In this piece, we will take a look at the 15 worst performing REITs in 2023. If you want to skip our introduction to the current state of the different segments of the REIT industry, then head on over to 5 Worst Performing REITs in 2023.
Like the banking industry, the property sector in America is also sensitive to interest rate hikes. However, while banks have the luxury of passing on the rate hikes to consumers, property firms, whether it's building managers or construction firms, face a significantly tougher environment. Rising interest rates limit the ability of builders to raise capital for new projects, and also for management firms to keep up with their debt obligations.
Trouble in the real estate sector has seen banks revisit the strategies of 2008, as they offer borrowers the ability to change their repayment turns. Through this, banks hope to take a small haircut on their loans now but recover most of the money later on. Rapid interest rate hikes also dry up liquidity in the sector, as financiers are unwilling to write long term credit before a terminal interest rate is in sight. Several defaults have already occurred in the U.S. office real estate so far this year, and as we settle into H2 2023, there is a growing concern that this might just be the start of turmoil. Office real estate in particular has been disrupted quite a bit by the coronavirus pandemic as the trend to work from home was widely adopted due to lockdowns.
Offices are often managed by firms called real estate investment trusts (REITs). As opposed to typical corporations such as Apple, Tesla, or Meta, a REIT uses investors' funds to finance projects and then distributes any profits that it makes from operations as dividends. This often ends up making its operations tax free since most of the profits are paid out and not reinvested in growth. At its core, a REIT is an investment vehicle similar to mutual funds, with the difference that instead of stocks, bonds, or other financial instruments, investors end up earning profits from buildings. In the U.S., 90% of all the profits of REITs have to be paid out as dividends in order to maintain tax exempt status. A REIT that fails to meet these requirements can see additional taxes levied on it.
And while the stock market has performed remarkably well in 2023, the picture in the real estate sector is different. August started out with a growing chorus that the office building landscape might have been permanently altered. As evidence, consider the fact that office loans crossed a 5% delinquency rate in July, nearly tripling the year-ago rate. Along with office delinquencies, the lodging sector of the real estate industry isn't doing well either. While its rates have been historically higher than the office space and were high even in July 2022 due to the aftershocks of a disruption in the global travel industry, delinquencies nevertheless dropped to roughly 4% by May. However, within the course of just two months, delinquencies in the lodging industry have jumped to sit at nearly 6%, higher than the year-ago readings.
The turmoil has also caused analysts to offer diverging viewpoints about what to expect from the real estate sector moving forward. The most dismal outlook for the real estate sector comes from Morgan Stanley (NYSE:MS)'s chief investment officer Lisa Shalett. She believes that at least half of the $2.4 trillion in commercial real estate loans will have to be negotiated over the course of the next two years. Bank of America Corporation (NYSE:BAC) adds that the tight interest rate environment has made it difficult for firms to service existing and new debt.
Interested in finding out which real estate stocks are still favored by hedge funds in this tough environment? According to our research, the best real estate and realty stocks to buy according to hedge funds are Equinix, Inc. (NASDAQ:EQIX), American Tower Corporation (NYSE:AMT), and Prologis, Inc. (NYSE:PLD). For complete coverage, you can check out 12 Best Real Estate and Realty Stocks to Buy.
One of these, Prologis, Inc. (NYSE:PLD), a specialty REIT that works primarily with logistics and industrial firms, had the following comments about its industry during its Q2 2023 earnings call:
Proposal activity, gestation and pre-leasing of vacancy are all within a few percent of their pre-COVID levels, a period which we’ve highlighted many times was itself historically strong. Our IDI sentiment index ticked in the quarter to over 58 indicating a continued strong backdrop for demand as described by our customers and further supported by utilization increasing to 85.5%. Unsurprisingly, customers have been more deliberate in their decision-making amidst the uptick in vacancy. We continue to believe that this will be a short-lived reprieve as construction starts have indeed declined significantly for our expectations. Starts in the second quarter were down approximately 40% across our US markets and 50% in Europe. We see deliveries in 2024 falling short of demand, reducing vacancy over the course of next year.
With these details in mind, let's take a look at some of the worst performing REIT stocks in 2023. The ones with the most losses so far are Wheeler Real Estate Investment Trust, Inc. (NASDAQ:WHLR), Power REIT (NYSE:PW), and CorEnergy Infrastructure Trust, Inc. (NYSE:CORR).
To compile our list of the worst performing REIT stocks in 2023, we ranked all REIT firms by their year to date losses on the stock market. As added context, the number of hedge funds that had invested in them as of March 2023 is also provided.
Hersha Hospitality Trust (NYSE:HT) is a hospitality real estate trust with 25 hotels in its portfolio of properties. The firm's been regularly beating quarterly analyst EPS estimates as of late, including for the second quarter of this year. At the same time, Hersha Hospitality Trust (NYSE:HT) is also busy liquidating some of its properties.
Insider Monkey dug through 943 hedge funds for their March quarter of 2023 shareholdings to discover that 21 had held a stake in Hersha Hospitality Trust (NYSE:HT). Israel Englander's Millennium Management is the biggest shareholder out of these, through an investment of $12 million.
Bluerock Homes Trust, Inc. (NYSE:BHM) is a New York-based firm that primarily deals in residential real estate such as single family homes. The firm recorded a massive $4 billion in capital inflows in 2022, and by the end of Q1 2023, it grew its revenue by a little over $2 billion but also reported a loss per share.
