Understanding Scrip Dividend Scheme better

Previously I shared my choice on the Dividend Reinvestment Plan for OCBC Bank (O39) and CapitaLand Retail China Trust (AU8U)

Scrip dividend scheme or otherwise Distribution Reinvestment Plan (DRP) allows shareholders to opt for dividend payout in the form of shares in lieu of of cash. Existing shareholders could increase their shareholding over time without incurring typical transaction costs in the open market e.g. brokerage commissions, trading fees, stamp duty etc. Scrip dividend price is also usually priced in at a discount.

The company benefits from the cash retained which would otherwise have to be given out as cash dividends. The cash conserved could be further used as working capital or future growth of the company.

Options for shareholders

Most of the time, you only have the option of receiving either cash or shares. Sometimes, a third option allows you to receive part shares, part cash.

Dilution for existing shareholders

Scrip dividend usually leads to the creation of new shares (instead of Treasury shares or shares from the company’s reserve), and is generally a dilution for existing shareholders who opt for cash dividends over scrip.

Far East Hospitality Trust (Q5T) scrip dividend scheme

OCBC Bank (O39) scrip dividend scheme

DBS Bank (D05) scrip dividend scheme

Treatment of Fractional Entitlements — By issuing Companies

Fractional entitlements are treated differently by different companies. Regular Board lots on the SGX for example are in lots of 100 units. Any shares between 1 – 99 are treat as odd lots. We know that new shares in lieu of the cash amount elected to be received would not be a “nice” number. Usually, it would also include fractional numbers.

3 possible scenarios may arise:

Fractional entitlement is rounded down. Even if you are entitled to 0.99 of a unit share, it will be rounded to zero. E.g. 14.99 shares will be rounded down to 14 shares.

CapitaLand Retail China Trust (AU8U) scrip dividend scheme

Fractional entitlement is rounded up or down, depending on whether the fraction is 0.5 or more, or less than 0.5. E.g. 14.5 shares will be rounded up to 15 shares, while 14.49 shares will be rounded down to 14 shares.

DBS Bank (D05) scrip dividend scheme

Fractional entitlement is rounded up. My favorite of the 3 actually. Even if you are entitled to 0.01 of a unit share, it will be rounded up to 1. E.g. 14.01 shares will be rounded up to 15 shares.

OCBC Bank (O39) scrip dividend scheme

Treatment of Fractional Entitlements — CDP versus Custodian

If your shares are held in CDP, generally the treatment of fractional entitlement will follow the rules as set above or the companies.

However, if your shares are held by custodian, generally the rule is that fractional entitlements are rounded down. The reason is simple, the custodian normally hold their shares under a nominee account, thus is treated as a single corporate shareholder rather than many individual shareholders.

In the event that this corporate action (whether voluntary or otherwise) results in you holding a fractional interest in relation to any Security, the total amount of your allocation of such Security will be rounded down to the nearest whole number. — SCB Trading

Some corporate actions may result in fractional shares/CIL. As there are expenses incurred by PSPL in handling such fractional entitlements, your right to any such fractional entitlements will be waived in accordance with the terms governing your account. Your share entitlement from such corporate actions will be rounded down to the nearest full share. — POEMS

Fractional entitlements or shares are shares of equity that are less than one full share. Fractional shares usually arise from stock splits, rights issues and similar corporate actions. Certain corporate action events may result in fractional shares. In such event, your share entitlement will be rounded down to the nearest 1 share. — FSMOne

Frasers Hospitality Trust (ACV)

As at 2020 Third Quarter Financial Results (6 Aug 2020)

Frasers Hospitality Trust (FHT) is the first global hotel and serviced residence trust to be listed on the Singapore Exchange, on 14 Jul 2014. It has ownership/interest in 15 properties in Singapore, comprising 9 hotels and 6 serviced residences, worth S$2.35 billion as at 31 Mar 2020.

