REIT capital structure: is it market imposed?

Abstract

Purpose This study sets out to focus on the identification of determinants of real estate limited partnership (REIT) capital structure from a market perspective. Design/methodology/approach This study uses ordinary least squares regression to test whether REIT capital structure is impacted by various market variables. Findings The findings indicate that investors do appear to be attracted to specific debt characteristics of REITs or, simply put, REIT capital structure is influenced by market factors. REIT debt levels appear to be directly influenced by the price‐to‐book ratio and are inversely related to the percentage of institutional ownership and price‐to‐cash flow. Forecast growth rates do not appear to significantly influence debt while the type of REIT (mortgage, retail, etc.) does appear to influence the level of debt. Research limitations/implications Small sample size limits applicability of results, so further research with larger datasets is appropriate. Practical implications Investors do appear to consider capital structure when purchasing REITs. REIT managers should consider this when determining whether to incur additional debt. Originality/value The determination of various market factors linked to REIT capital structure.

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