During the same time period, three of the 943 hedge funds part of Insider Monkey's database had also invested in Bluerock Homes Trust, Inc. (NYSE:BHM).
Power REIT (NYSE:PW), Wheeler Real Estate Investment Trust, Inc. (NASDAQ:WHLR), and CorEnergy Infrastructure Trust, Inc. (NYSE:CORR) are met by Bluerock Homes Trust, Inc. (NYSE:BHM) in our list of 2023's worst performing REITs.
13. Hannon Armstrong Sustainable Infrastructure Capital, Inc. (NYSE:HASI)
Year To Date Share Price Losses: 23.66%
Hannon Armstrong Sustainable Infrastructure Capital, Inc. (NYSE:HASI) is a rather interesting REIT that focuses its attention on building energy efficient buildings. It revealed earlier this year that its operations can help reduce carbon emissions by 147,000 metric tons. However, Hannon Armstrong Sustainable Infrastructure Capital, Inc. (NYSE:HASI) aims to stop being a REIT in 2024.
As of March 2023, 14 of the 943 hedge funds surveyed by Insider Monkey had bought the firm's shares. Out of these, Hannon Armstrong Sustainable Infrastructure Capital, Inc. (NYSE:HASI)'s largest investor is Ken Griffin's Citadel Investment Group through a $20 million stake.
Ashford Hospitality Trust, Inc. (NYSE:AHT) is another hotel REIT. Like Hersha, it also beat analyst EPS estimates during its second quarter earnings, and for the first six months of the year, its revenue grew by roughly $110 million annually. However, high interest expenses pushed this into a loss for shareholders.
Insider Monkey scoured through 943 hedge fund portfolios for this year's first quarter to find out that eight had bought the firm's shares. Ashford Hospitality Trust, Inc. (NYSE:AHT)'s largest investor in our database is Aaron Weitman's CastleKnight Management with a $2.4 million investment.
Orion Office REIT Inc. (NYSE:ONL) is the first office real estate company on our list so far. Like other REITs, its share price also started to dip during the start of February, and for Orion Office REIT Inc. (NYSE:ONL), this was bad news since the firm had already missed analyst EPS estimates in all four quarters of 2022.
By the end of Q1 2023, 19 of the 943 hedge funds part of Insider Monkey's database had held a stake in Orion Office REIT Inc. (NYSE:ONL). Out of these, the REIT's biggest stakeholder is Eli Samaha's Madison Avenue Partners since it owns 4.4 million shares that are worth $30 million.
OUTFRONT Media Inc. (NYSE:OUT) is a marketing real estate which operates billboards and other similar mediums. The firm missed Q1 2023 analyst EPS estimates but the shares continue to be rated Strong Buy on average.
Insider Monkey took a look at 943 hedge fund portfolios and discovered that 28 had invested in the REIT. OUTFRONT Media Inc. (NYSE:OUT)'s largest investor is David Brown's Hawk Ridge Management with a $70.5 million stake.
Gladstone Commercial Corporation (NASDAQ:GOOD) is an industrial and office space management firm. Given the trouble in office real estate, the firm is liquidating such properties and expanding its presence in the retail and industrial sectors.
As of March 2023, seven of the 943 hedge funds surveyed by Insider Monkey had bought and owned Gladstone Commercial Corporation (NASDAQ:GOOD)'s shares. Jim Simons' Renaissance Technologies is the largest shareholder through its investment worth $19.6 million.
8. Cherry Hill Mortgage Investment Corporation (NYSE:CHMI)
Year To Date Share Price Losses: 29.66%
Cherry Hill Mortgage Investment Corporation (NYSE:CHMI) invests in mortgage backed securities and other assets. Its shares tanked in March when it announced Q4 and full year earnings results which saw losses on its securities push the company to report a net loss.
By the end of this year's first quarter, three of the 943 hedge funds part of Insider Monkey's research had bought stakes in the firm. Cherry Hill Mortgage Investment Corporation (NYSE:CHMI)'s largest investor among these is Jim Simons' Renaissance Technologies since it has a $3.8 million stake.
Hudson Pacific Properties, Inc. (NYSE:HPP) is another office REIT. It serves the needs of the media and technology industries and has been in a bit of trouble lately due to the ongoing strike in Hollywood which cost it $4 million in revenue losses during Q2 2023.
In the previous quarter, 22 of the 943 hedge funds polled by Insider Monkey had invested in Hudson Pacific Properties, Inc. (NYSE:HPP). Ken Griffin's Citadel Investment Group is the REIT's biggest shareholder through a $25 million investment.
Franklin Street Properties Corp. (NYSE:FSP) is an office REIT with a presence primarily in Southern U.S. states. Its second quarter earnings saw the REIT report an $8.4 million loss during the quarter along with a $5 million annual revenue drop.
By the end of Q1 2023, 14 of the 943 hedge funds part of Insider Monkey's database had held the firm's shares. Franklin Street Properties Corp. (NYSE:FSP)'s largest hedge fund shareholder is Eli Samaha's Madison Avenue Partners since it owns 5 million shares that are worth $7.9 million.
Along with Wheeler Real Estate Investment Trust, Inc. (NASDAQ:WHLR), Power REIT (NYSE:PW), and CorEnergy Infrastructure Trust, Inc. (NYSE:CORR), Franklin Street Properties Corp. (NYSE:FSP) is one of the worst performing REIT stocks in 2023.
