We recently compiled a list of the 10 Worst Performing REITs in 2024. In this article, we are going to take a look at where Franklin Street Properties Corp. (NYSE:FSP) stands against the other worst performing REITs 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.
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.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
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.
Overall FSP ranks 4th on our list of the worst performing REITs in 2024. While we acknowledge the potential of FSP as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than FSP, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
