In this article, we will take a look at the 10 worst performing real estate investment trusts in 2024.
The Real Estate Sector Post-Fed Rate Cut
Real estate is one of the sectors that has been looking forward to the Fed rate cuts. While the rate cuts were kicked off with a half-percentage point reduction on September 18, the probability of future rate cuts remains on the horizon. Logan Mohtashami, HousingWire analyst, deems the post-Fed cut housing market confusing for the consumer. In an interview with CNBC, he reiterated that consumers naturally assume mortgage rates dropping with progress on inflation. If mortgage rates drop to 6% and stay there, sales which are trending at the lowest levels in history for the third calendar year could grow. In his opinion, the monetary policy is still restrictive for housing although expanding for the economy. On the optimistic side, he sees price growth cooling and active inventory growing. However, rates need to stay at the 6% level as shooting up from there won’t work for the housing market.
Regarding commercial real estate, the Fed’s shift in policy is “the most notable green shoot” according to Wells Fargo analysts since it lays the groundwork for a commercial real estate recovery although it is not a magic bullet. On September 23, Willy Walker, Walker & Dunlop Chairman and CEO appeared on CNBC to analyze the state of commercial real estate post-Fed rate cuts. According to him, the easing phase has driven volumes in commercial real estate. He expects the sector to be healthy as rates go down further. Regarding the residential real estate in the prevailing US political scenario, he sees a huge policy shift between Biden calling for 5% rent control on a nationwide basis to Kamala Harris calling for 3 million new homes over the next four years. Walker suggested a nice thing in the current circumstances would be a proposal from Trump’s admin, similar or distinct to Harris’, entailing what he is going to do about housing since housing is a major US issue.
Previously, Warren Wachsberger of Eldridge Acre Partners joined CNBC to emphasize that the short-term issues facing US commercial real estate have created an investment opportunity. These issues include higher interest rates, less credit availability, and supply-demand imbalances. Hence, the market stress creates a lot of opportunity to invest in the sector.
With that being said, let’s move to the 10 worst performing REITs in 2024.
A crane on a construction site, building a modern office complex for the REIT.
Our Methodology:
In order to compile a list of the 10 worst performing REITs in 2024, we used a stock screener to find the stocks that have fallen significantly on a year-to-date basis. The 10 worst performing REITs in 2024 have been ranked in ascending order of their year-to-date declines. We have also included the number of hedge fund holders for each stock, as of Q2 2024.
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10 Worst Performing REITs in 2024
10. Orion Office REIT Inc. (NYSE:ONL)
Year-to-Date Decline: 25.13%
Number of Hedge Fund Holders: 14
Orion Office REIT Inc. (NYSE:ONL) specializes in the ownership, acquisition, and management of a diversified portfolio of high-quality office buildings in strong suburban markets across the United States. This portfolio is well diversified across primarily investment-grade tenants and economically resilient industries.
Orion has a distinctive position in the net lease sector by being the only REIT with a dedicated single-tenant suburban office strategy. The diversity of REIT’s portfolio is complemented by the high credit quality nature of the tenancy. The firm focuses on capitalizing on the strong growth potential embedded in attractive suburban office markets. Some of the promising suburban market features include population growth, limited new office supply, office-using employment growth, a highly educated workforce, and a business-friendly tax and regulatory environment.
The REIT was proud of its performance as it closed the second quarter. Orion Office REIT Inc. (NYSE:ONL) transformed its portfolio with the sale of 18 non-core assets totaling 1.9 million square feet since the spin-off of its shares from Realty Income. It completed 470,000 square feet of leasing and an additional 55,000 square feet subsequent to the quarter end, thereby bringing the total 2024 year-to-date leasing to 633,000 square feet. For the quarter, the firm recorded total revenues of $40.1 million and a core FFO of $14.2 million.
Orion Office REIT Inc. (NYSE:ONL) has a unique standing in the net lease sector and is undergoing portfolio transformation to create a high-quality right-sized property base. As of Q2, the stock is held by 14 hedge funds.
9. BrightSpire Capital, Inc. (NYSE:BRSP)
Year-to-Date Decline: 25.48%
Number of Hedge Fund Holders: 13
BrightSpire Capital, Inc. (NYSE:BRSP) is a commercial real estate credit REIT that focuses on originating, acquiring, financing, and managing a diversified portfolio of CRE debt investments and net leased real estate investments. The scale of this portfolio is a major competitive advantage for the firm offering portfolio diversification and economies of scale.
