Abstract
Executive Summary. This study examines Real Estate Investment Trusts (REITs) credit facilities with banks. Credit facilities allow flexibility, but may create agency problems due to the potential for misuse. The findings suggest that REITs enter credit facilities when expecting large investments. The net investments to total assets ratio is significantly higher when credit facilities are arranged. Combined with lower year-end liquidity, this suggests that REITs use credit facilities to correct shortfalls caused by large investment needs. The findings do not reveal that REITs are more cash constrained when credit facilities are announced. Rather, the results suggest REITs are constrained in years when no credit facility is formed.
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