financial assets sufficient to ensure that all debt service payments are met. Nearly every fixed-rate conduit/CMBS loan originated since 1998 requires the borrower to defease their loan before selling or refinancing. The borrower uses proceeds from the refinance or sale to purchase a portfolio of U.S. government securities that is sufficient to make all of the remaining debt service payments

The sale or disposition of real estate or personal property (relinquished property) and the acquisition of like-kind real estate or personal property (replacement property) structured as a tax-deferred, like-kind exchange transaction pursuant to Section 1031 of the Internal Revenue Code and Section 1.1031 of the Treasury Regulations in order to defer Federal, and in most cases state, capital gain and depreciation recapture taxes.

The Delaware Statutory Trust, or DST, is a separate legal entity created as a trust under Delaware statutory law. The law permits a very flexible approach to the design and operation of these entities. The Internal Revenue Service issued a revenue procedure on July 20, 2004 regarding the use of DST's for the purchase of fractional interests in real property that would qualify as like-kind replacement property in conjunction with a tax-deferred like-kind exchange transaction. Unlike a Tenant in Common investors has no control and must be sold as a security. Lenders frequently prefer because they are dealing with only one entity, not a number of tenant in common owners.

Characteristics of human populations as defined by population size and density of regions, population growth rates, migration, vital statistics, and their effect on socio-economic conditions which can have a direct impact on the success or failure of an investment property.

One of the more significant benefits of investing in income-producing real estate is the ability to decrease the tax obligation on the income produced through depreciation. If an investment property is sold and no tax deferred exchange takes place there is tax owed on the amount deducted.

Television or broadcast market areas as defined by Nielsen Media Research.

A practice authorized by Treasury Revenue Ruling 90-34 whereby either the relinquished property or the replacement property can be deeded directly from seller to buyer without deeding the property to the Qualified Intermediary.

The process of separating and identifying the various forces and factors which affect the demand for a given property type in a given market or the differentiation of demand by category. See demographics.

The process of separating and identifying the various forces and factors which affect the supply of a given property type in a given market or the differentiation of supply by category (including leased versus owned, unit type, price, and geographic submarket). See demographics.

Estimates the present value of future cash flows projected to be generated by a given asset.

Used to determine the present value of future payments or expenditures. The percentage rate at which money or cash flows are discounted. The discount rate reflects both the market risk-free rate of interest and a risk premium. Used when comparing various investments. Also see opportunity cost.

Discounted cash flow (DCF) uses future free cash flow projections and discounts them (most often using the weighted average cost of capital) to arrive at a present value to evaluate the potential for investment. To use properly quality of cash flow must be carefully understood.

A method of reducing risk by investing in unrelated (uncorrelated) assets. For example investing in different asset classes, in different locations with varying degrees of risk would provide diversification for an investment portfolio.

When a REIT uses property units to acquire properties from owners who would like to defer taxes that would come due if the property(ies) were sold or swapped for stock. See UPREIT.

An approach to estimating the trade area (and sales/revenue potential) for a given retail establishment or center based on the central place theory concept of range and how far people are willing to travel to obtain retail goods as defined by drive time or mileage.

Used to change the form of ownership. An example would be ownership wanting to change from a partnership to a tenant in common. Done frequently for tax planning purposes.

(Limited agency) the agent represents two principals in the same transaction.

An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regarding a transaction.