The stock market has been hammered this year. While we are likely to continue to see bear market rallies like Wednesday, the reality is that the sell-off will resume and likely continue until rate hikes are concluded. The huge 75-basis-point increase Wednesday may be followed by another next month. The Federal Reserve is so far behind the curve that it literally may have to take out the interest rate bazooka over the next six months to stem the spiraling inflation that is crippling consumers.

In a recent tweet, Tesla founder Elon Musk spoke about owning tangible items as investments. While the rare art and expensive wine that he cited are probably not the ticket for average investors, buying real estate does make sense. It is the ultimate tangible item. As the saying goes, they aren’t making any more land.
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Some real estate investment trusts (REITs) can be sensitive to rising interest rates, but there are sectors in that arena, as Benzinga noted in a story on Musk and his investment thoughts: “While Musk referenced owning a home, real estate, in general, performs well for investors during years of high inflation. Specifically, single-family homes, multifamily, self-storage and farmland.”

We focused on the top apartment and self-storage REITs, especially apartments where rents are soaring and people once looking to buy homes are reconsidering and backing away due to the jump in mortgage rates. We found seven stocks that have been hammered during the recent market decline and that all pay solid dividends and are Buy rated at major Wall Street firms. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

AvalonBay Communities

AvalonBay Communities (NYSE: AVB) develops, acquires and manages high-quality apartment communities. As of December 31, 2020, it owned or held a direct or indirect ownership interest in 291 apartment communities containing 86,025 apartment homes in 11 states and the District of Columbia, with 18 of those communities under development and one under redevelopment.

This equity REIT focuses on apartment communities in leading metropolitan areas in New England, the New York/New Jersey metro area, the Mid-Atlantic, the Pacific Northwest, and northern and southern California. The company’s expansion markets include southeast Florida and Denver, Colorado.

The company recently reported a very solid 13% increase in same-store residential rental revenues for the two months that ended May 31, 2022, compared with the prior-year period. That was almost 2% higher than the company’s most recent expectation. In addition to better-than-expected occupancy and effective lease rates, the upside was driven by favorable underlying resident uncollectible lease revenues and the recognition of higher-than-expected delinquent rent payments from COVID-19 rental assistance programs.

AvalonBay Communities stock investors receive a 3.41% dividend. Morgan Stanley has a $225 target price, but the Wall Street consensus target is even higher at $250.48. The shares closed Wednesday at $187.58.

Camden Property Trust

With rents trending higher, this real estate idea makes sense now for growth and income investors. Camden Property Trust (NYSE: CPT) is a real estate company primarily engaged in the ownership, management, development, redevelopment, acquisition and construction of multifamily apartment communities.
Camden owns interests in and operates 167 properties containing 56,850 apartment homes across the United States. Upon completion of seven properties currently under development, the company’s portfolio will increase to 59,104 apartment homes in 174 properties.

Investors receive a 2.98% dividend. The target price on Camden Property Trust stock at Truist Financial is $160. The consensus target is $175.75, and the final trade for Wednesday was reported at $128.55 a share.
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CubeSmart

This REIT may seem an odd beneficiary of rising rates, but it should benefit. CubeSmart (NASDAQ: CUBE) is a self-administered, self-managed REIT. Its self-storage properties are designed to offer affordable, easily accessible and secure storage space for residential and commercial customers. According to the Self-Storage Almanac, CubeSmart is one of the top three owners and operators of self-storage properties in the United States.

In a rising rate environment, hard assets like real estate gain in value, and the self-storage REITs are also in a good position as capital expenditures and the need for additional capital are often very low.

Shareholders receive a 4.38% dividend. Raymond James has set a $52 target price. The consensus target for CubeSmart stock is $54.78. The stock was last seen on Wednesday trading at $40.37.

