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 Service Properties Trust (NASDAQ:SVC) 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).
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.
Overall SVC ranks 2nd on our list of the worst performing REITs in 2024. While we acknowledge the potential of SVC 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 SVC, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.