Capital Structure and Diversification Strategies - A Study of Swedish Real Estate Companies Over Time

Detta är en Master-uppsats från KTH/Fastigheter och byggande; KTH/Fastigheter och byggande


This thesis’ aim is to study four Swedish real estate companies between the years 2006-2015 to see whether their capital structure and investment strategies have changed over the years. The data upon which the thesis is based, is gathered from the four companies’ annual reports. These years are of interest due to the changing economic environment, both in Sweden and the world, during this time period. The time period includes one financial crisis and a never before experienced interest rate environment with rates around zero percent. Traditional capital structure- and diversification theories have been overviewed and serves as the base for the discussion regarding the results from the gathered data.

Two hypotheses have been constructed to study this topic:

 The low interest rate environment has provided the real estate sector with access to more capital, which has led to real estate companies increasing their financial leverage, i.e. the capital structure has changed.

 The accessibility of capital in the market, combined with funds actively seeking return on capital in real estate, increases the competition and decreases yield spreads, which in turn leads to real estate companies investing capital in markets associated with higher risks.

The result indicates that the hypotheses are incorrect. The real estate companies have not increased their financial risk through an increase in their long term debt at the end of the studied time period. However, the companies have increased their borrowing but the financial risk has not increased since their equity has increased proportionally.

The studied real estate companies have not been mainly investing in markets associated with higher risk. Increased investment volumes have been observed all over Sweden. The investment strategies differ between the companies; some invest mainly in the bigger cities while some invest mainly in smaller cities.

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