You will map your REIT holdings, or a model list, by sub-sector and country.
Darren held five S-REITs, each bought for a sensible reason at a different time. 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 on one kind of property, a mix he had ended up with rather than chosen.
In about twenty minutes, this exercise turns your REIT holdings, or a model list, into a map you can make decisions from. Start by writing down each S-REIT you hold and the amount you have in it at today's price. If you do not hold any, build a model list of four to six S-REITs from different sub-sectors with made-up amounts, so you can practise the method. Treat the model list as practice only; putting a REIT on it says nothing about whether to own one.
For each REIT, look up its main sub-sector and its countries from the latest results presentation. Many REITs hold more than one sub-sector or country and report income or asset value by each. Use income where possible, because that is what pays you.
Make two tables. In the first, add up your money by sub-sector: retail, office, industrial, data centre, healthcare, hospitality and any other. In the second, add it up by country.
Where a REIT spans more than one, split your holding by the REIT's own breakdown. If a REIT earns 70% of its income in Singapore and 30% in Australia, put 70% of your holding in Singapore and 30% in Australia.
Then turn each total into a percentage of your REIT money.
Here is a made-up list of five S-REITs totalling S$20,000. Every figure is an example.
The list has S$6,000 in a Singapore retail REIT, S$4,000 in a Singapore office REIT and S$2,000 in a Singapore hospitality REIT. It also has S$5,000 in an industrial REIT whose income is 70% from Singapore and 30% from Australia, and S$3,000 in a data centre REIT whose income is 60% from the US and 40% from Europe.
By sub-sector: retail 30%, industrial 25%, office 20%, data centre 15%, hospitality 10%.
By country: Singapore S$15,500, or 77.5%. US S$1,800, or 9%. Australia S$1,500, or 7.5%. Europe S$1,200, or 6%.
That is a fairly even spread by sub-sector, and a heavy tilt to Singapore by country. Whether the tilt is a problem depends on the rest of your money, which lesson 2.4, The STI blue chips: income and concentration, discussed. For most Singapore investors, a job, CPF and a home here already add up to a large stake in the local economy.
For each sub-sector you hold, write one line on what drives its income and one on the main risk you carry. Use lessons 6.1 to 6.4.
In the example, retail income rests on footfall and tenant sales, and the risk is shoppers moving online. Office rests on how much space businesses want, against the risk that firms need fewer floors just as new towers open. For industrial the driver is trade and manufacturing and the risk is land leases running down. The data centre REIT depends on demand for computing, and it carries a few very large tenants, power costs and, since all of it is overseas, currency. Hospitality goes with travel and can fall hard when travel stops.
Then decide on a limit for any one sub-sector and any one country, as a share of your REIT money. Nobody can hand you the right number for this. A limit is a rule you set in advance so that one bad year in one sector cannot cut most of your income. Someone drawing income from the portfolio may want tighter limits than someone still building it.
Say, in the example, the investor sets 30% for any one sub-sector and 80% for Singapore. Retail sits right at its limit and needs watching. Singapore, at 77.5%, is just under. Nothing is flagged yet, but the next purchase of a Singapore retail REIT would break both.
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.
A finished map has every REIT with its sub-sector and country split, two tables of exposure in dollars and percentages, a driver and a risk for every sub-sector you hold, and your limits with anything above them flagged. Lesson 8.2, Spread income across sectors, sources and countries, uses this map when you build the 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.
Complete the sub-sector map for your REIT holdings or a model list and write the limit you would set for any one sub-sector.
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