Property segment and REIT capital structure

This paper relies on an increasing number of industry equilibrium studies linking a firm to its industry peers to help ; explain the observed REIT capital structure variation within property segments beyond what is possible with the ; traditional partial equilibrium trade-off and pecking order theories, which assume that each firm operates in isolation ; from other market participants and are not particularly suitable to REITs because of the regulated setting within ; which these firms operate (e.g., Boudry, Kallberg, and Liu, 2007). Using data available for REITs, we find that ; about 65% of REIT capital structure variation originates within property segments. We build several proxies for a ; REIT’s position within its property segment. Consistent with the competitive equilibrium model of Maksimovic and ; Zechner (1991), we find that a REIT’s volatility of operating performance relative to the median volatility of ; operating performance of its segment peers is an important determinant of its leverage ratio. We also find that a ; REIT’s leverage ratio (debt maturity) depends on the median leverage ratio (debt maturity) in its segment. Leverage ; and debt maturity are also related to a REIT’s status as an incumbent and its role as a leader in the property segment.