Investors Flock to Pakistan’s First Real Estate Investment Trust


Investors piled into Pakistan’s first real-estate investment trust (REIT), which was launched this week with a public offer that was heavily over-subscribed, the REIT’s lead manager and analysts said on Thursday.

The Dolmen City REIT offered investors a 25% stake in a 22.24 billion rupee ($218.5 million) shopping mall and an office complex at Dolmen City, one of the most prominent real estate developments in Karachi, Pakistan’s largest city and its economic hub. The Arabian Sea-front project includes three other structures not included in the REIT.

Traders and the REIT’s main advisor said the initial offer for 75% of the trust to institutional investors and high net-worth individuals through bookbuilding on Monday and Tuesday drew demand of more than 7 billion rupees for an offering of shares worth 4.17 billion rupees at a floor price of 10 Pakistani rupees ($0.10). At the strike price, the initial offer raised 4.59 billion rupees, according to the REIT’s lead manager.

The remaining 25% of the stake was to be offered to the public on Friday at a strike price of 11 rupees ($0.11). Analysts and the REIT’s management expected the Friday offering to be fully subscribed as well, raising another 1.53 billion rupees.

“The interest rate is at a 42-year low, with the discount rate at 7%, so for people who invest in fixed-income instruments, REITs are attractive,” said Muhammad TahirSaeed, deputy head of research at Topline Securities, a Karachi-based brokerage.

Pakistan’s economy has improved in recent years, despite political turmoil, major security challenges, and chronic electricity shortages that have hobbled industry. The country’s main stock market in Karachi has gained 72% since the 2013 election and the country’s improving prospects are increasingly being recognized internationally. Prime Minister Nawaz Sharif’s government has said boosting investment is one of its key economic objectives.

With both buildings in the Dolmen City REIT fully occupied, it is expected to yield 9.5% in the first year, with a 10% increase every year based on escalation clauses in tenancy agreements. The development is located next to two of Karachi’s most affluent residential areas.

The Dolmen Mall Clifton, Pakistan’s largest shopping mall, currently has an occupancy rate of over 90%, according to a fact sheet provided by the REIT management. The mall has 130 stores, including foreign outlets such as Debenhams and a multi-level department store.

The neighbouring Harbour Front office complex is currently fully occupied, with several high-profile tenants like Procter & Gamble and Engro, one of Pakistan’s largest corporations.

Pakistan’s commercial property sector was described in a first-quarter report this year by Lamudi Pakistan, an online real estate portal, as “almost at a standstill”. But analysts said investors in Pakistan are still keen on real estate as a long-term asset, particularly in properties such as Dolmen City’s Harbour Front with high-profile corporate tenants.

“In the long term there are significant opportunities as prices are low, meaning potential yields are high, and there is considerable room to expand and modernize Pakistan’s stock of commercial real estate,” BMI Research said in a report on the country’s real estate sector earlier this year.

Analysts said the success of the Dolmen City REIT could boost interest in the instrument.
“People were looking at Dolmen and expecting that, if it succeeds, many REITs will be launched in the coming years [in Pakistan],” said Saeed of Topline Securities. “I can foresee some groups [developing shopping malls] jumping into this asset class.”