3.) Positive upcoming catalysts/events in the next two to six months; and

4.) Limited lease rollover over in the next six to 18 months.

“Additionally, despite the year-to-date (YTD) underperformance of the subsector, which has broadly pushed the REITs' cost of capital higher, we still view the fundamentals for STNL REITs as favorable. To wit, whether speaking about office, industrial, retail, or special purpose type STNL properties, investment spreads still remain highly attractive by historical standards according to most management teams, and there appears to be no shortage of investment opportunities either.”

However, the company says that “given the pervasive uncertainty regarding long-term interest rate trends, and the prevailing view that STNL REITs are more interest rate sensitive than the average REIT (a valid notion given the long-term nature of the leases), we see investor interest in the names remaining stubbornly weak, which was evidenced by the lower than usual investor attendance at our NAREIT meetings last week. As such, we believe investors need to be selective and patient within the STNL sector.”

A few of names the firm mentions as favorites in the sector include: Gramercy Property Trust, due to their positioning from a growth perspective; and STORE Capital, “as their smaller asset bases and aggressive acquisition strategies should result in both REITs producing the highest AFFO/sh growth in the STNL sector for the next several years.”

Similarly, the firm favors names that trade at compelling relative values such as Agree Realty, for example. The firm also points to Spirit Realty, which is said to have identifiable near-term catalysts. “We see Spirit benefitting from its Q2 2015 earnings announcement, which should bring a guidance increase, better financial disclosure, and more visibility on its Shopko exposure declining below 10% of rents.”