Karachi, December 17, 2021 (PPI-OT): DCR: Sustainable dividend yield likely to continue

Dolmen City REIT (DCR) has been showing signs of recovery post the pandemic phase with improvement in footfall in recent months, however, the management apprised in its Corporate Briefing Session yesterday that activity has not reached to pre-pandemic levels as yet.

Nonetheless, the RIET has kept its absolute payout unchanged in the last two years, despite concessions offered to tenants, maintaining the stock’s D/Y in the double-digit region.

Relaxed limits by regulators for the financial institutions to invest in RIETs will continue to expand the RIET sector at large in the country, where at least six new REITs are already expected in the near term.

Coming out of the COVID-19 phase

Post opening up of economic activity Dolmen City REIT (DCR) is on the trajectory of revival with its average daily footfall at Dolmen Mall (Clifton) reaching up to ~22k, shared by company’s management in yesterday’s Briefing Session. The footfall is still below the average footfall compared to the pre-COVID period of ~32k. The RIET’s fund size has now reached to Rs57.4bn as at Sep-2021, while the company’s Net Asset Value stands at Rs25.82/unit. Occupancy level in FY21 was at 96.2% / 91.5% for Dolmen Mall Corporation / The Harbour Front, respectively.

According to the management, DCR holds a prime real asset at a key location in the city and caters to a specific target audience. It doesn’t expect any significant threat from upcoming competition in retail space within the neighbourhood. Management also shared that rent premium compared to peers is not significant.

D/Y maintained in the double-digit region

DCR posted a profit after tax of Rs8.6bn (EPS: Rs3.9) in FY21 compared to a profit of Rs8.1bn (EPS: Rs3.6), a 6% YoY increase. While in 1QFY22, the company witnessed sales growth of 31% YoY and posted a bottom-line of Rs706mn (EPS: Rs0.3), a massive 32% YoY increase due to low base effect. Despite drop in income owing to concessions offered to tenants during the pandemic phase, the company maintained its payout ratio above 100%. The stock’s D/Y at trailing basis remained in the double-digit at 12.4%.

Relaxed limits by regulators

Key incentives by State Bank of Pakistan and FBR coupled with government’s keen focus on real estate development to boost the construction sector are expected to play an important role in bringing REITs into the limelight. At least six new REITs are expected in the near term. A few months ago, SBP also amended its capital adequacy regulations for Banks and DFI’s investment in REITs by significantly reducing its applicable risk weighted assets from 200% to 100%. Earlier, SBP had also amended certain provisions of its existing Prudential Regulations for Corporate and Commercial Banks to encourage investment in REITs by enabling the said institutions to make investments in REITs to the tune of 15% of their equity as opposed to previous limit of 10%.

To spur other RIETs in pipeline

The management apprised that the group’s REIT management company plans to invest in middle income areas such as Surjani town and Naya Nazimabad under the newly launched REITs. Moreover, launch of new REITs to invest in other cities are also in the pipeline.