Financing Choice and Liability Structure of Real Estate Investment Trusts

David T. Brown · Timothy J. Riddiough

135 citations0/0 files storedReal Estate Economics

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Corporate Finance and Governance Financial Analysis and Corporate Governance Credit Risk and Financial Regulations

Abstract

We conduct an analysis of public financial offerings of equity Real Estate Investment Trusts (REITs), with a focus on liability structure effects and whether or not firms target longer‐run debt ratios. Our major findings are that (1) proceeds from equity offers are more likely to fund investment, whereas public debt offer proceeds are typically used to reconfigure the liability structure of the firm; (2) public debt issuers are often capital constrained and target total leverage ratios to retain an investment grade credit rating; and (3) the preoffer liability structure affects the issuance choice decision, in that firms with higher preoffer levels of secured (unsecured) debt tend to issue equity (public debt). Other notable findings are that the market for public REIT debt is integrated with the broader debt markets and that higher credit quality firms issue longer‐maturing bonds.

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1984Corporate financing and investment decisions when firms have information that investors do not have 2002Market Timing and Capital Structure 1981Principles of Corporate Finance.1995A Simple Approach to Valuing Risky Fixed and Floating Rate Debt 1996Optimal Capital Structure, Endogenous Bankruptcy, and the Term Structure of Credit Spreads 1991Debt Maturity Structure and Liquidity Risk 1999Testing static tradeoff against pecking order models of capital structure1This paper has benefited from comments by seminar participants at Boston College, Boston Unsiversity, Dartmouth College, Massachusetts Institute of Technology, University of Massachusetts, Ohio State University, University of California at Los Angeles and the NBER, especially Eugene Fama and Robert Gertner. The usual disclaimers apply. Funding from MIT and the Tuck School at Dartmouth College is gratefuly acknowledged. We also thank two reviewers, Richard S. Ruback and Clifford W. Smith, Jr., for helpful comments.1 1986Predicting returns in the stock and bond markets

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2010Further Evidence on the Capital Structure of REITs 2008An Analysis of the Financing Decisions of REITs: The Role of Market Timing and Target Leverage 2011AN OVERVIEW OF EQUITY REAL ESTATE INVESTMENT TRUSTS (REITS): 1993–2009

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