Gross rental income
(by geographical location)
Percentage
Singapore17%
Australia50%
UK15%
Japan6%
Germany10%
Malaysia2%

Metrics3Q 20202Q 2020
Gearing Ratio
(Aggregate Leverage)
35.9%36.0%
Weighted Average Debt to Maturity
(Average Term to Maturity)
3.88 years4.14 years
Average Cost of Debt (p.a.)2.3%2.4%
Occupancy Rate32.6% (Aus)
80.2% (Sin)
0.0% (UK)
9.3% (Jpn)
1.1% (Mys)
72.4% (Aus)
58.2% (Sin)
66.6% (UK)
47.8% (Jpn)
52.5% (Mys)
Average Daily RateAUD 141 (Aus)
SGD 132 (Sin)
GBP 0 (UK)
JPY 14,216 (Jpn)
MYR 348 (Mys)
AUD 229 (Aus)
SGD 280(Sin)
GBP 104 (UK)
JPY 12,583 (Jpn)
MYR 431 (Mys)
Revenue Per Available RoomAUD 46 (Aus)
SGD 108 (Sin)
GBP 0 (UK)
JPY 1,322 (Jpn)
MYR 0 (Mys)
AUD 166 (Aus)
SGD 163 (Sin)
GBP 70 (UK)
JPY 6,015 (Jpn)
MYR 226 (Mys)
  • UK: By order of the government, the UK portfolio suspended operations during the Q3 2020.
  • Japan: On 7 Apr 2020, the Japanese government imposed state of emergency in 7 prefectures including Tokyo, Osaka, Hyogo and Fukuoka. This was extended to nationwide in mid-Apr 2020 and was fully lifted on 25 May 2020.
  • Malaysia: To conserve cash, The Westin Kuala Lumpur has temporarily suspended operations since May 2020.

2Q 20202Q 20191H 20201H 2019
MetricsS$ milS$ milS$ milS$ mil
Gross Revenue20.234.662.675.2
Property operating
expenses
(8.1)(9.4)(17.3)(18.9)
Net Property Income12.125.245.356.3
Distributable Income6.118.76.342.4
DPU0.3137c0.9846c0.3287c2.2388c

Conservatively retained S$25.3 m or 80.0% of Distributable Income to conserve cash for COVID-19.

PORTFOLIO

Hotels:

PropertyValuation
($m) Jun-20
Valuation
($m) Dec-19
Leasehold
expiry
Novotel Melbourne
on Collins
(Australia)
223.4223.4Freehold
Novotel Sydney
Darling Square
(Australia)
106.1106.114 Jul 2098
Sofitel Sydney
Wentworth
(Australia)
260.6260.65 Jul 2090
InterContinental
Singapore
(Singapore)
532.0532.014 Jul 2089
ibis Styles London
Gloucester Road
(UK)
35.235.214 Jul 2089
Park International
London
(UK)
73.573.514 Jul 2089
ANA Crowne
Plaza Kobe
(Japan)
215.0215.0Freehold
The Westin Kuala
Lumpur
(Malaysia)
138.2138.2Freehold
Maritim Hotel
Dresden
(Germany)
104.6104.6Freehold

Serviced Residences

PropertyValuation
($m) Jun-20
Valuation
($m) Dec-19
Leasehold
expiry
Fraser Suites
Sydney
(Australia)
119.1119.114 Jul 2089
Fraser Suites
Singapore
(Singpore)
305.0305.014 Jul 2089
Fraser Suites
Edinburgh
(UK)
26.226.214 Jul 2089
Fraser Suites
Glasgow
(UK)
18.518.514 Jul 2089
Fraser Suites
Queens Gate
(UK)
101.7101.714 Jul 2089
Fraser Place
Canary Wharf
(UK)
71.371.314 Jul 2089

Potential pipeline projects from Sponsor

  • Acquisition pipeline of 17 properties under Right of first refusal with Sponsor.

Dividend Reinvestment Plan — OCBC Bank (O39) and CapitaLand Retail China Trust (AU8U)

So recently I had to make a decision on the DRIP options for both OCBC Bank (OCBC) and CapitaLand Retail China Trust (CRCT).

dividend reinvestment plan (DRIP), when given the option to exercise by the company, allows investors to reinvest their cash dividends into additional shares of the stock (or known as scrip dividends, at a discount to an average weighted price) on dividend payment date.

I ended up choosing scrip for OCBC and cash dividend for CRCT.