BrightSpire Capital serves as one of the largest public commercial real estate credit REITs globally. The REIT defines its edge as its large, diversified, and stabilized portfolio with $3.9 billion in assets under management, differentiated investment strategy across the capital structure, significant transaction and asset management experience, and a highly experienced management team. The REIT has a $2.8 billion loan portfolio with an average loan size of $33 million.
For the second quarter, BrightSpire Capital, Inc. (NYSE:BRSP) recorded a net loss of $67.9 million which was due to impairments on legacy office equity investments primarily. On the bright side, the firm has gotten enough visibility in resolutions to commence lending activities. The watchlist has also been stable quarter-over-quarter.
Year-to-date, BrightSpire Capital, Inc. (NYSE:BRSP) has declined by 25.48% thereby ranking among some of the worst performing REITs this year. As of 2024’s second quarter, the stock is held by 13 hedge funds.
8. Ready Capital Corporation (NYSE:RC)
Year-to-Date Decline: 28.15%
Number of Hedge Fund Holders: 10
Ready Capital Corporation (NYSE:RC) is a commercial mortgage REIT that originates, acquires, finances, and services small- to medium-sized balance commercial loans. Ready Capital’s external manager is Waterfall Asset Management, a global alternative investment manager that is focused on specialty finance opportunities within asset-backed credit, whole loans, real assets, and private equity. The REIT operates through two segments including LMM commercial real estate and Small Business Lending.
Ready Capital Corporation boasts a $10.0 billion portfolio of over 6,700 loans diversified across 50 states and Europe with 99% first lien. The firm has been an active acquiror in the multi-strategy real estate finance sector and has completed ten transactions since 2014 which includes four public company mergers. Furthermore, the REIT has a successful and proven asset manager with a solid 19-year investment record.
The REIT benefits from the increased opportunity that arises due to the retrenchment of banks from the LMM commercial real estate market. Due to the portfolio management expertise needed to manage these loan assets, competition for LMM commercial real estate loan asset acquisitions remains limited. Simultaneously, the REIT serves as a leading provider of capital to small businesses through 7(a) loans and USDA loans through the Small Business Lending business.
Although Ready Capital Corporation (NYSE:RC) realized a net loss in the second quarter, CEO Thomas Capasse emphasized how the REIT has been focusing on cycling out of underperforming assets and into market-yielding investments. According to him, the record growth in the firm’s Small Business Lending business as well as improving credit metrics across the loan portfolio position the firm to improve its earnings moving forward. Q2 highlights include total investments of $474 million which includes $257 million of LMM originations and a record $217 million of US Small Business Administration 7(a) loans.
The REIT’s historical balance sheet reflects that its total assets have grown at a 27% CAGR from 2017 to June 2024 while the equity has grown nearly 5x since 2017. Ready Capital Corporation (NYSE:RC) has also managed to grow its distributable earnings at an 18% CAGR between 2017 and June 2024.
7. New York Mortgage Trust, Inc. (NASDAQ:NYMT)
Year-to-Date Decline: 30.58%
Number of Hedge Fund Holders: 11
New York Mortgage Trust, Inc. (NASDAQ:NYMT) acquires, invests in, finances, and manages primarily mortgage-related single-family and multi-family residential assets. The firm’s investment portfolio includes credit sensitive single-family and multi-family assets and more traditional types of fixed-income investments that provide coupon income such as Agency RMBS.
The REIT has built a portfolio of credit sensitive assets providing attractive risk-adjusted returns over changing economic conditions. It continues to grow its investment portfolio with recent acquisitions primarily concentrated in more liquid Agency RMBS and shorter duration BPL-Bridge loans. Agency RMBS offers the firm benefits including an expected outperformance in a rate easing cycle or economic downturn, portfolio diversification, and compelling risk-adjusted returns.
New York Mortgage Trust, Inc. (NASDAQ:NYMT) recorded second-quarter adjusted interest income of $84 million, up 63% year-over-year. The total investment portfolio increased by $563 million. With respect to investment activity, NYMT acquired $934 million of new investments. New York Mortgage Trust, Inc. (NASDAQ:NYMT) looks forward to the second half of 2024 with the flexibility offered by its portfolio composition and excess liquidity in changing market conditions.
Hence, New York Mortgage Trust, Inc. (NASDAQ:NYMT) is a diversified REIT that aims to deliver long-term stable distributions to stockholders over fluctuating economic conditions through a combination of net interest spread and capital gains from its diversified investment portfolio.
6. Ares Commercial Real Estate Corporation (NYSE:ACRE)
Year-to-Date Decline: 33.69%
Number of Hedge Fund Holders: 8
Ares Commercial Real Estate Corporation (NYSE:ACRE) is a REIT that primarily engages in originating and investing in commercial real estate loans and related investments. It provides flexible and reliable financing solutions for commercial real estate owners and operators through its national direct origination platform.
