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It’s always interesting to compare two companies or REITs to see which may be the better investment in regards to the dividends paid out. As investors, our main job is to allocate capital efficiently, and it’s important to be able to perform comparisons in order to justify where we place our precious capital and how much is returned to us in the form of dividends.
For investors in Hong Kong and Singapore alike, investors can receive dividends absolutely tax-free. This means that REITs, well-known to dividend investors, are a popular choice for those of us looking at generating passive income from our investments.
With this in mind, I’d like to take a look at two popular REITs listed in two different countries. Link REIT (SEHK: 823) is Asia’s largest REIT by market capitalisation and owns a portfolio comprising retail facilities, car parks and offices across Hong Kong, Beijing, Shanghai, Guangzhou, and Shenzhen.
Meanwhile, Frasers Centrepoint Trust (SGX: J69U), or FCT, is a leading developer-sponsored REIT that owns a portfolio of seven retail suburban malls in Singapore. Link is listed in Hong Kong while FCT is listed in Singapore.
I’ll examine three key aspects of each REIT: the dividend yield, year-on-year growth in distribution per unit (DPU) and gearing level.
Link’s dividend yield was 3.3% based on the DPU for its latest fiscal year, lower than FCT’s 4.4%. Plus, Link’s dividend is paid semi-annually as compared to FCT, which pays out quarterly. This provides FCT with a significant advantage as income investors can receive their dividends more frequently.
Link has demonstrated a much stronger year-on-year DPU growth of 8.6% as compared with FCT. This is due to Link’s high rental reversion rates of that are in the double-digit levels, and helps to provide the organic growth spurt for rental income, resulting in higher DPU increases over the years.
While FCT has also seen positive rental reversion, there has been resistance to this from tenants as these are suburban malls located in heartland areas.
Winner: Link REIT
Link also has a very low gearing level for a REIT of its size, and this probably can be explained by its strong organic growth track record as a result of consistently high rental reversion rates. FCT, on the other hand, has gearing ratio of 32.9% as a result of acquisitions over the years as well as spending on asset enhancement initiatives (AEIs) for its malls.
As Link has a significantly lower gearing level, this means that it has ample opportunities to gear up in order to make accretive acquisitions.
Winner: Link REIT
The better REIT is Link REIT as it has a much higher DPU growth and also lower gearing level compared to FCT.
Though the dividend yield may be low for Link, investors should note that they will be compensated by stronger DPU growth and also opportunities for the REIT to engage in development and acquisitions to further boost DPU.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Royston Yang doesn’t own shares in any companies mentioned.