Behind the IPO: Dolmen City REIT’s Rs 7.9 Billion Launch

When Dolmen City REIT (DCR) was launched it formed a new chapter in the history of the Pakistani real estate and financial industry. By becoming the first REIT of the country, Dolmen City REIT not only introduced a new investment tool, it broke a new ground in terms of how the system of institutionalizing, regulating, and making real estate assets accessible to more investors could work. The initial public offering (IPO) of Dolmen City REIT in Rs 7.9billion was a breakthrough bringing the force of high quality commercial property together with the efficiency and exposure of the capital markets and a long kept dream within the Pakistan property industry.

Before the introduction of DCR, real estate investment in Pakistan was more of a free-for-all activity and property buyers and sellers were mostly individuals resting hope on speculative profits. The avenues to democratize such high-value real estate property as shopping malls and corporate office premises did not exist. Dolmen City REIT transformed the situation by enabling the investor to purchase the units of a trust which has the support of a world-famous property- Dolmen Mall Clifton, and the Harbour Front and the Executive Towers which are situated at Karachi popular Clifton area. Investors were thus able to achieve regular rental earnings and property value increasing, through this structure, without the complication of direct property ownership.

The IPO of Dolmen City REIT of Rs. 7.9 billion was both successful financially and in terms of confidence in the market. It was an indication that Pakistan was prepared to accept age-old international financial products such as REITs, which are widely used in the developed world institutions such as U.S., Singapore and the UAE. The issue was subscribed to more than enthusiastically by investors showing the great demand available among professional and well-informed investors in transparent and professionally managed investments in real estate.

This blog post explores the behind story of Dolmen City REIT IPO. We examine the background that preceded its opening, the contribution of Arif Habib Group in bringing forth the REITs, the way in which DCR is formatted and the particulars of it, the implication that it had on the financial markets of Pakistan and what this may mean going into the future of real estate investment in Pakistan.

First Listed REIT the Road to Pakistan

The history of Dolmen City REIT was not fast and easy. It has also been years since the concept of incorporating REIT was being argued in Pakistan but it was full of impediments on a regulatory front as well as a structural front and also on the issue front. The Securities and Exchange Commission of Pakistan (SECP) needed to come up with a comprehensive regulatory system so that REITs would be run in manner, which would be transparent, safeguarding the investor interests and accountable. This necessitated a lot of consultations with financial experts, developers, and asset managers to establish a legal and operational framework that could facilitate such an innovation.

The strategic leadership of the financial services industry of the country Arif Habib Group helped to expose the impetus to this initiative. The group understood both real estate development and capital markets greatly, and hence the group viewed REITs as a solution to the lack of a relationship between two sectors namely the vibrant property sector and the largely under used stock market in the country. Arif Habib gathered momentum in a model that would earn income not only through the investment of Dolmen City being the first asset offered upon a REIT structure; rather the model was to stimulate confidence amongst investors.

Dolmen City complex in its turn was a perfect location of the first in Pakistan REIT. The property, located in Karachi on the most coveted business location in the city, Clifton, houses Dolmen Mall Clifton, which is one of the most popular retail centres in the country as well as exclusive office buildings such as Harbour Front. These were highly matured properties with high rental incomes that had been in place by its multinational tenants as well as local corporate offices and the leading retail brands.

Listing such a high-value possession in the form of a REIT, Arif Habib Group made an opportunity available to the investors to invest in a fixed, revenue-generating property, which had demonstrable success as an operational property.

The IPO road also entailed the raising of awareness to the investors most of whom had never heard of the concept of REITs. Educational roadshows and investor education programs were held and seminars organized to learn about how REITs functioned, their benefits as compared to direct property under ownership and the capability of them to pay out frequently. The group also liaised very well with the regulators to solve the technical issues regarding value, quest to collect taxes and listing and admissions issues.

The purpose of all these challenges was culminated by the fact that Dolmen City REIT was launched in 2015, and it surmounted all these complications. It was no longer only about the monetization of an asset but it was the start of a new decade and an age where the real estate and capital markets had the chance to act in concert to generate value to a wide range of investors.