OCBC Bank (O39)

  • Current price (25 Aug): $8.76
  • DRIP price determination reference: $8.67
  • DRIP price of new share: $7.81 (10% discount)

CapitaLand Retail China Trust (AU8U)

  • Current price (25 Aug): $1.14
  • DRIP price determination reference: $1.213
  • DRIP price of new share: $1.200 (1% discount)

Rationale

Unlike some investors, I am indifferent to holding odd lots if the price is good, though I understand the hassle of selling off the odd lots in future.

I am effectively getting a better deal for OCBC, with an 11% discount if I were to compare against today’s price. For CRCT, I am akin to ‘paying a premium’ to hold on to more shares. Some may argue that even though the DRIP price is 6 cents higher, it allows an investor to own more shares of a good stock via DRIP and bypassing brokerage commission / market fees.

Another key difference I noted was that for OCBC, fractional share is rounded up to the nearest whole share; for CRCT, it is rounded down. This is another ‘loss’ for CRCT, making it less appealing for me.

As a result, the scrip/cash dividend decision for this time round is rather straightforward in my opinion.

Dasin Retail Trust (CEDU)

As at 2020 Second Quarter Financial Results (13 Aug 2020)

Dasin Retail Trust is the first and only China retail property trust providing direct exposure to the Guangdong-HongKong-Macau Greater Bay Area, listed on 20 Jan 2017. It has ownership/interest in 5 properties worth S$1.8 billion (RMB 9.05 billion) as at 30 Jun 2020.

The Trust completed the acquisition of 2 additional malls — Shunde Metro Mall and Tanbei Metro Mall in Jul 2020. This brings the total ownership/interest to 7 properties worth S$2.3 billion (RMB 11.7 billion).

Gross rental income
(by sector)
Percentage
Food & Beverage outlets /
Food courts
19.5%
Department store14.9%
General Retail14.5%
Fashion14.2%
IT & Electronics8.2%
Home Furnishings7.1%
Supermarket /
hypermarket
6.4%
Others6.2%
Leisure & Entertainment5.0%
Services2.6%
Sports & Fitness1.4%
Gross rental income
(by geographical location)
Percentage
China100%

Metrics2Q 20201Q 2020
Gearing Ratio
(Aggregate Leverage)
37.9%36.2%
Weighted Average Debt to Maturity
(Average Term to Maturity)
5.3 years
(Onshore Facility)
0.9 year
(Offshore Facility)
5.5 years
(Onshore Facility)
1.1 year
(Offshore Facility)
Average Cost of Debt (p.a.)UnknownUnknown
Occupancy Rate97.0%96.8%
Weighted Average Lease Expiry
(by GRI)
4.0 years4.5 years
Top 10 tenants
(gross rental income)
40.9%(as at
31 Dec 19)
Top tenant
(gross rental income)
10.6%(as at
31 Dec 19)

2Q 20202Q 20191H 20201H 2019
MetricsS$ milS$ milS$ milS$ mil
Gross Revenue23.417.837.135.2
Property operating
expenses
(3.5)(4.3)(6.8)(6.7)
Net Property Income19.913.530.328.5
Distributable Income5.55.48.810.7
DPU1.21c1.69c1.92c3.39c

PORTFOLIO

CHINA

PropertyNPI (%)Occupancy
2Q 2020
Occupancy
1Q 2020
Shiqi
Metro Mall
27.697.697.9
Xiaolan
Metro Mall
31.496.497.9
Ocean
Metro Mall
14.797.595.0
Dasin E-Colour3.390.791.9
Doumen
Metro Mall
23.197.397.1

PropertyValuation
(RMB m)

Jun-20
Valuation
(RMB m)

Dec-19
Leasehold
expiry
Shiqi
Metro Mall
2,852.52,994.027 Jul 2041
Xiaolan
Metro Mall
2,160.02,273.51 Apr 2043
Ocean
Metro Mall
1,715.51,805.021 Feb 2046
Dasin E-Colour292.0309.528 Jul 2045
Doumen
Metro Mall
2,030.02,100.012 Oct 2052

Potential pipeline projects from Sponsor

Acquisition pipeline of 18 properties under Right of first refusal with Sponsor. These assets comprise 12 completed properties and six properties under development, located across Zhongshan, Shunde and Macau of the Greater Bay Area.