Capital Structure Theory and REIT Security Offerings

Howe, John S.; Shilling, James D.

doi:10.2307/2328147

Cited by 57 publications

(73 citation statements)

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“…For REITs the trade‐off is not obvious because of the effectively tax‐exempt status of REITs at the corporate level. Howe and Shilling (1988) argue that this lack of tax deductibility would force REITs to have a 100% equity capital structure. The logic behind this argument is that, if REITs have to compete for debt funds against non‐REIT firms that receive the tax benefit of debt, they will be at a competitive disadvantage and will find it too expensive to issue debt.…”

Section: Literature Reviewmentioning

confidence: 99%

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An Analysis of REIT Security Issuance Decisions

Boudry¹,

Kallberg²,

Liu³

2010

Real Estate Economics

113

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This article tests the ability of traditional capital structure theories to explain the issuance decisions of real estate investment trusts (REITs). For issuances made between 1997 and 2006, we find strong support for the market timing theory of capital structure. Controlling for past returns and growth, a REIT is more likely to issue equity when its price-to-net asset value ratio is high. This suggests that REITs issue equity in public markets when the cost of equity capital is lower in the public market than in the private market. Consistent with traditional market timing, REITs are more likely to issue equity after experiencing large price increases. We also find some support for REITs following the trade-off theory of capital structure. REITs are less likely to issue debt when proxies for expected bankruptcy costs are high. Copyright (c) 2009 American Real Estate and Urban Economics Association.

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Section: Literature Reviewmentioning

confidence: 99%

“…3 3 Howe and Shilling (1988) argue that, because REITs are not taxed at the corporate level, they would show a marked preference for not issuing debt due to competition in the debt market. Jaffe (1991) shows this not to be true and that a general irrelevance still holds. …”

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confidence: 99%

An Analysis of REIT Security Issuance Decisions

Boudry¹,

Kallberg²,

Liu³

2010

Real Estate Economics

113

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“…Assuming X is normally distributed, differentiating with respect to 0 demonstrates that the sign of this cross-partial depends on the relative sizes oft,, td, Y, and p (Equation [91). An intuitively appealing argument suggests that increased variability of firm value increases the probability of incurring costs of financial distress and the probability of wasting tax shields from interest expenses.…”

Section: Partnership Leverage Relevancy Modelmentioning

confidence: 99%

Capital Structure Determinants in Real Estate Limited Partnerships

Allen¹

1995

The Financial Review

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This paper models the capital structure decision facing partnerships and tests the implications using panel‐data regression analysis for a sample of real estate limited partnerships. The model shows that if an optimal capital structure exists for non‐taxed firms, it is a function of personal tax effects, costs of financial distress, and substitute tax shields. The empirical tests indicate a positive relationship between leverage and the proportion of real estate assets held, and a negative relationship between leverage and both growth rates and non‐debt tax shields. Furthermore, the findings suggest that changes resulting from the Tax Reform Act of 1986 are positively related to partnership leverage.

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“…Previous research on REIT capital structure has largely focused on public debt and equity offerings (Brown and Riddiough 2003) or the signaling effect of bank debt (Howe and Shilling 1988, Elayan, Meyer and Li 2004). Little empirical analysis has been done on the optimal mixture of debt or the dynamics of REIT capital structure in the new REIT era.…”

Section: Introductionmentioning

confidence: 99%

Banking Relationships and REIT Capital Structure

Hardin

2010

Real Estate Economics

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This article examines the evolution of real estate investment trust (REIT) capital structure in the new REIT era with a focus on the effects of banking relationships on REIT capital structure. Using a unique sample of REITs from 1992 to 2003, we find that, after controlling for firm characteristics, REITs with banking relationships are more likely to obtain long-term debt ratings and subsequently issue public debt. Moreover, REITs with banking relationships tend to use less secured debt and have lower leverage. These findings support the notion that banking relationships facilitate REITs' access to the public debt markets and help explain why REITs shift from traditional mortgage financing to bank debt and public capital market financing. The results also support the proposition that firm leverage should be positively related to the amount of a firm's secured debt. Copyright (c) 2010 American Real Estate and Urban Economics Association.

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Capital Structure Theory and REIT Security Offerings

Cited by 57 publications

References 0 publications

An Analysis of REIT Security Issuance Decisions

An Analysis of REIT Security Issuance Decisions

Capital Structure Determinants in Real Estate Limited Partnerships

Banking Relationships and REIT Capital Structure

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