Diversification and Cost of Public Debt for REITs: Evidence from the US

Islam Ibrahim*, Heidi Falkenbach

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review


This paper investigates the impact of property type and geographical diversification on the cost of public debt for U.S. real estate investment trusts (REITs). We measure diversification using the negative of the Herfindahl–Hirschman Index (HHI) and represent the debt cost by the yield spread of the debt issue. We find that property-type diversification has a cost-decreasing effect on public debt. For example, our estimations illustrate that a one standard deviation increase in property type diversification decreases the yield spread by 10.97 basis points on average. In contrast, geographical diversification has a cost-increasing effect. For example, we estimate that a one standard deviation increase in regional diversification increases the yield spread by 9.95 basis points on average. Moreover, we find that controlling for the S&P’s credit rating of the debt issue does not entirely absorb the impact of diversification on the yield spread, suggesting a difference in the credit-risk assessment of diversification’s effects between public lenders and credit rating agencies.
Original languageEnglish
Number of pages18
Publication statusE-pub ahead of print - 31 Jul 2023
MoE publication typeA1 Journal article-refereed


  • Public debt
  • Cost of debt
  • Diversification
  • Credit risk
  • REIT


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