This Glossary provides definitions of terms related to property and property investing.
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Term and Definition
Passive management

A style of investment management which aims to achieve investment returns in line with those of a specified market or index. May also refer to a style of investment management that focuses on holding investments for an extended period rather than trading to maximise gains.

Payback period

The payback period is the length of time that a landlord/investor requires for the capital investment of a project be recovered.

Peppercorn rent / Peppercorn lease

A nominal rent is set for a specific period. A nominal rent is below market value and is usually $1.

Percentage rent / Percentage Lease / Turnover rent / Turnover Lease / Overage / Participation rent

A percentage of the tenant's total annual sales paid in addition to rent. Percentage rent is usually paid after a predetermined sales level has been achieved. The agreed percentage factor is applied to all sales over the predetermined level. The percentage rent makes the landlord a partner in the tenant's business. Only used in retail leases.

Performance fees

Fee payable to the fund manager for the returns achieved by the fund. The fee is calculated, either during the life of the fund or at the termination of the fund, as a percentage of the fund's performance over a designated hurdle rate or benchmark.

There are a number of different methods of calculating performance fees:

1) On the overall return over the entire life of the fund, i.e. since inception

2) On a rolling basis whereby the performance fee for the period (i.e. annual) is based on the performance over a longer period of time, i.e. 3 years; or

3) On the performance for the period in which the performance fee is being paid.

Performance fees can be paid to the fund manager either from income returns or from capital.
Note: some agreements can pay performance fees even when returns are negative.

Potable water

Water which is suitable for human consumption. Commonly referred to as drinking water.

Practical completion

The stage reached when a project has been essentially completed and is fit for its intended purpose, except for minor omissions and defects that do not prevent its use, and with tests required under the contract having been carried out. Practical completion is marked by the issue to the contractor of a Certificate of Practical Completion.

Pre-commitment

A contractual commitment to occupy a property prior to completion or refurbishment of a building.

Present Value

Current value of a future amount or scheme of payments discounted at an appropriate discount rate. See Net Present Value

Preventative maintenance

The maintenance contractor performs regular inspections, maintenance and calibration according to an agreed schedule and reports any obvious deterioration of the plant.

Prime industrial

An established industrial precinct within capital city metropolitan boundaries, the property should be within 2km of a B double-rated road. Modern designed warehouse, in good operational order and well maintained. Warehouse component: minimum 8m ceiling clearance with minimal internal columns. High-tech and specialised properties may have internal clearances below 8m. The building will be sprinklered and preferably have tilt slab walls. Distribution centres will have a plot ratio of a maximum 55% with the site incorporating good B double parking and cornering clearances. Rents and yields in this category will be pacesetters. e.g. Central West, Braybrook, VIC.

Professional fees

Fees for the services of other professionals, e.g. tax advisers, not covered by other categories of fund expenses.

Project management fees

A fee paid to the fund manager for strategic advice on project management during the life of the project.

Property management fee

A fee paid to a property manager for managing the operations of individual assets within a fund.

Property management fees cover services including:
– collection of rents
– payments of outgoings
– maintenance including repair
– provision of services, insurance and supervision of staff employed for services; and
– negotiations with tenants or prospective tenants

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