KARACHI: TPL Properties Ltd is raising a fund of Rs18.35 billion from local institutional investors that its subsidiary will use to acquire and develop three commercial and residential properties in Karachi, according to a recent regulatory filing.

The fund is being generated via a real estate investment trust (REIT), which operates like any other company but offers more transparency to investors. All assets under a REIT are controlled by a trustee instead of its majority shareholder. The entity must list on a stock exchange within three years of its financial close, thus letting small investors take exposure to an otherwise capital-intensive real estate market. Afterwards, REIT units are traded on the stock exchange just like ordinary company shares.

“I can’t disclose the exact number of investors at this point in time. But we’re targeting an investor base of 10-15 financial institutions. There’s no retail participation at this time,” TPL REIT Management Company Ltd CEO Ali Asgher told Dawn.

He’s expecting it to achieve financial close by the end of 2021. Next up will be the acquisition of the targeted properties for development. The first asset is a two-acre piece of land in Korangi that the REIT will develop into a technology park.

The second property is located at the intersection of the upscale Hoshang Road and Abdullah Haroon Road on which the REIT will construct a high-end, 30-floor residential tower along with a small commercial portion.

The third property is a 40-acre piece of land in Korangi Creek that the REIT will acquire and develop into an upmarket gated residential community.

TPL Properties Ltd has already acquired the three assets. It’ll contribute the same to the REIT fund and acquire units (or shares) in it as a strategic investor.

Mr Asgher didn’t share the exact shareholding that TPL Properties Ltd is aiming to have in the REIT. As its strategic investor, however, his company’s shareholding can’t be less than 25 per cent, he said.

Moreover, TPL Properties won’t be able to sell its stake in the REIT, although other investors can decide to divest their shareholdings when the entity goes public. Alternatively, the fund size may grow at the time of listing and dilute the shareholding of existing shareholders.

“Going forward, we may add yielding assets, meaning developed properties that’ll generate rental income for REIT unit-holders,” he said.

“I don’t want to promise any rate of return for retail investors. But for the institutional investors we’re getting on board right now, my model shows a 30pc internal rate of return,” he said.

The dividend yield of the country’s first — and only listed — REIT for the trailing 12 months is 11.9pc. Dolmen City REIT was launched six years ago and holds prime rental assets on Karachi’s seashore.

The latest REIT is the fourth such entity to be launched in Pakistan. It’s the third REIT in 2021 as Arif Habib Dolmen REIT Management Company announced two schemes in July.

“The growth angle was missing from the earlier set of regulations. One fund could only have one project. A second project would require a second fund. It didn’t make economic sense to manage, say, five funds for five projects,” said Mr Asgher, adding that multiple properties can be developed under a single fund now.

Published in Dawn, December 4th, 2021