Karachi, December 28, 2022 (PPI-OT): DCR: Persistent growth and sustainable DY on offer
Underlying assets of the Dolmen City REIT (DCR) have been showing improvement in footfall and are swiftly recovering to pre-pandemic levels. Management in its briefing yesterday, shared that occupancy level during FY22 for Dolmen Mall Clifton / The Harbour Front stood at 98%/ 100%, respectively.
The company has posted a growth in both revenue and net income during the outgoing quarter as discounts offered to tenants in recent quarters have been lower compared to Covid times whereas occupancy levels have also improved for the company. DCR’s Net Asset Value as at Sep-2022 end stands at Rs28.81/unit, the REIT is hence trading at a 53% discount to its NAV.
The country’s REIT industry as a whole is expected to continue to grow, with many new REITs already anticipated in the near future, supported by regulatory support for financial institutions investing in REITs.
On a steady path of growth
As per the management, DCR has a valuable real estate asset in a strategic city location and serves a particular target market. Dolmen Mall (Clifton) has an area of 548k sq. ft. whereas Harbour Front office space has an area of 256k sq. ft. and is spread over 19 levels. Occupancy level during FY22 was at 98% / 100% for Dolmen Mall Clifton / The Harbour Front, respectively.
The unique positioning allows the company to charge a premium compared to peers where average rent for the company’s mall is Rs500/sq. ft. compared to average rent of Rs350/sq. ft. for peers whereas for commercial building the rent is ~Rs350/sq.ft. versus Rs250/sq. ft. charged by peers. The management does not expect any significant threat from upcoming competition in the retail space within the neighbourhood. There could however be upside as some leeway was offered to select tenants during Covid and some of the concessions remain in place due to the high inflationary environment.
The company’s average monthly footfall at Dolmen Mall (Clifton) has reached up to ~585k and management expects better numbers in coming quarters. DCR’s Net Asset Value as at Sep-2022 end stands at Rs28.81/unit, the REIT is hence trading at a 53% discount to its NAV.
Sustainable D/Y in sight
The company witnessed sales growth of 33% YoY during 1QFY23 and posted a profit after tax of Rs958mn (EPS: Rs0.43) for the period compared to a profit of Rs706mn (EPS: Rs0.32), a 36% YoY increase. The company has posted a growth in both revenue and net income as discounts offered to tenants in recent quarters have been lower compared to Covid times whereas occupancy levels have also improved for the company. DCR has thus maintained its pay-out ratio.
The stock’s D/Y at trailing last 4Q basis remained in the double-digit at ~12%. Over a longer time-horizon REITs prove to be an inflation hedged instrument and a stable source of income. The yield will get competitive once interest rates drop by next fiscal year owing to expectations of lower inflation.
Regulatory support to help the REIT industry
REITs are anticipated to become more prominent as a result of significant incentives provided by the State Bank of Pakistan and FBR, as well as the government’s focus on real estate development to support the construction industry. The number of REIT Management Companies and registered REIT schemes has increased in recent times as a direct result of this. By establishing REIT Regulations 2022, the Securities and Exchange Commission of Pakistan (SECP) has made it possible for REIT businesses to raise funds for projects related to agriculture, cell tower construction, and renewable energy. SBP also amended its capital adequacy regulations last year for Banks and DFI’s investment in REITs by significantly reducing its applicable risk weighted assets from 200% to 100%.