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 Ready Capital Corporation (NYSE:RC) 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).
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.
Overall RC ranks 8th on our list of the worst performing REITs in 2024. While we acknowledge the potential of RC 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 RC, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.