Capitalization Rate
The capitalization rate (or “cap” rate) for a property is determined by dividing the property’s net operating income by its purchase price. Generally, high cap rates indicate higher returns and greater perceived risk.

Cost of Capital

The cost to a company, such as a REIT, of raising capital in the form of equity (common or preferred stock) or debt. The cost of equity capital generally is considered to include both the dividend rate as well as the expected equity growth either by higher dividends or growth in stock prices. The cost of debt capital is merely the interest expense on the debt incurred.

Equitization

The process by which the economic benefits of ownership of a tangible asset, such as real estate, are divided among numerous investors and represented in the form of publicly-traded securities.

Funds From Operations (FFO)

The most commonly accepted and reported measure of REIT operating performance. Equal to a REIT’s net income, excluding gains or losses from sales of property, and adding back real estate depreciation.

Leverage

The amount of debt in relation to either equity capital or total capital.

Net Asset Value (NAV)

The net “market value” of all a company’s assets, including but not limited to its properties, after subtracting all its liabilities and obligations.

Positive Spread Investing (PSI)

The ability to raise funds (both equity and debt) at a cost significantly less than the initial returns that can be obtained on real estate transactions.

Real Estate Investment Trust Act of 1960

The federal law that authorized REITs. Its purpose was to allow small investors to pool their investments in real estate in order to get the same benefits as might be obtained by direct ownership, while also diversifying their risks and obtaining professional management.

Real Estate Investment Trust (REIT)

A REIT is a company dedicated to owning, and in most cases, operating income-producing real estate, such as apartments, shopping centers, offices and warehouses. Some REITs also engage in financing real estate.

REIT Modernization Act of 1999

Federal tax law change whose provisions allow a REIT to own up to 100% of stock of a taxable REIT subsidiary that can provide services to REIT tenants and others. The law also changed the minimum distribution requirement from 95 percent to 90 percent of a REIT’s taxable income — consistent with the rules for REITs from 1960 to 1980.

Straight-lining

Real estate companies such as REITs “straight line” rents because generally accepted accounting principles require it. Straight lining averages the tenant’s rent payments over the life of the lease.

Tax Reform Act of 1986

Federal law that substantially altered the real estate investment landscape by permitting REITs not only to own, but also to operate and manage, most types of income-producing commercial properties. It also stopped real estate “tax shelters” that had attracted capital from investors based on the amount of losses that could be created.

*Source: National Association of Real Estate Investment Trusts (NAREIT)
http://www.reit.com/AllAboutREITs/GlossaryofREITTerms/tabid/62/Default.aspx