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The weighted average cost of capital (WACC) of listed property companies

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  • Matthias Eder
  • Martin Becker

Abstract

The Weighted Average Cost of Capital (ACC) has been established as an important figure to determine the hurdle rate for investments and the discount rate for company valuation. Therefore. the identification of their specific WACC is crucial for every listed property company. Based on theoretical discussions on the methodology of calculating the WACC this paper assesses the suitability of the application of WACC/CAPM to property companies. Thus. WACCs of more than 50 European property companies from the EPRA index have been estimated and analysed for contrasting the standard CAPM in the market. The expected market return as a benchmark has been initially calculated using the individual domestic stock market. The results identify a restricted suitability of the domestic stock market as a benchmark for the required return on equity of property companies. Furthermore, the relationships between the business fisk and the WACC are assessed in a cross-sectional comparison to identify implications on the compÄtitiveness of listed property companies in the business segment they operate in.

Suggested Citation

  • Matthias Eder & Martin Becker, 2004. "The weighted average cost of capital (WACC) of listed property companies," ERES eres2004_133, European Real Estate Society (ERES).
    • Handle: RePEc:arz:wpaper:eres2004_133
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    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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