On Thursday, KeyBanc Capital Markets shifted its stance on Netstreit Corp. (NYSE:NTST), moving from an Underweight rating to a Sector Weight position. The upgrade comes as the company prepares to announce earnings and follows its recent capital raising activities.
"The Company has sufficient dry powder for investments in 2024, and though accretion from deals may be limited in the NT, investment yields may improve alongside lower borrowing costs, which could lead to greater accretion and further drive down the Company's cost of capital," wrote the analysts.
Netstreit Corp.'s cost of capital has already seen significant improvement, partly due to the stock's year-to-date rise of 1.8%, outperforming the triple net real estate investment trusts (REITs) by 720 basis points. The improvement is also attributed to a more favorable capital markets environment, which includes a greater than anticipated decrease in interest rates towards the end of the previous year.
KeyBanc now views the risk/reward profile for Netstreit Corp. as more balanced. The firm anticipates that the stock will trade in line with its peers, with shares currently trading at a 15 times 2024 adjusted funds from operations (AFFO) multiple. This valuation represents a 15% premium to the net lease subsector. Additionally, the company's implied capitalization rate stands at 6.6%, which is 20 basis points below the net lease subsector.
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