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Optimal Leverage Strategies for Asian REITs

Author

Listed:
  • Carolyn W. Chang
  • Kian Guan Lim
  • Tien Foo Sing

Abstract

This paper studies the optimal leverage strategies for REITs in three major Asian markets - Hong Kong, Japan, and Singapore, from 2001 to 2013. REITs are a real-estate-focused investment holding and management companies that are subject to the REIT rules with respect to tax transparency, earning distribution, real estate holding and leverage limit. REITs use relatively less debt than other real estate operating firms, after controlling for agency risks, dividend yields, market risks, and also property sector, country, and year fixed effects. We find that dividend payouts have no effect on the leverage strategies; and the tax ratio increases debt usage of REITs. We also analyse the liquidation costs and business uniqueness effects. We find real estate value to total firm value ratio, as a proxy of liquidation cost, has negative effects on debt ratios for both real estate firms. For the uniqueness reason, REITs with a high concentration of rental revenue stream are more vulnerable to liquidation risks, and thus are more likely to have lower debt ratio.

Suggested Citation

  • Carolyn W. Chang & Kian Guan Lim & Tien Foo Sing, 2018. "Optimal Leverage Strategies for Asian REITs ," ERES eres2018_71, European Real Estate Society (ERES).
    • Handle: RePEc:arz:wpaper:eres2018_71
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    More about this item

    Keywords

    Capital Structure; Dividend Payout; Liquidation Value; REIT; Uniqueness of Business;
    All these keywords.

    JEL classification:

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

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