16655 Lecture Notes - Lecture 7: Real Estate Investment Trust, Capital Structure, Capital Asset Pricing Model
Document Summary
In the real world, knowledge is a long way from perfect, information is spun, investors are frequently driven by fear and greed, and there are many and variable limitations on the availability of capital. In the asset boom of the mid 2000"s we had free availability of capital, but the market failed to adequately price for the risks involved in investment. In the boom market, where debt and equity were cheap and abundant, many reits (and companies generally) geared themselves as highly as they could, increasing debt levels as market valuations rose. Companies with slack balance sheets had underperforming share prices. Australian reit capital structure: the chart below shows gearing within the reit sector over ten years leading up to and post the gfc. From september 2008 to september 2009, nearly abn was raised by reits, predominantly to recapitalise their balance sheets. While the broader asx50 has re-geared since the gfc, the real estate sector has maintained lower leverage.
