Credit Line Availability and Utilization in REITs

Abstract

Analysis of real estate investment trust (REIT) credit line availability and use under normal conditions and during the recent financial crisis are provided. Descriptive statistics indicate REIT credit lines represent an important component of capital structure. Credit line availability and utilization increased substantially over the sample period. REITs also maintain precautionary liquidity via credit lines rather than holding cash during the sample period. Multivariate results indicate that credit line availability is directly associated with cash flow uncertainty, dividend distributions, acquisitions, and capital market access and is inversely linked to the market-to-book ratio. Credit line use is unrelated to cash flow volatility and dividends, but is correlated with operating cash flow, acquisitions, and capital market access. Despite finding that line availability is influenced by dividend payments, REITs do not systematically use lines to pay dividends, implying that dividends are paid from operating cash flows.

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