Commercial real estate financial metrics

@@ -11,8 +11,9 @@ short_description: "Definitions of the primary financial metrics used in commerc
status: active
bcsc_class: public-disclosure-safe
language_protocol: PROSE-TOPIC
last_edited: 2026-08-24
last_edited: 2026-09-04
editor: woodfine-editorial
audience: public
paired_with: cre-financial-metrics.es.md
---

@@ -28,7 +29,9 @@ expenses (property taxes, insurance, utilities, management, maintenance) but bef
service, capital expenditure, depreciation, and income tax. NOI is the primary input to
property valuation through the direct capitalisation method. Two variants are in use: *cash
NOI* (actual cash flows) and *GAAP NOI* (straight-line rent under IFRS 16, with tenant
improvement allowances amortised). See net-operating-income.
improvement allowances amortised). NOI is not an IFRS line item — it is a supplementary
measure presented alongside the audited statements, never in place of them; see
[[non-ifrs-measures-explained|Non-IFRS Measures Explained]].

**Effective gross income (EGI)** — Gross potential income less vacancy and credit loss. The
intermediate step between the theoretical maximum revenue and NOI.
@@ -61,14 +64,21 @@ principal repayment). Used as the borrowing covenant in the direct-hold programm
vehicle may not issue further secured debt if doing so would reduce the ICR below 1.20×,
calculated in aggregate across the vehicle rather than any single property. ICR is a more
lenient measure than DSCR when the mortgage has an amortising structure, because DSCR
includes principal repayment in the denominator while ICR excludes it. See
interest-rate-transmission.
includes principal repayment in the denominator while ICR excludes it. Because the interest obligation sits in the denominator, a rise in
financing costs reduces the ICR even where the property's income is unchanged; see
[[debt-service-and-financing-structure|Debt Service and Financing Structure]] for how the
covenant constrains mortgage quantum, and [[financing-and-interest-rate-risk|Financing and
Interest Rate Risk]] for what follows when rates move against the vehicle.

## Valuation metrics

**Capitalisation rate (cap rate)** — NOI divided by market value. Applied in reverse (value
= NOI ÷ cap rate) in the direct capitalisation valuation method. Market cap rates are
observable from comparable transactions. See capitalization-rate.
observable from comparable transactions. They move with interest rates, investor demand,
and the perceived risk of the asset class; a rise in market cap rates reduces appraised
value even where property income is unchanged — see [[market-and-property-risk|Market and
Property Risk]]. The cap rate is a market-derived ratio, not an IFRS-defined accounting
measure; see [[non-ifrs-measures-explained|Non-IFRS Measures Explained]].

**Net asset value (NAV)** — The sum of the fair values of all properties in the portfolio
less all debt obligations and other liabilities. NAV is the primary balance-sheet-based
@@ -131,6 +141,11 @@ the resilience of an asset to vacancy increases.

## See also

- net-operating-income — the full description of the NOI metric and its variants
- capitalization-rate — the valuation metric and its sensitivity to market conditions
- interest-rate-transmission — how changes in financing costs affect the leverage metrics
- [[non-ifrs-measures-explained|Non-IFRS Measures Explained]] — why NOI, FFO, AFFO, and the
  capitalisation rate supplement the audited IFRS statements rather than replace them
- [[market-and-property-risk|Market and Property Risk]] — how movements in market
  capitalisation rates change appraised value
- [[debt-service-and-financing-structure|Debt Service and Financing Structure]] — the
  loan-to-value and interest coverage constraints these leverage metrics measure
- [[financing-and-interest-rate-risk|Financing and Interest Rate Risk]] — how changes in
  financing costs reach the vehicle's borrowing capacity