Financing Decisions of REITs and the Switching Effect


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Lucia Gibilaro, Gianluca Mattarocci

367 / 396




International Real Estate Review


Real estate investment trusts (REITs) frequently collect new financial resources by issuing new shares and bonds or requesting for new loans to finance their investment policy. Due to the low transparency of the market, the success and the cost of financing are significantly affected by the reputation and the guarantee offered by the syndicated consortium. International evidence suggests that the decision to change syndicated banks could impact the success of raising new capital for industrial and financial firms, but there is no concrete evidence which suggests that this is the case in the real estate industry.

The paper considers a representative sample of US REITs to examine the frequency of switching decisions in the industry and their relationship with leverage policy. The empirical analysis demonstrates a greater likelihood of creating a new financing consortium when a REIT is poorly performing and the average interest rate is increasing. Moreover, the switching strategy is more frequently adopted when the REIT is planning to increase leverage and the current level of leverage is still far from the target value. Results obtained are robust with respect to the new consortium definition and the initial public offering (IPO) effect.

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REITs, Syndicated Consortium, Financing Decisions, Relationship Lending, Target Leverage

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