Determinants of capital structure for A-REITs

Abstract

Using panel data methodology, the determinants of capital structure in 34 Australia listed property trusts (A-REITs) are investigated for the period 2003-2008. Empirical results reveal that profitability, growth opportunity, and operational risk are negatively related to leverage while size is positively related. Tangibility is found to be insignificant and property sector effects are inconsistent in various models. Furthermore, industry specific factors of stapled management structure and international operations have significant negative signs, showing that A-REITs with these features should have lower gearing levels. The signs of the determinants show that both pecking order theory and the trade-off theory are at work in explaining the capital structure of A-REITs, although more evidence exists to validate the latter theory. The study also shows that A-REITs issued more public debt than seasoned equity issues at a ratio of 1:1.2 from 2000-2008.