Credit Line Availability and Utilization in REITs

36 Pages Posted: 25 Sep 2009 Last revised: 25 Jun 2010

See all articles by William G. Hardin

William G. Hardin

Florida International University (FIU) - College of Business Administration

Matthew D. Hill

Arkansas State University

Date Written: June 24, 2010

Abstract

Analysis of REIT credit line availability and use under normal conditions and during the recent financial crisis are provided. Descriptive statistics indicate REIT credit lines represent an important component of capital structure, credit line availability and utilization have increased substantially over the sample period, and REITs maintain precautionary liquidity via credit lines rather than holding cash. Multivariate results indicate that credit line availability is directly associated with cash flow uncertainty, dividend distributions, acquisitions, and capital market access and is inversely linked to the market-to-book ratio. Credit line use is unrelated to cash flow volatility and dividends, but is correlated with operating cash flow, acquisitions, and capital market access. Unlike with non-REITs, when setting credit limits lenders focus on dividends and not just operating cash flow. Despite finding that line availability is influenced by dividend payments, REITs do not systematically use lines to pay dividends implying that dividends are paid from operating cash flows.

Keywords: REIT, Liquidity, Lines of Credit, Capital Structure

JEL Classification: G12, G14, G24

Suggested Citation

Hardin, William G. and Hill, Matthew D., Credit Line Availability and Utilization in REITs (June 24, 2010). Journal of Real Estate Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1477628

William G. Hardin

Florida International University (FIU) - College of Business Administration ( email )

Miami, FL 33199
United States

Matthew D. Hill (Contact Author)

Arkansas State University ( email )

2713 Pawnee
P.O. Box 1750
Jonesboro, AR 72467-115
United States

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