Capital structure and European property companies

The broad aim of this research is to develop a better understanding of the capital structure practices and processes of European real estate companies. The emphasis is on internal processes and the firmsí rationale for particular decision making behaviour. By capital structure processes and practices, we mean the ways by which firms obtain capital for projects and activities. Broadly, this includes decisions about debt versus equity, use of internally generated capital, decisions about debt maturity profile and seasoned equity issuance. In turn, such decisions affect the required returns for stakeholders: the required cost of equity, the marginal cost of debt, tax impacts, dividend policy; and, again in turn, these feed into required returns discount rates, target rates of return, hurdle rates - for project appraisal. There are, thus, interactions between capital structure decisions and capital budgeting decisions. The primary motivation for the research relates to apparent discontinuities between the capital structure decisions expected from the models of financial theory; observed market practice on capital structure; and the reported decision-making processes and views of market participants. The research is intended to explore any differences in expected, observed and reported practices and to seek to reconcile or explain those differences. A secondary motivation is to explore the extent that market practices and manager attitudes change over the cycle: are property company managers simply reactive or are there defined and consistent strategies that give rise to changes conditional on the market environment?