Navigating Capital Structure during Times of Increasing Interest Rates: Insights from the Real Estate Industry in Sweden

Sammanfattning: This thesis aims to investigate, problematize, and discuss how listed Real Estate firms in Sweden alter their capital structure in times of increasing interest rates such as presently experienced, if they brought some valuable lessons from previous crises, and how they adapt their financing choices to today’s environment. The navigation these firms’ management needs to master in this aspect is directly affecting the firms’ costs. The Real Estate industry is chosen due to its vulnerability derived from its generally high leverage and reliance on the bond market. However, with the significant shift in the macroeconomic climate marked by increases in interest rates, the Real Estate industry has faced difficulties, leading to their financing strategies of high leverage and substantial bond investments being questioned. To answer our questions of if, when, how, and why these firms alter their capital structures, a qualitative study with an inductive approach has been conducted through interviews with interviewees from three firms within the Real Estate sector in Sweden. In addition, material has been gathered from the companies’ annual reports and their websites. The empirical material has further been analyzed based on the thesis's three sub-questions. The thesis finds that the magnitude of the changes in the capital structure of Real Estate companies relies upon their initial capital structure. Companies with higher initial leverage are forced to change their capital structure because of increasing interest rates and economic instability, whereas lower-leveraged Real Estate firms are less impacted.