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NEW YORK (TheStreet) -- Rising interest rates on the horizon could be bad news for the real estate investment trust, or REIT, industry. But that doesn't mean all REITs are bad investments.

There are plenty of commercial real estate REITs as well as retail REITs worthy of investment. Below are three residential REIT investments to consider.

In general, investors like REITs for their strong dividend income, among other factors, as REITs are required to pay out at least 90% of their income in the form of dividends to investors each year.

TheStreet Ratings, TheStreet's proprietary ratings tool, projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Based on 32 major data points, TheStreet Ratings uses a quantitative approach to rating over 4,300 stocks to predict return potential for the next year. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings.

Buying an S&P 500 stock that TheStreet Ratings rated a "buy" yielded a 16.56% return in 2014 beating the S&P 500 Total Return Index by 304 basis points. Buying a Russell 2000 stock that TheStreet Ratings rated a "buy" yielded a 9.5% return in 2014, beating the Russell 2000 index, including dividends reinvested, by 460 basis points last year.

Note: Research and ratings are as of June 7, 2015.Year-to-date returns are based on June 10, 2015 closing prices.


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AVB

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1. AvalonBay Communities Inc. (AVB) - Get AvalonBay Communities, Inc. Report
Market Cap: $21.5 billion
Annual Dividend Yield: 3.1%

Year-to-date return: -1.3%
Rating: Buy, B+

AvalonBay Communities, Inc. engages in the development, redevelopment, acquisition, ownership, and operation of multifamily communities in the United States.

TheStreet said: "We rate AVALONBAY COMMUNITIES INC (AVB) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, solid stock price performance, expanding profit margins, good cash flow from operations and compelling growth in net income. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • AVB's revenue growth has slightly outpaced the industry average of 8.5%. Since the same quarter one year prior, revenues rose by 17.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.
  • 39.51% is the gross profit margin for AVALONBAY COMMUNITIES INC which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 43.64% significantly outperformed against the industry average.
  • Net operating cash flow has slightly increased to $236.38 million or 7.29% when compared to the same quarter last year. In addition, AVALONBAY COMMUNITIES INC has also modestly surpassed the industry average cash flow growth rate of 0.76%.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income increased by 46.9% when compared to the same quarter one year prior, rising from $141.74 million to $208.14 million.

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PPS

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2. Post Properties Inc. (PPS)
Market Cap: $3 billion
Annual Dividend Yield: 2.85%

Year-to-date return: -5%
Rating: Buy, B+

Post Properties, Inc. is an independent real estate investment trust. The firm invests in the real estate markets of the United States. It primarily develops, owns, and manages multi-family apartment communities. Post Properties, Inc. was founded in 1971 and is based in Atlanta, Georgia.

TheStreet said: "We rate POST PROPERTIES INC (PPS) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its increase in stock price during the past year, compelling growth in net income, notable return on equity, good cash flow from operations and impressive record of earnings per share growth. We feel its strengths outweigh the fact that the company shows low profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Real Estate Investment Trusts (REITs) industry average. The net income increased by 40.1% when compared to the same quarter one year prior, rising from $14.24 million to $19.94 million.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, POST PROPERTIES INC's return on equity exceeds that of both the industry average and the S&P 500.
  • Net operating cash flow has increased to $36.40 million or 16.10% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 0.76%.
  • POST PROPERTIES INC has improved earnings per share by 45.8% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, POST PROPERTIES INC increased its bottom line by earning $3.88 versus $1.40 in the prior year. For the next year, the market is expecting a contraction of 65.1% in earnings ($1.36 versus $3.88).
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CPT

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3. Camden Property Trust (CPT) - Get Camden Property Trust Report
Market Cap: $6.4 billion
Annual Dividend Yield: 3.8%

Year-to-date return: -0.09%
Rating: Buy, A-

Camden Property Trust is an independent real estate investment trust. The firm invests in the real estate markets of the United States. It is engaged in the ownership, development, acquisition, management, and disposition of multifamily residential apartment communities.

TheStreet said: "We rate CAMDEN PROPERTY TRUST (CPT) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, revenue growth, notable return on equity, increase in stock price during the past year and impressive record of earnings per share growth. We feel its strengths outweigh the fact that the company shows weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income increased by 188.7% when compared to the same quarter one year prior, rising from $40.04 million to $115.60 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 8.5%. Since the same quarter one year prior, revenues slightly increased by 2.3%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market on the basis of return on equity, CAMDEN PROPERTY TRUST has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
  • After a year of stock price fluctuations, the net result is that CPT's price has not changed very much. Although its weak earnings growth may have played a role in this flat result, don't lose sight of the fact that the performance of the overall market, as measured by the S&P 500 Index, was essentially similar. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • CAMDEN PROPERTY TRUST reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, CAMDEN PROPERTY TRUST increased its bottom line by earning $3.26 versus $1.70 in the prior year. For the next year, the market is expecting a contraction of 23.1% in earnings ($2.51 versus $3.26).