Abstract
•The impact of triple-net leased (NNN) property portfolios on REIT operational efficiency is examined.•REITs holding NNN portfolios are more operationally efficient than their counterparts.•The utilization of NNN leases contributes to REIT operational efficiency which is a channel to higher REIT performance and value.•Employing triple-net leases in REIT portfolios shifts the property operating burden to the tenants, significantly reducing the complexity of operations allowing better control of operating costs.
Triple-net leases are legal agreements by which tenants, beyond rent payments, are responsible for operating expenses such as real estate taxes, insurance, and maintenance costs. We examine the relative operational efficiency of Real Estate Investment Trusts (REITs) holding property portfolios consisting of majority triple-net leases. Results suggest REIT holding triple-net leased portfolios are more operationally efficient than their counterparts. Our results suggest that selecting proper lease expense provisions specifying who carries the obligation of operating expenses is a determining factor of REIT operational efficiency.