ACRE has a lot to offer through its scaled national direct origination platform, quality diversified portfolio, longstanding and extensive credit capabilities, and attractive dividend yield opportunity. Additionally, the REIT is being managed by a subsidiary of Ares Management Corporation, a global alternative investment manager that operates an integrated platform across five business groups. It serves as a leader in leveraged finance, private credit, and secondaries and has over 20 years of track record of attractive risk-adjusted returns through market cycles.
For the second quarter of 2024, Ares Commercial Real Estate Corporation (NYSE:ACRE) reported a GAAP net loss of $6.1 million. While the financial results got impacted amidst the REIT tried resolving risk rated 4 and 5 loans and maintaining financial flexibility, it is confident that such actions will lead to higher levels of portfolio growth and earnings in the future. The firm also announced the appointments of Tae-Sik Yoon to Chief Operating Officer and Jeff Gonzales to Chief Financial Officer and Treasurer.
The REIT had total originated commitments of $2.2 billion across 42 loans, as of June 30. Other than boasting a well-diversified portfolio across geographies and asset classes, Ares Commercial Real Estate Corporation (NYSE:ACRE) benefits from the broad Ares firm.
5. Community Healthcare Trust Incorporated (NYSE:CHCT)
Year-to-Date Decline: 34.49%
Number of Hedge Fund Holders: 12
The healthcare real estate company Community Healthcare Trust Incorporated (NYSE:CHCT) acquires, owns, or finances real estate properties that are leased to hospitals, doctors, healthcare systems, or other healthcare service providers. The REIT is headquartered in Franklin, Tennessee.
The REIT has a well-diversified and stable portfolio by asset type, operator, and industry segment. As of June 30, this portfolio included 198 properties across 35 states totaling approximately 4.46 million square feet. The firm’s growth strategy revolves around acquisitions of non-urban healthcare facilities that have stable revenue growth and long-term cash flows to offer.
The healthcare industry is also presenting Community Healthcare Trust Incorporated (NYSE:CHCT) with strong tailwinds in the form of an aging US population driving healthcare expenditures and procedures that were traditionally performed in acute care hospitals shifting to specialty and outpatient facilities.
For the second quarter, the company reported a net loss of approximately $10.4 million. What impacted the REIT’s performance was a geriatric inpatient behavioral hospital tenant which has encountered problems with patient census and employee staffing thereby impacting the consistency of rent and interest payments to the company.
The REIT’s historical track record is an important fact to consider. Community Healthcare Trust Incorporated (NYSE:CHCT) has successfully delivered 87% total shareholder return and 587% total asset growth since inception.
4. Franklin Street Properties Corp. (NYSE:FSP)
Year-to-Date Decline: 34.75%
Number of Hedge Fund Holders: 12
Franklin Street Properties Corp. (NYSE:FSP) is a real estate investment trust that focuses on infill and central business district office properties in the US Sunbelt and Mountain West. The company’s real estate operations comprise property acquisitions and dispositions, short-term financing, leasing, development, and asset management. FSP owned a portfolio of real estate comprising 16 owned properties and one consolidated sponsored REIT, as of June 30. The firm believes in the potential of the Sunbelt and Mountain West regions to have long-term macroeconomic drivers likely to increase occupancies and rents.
During Q2, Franklin Street Properties Corp. (NYSE:FSP) leased a total of approximately 75,000 square feet of office space within its approximately 5.3 million square foot directly owned property portfolio. In July, the firm sold its last property in the Commonwealth of Virginia. GAAP net loss for the quarter was $21.0 million while Funds From Operations (FFO) was $3.7 million.
Commenting on the stock performance as Q2 closed, the Chairman and Chief Executive Officer, George J. Carter, reiterated:
“As the third quarter of 2024 begins, we continue to believe that the current price of our common stock does not accurately reflect the value of our underlying real estate assets. We will seek to increase shareholder value by continuing to (1) pursue the sale of select properties when we believe that short to intermediate-term valuation potential has been reached and (2) strive to increase occupancy through leasing of vacant space. We intend to use proceeds from property dispositions primarily for debt reductions”
Based on a year-to-date decline of 34.75% in the stock price, Franklin Street Properties Corp. (NYSE:FSP) ranks on our list of the worst performing real estate investment trusts in 2024.
3. Hudson Pacific Properties, Inc. (NYSE:HPP)
Year-to-Date Decline: 50.84%
Number of Hedge Fund Holders: 29
Hudson Pacific Properties, Inc. (NYSE:HPP) is a tech and media-focused REIT. The firm focuses on building, owning, and operating premier real estate and related services that are demanded by the dynamic and synergistic tech, media, and other creative industries.
