Chih-Hsing Hung^1,, Chu-Hsiung Lin², Feng-Hua Yeh³, Hua-Wei Chu⁴

The optimal capital structure remains a key research topic, aiming to minimize the weighted average cost of capital and maximize firm value. Real Estate Investment Trusts (REITs), with their unique regulatory and tax features, offer a compelling research area. This study departs from the traditional trade-off theory based on tax shields and financial distress, instead examining REITs' target leverage from a firm value maximization perspective. Focusing on U.S. REITs from 2000 to 2021, this research applies regression analysis on leverage ratios and firm value metrics (total revenue, net income, closing price, and EV/EBIT), incorporating fixed effects to estimate optimal capital structure. Results show a positive, significant relationship between leverage and total revenue, net income, and closing price, while the squared leverage term is negative and significant—supporting the presence of a target leverage ratio. However, leverage does not significantly affect the EV/EBIT ratio. This study offers valuable insights for corporate decision-making, investors, and regulators regarding REITs' capital structures.