 ##### I. Discount Rate

The discount rate used in financial calculations is usually equal to the cost of capital. Risk considerations associated with uncertain cash flows and with other developments are included within the discount rate.

In another words, discount rate is the interest rate used to calculate the present value of future cash flows. In other words, the discount rate tells how much of the future value consists of interest and how much of it is principal.

Variables affecting the discount rate:
• Economic conditions
• Inflation rate
• Rate of returns of comparable properties
• Rate of return for alternative investments.
• According to our investigations, the discount rates in Turkey vary between 9-18% for the projects.

##### II.Capitalization Rate
A capitalization rate (or "Cap Rate") is a measure of the ratio between the net income produced by real estate and its capital cost (the original price paid to own the asset). The rate is calculated in a simple fashion as follows:
• Annual Net Income / Capital Cost = Capitalization Rate
For instance, if a building is purchased for \$1,000,000 sale price and it produces \$100,000 in positive net cash flow (the amount left over after fixed costs and variable costs is subtracted from gross lease income) during one year, then:
• \$100,000 / \$1,000,000 = 0.10 = 10%

That asset's capitalization rate is 10% (ten percent).

Capitalization rates are a measure of how fast an investment will pay for itself in net cash flows. In the example above, the purchased building will be fully capitalized (pay for itself in net income) after ten years.

In real estate investment, commercial buildings are often valued according to project capitalization rates used as investment criteria. This is done by algebraic manipulation of the formula above:
• Capital Cost (asset price) = Annual Net Income / Capitalization Rate

In Europe, this is also called "Yield".

Variables affecting the capitalization rate:
• It varies from market to market
• It varies according to the different types of property
• It changes with economic conditions.
According to our investigations, we can say that the capitalization rates in Istanbul are around;
• 6-8% for the residential buildings
• 8-12% for the commercial buildings (warehouse, plant, office, stores, hotel and etc.)
• 7-9% for shopping centers

##### III.Indexation Rate

The indexation rate generally means feature of a contract or agreement designed to adjust its value for general price-level changes.

• For Turkish Lira payments - annual indexation based on cost of living index.
• For US \$ payments - annual indexation usually 1 – 5 %.

The automatic adjustment of an economic variable, such as wages, taxes, or pension benefits, to a cost-of-living index, so that the variable rises or falls in accordance with the rate of inflation.

##### IV. Inflation Rate

The inflation rate is the rate of increase in the price of goods and services over a given period of time. The most generally used measures of inflation are the Consumer Price Index and Producer Price Index.

##### V.Net Present Value (NPV)

The future stream of benefits and costs converted into equivalent values today. This is done by assigning monetary values to benefits and costs, discounting future benefits and costs using an appropriate discount rate, and subtracting the sum total of discounted costs from the sum total of discounted benefits.

##### VI.IRR (Internal Rate of Return)

IRR is the discount rate which makes the net present value of revenue flows equal to zero. The rate of interest (expressed as a percentage) at which all-future cash flows (positive and negative) must be discounted in order that the net present value of those cash flows should be equal to zero. It is found by trial and error by applying present values at different rates of interest in turn to the net cash flow.

It is something called the discounted cash flow rate of return.

##### VII. Management Cost

Management services for any multi tenant properties can be provided by in-house or outsource. Management cost is generally calculated as a percentage of actual gross income in financial tables. It is periodic expense to keep the property in well maintained and provide permanent cash flow.

Properties which management cost is used;
• Shopping centre
• Office
• Hotel
Management cost generally based on three expenses;
Fixed Cost; is not affected from the occupancy of the property in general meaning. This cost is paid by the owner of property for vacant units.
Variable Cost; is a kind of management cost which changes with the occupancy level or the scope of provided service.
Renovation Cost; is for renovation of the building which must be renew within economic life of the building.

##### VIII.Gini Coefficient

The Gini coefficient is a measure of inequality developed by the Italian statistician Corrado Gini and published in his 1912 paper "Variabilità e mutabilità". It is usually used to measure income inequality, but can be used to measure any form of uneven distribution. The Gini coefficient is a number between 0 and 1, where 0 corresponds with perfect equality (where everyone has the same income) and 1 corresponds with perfect inequality (where one person has all the income, and everyone else has zero income). The Gini index is the Gini coefficient expressed in percentage form, and is equal to the Gini coefficient multiplied by 100.

While the Gini coefficient is mostly used to measure income inequality, it can also be used to measure wealth inequality. This use requires that no one has a negative net wealth.

• The Gini coefficient's main advantage is that it is a measure of inequality, not a measure of average income or some other variable which is unrepresentative of most of the population, such as gross domestic product.
• Gini coefficients can be used to compare income distributions across different population sectors as well as countries, for example the Gini coefficient for urban areas differs to that of rural areas in many countries (though the United States' urban and rural Gini coefficients are nearly identical).
• The Gini coefficient is sufficiently simple that it can be compared across countries and be easily interpreted. GDP statistics are often criticized as they do not represent changes for the whole population, the Gini coefficient demonstrates how income has changed for poor and rich. If the Gini coefficient is rising as well as GDP, poverty may not be improving for the vast majority of the population.
• The Gini coefficient can be used to indicate how the distribution of income has changed within a country over a period of time, thus it is possible to see if inequality is increasing or decreasing.

##### IX. Market Value (RICS)
An opinion of the best price at which the sale of an interest in property would have been completed unconditionally for cash consideration on the date of valuation, assuming:
• a willing seller;
• that, prior to the date of valuation, there has been a reasonable period (having regard to the nature of the property and the state of the market) for the proper marketing of the interest, for the agreement of the price and terms and for the completion of the sale;
• that the state of the market, level of values and other circumstances were, on any earlier assumed date of exchange of contracts, the same as on the date of valuation;
• that no account is taken of any additional bid by a prospective purchaser with a special interest; and
• that both parties to the transaction had acted knowledgeably, prudently and without compulsion.