Property Segment Equilibrium Forces and REIT Capital Structure
||Property Segment Equilibrium Forces and REIT Capital Structure
||14th Annual European Real Estate Society Conference in London, UK
||This paper documents that about 60% of REIT capital structure variation is originating within property segments. This evidence suggests that the equilibrium process resulting from the interaction among peers within a segment will determine how a REIT chooses its capital structure. We rely on an increasing number of industry equilibrium studies linking industry equilibrium to capital structure to shed some light on the observed REIT capital structure variation within property segments. We find that REITs adjust their capital structure in response to changes made by segment peers within their leverage quantile. REITs also react to leverage changes made by segment peers outside their leverage quantile, but in this case the adjustment is less strong and in the opposite direction. There is also strong evidence that REITs entering a segment use a higher leverage ratio than incumbents while segment leaders use less leverage than rival firms. Controlling for property segment equilibrium factors increases our overall explanation of REIT capital structure variation by about 12% over and above the traditional trade-off and pecking order determinants of financial leverage
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||Session I2: Corporate Finance Issues in REITs II
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