HEKTAR

Introduction

HEKTAR is a REIT - retail focused, not the best, but not bad.

First bought 26 Jan 24 at 65 sen, averaged down at 62 and 61.5 sen, and then, bought more on the way up at 63, 63.5 and 64 sen.  Average cost ~ 63 sen.  At 71 sen today, the price return alone is wonderful, considering I only owned it for only 3+ months.   When I first entered, the after tax dividend yield for retailers iirc was 7%+.

 

Long Term Chart since 2007

RHS since COVID low is not a bearish price action.

• Higher lows, breakouts for 2 downtrend lines, approaching horizontal resistance.
• > 50% chance to break out above the horizontal resistance of 73 sen.  Bias not on the downside.
• Consolidation likely, my wild guess:
• < 20% chance to make lower low
• 40% chance consolidation price action, and 
• 40% chance to breakout above 73 sen before end this year.

High Dividend Yield

TTM DPS ~ 5 sen.  Taxable, so, net of tax is 4.5 sen.

Equal to 6.3% dividend yield.  Still beats EPF if it can retain 5 sen gross DPS going forward.

It was even more attractive when I first entered 3 months ago and averaged down and up.

Historical DPS

Annual report has this nice chart since 2007.

Recall 2009 was GFC and the DPS was solid as a rock.

But COVID in 2020 killed the DPS.

Fast recovery in 2022, but not sustainable and surprisingly, 2023 DPS dropped to only 5 sen.

Looks normal.  Typically "double low" (low in 2020, low again in 2023) to mark bottom, if you are a technician who sees double bottom everywhere (could be confirmatory bias!).

But this kind of dividend action gets a C in recent time - it's not exactly growing every year, but up and down i.e. just average.

More Fundamental statistics

These kind of numbers get a C- from me.  

So, why did I buy 3 months ago?

If dividends get a C- and fundamentals get a C, why did I enter in Jan 2024?

Actually, lucky.

3 months ago, I felt my cash holdings was a bit too big and wanted to do something about that.  

I had already added the good stocks, and didn't want to be overconcentrated.  

I've been monitoring and stalking HEKTAR for quite a long time.

Dividend yield after tax of 7% finally attracted me.

I felt price may be close to accumulation zone, plus  2023 DPS may be close to bottom.  

Figured it wouldn't hurt to get something at an initial entry at 65 sen.  

Then, when price dipped, looking at those malls, I figured nothing much has changed since I first entered at 65 sen and since my position size is small, it made sense to add at lower prices, so, I kept adding.  

And as luck would have it, today, closed 71 sen.

Position size wise, it's around 2.4% of my portfolio i.e. feels about right for an average REIT.   It's not exactly a great REIT to own in a big way.

What's my forward looking view now?

The REIT recently raised cash for a reason, which felt neutral to me.   
3 months should not have changed the fundamentals that much.
My subconscious was thinking along these line, later, I saw this IB analysis, which echoed my subconscious reasoning.

Take a look at US Fed Funds rate since 1970s.

• Note they never stay flat.
• After peaking, historically, odds are good that rates will eventually fall.
• This fall tend to be sustained and there are certain asset classes that you want to own when this happens.

IIRC, the Feds themselves is saying it's quite possible to cut rates 3 times.

• The typical prediction is around 75-100 bps.
• When US rates fall, Malaysia and other countries rates are more likely to follow suit (only the quantum and timing is uncertain)
• The timing is especially hard to predict.  It could be delayed, but when the REIT pays 7% per annum, the beauty is we can afford to wait.

If rates fall, which assets would you like to own?

To me, 3 types of assets:

1. Long term bonds.   Lower yields raises the market value of those bonds.  But not too long a term because yield curve drops are rarely parallel drops.
2. Dividend stocks.   Lower yield increase the present value of these future dividends, triggering re-rating..
3. REITS.  As explained by the IB above.  Basically, lower yields will make REITS relatively more attractive (because lower yields is typically good for business profits, their rental and occupancies should rise, increasing their income, lowering their financing costs, increasing distributable profits, all good stuff for REITS).  When REITS gets more attractive, buyers chase them to cause a further rise in price.  Historically, this REIT trades at RM1.80 many years ago.

With this type of thinking, suddenly, the marginal REIT like HEKTAR becomes potentially interesting.

Would I chase to get a full position of 3% capital at 71 sen?

Honestly,  I'm not chasing because I already got 2.4% capital.  Also, total REIT is currently around a quarter of my portfolio, spread across 10 REITs or so, so, I feel I have enough REITS not to chase, but wait for better prices.

Looking at the daily chart, today's spike is quite large.  There is the 73 sen resistance.  I feel decent odds to hit 73 sen and then fall back down to 68 sen, and ding-dong for a while because next US rate decision is likely to be in June i.e. still a few more weeks to go.  Until then, I feel odds are prices might not go anywhere, but I could be wrong.

Why HEKTAR, why not other better high quality REITs?

Investing is not one-dimensional.

If investing in REIT is all about quality alone then, everyone would have superior returns.

You need to consider other aspects too.

For example, during accumulation stage, do you want prices to be higher or lower?  Ironically, you have to have the stomach to do the opposite - when you accumulate, you want to see paper losses for good/decent quality businesses!  

Look at the above price action comparing HEKTAR with IGBREIT, KLCC, PAVREIT and we throw in SUNREIT for good measure.  No question all these 4 REITS are quality REITS.  I also own KLCC and PAVREIT for diversification.

But of the 5 REITS above, over that time-frame, there is only 1 REIT you want to own to get the biggest bang for the buck.   The annualized returns for me, when I averaged down when HEKTAR gave that opportunity after my first entry at 65 sen, exceeded 100% per annum.    Remember this kind of price action when it gives you lower price to accumulate and then, after you are more or less filled, then, it rises up fast.  The 2nd best REIT out of the 5 above, assuming you average down, is SUNREIT because of that dipping price action, to allow you to buy more at lower prices and then, enjoy that rise with a full position.

But honestly, I was just lucky.  I followed my simple investing rule which is based on high dividend yield. I followed my position sizing rule.  I acted mechanically without much thought or hesitation.  Honestly didn't spend that much time thinking about the trade since Jan 2024.   I spent more time writing this article on HEKTAR, than I analyzed HEKTAR since I entered this stock in Jan 2024.

Summary and Conclusion

Short term gains should mean nothing to us when our investing time-frame is long term, and if our future outlook is bullish for this REIT over the longer term.  US Fed Rates will take several years to fall once it starts falling, the uncertainty is only when will it start to fall - it could be soon, or it could be a year from now even if market is not expecting this to be the case - the truth is nobody knows.

Regardless of timing, hopefully, yields will evetually come down gradually for many years in the coming near term whislt avoid US stock markets from crashing and avoiding the rest of the world stock markets from crashing too.

All the best!