In 2026, the “stratification” of the relative value of REITs and real estate service stocks Federal (FRT.US) is favored by Xiaomo based on capital circulation

The Zhitong Finance App learned that Wall Street financial giant J.P. Morgan Chase made major ratings adjustments to nine popular investment targets in the agency's 2026 investment outlook for REITs (real estate investment trusts) and real estate service companies. Of these, seven investment targets were downgraded, while the other two were upgraded.

Anthony Paolone (Anthony Paolone), a senior analyst at J.P. Morgan Chase, wrote in the research report: “The large number of cuts mainly reflects the fact that as the probability of a soft landing in the US economy increases and the Fed's interest rate cut cycle is expected to continue, the rating distribution within our coverage becomes more stratified, especially since these ratings are relative to each other.”

In the J.P. Morgan Chase 2026 outlook report, Morgan believes that REITs (real estate investment trusts) and the real estate service industry as a whole have entered an environment where growth is moderate and same-store growth is limited, and subsequent individual stock performance is more likely to be driven by relative valuation and balance sheet flexibility, rather than “general rise in fundamentals throughout the industry.” As a result, they downgraded more REITs and real estate service investment targets from “holder/neutral”, mostly due to reduced relative opportunities (slower growth, valuations reflect almost all benefits, or it is more difficult to achieve growth compared to the base after experiencing strong increases recently), and emphasized that the high number of downgrades also reflects a more “stratified” rating distribution within their coverage area, and that ratings are relative.

Therefore, Xiaomo's latest round of centralized rating changes for REITs/real estate service stocks is essentially a re-stratification of the relative value of “relative rating+relative risk return”.

REITs (Real Estate Investment Trusts) /Real Estate Service Companies that have experienced downgrades:

According to J.P. Morgan Chase, the investment rating for Realty Income (O.US) was downgraded from “neutral” to “reduced holdings” mainly because “its large scale makes it harder to point to higher than average profit growth in the next few years compared to its net rental REIT industry.”

The Public Storage (PSA.US) rating was downgraded from “gain” to “neutral”, mainly because the agency's expected improvement in PSA's core growth rate “is likely to take a long time line, not a straight line.”

The downgrade of Welltower (WELL.US) rating from “overweight” to “neutral” “is simply a short-term stock price judgment, not driven by any degree of deterioration in the company's internal or external growth prospects.” J.P. Morgan said.

The rating for Regency Centers (REG.US) was also downgraded from “gain” to “neutral,” although this “is also just a 'temporary stock price trend judgment' because we still believe that REG has one of the best platforms in the overall REIT sector and optimistic long-term growth prospects.”

Regarding the downgrade of Kennedy Wilson (KW.US) from “neutral” to “reduced holdings,” J.P. Morgan believes that there is very limited room for upward stimulus brought about by pending privatization takeover offers from CEO William McMorrow (William McMorrow) and Fairfax Financial (Fairfax Financial).

The UDR (UDR.US) was downgraded from “neutral” to “reduced holdings”, and the SmartStop (SMA.US) rating was adjusted from “gain” to “neutral.”

Investment targets that received an increase in J.P. Morgan Chase's rating:

J.P. Morgan Chase upgraded the Federal Realty Investment Trust (FRT.US) rating from “neutral” to “increase,” and the Camden Property Trust (CPT.US) rating from “reduced holdings” to “neutral.”

Regarding Federal Realty Investment Trust, Morgan believes that it is “increasingly effective” to recover and re-invest capital from mature assets into higher quality retail assets (especially in higher revenue/growth secondary markets, dominant shopping center assets) through the capital cycle, thereby improving the visibility of growth in 2026; and this path is in line with its preferences — more inclined towards “visible exogenous growth” (mergers and acquisitions/redevelopment pipelines, etc.).

J.P. Morgan Chase's logic in upgrading Camden Property Trust's rating to “neutral” is that the key comparison target is UDR — J.P. Morgan gave Camden's stronger balance sheet the flexibility to repurchase and development/redevelopment on a larger scale in 2026, so the relative risk return improved significantly, and at least there is no need to maintain a “reduced holdings” position.