HomeCo Daily Needs REIT's (ASX:HDN) hedge book management has weighed on earnings growth, and the company needs to prioritize asset sales to de-lever its balance sheet and improve its cost of capital, Jefferies said in an Aug. 13 note.

The company's roughly 36% gearing screens high on a sector-relative basis, especially when share prices are rewarding conservative balance sheets, the investment firm said.

Valuation support and a temporary pause on development starts might support de-leveraging, although asset sales are needed to drive significant progress, Jefferies said.

On an earnings call, the company said it has received AU$400 million to AU$500 million of unsolicited offers for assets across its portfolio. The equity research firm estimates that AU$400 million of disposals would see gearing fall towards the lower end of HomeCo's 30% to 40% target range.

Additionally, HomeCo issued fiscal 2027 funds from operations per unit guidance of AU$0.088, implying a decline of 2.2% from fiscal 2026. But Jefferies said fiscal 2027 appears to be a low-to-mid single-digit FFO growth year for most real estate investment trusts.

Jefferies downgraded its rating on HomeCo Daily Needs REIT to hold from buy, saying it currently sees a better risk-reward profile elsewhere across non-discretionary retail. It also lowered the company's price target to AU$1.30 from AU$1.44.