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An analysis of the capital structure of commercial real estate investment trusts finds that the strongest REITs overall tend to employ lower leverage and longer debt maturity, maintain larger proportions of fixed-rate debt, rely less on secured debt, have a greater line of credit capacity but use it less, and hold smaller cash reserves. The REITs’ strength is measured by Tobin’s q, which expresses the ratio of the market value of assets relative to their book value. The study examines yearly data for the years 1993 through 2013 for 137 REITs based in the United States and the years 2001 through 2013 for 50 REITs in France, Germany, the Netherlands, and the United Kingdom. Looking specifically at hotel REITs, the study found generally similar outcomes in terms of the capital-structure characteristics associated with the strongest hotel firms, although their q ratios were lower overall. However, hotel REITs tended to have greater leverage, shorter debt maturity, and more cash on hand to market value than REITs as a whole. The financial crisis of 2007-09 highlighted the value of limited leverage, as well as fixed-rate and secured debt.


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