4 Steps To Review Your REIT Portfolio at Year-End

As the year draws to a close, it’s an ideal time for investors to evaluate their portfolios and prepare for the year ahead.

For those invested in Real Estate Investment Trusts (REITs), a comprehensive year-end review can help identify areas for improvement, align investments with financial goals, and ensure a solid foundation for future performance.

Here’s a step-by-step guide to reviewing your REIT portfolio effectively.

1: Assess Portfolio Performance

Start by evaluating the overall performance of your REIT portfolio.

Look at key metrics such as:

Dividend Yield: Calculate the dividend yield of your REIT portfolio and compare it to industry benchmarks. In aggregating the results, you should also pay attention to both headline-reported dividend yield and yield from operations of individual REITs and on a portfolio level.
Total Returns: Include capital appreciation and dividend income to measure your portfolio’s performance.
Individual REIT Performance: Identify top-performing REITs and those that underperformed. More importantly, understand the factors that resulted in the outperformance or underperformance.

Compare your portfolio’s performance against market indices, other dividend stocks (i.e. bank stocks) or REIT-focused benchmarks, such as the iEdge S-REIT Index. This will give you a clearer picture of how well your investments have performed relative to the broader market and alternative income instruments.

Going through this exercise would also help you identify the weaker-performing REITs to pay special attention to in their next annual reporting – around February of the next calendar year for most REITs.

Simultaneously, it will aid in comprehending the factors influencing the REIT's share price movements, whether they exceed or fall short of expectations. This understanding will provide insight into what general investors are seeking, guiding your decisions regarding actions to take with weaker performers.

2: Analyze Sector and Geographic Exposure

Diversification is key to reducing risk and stabilizing returns in a REIT portfolio.

Over the year as the share price of the REIT changes, the weightage of the individual REITs in your portfolio would also change accordingly.

To ensure that you are not over nor under-exposed to a specific sector or geography, you need to do an aggregation of your investment portfolio and review the sectorial and geographical distribution of your holdings:

Sectorial Exposure: Are you overly concentrated in one sector, such as retail, industrial, or office REITs? If so, how are you going to rebalance the portfolio to revert to an ideal allocation that aligns with market trends and your goals?
Geographic Exposure: For REITs with offshore properties, evaluate the performance of specific regions. Are there geopolitical or economic risks that might warrant a shift in allocation? If so, how are you going to rebalance the portfolio to achieve the ideal geographical allocation that aligns with your goals?

Maintaining a balanced and diversified portfolio can help mitigate the impact of sector-specific or regional downturns.

By analyzing which REITs are excelling and which are lagging from Step 1, along with the insights from Step 2, you can now better determine which REITs to buy or sell. This will allow you to adjust your portfolio to enhance its fundamentals and align with the appropriate sector and geographical exposure according to your investment objectives.

Read More: Diversification In REIT Investing: How It Is Done Properly (To be published)

3: Evaluate Market Trends And Outlook

The REIT market is influenced by macroeconomic factors that are beyond the investor's control. To ensure your investment success, you must incorporate these factors into your review which largely includes:

Interest Rates: What are your expectations of the interest rate environment moving forward and how would that translate to the bottom-line performance of your REIT based on your understanding of their debt maturity profile?
Sector Trends: Identify emerging trends, such as the rise of data centres or logistics REITs, to inform potential adjustments. There are twofold to understanding sectorial trends.

The first is to understand the current investor preferences – namely what are they focused on and willing to pay either a premium or discount on (i.e. as of 2024, investors are focused on Data Centres and willing to pay a premium for that exposure in anticipation of future growth).

The second is to understand how the trends would translate into future fundamental performances and determine if the ongoing investor's preferences are justified (i.e. while the fundamentals of Data Centre REITs are positioned to grow, they may not be growing at the rate that the current market is pricing in and as such, it may not make sense to jump into Data Centre REITs at the current prices)

Understanding the trend itself is not enough; investors must grasp how these trends will affect fundamentals and investor preferences, as these are crucial factors influencing future share price performance and dividend receipts.

4: Adjust Your Portfolio

By integrating your results from steps 1, 2, and 3, the final step is to develop an implementation plan to adjust your portfolio accordingly.

This is done by

Identifying the REITs that you need to buy or sell
The amount to buy or sell for the REITs identified
The target price that you should consider to execute a buy or sell trade

Coming out with an implementation plan would help guide your investment decision and action. It will help you make better sense of the ongoings of the market and help you focus on the REITs that you should keep a close watch on moving into the next year.

Conclusion

A year-end review of your REIT portfolio is more than just a routine check-up; it’s an opportunity to refine your strategy, address weaknesses, and position your investments for success in the coming year.

By assessing performance, analyzing diversification, and keeping an eye on market trends, you can ensure your portfolio remains resilient and aligned with your financial objectives.

Regular reviews and proactive adjustments are the keys to maximizing the potential of your REIT investments.

If you are looking for personalized financial advice for your REITs year end review, I offer a 1-to-1, fee-only consultation where you will receive personalized strategies to design, implement and manage a profitable REIT portfolio. You can find out more about it here: