On Thursday, KeyBanc made a notable change in its assessment of Netstreit Corp. (NYSE:NTST), upgrading the real estate investment trust from Underweight to Sector Weight. The revision by the analyst firm comes as Netstreit prepares to announce its earnings and follows the company's recent initiatives to raise capital.
The analyst cited several reasons for the improved outlook on Netstreit. The company's capital raising activities have provided it with ample resources for investments throughout 2024. While immediate accretion from these investments may be limited, there is potential for investment yields to increase as borrowing costs decrease. This could lead to greater accretion in the long term and further reduce Netstreit's cost of capital.
Netstreit's cost of capital has already seen a substantial improvement, partly due to its stock's year-to-date increase of 1.8%, outperforming the triple net real estate investment trust (REIT) sector by 720 basis points. The overall capital markets environment has also been favorable for the company, with a significant decrease in interest rates occurring late in the previous year.
With these developments, the analyst believes that Netstreit now presents a more balanced risk/reward profile. The expectation is that the stock will perform in a manner consistent with its peers. Currently, Netstreit's shares are trading at a 15 times 2024 adjusted funds from operations (AFFO) multiple, which represents a 15% premium compared to the net lease subsector. Additionally, the company's implied capitalization rate stands at 6.6%, which is 20 basis points lower than the average in the net lease subsector.
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