Articlegreen2016

REIT Leverage and Return Performance: Keep Your Eye on the Target

Emanuela Giacomini · David Curtis Ling · Andy Naranjo

49 citations0/0 files storedReal Estate Economics

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Corporate Finance and Governance Financial Markets and Investment Strategies Financial Analysis and Corporate Governance

Abstract

Abstract This article examines U.S. REIT leverage decisions and their effects on risk and return. We find that the speed at which REITs close the gap between current debt levels and target leverage levels is 17% annually. REITs that are highly levered relative to the average REIT tend to underperform REITs with less debt in their capital structure. However, REITs that are highly levered relative to their target leverage tend to perform better on a risk‐adjusted basis than under‐levered REITs. Taken together, our results show that REIT leverage has significant return performance effects conditional on deviations from target leverage.

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References

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2017Historical Returns of the Market Portfolio

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