Harbour Front, Dolmen Mall: Arif Habib, Dolmen Group to sell their stake

Pakistan’s first Real Estate Investment Trust transaction to take place next month

KARACHI:

Opening up investment opportunities for small investors in an otherwise illiquid property market, Pakistan’s first ever real estate investment trust (REIT) scheme is expected to be listed on the stock exchange by the end of May.

REITs are collective investment schemes that pool investors’ funds for onward investment in real estate.

Regulatory approval for Dolmen City REIT has already been obtained by Arif Habib Dolmen REIT Management, which is the management company behind the initial public offering (IPO) of the country’s first REIT on the Karachi Stock Exchange.



Speaking to The Express Tribune in an interview, Arif Habib Dolmen REIT Management CEO Muhammad Ejaz said the IPO will raise approximately Rs22.6 billion.

The Arif Habib Group, one of the country’s largest business houses, and the Dolmen Group, a prominent real estate developer, have equal shareholding in the REIT management company (RMC).

In Pakistan, REITs operate like close-end funds, as pooled capital is invested in real estate and its units are listed on the stock exchange that investors can buy and sell just like ordinary stocks.

Small investors have traditionally been unable to take part in real estate investments in Pakistan, as the property market is considered to be highly illiquid and capital intensive. There are few publicly listed property developers in Pakistan while REITs have practically been non-existent so far.

Mutual funds – which are considered a better investment avenue than direct stock investing for ordinary people – are not allowed to have exposure to real estate under the present regulatory regime.

The transaction

Arguably among the most expensive commercial properties in Karachi, Dolmen City Project is located on the seafront. The property – which has five components, namely Harbour Front building, Executive Tower, Dolmen Mall and two under-construction towers – is owned by International Complex Project (ICP). The Arif Habib Group controls 20% shares in ICP while 80% ownership rests with the Dolmen Group.

Every REIT fund needs to have separate underlying assets in order to qualify for a public listing. Dolmen City REIT is acquiring two components of Dolmen City Project: Harbour Front building and Dolmen Mall. The resources that the fund will use to acquire the two properties will be provided by unit holders through the IPO.

The pre-IPO phase will consist of the placement of 75% of the offer’s total units with the sponsors of the ICP and RMC at Rs10 per unit.

The rest of the 25% units will be publicly offered during the IPO in two separate phases. Three-fourths of the 25% units on offer will be sold to institutional investors and high net worth individuals through book building. The remaining one-fourth units will be sold to retail investors at a strike price determined during the preceding book building phase.

9.25% dividend

The properties will generate rents that will be distributed among unit holders in the shape of dividends every year. According to Ejaz, unit subscribers should expect a 9.25% dividend yield in the first year. Any appreciation in the value of the property will be the added return, he said.

“Rent agreements have escalation clauses. So the rental income will increase gradually,” he said. The speculative element in this investment is minimal because the Harbour Front building has blue-chip companies as tenants while the shopping mall is also doing well commercially, he added.

Industry outlook

Arif Habib Dolmen REIT Management and AKD REIT Management are the only two active RMCs in the country. However, an RMC can list more than one REIT, as each scheme will have a separate unit price based on its underlying assets.

Arif Habib Dolmen REIT Management has filed eight applications with the Securities and Exchange Commission of Pakistan for the public listing of as many REITs, Ejaz said.

In addition to planning the listing of one of the group’s residential apartments project through a developmental REIT, Ejaz said his RMC is also in talks with banks that own a lot of real estate to gauge their interest level.

“Property ownership makes the costing of banking products a big challenge. Converting banks’ holdings in real estate into publicly tradable units through REITs will benefit them greatly,” he said, adding that banks are waiting for the first REIT transaction to take place before deciding their future course of action.

Published in The Express Tribune, April 10^th,  2015.

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