The Rs. 7.9 Billion IPO and Its Structure

A large number of investors have participated in the initial public offering (IPO) of Dolmen City REIT due to its structure that gives the due heed to its broad based approach keeping in view the stability and appeal of the trust. The overall value of IPO was Rs. 7.9 billion and it was the largest ever capital resources mobilization event in Pakistan real estate sector at that moment. The share was separated between strategic investors and general public so that both institutional and retail investors were entailed the possibility to win profit of such innovative product.

The assets of the trust were prime commercial buildings with long-term contracts of lease with constant total revenue of rent. The IPO enabled the investors to be able to acquire a unit of the trust, which is like a stock of a company and the investors acquire a fractional advantage of the real estate property. In contrast to the usual property investments in which the returns are not always guaranteed and rely on future resale values, Dolmen City REIT promised fixed-dividend payments drawn on the rents paid by the tenants of Dolmen Mall Clifton and the adjacent office towers.

Yield profile was one of the most appealing things about the IPO. The annual income generated by the fund, expressed as a percentage of the initial cost of purchase through rental, was provided and it surpassed several of the verified fixed-income securities in the market. Therefore, DCR was quite attractive to the income seeking investors. Moreover, the REIT units were quoted on Pakistan Stock Exchange (PSX) and this offered liquidity to the investors and allowed them the freedom to sell their interests in a regulated context.

The whole process of IPO itself was a reflection of the increasing maturities of capital markets in Pakistan. This public subscription was oversubscribed, indicating that this was well received among retail and institutional investors. This achievement indicated increase in appetite of well-defined real estate investment as well as the confidence that investors had in the management capacity of Arif Habib Group.

Structurally DCR was developed with stiff governance systems. It was being operated through Arif Habib Dolmen REIT Management Limited (AHDRML) which made sure that it follows the regulation of SECP, regularly audited it and made transparent financial report. These protections played an important role in helping investors to realize that their investor money was under steady paws and that the REIT was acting in their interests.

The Rs 7.9 billion IPO was not just another fund raising activity; it was a market defining event. It demonstrated that top quality real estate property could be created into tradable capital market financial products and a new category of asset was formed that offered the security and fixed income of property with the fluency and liquidity of the financial markets.

Market Reception and Performance Post-IPO

After a successful listing, Dolmen City REIT soon became a leader in terms of property investment in Pakistan. The secondary market also received a high demand of the units of DCR and this indicated the faith of the investors in the specified assets and management. It had stable dividend paid since the income it received in form of rents and rent advances from Dolmen Mall and office tenants remained steady, which is an advantage to its long term investors.

The quality of tenant base was one of the main factors that made the REIT successful after the IPO. Dolmen Mall Clifton has heard diverse international retail brands, national brands, restaurants, entertainment centers, and local fashion stores and therefore it gets high traffic and frequent rental income. The tenants of the office towers, on the other hand, are multinational corporations, banks, as well as other technology firms and companies. Such a mixed tenant portfolio means that the income stream of the REIT is stabilized even during the times of economic volatility.

The stability of Dolmen City REIT in the Pakistani stock market that has proved to be volatile at times has been emphasized by market analysts and investors as a case in point. Equity shares are highly volatile in terms of changes in price, whereas DCR has stable prices, which is a sign of its assets-valued nature and it being an income-oriented stock. DCR has been an appealing product given that it promises the three classic tenets of financial asset investment, namely safety, liquidity, and yield, to such risk-averse investors who look to redeem conventional savings vehicles, such as term deposits or government bonds.

Foreign traders, especially Non-Resident Pakistanis (NRPs) showed their curiosity in terms of the performance of REIT. To most NRPs, investing in the real estate market of Pakistan was a difficult undertaking owing to legal, operational, and management hitch. These issues were covered through Dolmen City REIT to have a professionally managed, transparent and tradable vehicle of investment offering exposure to high-quality property without the responsibility of directly owning a piece of property.

