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 Office Properties Income Trust (NASDAQ:OPI) 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).
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.
Overall OPI ranks 1st on our list of the worst performing REITs in 2024. While we acknowledge the potential of OPI 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 OPI, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.