Should I choose REITs based on dividends?

You should choose reits based on its ability to give dividends consistently and it being undervalued.

Plus gearing needs to be of comfortable levels so that it is not overstretched and not able to borrow money to acquire more assets.

No. Some REITS have very high dividend payouts but they will keep issuing rights to ask you for money. In the end, you might be paying more in the rights issues to not be diluted out.

REITS price can also go down. Look at Sabana and Lippo Malls. High yield and look at their share prices. Your yield would not have covered the paper loss.