JPMorgan Turns Contrarian on Interest Rates with REIT Upgrades

JPMorgan Chase has upgraded three real estate investment trusts (REITs) to Overweight, bucking the trend in a rising interest rate environment. The bank's contrarian view is based on its assessment that the sector's risk has been over-penalized and that it is poised for a rebound.

The 10-year Treasury yield sits near 5.11%, and the Real Estate Select Sector SPDR ETF (XLRE) is lagging, up just 3.15% year to date. However, JPMorgan's bet reflects its stance that demographic demand from aging Baby Boomers will continue to drive growth in healthcare and senior-housing landlords.

Welltower Inc. (WELL) was lifted to Overweight with a $260 price target, while The Macerich Co. (MAC) received an upgrade to Overweight with a $26 target, implying roughly 14.9% upside from its prior close. EastGroup Properties Inc. (EGP) is also an industrial REIT that has been upgraded.

Historic data suggests that equity REIT prices show very low sensitivity to borrowing rates, averaging a modest -0.153 correlation with 10-year Treasury shifts during rising-rate periods.