JCR-VIS assigns first ever REIT Rating to Dolmen City REIT

Karachi, May 26, 2015 (PPI-OT): JCR-VIS Credit Rating Company Limited (JCR-VIS) has assigned the first ever REIT Rating of ‘RR1’ (REIT Rating One) to Dolmen City REIT (DCR). Funds rated in the ‘RR1’ category are judged to be of highest investment quality. Assurance of returns over the foreseeable horizon is excellent.

DCR is a perpetual, listed, closed-end, Shariah compliant rental REIT scheme being launched by Arif Habib Dolmen REIT Management Limited. The REIT property is located in one of the most affluent areas of Pakistan at the sea front in Clifton, Karachi. Comprising Harbour Front (office space), Dolmen City Mall (retail mall) and ancillary parking space, the REIT property has been in commercial use for several years and features prominent local and international brands and corporations as tenants; some of these retail brands previously did not have presence in Pakistan.

The mall currently has 94% occupancy while the office building is fully occupied. Tenant risk, as manifested in concentration levels, is higher in case of Harbour Front; this is mitigated to an extent by the high switching cost, tenure of tenancy agreements and profile of tenants. Tenant profile is more diversified in case of the mall; moreover, switching costs, networking effects and footfall of over 9m visitors per annum provide basis for longevity of relationship of mall tenants.

The property is competitively positioned, in view of which risk of material variation in occupancy levels is considered low. This competitiveness is based on the established quality of services, provision of amenities and maintenance of the office and mall space in addition to its geographic location.

In this regard, the role of Dolmen Real Estate Management (Pvt.) Limited, the property manager, is considered important, which has hitherto ensured the provision of high quality property management services; continuity of this relationship is considered important. Greater competition in terms of availability of comparable facilities as and when they become available may affect occupancy rates and return for investors over the long term.

The REIT fund size is proposed to be Rs. 22.237b, of which Rs. 5.559b will be raised by way of IPO. International Complex Projects Limited (ICPL) and the REIT Management Company (RMC) feature the Dolmen and Arif Habib Groups as shareholders. Both these groups are financially sound and have prior experience in the real estate sector. In compliance with clause 11 of the REIT regulations, 2015, ICPL as Strategic Investor and RMC shall hold 20% and 5% units of DCR respectively, in a blocked account with the Unit Registrar (CDC). At the time of launch of the REIT scheme, however, ICPL shall be holding 70% units.

Globally REITs are now accepted as mainstream investment vehicles that enable investors to pool their resources to take exposure in an otherwise illiquid asset class, while also featuring lower initial investment requirement vis-à-vis direct exposure. The prevalent average yield for real estate investment in Pakistan is in the range of 4% to 6% of the property value.

DCR has acquired the real estate at an attractive price which is projected to yield more than 9% to unit-holders in the first year and projected to increase further in subsequent years, in line with the built-in rent escalation feature. The capital appreciation on the asset will further enhance the total return to investors.

For more information, contact:
Ms. Sobia Maqbool
CFA
JCR-VIS Credit Rating Company Limited
VIS House, 128/C,
25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi
Tel: +92-21-35311861-72
Fax: +92-21-35311873
Email: sobia@jcrvis.com.pk