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Paper eres2004_133:
The weighted average cost of capital (WACC) of listed property companies

id eres2004_133
authors Eder, Matthias; Becker, Martin
year 2004
title The weighted average cost of capital (WACC) of listed property companies
source 11th European Real Estate Society Conference (2-5 June 2004) Milano, Italy
summary The Weighted Average Cost of Capital (ACC) has been established as an important figure to determine the hurdle rate for investments and the discount rate for company valuation. Therefore. the identification of their specific WACC is crucial for every listed property company. Based on theoretical discussions on the methodology of calculating the WACC this paper assesses the suitability of the application of WACC/CAPM to property companies. Thus. WACCs of more than 50 European property companies from the EPRA index have been estimated and analysed for contrasting the standard CAPM in the market. The expected market return as a benchmark has been initially calculated using the individual domestic stock market. The results identify a restricted suitability of the domestic stock market as a benchmark for the required return on equity of property companies. Furthermore, the relationships between the business fisk and the WACC are assessed in a cross-sectional comparison to identify implications on the comp€titiveness of listed property companies in the business segment they operate in.
keywords Beta; Capital Asset Pricing Model (CAPM); Cost of Equity; EPRA Index; listed Property Companies; Weighted Average Cost of Capital (WACC)
series ERES:conference
discussion No discussions. Post discussion ...
ratings
session Performance and Valuation of Real Estate Securities
last changed 2008/12/21 10:41
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