Decomposition of Debt and the Road to REIT Returns
41 Pages Posted: 23 Dec 2015
Date Written: December 22, 2015
Analyzing a hand-collected loan level database of heterogeneous REIT borrowings and controlling for REIT risk and loan collateral as well as endogeneity of access to public debt markets, we find that mortgage loans include a rate premium to compensate banks for monitoring. Access to public debt markets raises financing costs, inconsistent with a bank hold-up problem for REITs. However, non-monitored debt financing costs are reduced when bank lenders and equity analysts monitor REIT management. Equity alpha reflects positive abnormal returns from equity analyst monitoring, but not from costly bank monitoring. Equity gains from analyst monitoring are not found during recessions.
Keywords: Bank Certification, Collateral, REIT, Interest Rates, Bank Hold Up, Debt overhang, Equity alpha returns
JEL Classification: E43, G12, G21, R33
Suggested Citation: Suggested Citation