The firm sees potential for re-rating in net lease REITs despite current discounted valuations and macroeconomic pressures.
Jefferies initiated coverage of Realty Income Corporation (O) with a Buy rating and a $69 price target, down from a prior $75 target. The firm expressed a favorable outlook for retail net lease real estate investment trusts, citing potential re-rating driven by investment pipeline execution.
Net lease REITs are trading at a significant discount to their 10-year average valuation, the third-largest within the REIT sector. Jefferies noted that the sector is being unfairly grouped with challenged segments like office and lab properties, despite stable fundamentals. Earlier, Mizuho cut its price target on Realty Income to $66 from $68, maintaining a Neutral rating amid interest rate uncertainty.
Realty Income focuses on acquiring and managing freestanding commercial properties under long-term net lease agreements with diversified tenants.