Decomposition of Debt and the Road to REIT Returns

41 Pages Posted: 23 Dec 2015

See all articles by Linda Allen

Linda Allen

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance

Mariya Letdin

Florida State University

Date Written: December 22, 2015

Abstract

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

Allen, Linda and Letdin, Mariya, Decomposition of Debt and the Road to REIT Returns (December 22, 2015). Available at SSRN: https://ssrn.com/abstract=2707784 or http://dx.doi.org/10.2139/ssrn.2707784

Linda Allen

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance ( email )

17 Lexington Avenue
New York, NY 10010
United States
646-312-3463 (Phone)
646-312-3451 (Fax)

HOME PAGE: http://stern.nyu.edu/~lallen

Mariya Letdin (Contact Author)

Florida State University ( email )

College of Business
Tallahassee, FL 32306
United States

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