Cap Rate (Capitalisation Rate)
The ratio of a property's net operating income to its purchase price, expressed as a percentage. A lower cap rate indicates a higher price relative to income (lower yield), typically reflecting stronger tenant quality, longer lease, or better location.
WALE (Weighted Average Lease Expiry)
The average time remaining across all leases in a property, weighted by the income each lease contributes. A higher WALE indicates greater income security. Calculated here on the remaining fixed term only, not including options.
True Net Yield
The net operating income (after all non-recoverable outgoings) divided by the purchase price. Labelled "(at ask)" when calculated from the asking price. This is the most accurate measure of the income return on a commercial property investment.
NOI (Net Operating Income)
Gross rental income less all non-recoverable outgoings (management fees, land tax portfolio loading). This is the income available to service debt and provide a return to the investor.
EGI (Effective Gross Income)
Gross rental income less vacancy allowance. Represents the income actually collected after accounting for periods when the property may be vacant between leases.
IRR (Internal Rate of Return)
The annualised rate of return that makes the net present value of all cashflows (including purchase, income, and sale proceeds) equal to zero. The leveraged IRR measures the return on equity; the unleveraged IRR measures the return on the total project cost.
Cash-on-Cash Return
The pre-tax cash flow in a given year divided by the total equity invested. Measures the annual income yield on your equity. In Year 1, this is lower than the property yield when debt costs exceed the property yield (negative leverage).
ICR (Interest Coverage Ratio)
Net operating income divided by annual interest expense. Measures how many times the property's income covers the interest bill. Standard commercial lender minimum is 1.5x. Below 1.5x may require a lower LVR or additional servicing income.
Net Lease
A lease structure where the tenant pays all or most outgoings (council rates, water, insurance, maintenance) in addition to the base rent. A fully net lease means the landlord's income is largely fixed and predictable, with minimal outgoings risk.
NLA (Net Lettable Area)
The floor area of a building available for lease, measured to the internal face of walls. NLA excludes common areas, plant rooms, and structural elements. Rent and building rates are typically expressed per sqm of NLA.
LVR (Loan-to-Value Ratio)
The loan amount as a percentage of the property's purchase price. A 70% LVR means the lender provides 70% of the purchase price as debt, and the investor contributes 30% as equity (plus acquisition costs).
Equity Multiple
Total returns (income + capital gain) divided by the initial equity invested. An equity multiple of 1.95x means that for every $1 of equity invested, the investor receives $1.95 back over the hold period (including the return of the original equity).
Terminal Value
The estimated sale price of the property at the end of the hold period. Calculated here using two methods: (1) terminal cap rate (Year 10 NOI divided by the exit cap rate) and (2) capital growth reference (5% pa compounding). Return metrics use the terminal cap rate method.
CapEx (Capital Expenditure)
One-off capital spending on the property, typically for major repairs, refurbishment, or tenant incentives. Modelled here as 3.0% of the purchase price ($60,900) applied in Year 5 and Year 10 of the hold period.
Absorption Rate
The rate at which available space is leased in a given market over a period of time. Calculated as the number of leased transactions divided by the number of active listings. A higher absorption rate indicates stronger demand relative to supply.
LSPN (Location Specific Practice Number)
A unique identifier issued by the Australian Government Department of Health to a specific practice location approved to provide Medicare-eligible MRI services. The LSPN is site-specific and non-transferable. Victorian Imaging Specialists holds LSPN 012459 at 17 Church Street, Traralgon.