In addition, this track record of success of DCR has made policymakers and other real estate developers to consider using the REIT system. Empowered by the success of Dolmen City REIT, SECP has been toiling to make the regulation of REITs simpler and to provide incentives in setting up new REITs to attract more to venture.

The Future of Real Estate Investment Lessons

The successful launching of Dolmen City REIT and its aftermath can offer a good number of lessons to the future of the real estate investment in the Pakistani landscape. First of all, it showed that institutionalization will help open the real potential of the property market. REITs allow a widespread group of investors to be involved in projects which they might not be able to afford as the high-value real estate is converted into tradable units.

Secondly, DCR is a successful company that emphasizes the presence of good assets and professional management. The properties forming part of Dolmen City REIT already enjoyed steady current rental income, were well maintained, and were strategically located. Such strength in assets, coupled with the experience of Arif Habib Group offered a sense of security to the investors that their investment will be safe and able to provide sound yields.

Another most important lesson is the importance of transparency and regulation. Documentation and Non-Transparency of real estate is one of the biggest blame of the industry in Pakistan. Conversely, REITs are highly regulated and should be audited as well as required to disclose. Such transparency not only secures investors but it also assists in formalization of real estate sector, which leads to a further improved economy.

The DCR experience also brings out the need of the capital markets in economic growth. Dolmen City REIT gave investors the means of liquidity and price discovery which is not available to traditional property investments by giving them access to the PSX. Such combination of the world of the real estate and the world of stock market can increase investment opportunities and can deepen financial markets in Pakistan on a great scale.

Finally, Dolmen City REIT has demonstrated that educating the investors is very important. REITs were not very well known in Pakistan and by following the proper techniques of communications and marketing, the Arif Habib Group was able to create awareness and generate confidence. This is a model that can be emulated by Future REITs based on the basis of clear investor communication, transparency and performance-focus.

Conclusion

Dolmen City REIT IPO was not only an event in the history of Arif Habib Group but also a milestone to the real estate and financial market of Pakistan. Introducing what is globally relevant investment vehicle in terms of its REIT model, DCR forged a gap between the past state of affairs behind property investments and the contemporary capital market. It opened opportunities not only to small investors but large ones, as well, to have premium commercial real estate and receive regular renderings in the form of income, as well as enjoy long-term appreciation of high-quality properties.

The success story of Dolmen City REIT has demonstrated that the country of Pakistan has the potential to formalise, transparent, and investor-friendly property market when handled in a professional and foresighted manner. The uproar of its IPO accentuated the demand in coordinator investment issues that blend the safety of a real-estate investment with the fluidity of trading it on a stock market.

The prospects of Dolmen City REIT in future are that of a blueprint to future REITs in Pakistan. Its model can be duplicated in various asset types, residential, industrial, and mixed-use developments, which open new opportunities to the investors even as it helps in developing the real estate industry. REITs have the capacity to enable billions of investments in the economy of Pakistan through projects, such as Roshan Apna Ghar, and due to the greater participation of Non-Resident Pakistanis.

The example of Dolmen City REIT is one that can only be described as a testament to the values of innovativeness, strategic insight and being able to restore a real estate investment position in Pakistan. Being the first REIT to be listed in the country, it was able to shatter the oldest habits by establishing a system in which exclusive real estate properties would no longer be the prerogative of an elite group of investors but opened to a wider variety of individuals.

It did not only provide transparency, regular returns and liquidity, when launched but redesigned the possibilities to combine real estate with capital markets. Dolmen City REIT has become a standard of professionalism and investor confidence and demonstrated that regulated and systematized property investments may be both profitable and non-exclusive. With the new REITs developments in Pakistan, the IPO of Dolmen City REIT will long remain as the first step to establishing a truer path and more noteworthy development in terms of democratizing the avenue of real estate investment in the country.

Also Read: REITs Fuel Urban Development: From Naya Nazimabad to CBD