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REIT Leverage and Return Performance: Keep Your Eye on the Target
Author(s) -
Giacomini Emanuela,
Ling David C.,
Naranjo Andy
Publication year - 2016
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/1540-6229.12179
Subject(s) - real estate investment trust , leverage (statistics) , debt , capital structure , business , monetary economics , leverage effect , financial economics , economics , financial system , finance , real estate , computer science , machine learning , volatility (finance) , autoregressive conditional heteroskedasticity
This article examines U.S. REIT leverage decisions and their effects on risk and return. We find that the speed at which REITs close the gap between current debt levels and target leverage levels is 17% annually. REITs that are highly levered relative to the average REIT tend to underperform REITs with less debt in their capital structure. However, REITs that are highly levered relative to their target leverage tend to perform better on a risk‐adjusted basis than under‐levered REITs. Taken together, our results show that REIT leverage has significant return performance effects conditional on deviations from target leverage.