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Credit Line Availability and Utilization in REITs

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  • William G. Hardin III

    ()
    (Florida International University)

  • Matthew D. Hill

    ()
    (University of Mississippi)

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    Abstract

    Analysis of REIT credit line availability and use under normal conditions and during the recent financial crisis are provided. Descriptive statistics indicate REIT credit lines represent an important component of capital structure, credit line availability and utilization have increased substantially over the sample period, and REITs maintain precautionary liquidity via credit lines rather than holding cash. Multivariate results indicate that credit line availability is directly associated with cash flow uncertainty, dividend distributions, acquisitions, and capital market access and is inversely linked to the market-to-book ratio. Credit line use is unrelated to cash flow volatility and dividends, but is correlated with operating cash flow, acquisitions, and capital market access. Unlike with non-REITs, when setting credit limits lenders focus on dividends and not just operating cash flow. Despite finding that line availability is influenced by dividend payments, REITs do not systematically use lines to pay dividends implying that dividends are paid from operating cash flows.

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    File URL: http://aux.zicklin.baruch.cuny.edu/jrer/papers/pdf/new_current/vol33n04/03.507_530.pdf
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    Bibliographic Info

    Article provided by American Real Estate Society in its journal journal of Real Estate Research.

    Volume (Year): 33 (2011)
    Issue (Month): 4 ()
    Pages: 507-530

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    Handle: RePEc:jre:issued:v:33:n:4:2011:p:507-530

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    Postal: American Real Estate Society Clemson University School of Business & Behavioral Science Department of Finance 401 Sirrine Hall Clemson, SC 29634-1323
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    Web page: http://www.aresnet.org/

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    Postal: Diane Quarles American Real Estate Society Manager of Member Services Clemson University Box 341323 Clemson, SC 29634-1323
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    Web: http://aux.zicklin.baruch.cuny.edu/jrer/about/get.htm

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    Cited by:
    1. Chinmoy Ghosh & Le Sun, 2014. "Agency Cost, Dividend Policy and Growth: The Special Case of REITs," The Journal of Real Estate Finance and Economics, Springer, vol. 48(4), pages 660-708, May.

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