Hudson Pacific Properties, Inc. (NYSE:HPP) serves as the only public owner/operator of premier office and studio properties, with synergistic growth potential. Its portfolio spans global tech and media epicenters with favorable long-term supply-demand fundamentals. HPP’s premier office portfolio and emphasis on tech and media epicenters is an attraction for leading public and established private companies with growth potential in their markets. Simultaneously, the firm’s studio portfolio is first-of-its-kind and caters to content creators’ facilities and services needs.
The firm delivered total revenue of $218.0 million in Q2 2024 compared to $245.2 million in Q2 2023. This was a result of the asset sales and two tenant move-outs at 1455 Market and Sunset Las Palmas Studios which was partially offset by improved studio ancillary revenue. Same-store cash NOI also declined mostly due to the aforementioned moveouts. The firm recorded a net loss attributable to common stockholders of $47.0 million. On the bright side, the REIT signed over 500,000 square feet of office leases in the second quarter.
Hudson Pacific Properties, Inc. (NYSE:HPP) is a differentiated real estate investment trust that operates as a unique provider of end-to-end real estate solutions for dynamic tech and media tenants. The firm currently remains challenged by a slower-than-anticipated studio demand recovery due to which it has suspended the quarterly dividend on its common stock to preserve capital. As of Q2, the stock is held by 29 hedge funds.
2. Service Properties Trust (NASDAQ:SVC)
Year-to-Date Decline: 53.40%
Number of Hedge Fund Holders: 18
Service Properties Trust (NASDAQ:SVC) has more than $11 billion invested in two asset categories which are hotels and service-focused retail net lease properties. As of June 30, the firm owned 220 hotels throughout the United States and in Puerto Rico and Canada and also owned 749 service-focused retail net lease properties with over 13.3 million square feet throughout the US.
The REIT has a diversified net lease and hotel portfolio with a national scale which remains a strategically positioned portfolio. While its hotels are typically located in urban or high-density suburban locations intended to be convenient for business travelers, its service-focused net lease properties include brands and industries benefitting from solid demand drivers. The REIT owns necessity-based retail assets with strong rent coverage, low capex requirements, and long lease terms. This balances the cyclicality of SVC’s hotel portfolio.
For Q2 2024, Service Properties Trust (NASDAQ:SVC) recorded a normalized FFO of $73.8 million and a net loss of $73.9 million. In July, the REIT sold two hotels and three vacant net lease properties. Simultaneously, it entered into agreements to sell 16 hotels with an aggregate of 1,930 keys for an aggregate sales price of $113.2 million and one net lease property with 3,381 square feet for a sales price of $1.3 million.
Recently, Service Properties Trust (NASDAQ:SVC) reduced quarterly distribution to $0.01 per share which will result in $127 million of annual savings. The firm also plans to sell 114 Sonesta-managed focused service hotels in 2025 to use the net sales proceeds to repay debt. Thus, SVC is making efforts to improve portfolio performance, reduce capital expenditures and leverage, and position its hotel portfolio well for the long term.
1. Office Properties Income Trust (NASDAQ:OPI)
Year-to-Date Decline: 71.49%
Number of Hedge Fund Holders: 17
Office Properties Income Trust (NASDAQ:OPI) is a real estate investment trust focused on owning and leasing office properties to high-credit quality tenants across the United States. As of June 30, 2024, the firm owned and leased 151 properties with 20.3 million square feet situated in 30 states and Washington, D.C.
OPI boasts a strong portfolio supported by a high credit tenant base with almost 61% of revenue coming from investment-grade rated tenants, as of June 30. Additionally, the portfolio ensures geographic and industry diversification. The firm is managed by the RMR Group, an alternative asset management company focused on commercial real estate and related businesses, something OPI sees as its competitive advantage. The firm believes that RMR provides management services at costs lower than what OPI had to pay if it were self-managed other than bringing scale and efficiency to the REIT.
For the second quarter, Office Properties Income Trust (NASDAQ:OPI) reported a net income of $76.2 million and a normalized FFO of $33.2 million. In regards to leasing, OPI signed 208,000 square feet of new and renewal leases and closed the quarter with the same property portfolio occupancy of almost 90%. The REIT is under agreement to sell 12 properties for approximately $93.5 million, expected to be closed by year-end.
In conclusion, Office Properties Income Trust (NASDAQ:OPI) has a well-established and diversified portfolio, quality tenants, and support from the RMR Group. The company’s stock is held by 17 hedge funds, as of Q2 2024.
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