BofA upgrades two skilled nursing REITs, downgrades three net lease REITs

As previously reported, BofA analyst Joshua Dennerlein upgraded Omega Healthcare (OHI) to Buy from Neutral with a price target of $36, up from $32, and upgraded Sabra Health Care (SBRA) with a price target of $16, up from $14. The firm favors Skilled Nursing spread investors over traditional net lease REITs in the current environment, arguing that their portfolios are in better shape today than pre-COVID given lease restructurings done over the last three years. The firm believes this warrants a higher multiple from lower bad debt going forward. Meanwhile, interest rates continue to rise and REIT multiples have come under pressure, so the firm has refreshed its net lease assumptions heading into Q3 earnings to account for this cost of capital adjustment. In this context, the firm is downgrading Realty Income (O) to Neutral from Buy with a $52 price target, down from $67, while also downgrading Netstreit (NTST) and Spirit Realty (SRC) to Underperform from Neutral with respective price targets of $15 and $33, down from $20 and $42.