THE CAPITAL STRUCTURE DECISIONS OF GLOBAL REAL ESTATE INVESTMENT TRUSTS

Abstract

This study investigates the financing decisions of global Real Estate Investment Trusts (REITs), focusing on the non-linearities in the determinants of capital structure and the dynamic adjustment toward an optimal leverage ratio. This is done by examining yearly data from seven REIT markets including Australia, Japan, Singapore, Canada, US, France and Netherlands between 2005 and 2012, using quantile regressions and dynamic panel regressions. In the quantile regression, it is found that the impacts of capital structure determinants differ considerably in terms of size of the estimated coefficients and statistical significance, depending on the REITs’ leverage levels for most countries in the sample. In addition, some of these impacts even change sign between low leveraged and high leveraged REITs. The dynamic analysis reveals the existence of a target capital structure and an adjustment process toward that target in four countries, comprising Australia, Canada, US and France. Furthermore, different adjustment speeds are found in these countries.