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Dolmen City REIT (PSX: DCR) is the country's first Real Estate Investment Trust (REIT) scheme. It is a closed-ended, listed, rated, shariah-compliant, rental REIT scheme that offers investors to become unit holders of two component of the Dolmen City project: Dolmen Mall Clifton and The Harbor Front. The unit holders receive dividends, which come from the distribution of rental income by the REIT scheme generated by the two properties. The unit holders can also benefit from the appreciation in the property values (capital gain). The units of Dolmen City REIT are in Rs 10 denominations.

The project is located at Clifton, Karachi. The Harbour Front, a 19 storey office building has a built up area of approximately 270,273 square feet, while the Dolmen City Mall, has a built up area of approximately 1.29 million square feet.

Unit holding and sponsors at Dolmen City REIT

The units of DCR are listed on Pakistan Stock Exchange. As of June 30, 2017, there were 3,881 unit holders of DCR. The International Complex Projects Limited is the holding company of the scheme and holds 70 percent units as of 30 June 2017; a breakup of the unit holding is shown in the table.

DCR's sponsors are the Dolmen Group, and the Arif Habib Group. The Dolmen Group is a leading real estate group primarily engaged in the development, construction and management of commercial real estate including shopping malls, office towers and residential apartment blocks since 1984. Dolmen Real Estate Management (Pvt) Limited is the property manager.

Initial years of operations

One way of real estate investment is through REIT. REITs enjoy many benefits like bringing real estate and construction sectors in the formal economy, providing structure and discipline to infrastructure and housing projects, allowing developers to raise finance, providing investment avenues etc.

However, this concept has not picked up in the country. DCR is the only REIT in the country listed on the stock exchange. While new regulations of 2015 are considered business friendlier than 2008 regulations, REITs activity has been tepid; many REIT projects have been shelved in the last two years. REIT Regulations 2015 were introduced by Securities and Exchange Commission of Pakistan (SECP), which actually replaced the earlier regulatory framework introduced by the SECP in 2008. In Pakistan "REIT Scheme" means a listed closed-end fund registered under Real Estate Investment Trust Regulations 2015. There are three types of REIT schemes introduced by SECP in Pakistan: Development REIT, which invests in real estate to develop it for industrial, commercial or residential purpose through construction; Rental REIT Scheme that invests in commercial or residential real estate to generate rental income; and Hybrid REIT that has a portfolio of buildings for rent and a property for development both.

DCR is a rental REIT Scheme that was listed on the stock exchange in 2015 with a fund size of over Rs 22 billion. With the close of FY15, DCR had only been in operation for one month. During this, the REIT booked gross rental revenue of Rs 193.6 million and other income of Rs 6.28 million. Operating expenses were 9.6 percent of gross rental revenue and net income was around 88 percent of gross rental revenue.

FY16 was the first full year of DCR's operations, which was declared by the firm as beyond expectations due to increasing occupancy levels and revenue numbers. DCR's fund size as on 30 June 2016 was Rs 40.261 billion making it the biggest closed-end, Shariah compliant, listed instrument in Pakistan. During the year, DCR recorded rental income of Rs 2,526.63 million with average monthly rent during the year increasing by 8.72 percent from June 2015. The occupancy level of DCR reached 98.38 percent at the end of FY16 versus 95.15 percent at the end of FY15. REITs enjoy tax advantage, and hence Dolmen City REIT is not liable to income tax, provided it meets certain conditions.

Dolmen City REIT FY17

DCR reported a rise of around 13 percent in top line, which includes both rental and marketing income. The growth in rental income, which makes up for the majority of the total income (95 percent) stood at 12.47 percent year-on-year, while the marketing income increased as well.

As on June 30, 2017, the fund size was Rs 41.735 billion and the occupancy of the properties slipped by 1.2 percent to 97.18 percent in FY17. The REIT's administrative expenses were around 15 percent of rental income in FY17 versus 13.7 percent in FY16. However, net operating income went up by around 11 percent year-on-year.

Previously, the valuation of the properties was carried by NESPAK. However, during the third quarter of FY17, the REIT Management Company (RMC) of the Dolmen City REIT appointed MYK Associates (Private) Limited as the valuer of the scheme for the period of three years, after the term of agreement with NESPAK expired in February 2017. The REIT's year end profit is after changes in the fair value of the investment property, which in this case are the Dolmen City Mall and Harbour Front Building. Adjusting for management fee, trustee remuneration and levies, profit before change in fair value of investment property stood at Rs 2.6 billion, up by 12 percent.


Key changes in the 2008 regulations for REITs included reducing the paid-up capital of REIT Management Companies from Rs 200 million to Rs 50 million, while the minimum stake of RMC in a REIT scheme was reduced from 20 percent to five percent. Also strategic investor concept was introduced who could hold 20 percent stake in a REIT scheme. Additionally, minimum fund size requirement of Rs 2 billion was also reduced. Despite the changes, the concept of REITs has not picked up yet, evident from only one listed REIT. One factor could be the higher taxes. Budget 2015-16 limited the capital gains tax exemption to developmental REITs for residential purpose only, while Dolmen REIT and many others in the planning stage are rental REITs. Furthermore, tax on dividends by REITs was increased to 25 percent.

While better taxation could lift the sector, REITs have garnered some attraction amid the political and economic uncertainty in the country as they are good means to diversify, pass on the inflationary pressures, and provide protection against unexpected slowdown. However, now with the lifting of the restriction on construction of new high rises in the city, DCR's of low competition has actually increased a bit.


Pattern of unit holding as at June 30,2017


Categories of unit holders Percentage


Directors, Chief Executive and

their Spouses and minor children 0.48%

Associated Companies, Undertakings

and Related Parties 75.85%

International Complex Projects Limited 70.00%

Arif Habib Dolmen REIT Management Limited 5.00%

Dolmen Real Estate Management (Private) Limited 0.85%

Public Sector Companies and Corporations 2.75%

Banks, Development Finance Institutions,

Non-Banking Finance Institution 11.82%

Insurance Companies 1.02%

Mutual Funds 0.18%

Others 1.25%

General Public - Local 6.65%

General Public - Foreign 0.00%

Total 100.00%


Source: Company accounts


Dolmen City REIT - Operational Performance


FY15 FY16 FY17




Net Operating Margin-Performance

(Annualised Return for FY15) 90.69% 87.04% 85.79%

Return on total assets 8.78% 43.40% 8.93%

Return on unit holders' fund 8.99% 44.07% 9.07%




Current ratio (in times) 4.74 9.86 7.56

Cash to current liabilities (in times) 4.41 6.5 6.76


Market Ratios


Dividend payout ratio 100% 100% 98%

Dividend Yield

(at par @ Rs.10 per unit) 0.76% 10.40% 11.50%


Dividend Yield


(as IPO strike price

@ Rs.11 per unit) 0.69% 9.45% 10.45%

P/E Ratio (in times) 144.69 1.35 6.95




Earning per unit


- Basic and diluted (PKR) 0.08 7.98 1.7

Net asset value per unit (PKR) 10.2 18.11 18.77

No. of ordinary units (million) 2,224 2,224 2,224


--(Based on one month operations)

Source: Company accounts

Copyright Business Recorder, 2018

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