Investors Flock to Pakistan’s First Real Estate Investment Trust

Investors piled into Pakistan’s first real-estate investment trust, which was launched last 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 Tahir Saeed, 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. 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.