Map your REIT holdings, or a model list, by sub-sector and country.
Darren holds five S-REITs. He bought each one for a sensible reason, at a different time, and when he listed them by sub-sector and country for the first time, he found that more than three quarters of his REIT money depended on Singapore property and nearly a third depended on one kind of property. He saw it as a mix he had ended up with rather than one he had chosen.
An exposure map shows you the same thing about your own holdings. It takes about twenty minutes and works on the REITs you own or on a practice list.
Start by writing down each S-REIT you hold and the amount in it at today's price. If you hold no REITs, build a model list: four to six S-REITs from different sub-sectors, with made-up amounts, so you can practise the method. The model list is practice only. Putting a REIT on it says nothing about whether you should own that REIT.
For each REIT, open its latest results presentation and find its main sub-sector and the countries it operates in. Many REITs hold more than one sub-sector or country, and they report income or asset value for each. Use the income breakdown where you can, because income is what pays you.
When a REIT spans more than one sub-sector or country, split your holding using the REIT's own breakdown. A REIT earning 70% of its income in Singapore and 30% in Australia, for example, means 70% of your holding goes to Singapore and 30% to Australia.
Make two tables: one for money by sub-sector and one for money by country. For sub-sectors, use retail, office, industrial, data centre, healthcare, hospitality, and any other. Add up your money in each row, then convert each total into a percentage of your total REIT money.
Take an investor with five S-REITs totalling S$20,000 (all figures here are invented):
S$6,000 in a Singapore retail REIT S$4,000 in a Singapore office REIT S$2,000 in a Singapore hospitality REIT S$5,000 in an industrial REIT with income 70% from Singapore and 30% from Australia S$3,000 in a data centre REIT with income 60% from the US and 40% from Europe
By sub-sector, retail is 30% (S$6,000 / S$20,000), industrial 25% (S$5,000), office 20% (S$4,000), data centre 15% (S$3,000) and hospitality 10% (S$2,000).
By country, Singapore comes to S$15,500, or 77.5%: S$6,000 + S$4,000 + S$2,000, plus 70% of S$5,000, which is S$3,500. The US is S$1,800, or 9% (60% of S$3,000). Australia is S$1,500, or 7.5% (30% of S$5,000). Europe is S$1,200, or 6% (40% of S$3,000).
This portfolio has a fairly even spread by sub-sector and a heavy tilt to Singapore by country. Whether a heavy country tilt is a problem depends on the rest of your money, as Lesson 2.4, "The STI blue chips: income and concentration", discussed. For most Singapore investors, a job, CPF and a home in Singapore already add up to a large stake in the local economy.
For every sub-sector you hold, write one line on what drives its income and one line on its main risk. Lessons 6.1 to 6.4 give you the material for this.
Retail income rests on footfall and tenant sales, and the main risk is shoppers moving online. Office income rests on how much space businesses want, and the risk is firms needing fewer floors just as new towers open. Industrial is driven by trade and manufacturing, and the risk is land leases running down. Data centres depend on demand for computing; the risks are a few very large tenants, power costs, and currency when all the assets are overseas, as they are in the example. Hospitality moves with travel, and the risk is that it can fall hard when travel stops.
A limit is a rule you set in advance, as a share of your REIT money, for any one sub-sector and any one country, so that one bad year in one sector cannot cut most of your income. Nobody can give you the right number. Someone drawing income from the portfolio may want tighter limits than someone still building it.
Write your limits down before you compare them with your totals, so the numbers do not talk you into a limit that happens to fit what you already own. Then compare and flag anything above a limit. Note anything sitting exactly at a limit, because it needs watching, and note any purchase that would push you over.
The investor in the example set 30% for any one sub-sector and 80% for Singapore. Retail, at 30%, sits right at its limit and needs watching. Singapore, at 77.5%, is just under 80%. Nothing is flagged yet, but the next purchase of a Singapore retail REIT would break both limits.
A finished exposure map contains every REIT with its sub-sector and country split, the two tables in dollars and percentages, a driver and a risk for every sub-sector held, and your limits with anything above them flagged. Lesson 8.2, "Spread income across sectors, sources and countries", uses this map when you build your full portfolio.
Build your map from today's holdings or your model list, and set your sub-sector limit before you look at where your biggest slice sits.
Fill in the sub-sector map for your REIT holdings or a model list, then write down the limit you would set for any one sub-sector.
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