Diversification Profile of REITs

This is continuous post after debt profile and lease profile of REITs. REITs diversification is a process to reduce risk by investing in multiple income generating sources. Often it is more of qualitative factor in analysis, so how can we measure it? Personally, I quantify it through top income contribution from various sources, the smaller the value, the better.

Don't put all your eggs into one basket

1) Major Sector Contribution
Some REITs manage properties from different sectors, you could refer to Sector Contribution Weightage of REITs that I've post previously for more detail. Major sector contribution refers to the biggest sector income contribution for a REIT. How you classify REIT sector would affect this figure, if you classify REIT sectors as per my previous post, then you could take the figure from the shared google sheet as reference, just remember to update it every quarter.

2) Top Geographical Location Contribution
This is another subjective figure, different person would have different view. Below is simplified table for how I classify:

	Properties in Single State	Properties in Multiple States
Properties in Single Country	Not Diversified	Diversified
Properties in Multiple Countries	Diversified

Even if a REIT has only properties in 1 country but in different states, I would considered this as diversification as well. For examples, IREIT Global only has properties in Germany, but I would take its top geographical location contribution as around 34% (from Berlin property). Refer below for REITs top geographical contrition (by gross revenue income) ≤ 40% and 100%.

Top Geographical Contribution ≤ 40%		Top Geographical Contribution = 100%
Name	Approx. Contribution	Name	Contribution
Ascendas Hospitality Trust	37.5%	Dasin Retail Trust*	100%
Ascott Residence Trust	20%	ESR-REIT	100%
Cromwell European REIT	30%	Far East Hospitality Trust	100%
First REIT	35%	Fortune REIT	100%
Frasers Hospitality Trust	20%	Mapletree Commercial Trust	100%
Frasers Logistics & Industrial Trust	25%	OUE Hospitality Trust	100%
IREIT Global	35%	Sabana Shari'ah Compliant Industrial REIT	100%
Manulife REIT	22.5%	SPH REIT	100%
Mapletree Logistics Trust	37.5%

* Dasin Retail Trust is Business Trust instead of REIT. Note that this table is only for reference as it is based on the above classification. You would have different result if you consider 1 country as 1 geographical location.

Geographical diversification come with foreign exchange risk even if hedging is in place

3) Top Property Contribution
This is to check whether a REIT is heavily depends on its flagship property for income. Refer below table for REITs top property contrition (by gross revenue income) ≤ 10% and ≥ 50%:

Top Property Contribution ≤ 10%		Top Property Contribution ≥ 50%
Name	Approx. Contribution	Name	Approx. Contribution
Ascendas REIT	5%	BHG Retail REIT	60%
Ascott Residence Trust	10%	Mapletree North Asia Commercial Trust	62.5%
CDL Hospitality Trusts	10%	OUE Hospitality Trust	55%
Frasers Logistrics & Industrial Trust	10%	SPH REIT	77.5%
Mapletree Logistics Trust	5%	Suntec REIT	55%

4) Top Tenant Contribution & Top 10 Tenants Contribution
Similar to top property contribution, this is to check whether a REIT is heavily depends on its top tenant and top 10 tenants for income. Refer below for REITs top tenant and top 10 tenants contribution (by gross revenue income) highlight:

i) Top Tenant Contribution

Top Tenant Contribution ≤ 5%		Top Tenant Contribution ≥ 50%
Name	Approx. Contribution	Name	Approx. Contribution
Ascendas REIT	4.5%	Ascendas Hospitality Trust	60%
Capitaland Mall Trust	3.25%	First REIT	82.5%
ESR-REIT	4.5%	IREIT Global	52.5%
Frasers Centrepoint Trust	4.25%	OUE Hospitality Trust	57.5%
Keppel-KBS US REIT	3.25%	Parkway Life REIT	60%
Mapletree Commercial Trust	3.75%
Suntec REIT	4.5%

ii) Top 10 Tenants Contribution

Top 10 Tenants Contribution ≤ 25%		Top 10 Tenants Contribution ≥ 90%
Name	Approx. Contribution	Name	Approx. Contribution
Ascendas REIT	20%	Ascendas Hospitality Trust	97.5%
Capitaland Mall Trust	20%	CDL Hospitality Trusts	95%
Frasers Centrepoint Trust	22.5%	EC World REIT	100%
Keppel-KBS REIT	20%	First REIT	100%
Mapletree Commercial Trust	25%	Frasers Hospitality Trust	92.5%
Sasseur REIT	17.5%	IREIT Global	100%
SPH REIT	22.5%	Parkway Life REIT	90%
Suntec REIT	22.5%

For hospitality and healthcare REIT, due to the lease structure of master lease, both sectors are heavily rely on small numbers of tenants for income. Note that for Far East Hospitality Trust, 100% of its master lessees are members of Far East Organization Group. For CDL hospitality trusts, around 60% gross income from master lessees are members of sponsors. As for Acott Residence Trust, no information is provided on tenant contribution.

5) Top Tenant Trade Contribution
This is the tricky one, not all REITs disclose this information in detail and classification is not standardized. Therefore, I find it difficult to compare and I do not consider this during my analysis. This is also not applicable to healthcare and hospitality sector. Refer below for some examples of non-standardized information presentation:

Frasers Logistics & Industrial Trust

Ascendas REIT

Sabana REIT

Soilbuild Business Space REIT

From the above, you could see that the classification is different and information is not always available. If you really would like to compare, you may have to create your own classification for each REIT sector.

For all the contributions above, whenever possible, I would take weightage by gross rental income than net property income or property valuations. Information can be found mostly from presentation, financial statement (under Segmental Revenue and Results) or annual report, though some would require manual calculation. I hope the above provides some ideas for you to measure diversification.