PurposeUnlike previous studies on capital structure decisions, the purpose of this paper is to focus on US real estate investment trusts (REITs) in order to find out the main determinants of capital structure choice for real estate companies and in order to verify if they are related to factors similar to those affecting the decisions of public firms in other sectors.Design/methodology/approachUsing a methodology similar to Rajan and Zingales, a sample of 119 listed REITs with different investment strategies and in different property sectors was analyzed. The analysis is carried out in order to determine the basic factors underpinning the capital structures by selecting financial items and ratios related with leverage (such as asset size, profitability ratios, tangibility of assets, growth opportunities, operating risk and geographical diversification of investments).FindingsResults show that REITs follow a pecking order theory of financing since more profitable firms are less levered and REITs with more growth opportunities have higher leverage ratios. The tangibility of assets turns out to be positively correlated with leverage, while REITs whose operating risk is high prefer a lower financial risk and consequently a lower gearing. Finally, it is not clear how size affects leverage decisions and more diversified REITs appear to be riskier.Originality/valueThe research also addresses the issue of asymmetric information and the debt‐equity choice for REITs sampled on the basis of their size, highlighting differences with other business sectors.

Purpose -This paper aims to investigate the determinants affecting the choice of the capital structure of European property companies. Design/methodology/approach -The analysis considers the set of companies belonging to the EPRA/NAREIT Europe Index (both REITs and non-REITs) and is based on panel data to get greater reliability and to check the cross-time path of explanatory variables. Seven independent variables (size, profitability, growth opportunities, cost of debt, ownership structure, risk, and category) are studied over a five-year period. Findings -Results clearly show that non-REIT companies are significantly more leveraged than REITs, confirming the importance of the tax-exempt status in affecting capital structure choices. The negative relationship between operating risk and leverage demonstrates that the managers of riskier firms tend to reduce the overall company's uncertainty by adopting a more careful capital structure. Moreover, more profitable firms have less recourse to leverage. Evidence also suggests that the company's asset size is able to directly influence the amount of debt issued, confirming the hypothesis that debt is cheaper for bigger firms and its issue is affected by economies of scale. Originality/value -The paper represents a break point with past literature for the sample, based on European companies, and the methodology, that relies more on market rather than on balance-sheet or income statement items (obtaining higher comparability and avoiding country-specific bias mainly concerning law, fiscal and earning management issues).

Purpose – The purpose of this paper is to test whether the financial crisis has affected the capital structure of real estate companies in Europe and whether these impacts can be studied utilizing the variables traditionally used by the trade-off and pecking-order theories to explain the capital structure of companies. Design/methodology/approach – The study uses a fixed-effect panel regression analysis and a sample composed of companies included in the EPRA/NAREIT Europe Index. The effect of the financial crisis has been accounted for within the model by means of a dummy variable. Findings – The global financial crisis did have an impact on the capital structure of companies and the main variables traditionally used by the trade-off and pecking order theories proved to be suitable in explaining the capital structure of real estate companies. Real estate investment trusts are, on average, more leveraged than traditional real estate companies due to their special regulatory status. Research limitations/implications – The study is limited to the European market and UK companies in particular account for a large part of the sample. In addition, major regulatory differences between the various European countries are not taken into account in the model. Originality/value – Similar studies have been performed for the US and Australian market. However, the impact of the global financial crisis has not been traditionally considered in these studies.

Purpose -The closed-end fund puzzle is one of the most famous unsolved issues in financial economics and as such, over time, it has raised the interest of many authors also in the real estate field. The aim of this paper is both to determine whether the effect of leverage on net asset value (NAV) discount is biased by an accounting effect as well as to investigate the determinants of NAV discount by means of the "rational" approach. Design/methodology/approach -The hypotheses are tested by using both the traditional formula as well as a new, unlevered one to calculate the NAV discount. A best subset analysis is carried out to ascertain the better set of determinants. Findings -The main result of the analysis is that the influence of leverage on the NAV discount is biased by an accounting effect while other factors are highly significant. Research limitations/implications -This paper is a starting point for additional research on some of the identified factors as well as on similar samples for which a wider set of data is available. Originality/value -The homogeneity of the Italian real estate investment funds sample, which is not biased by any fiscal effect, and the use of an unlevered formula to calculate NAV discount are important factors when trying to understand the determinants of NAV discount.

Purpose – The purpose of this paper is to analyse the NAV discount of European REITs listed in France, the Netherlands and the UK between 2003 and 2014, considering elements of both “rational” and “noise trader” approaches. Design/methodology/approach – The analysis examines the hypothesis that discounts (premiums) are the result of leverage, size, liquidity, risk, performance, investment activity and sentiment. The regressions are initially run against the traditional NAV discount, subsequently using the unlevered NAV discount measure introduced by Morri et al. (2005) in order to clean out the bias generated by the level of leverage. The NAV discount is then adjusted for investor sentiment (appraisal reduction) with the aim of better identifying firm-specific factors, considering distortions induced by sentiment. Findings – Higher liquidity commands lower discounts for French REITs, while Dutch and British REITs, which trade in markets characterized by a higher number of average daily transactions, do not seem to feature discounts resulting from liquidity. For all three samples, operational risk and performance are significant in explaining the NAV discount, the former having a positive relationship with the discount, and the latter a negative one. When measured using the average sector discount, sentiment has a profound effect on the discount, accounting alone for 10-15 per cent of the explanatory power of the model. Practical implications – REITs listed in different markets behave differently. When the discount is adjusted in order to remove the bias resulting from the level of debt, the relationship between leverage and the unlevered discount becomes less pronounced in all cases. Originality/value – The paper considers a new approach to NAV discount puzzle that takes into account market sentiment and appraisals.