Essex Property Trust

This stock has been hammered, but it is an outstanding way for investors looking to add an inflation-busting real estate position to growth and income portfolios. Essex Property Trust Inc. (NYSE: ESS) is a fully integrated REIT that acquires, develops, redevelops and manages apartment communities in selected West Coast markets.

This S&P 500 company and Dividend Aristocrat has ownership interests in 246 apartment communities comprising approximately 60,000 homes, with an additional six properties in various stages of active development.

Shareholders receive a 3.25% dividend. The $323 Truist Financial price objective compares with the $347.38 consensus target. Essex Property Trust stock closed at $257.23 on Wednesday.

Equity Residential

This apartment REIT company owns properties in high-growth U.S. cities. Equity Residential Inc. (NYSE: EQR) is an S&P 500 company focused on the acquisition, development and management of high-quality apartment properties in top U.S. growth markets in and around dynamic cities that attract high-quality long-term renters.

The company owns or has investments in 305 properties, consisting of 78,568 apartment units, located in Boston, New York, District of Columbia, Seattle, San Francisco, Southern California and Denver.

The company posted fourth-quarter 2021 normalized funds from operations (FFO) that exceeded the Wall Street consensus estimate. Rental income of $645.1 million also topped the consensus projection. Year over year, normalized FFO per share improved 7.9%, while rental income rose 5.2%, as the market has stayed very strong. Results were driven by outstanding physical occupancy, a substantial improvement in pricing power and an increase in non-residential revenues.

Equity Residential stock comes with a 3.61% yield. The BofA Securities target price of $91 is slightly higher than the $89.36 consensus target. The stock closed on Wednesday at $69.15.

This top REIT has very solid upside potential for investors and is a top pick across Wall Street. Extra Space Storage Inc. (NYSE: EXR) is a fully integrated, self-administered and self-managed REIT headquartered in Salt Lake City, Utah. Like many self-storage companies, Extra Space offers rentable storage space offering customers conveniently located and secure storage units across the country, including boat storage, recreational vehicle storage and business storage.
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At the beginning of 2021, the company owned or operated 1,971 self-storage stores in 40 states, the District of Columbia and Puerto Rico. The portfolio consists of approximately 149.2 million square feet of rentable space and 1.4 million units, making the company the second-largest owner/operator of self-storage stores and the largest self-storage management company in the country.

Unitholders receive a 3.76% distribution. Truist Financial’s price objective on Extra Space Storage stock is $200, while the consensus target is up at $211.85. Shares closed on Wednesday at $161.50.

Public Storage

This giant self-storage leader has been a go-to REIT stock for investors for years. Public Storage Inc. (NYSE: PSA) is a fully integrated, self-administered and self-managed REIT that primarily acquires, develops, owns and operates self-storage facilities.

As of September 30, 2020, the company had interests in 2,504 self-storage facilities located in 38 states with approximately 171 million net rentable square feet in the United States. It had an approximate 35% common equity interest in Shurgard Self Storage, which owned 239 self-storage facilities located in seven Western European nations with approximately 13 million net rentable square feet operated under the Shurgard brand.

Furthermore, Public Storage had an approximate 42% common equity interest in PS Business Parks, which owned and operated approximately 28 million rentable square feet of commercial space.

Investors receive a 2.70% distribution. BofA Securities has a $396 price objective. The consensus figure is $385.75, and Public Storage stock closed at $304.17 a share on Wednesday.

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These top stocks have been hammered as investors worry about the current interest rate increases, with more in the queue for July and beyond. However, the apartment and self-storage arena is not as compromised by the increases in interest rates as they have many fixed costs that do not vary as much as other REITs.

With that noted, despite all seven taking huge hits this year, there could be more downside, so it makes sense to scale buy shares, especially with the second quarter coming to an end and another round of earnings reports around the corner. Consumers will always need apartments and, as George Carlin once noted, a place to put all of their stuff, which bodes well for the self-storage stocks. Investors should keep in mind that REIT distributions may contain return of principal.

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