Press Release
VIS Reaffirms REIT Fund Rating of Globe Residency REIT (GRR)
Karachi, January 23, 2024: VIS Credit Rating Company Limited (VIS) has reaffirmed rating of RFR2(dr) to Globe Residency REIT (GRR). REIT Fund Rating of RFR2 denotes that successful implementation of the REIT project is very likely. Risk factors impacting value of REIT assets are modest over the foreseeable future. Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on December 20, 2022.
Globe Residency REIT (GRR) is a closed-ended, listed developmental REIT with a limited life of 5 years. The REIT Scheme is being managed by Arif Habib Dolmen REIT Management Limited (“RMC”) and Central Depository Company of Pakistan Limited (“CDC”) has been appointed as the Trustee of the REIT Scheme.
The project entails development of 40,500 square yards of land at Naya Nazimabad, Karachi divided into 5 flat sites, 9 towers and 1,344 apartments. The REIT Scheme has a fund size of PKR 2,800 million comprising of equity of PKR 1,400 million and debt of PKR 1,400 million. Main sponsors of the REIT fund is Arif Habib Group with more than 70% holding.
Assigned rating takes into account the strength of the sponsors, its market position and business risk profile of the real estate sector. The real estate sector faced a slowdown on account of economic and political uncertainties together with rising inflation and significant currency devaluation. In the midst of these challenges, necessity-driven purchases continued. Long term demand outlook for middle-income housing remains strong driven by population growth, urbanization, and an expanding middle-class segment. GRR's sponsors, as pioneers in both rental and developmental REITs, maintain a dominant presence in the sector, even with the emergence of new competitors. Their track record of success and extensive experience in real estate development, further strengthens GRR's competitive advantage. Additionally, the solid track record of operations and financial stability of all parties involved in managing the REIT fund provide support to the assigned rating.
The project remains on track with respect to project cost due to prudent cost management and cost contingencies in place. GRR's strategic partnership with Meezan Bank provides support in terms of sales and funding. Offtake risk is largely mitigated with 59.7% of the inventory sold. Recovery rate is recorded at 91%. While facing a manageable 6-month delay in project completion, GRR is addressing the same through securing additional working capital to manage cash flows, however, leveraging exerts pressure on cash flows and debt servicing. Consequently, cash flow sensitivity of the project remains high.
Sara Ahmed
Director
Real Estate Investment Trust (REIT) Fund
https://docs.vis.com.pk/docs/REIT-Methodology-2023.pdf
VIS Issue/Issuer Rating Scale
https://docs.vis.com.pk/docs/VISRatingScales.pdf