Do Investor Demand and Market Timing Affect
Convertible Debt Issuance Decisions by REITs?
Joseph T. L. Ooi
Woei Chyuan Wong
Published online: 31 August 2013
Springer Science+Business Media New York 2013
Abstract The unique regulatory environment of REITs casts doubt on the traditional
theoretical process by which REIT managers base their convertible debt issuance
decisions on issuer condition and prospects. Anecdotal evidence shows that REITs
may have catered to demand by investors, including a demand by convertible bond
arbitrageurs when issuing convertible debt. This study examines the rationale behind
convertible debt issuances by REITs, focusing on the possible impacts of investor
demand and market timing. The results suggest that investor demand significantly
affects convertible debt issuance decisions by REITs while certain unknown factors
appear to have contributed to the sudden increase of convertible debt offerings in
2006 and 2007. REITs also time the market to conditions in the public debt market.
The results only partially support the offered risk-shifting, risk-uncertainty, backdoor-
equity, and sequential-financing hypotheses.
Convertible bond arbitrage
The Real Estate Investment Trusts (REITs) market saw a sudden increase in convert-
ible debt offerings from the third quarter of 2006 to the second quarter of 2007.
Table 1 and Fig. 1 show that REITs issued 62 convertible bonds, raising $16.8 billion
over a four-quarter period. In contrast, convertible debt offerings by REITs only
J Real Estate Finan Econ (2014) 49:524–550
M. Mori (*)
J. T. L. Ooi
Department of Real Estate, National University of Singapore, 4 Architecture Drive,
Singapore 117566, Singapore
J. T. L. Ooi
W. C. Wong
Universiti Utara Malaysia, School of Economics, Finance and Banking, 06010 Sintok,