Press Release

VIS Reaffirms Development REIT Rating of Globe Residency REIT

Karachi, February 12, 2025: VIS Credit Rating Company Limited (VIS) has reaffirmed the Development REIT rating of Globe Residency REIT (‘GRR’ or the ‘Scheme’) at ‘RFR2 (dr)’ (REIT Fund Rating Two (dr)). The development REIT rating of ‘RFR2 (dr)’ indicates successful implementation of REIT project is very likely. Risk factors impacting value of REIT assets are modest over the foreseeable future. Outlook on the assigned ratings remains ‘Stable.’ Previous rating action was announced on January 23, 2024.

Globe Residency REIT operates as a closed-ended, listed developmental REIT with an indicative life of five years. Managed by Arif Habib Dolmen REIT Management Limited (RMC), the scheme has Central Depository Company of Pakistan Limited (CDC) appointed as the Trustee. GRR's primary objective is the construction of nine apartment towers at Naya Nazimabad, Karachi, covering a land area of 40,500 sq. yards. The REIT fund has a capital structure of PKR 2,800 million, divided equally between equity and debt. The project’s internal rate of return (IRR) remains aligned with initial forecasts. Pakistan's real estate sector in FY24 faced economic and regulatory challenges, marked by high interest rates, rising construction costs, and project delays. Inflationary pressures and elevated interest rates constrained growth, particularly in the residential sector, where speculative demand and take-up rates declined. However, going forward, macroeconomic stability, monetary easing, and a stable PKR will remain important for real estate sector.

The total cost of the GRR project has risen due to design enhancements, including the addition of floors, aimed at optimizing scalability and aligning with future demand. According to management, these changes are expected to expand salable inventory. As a result of demand challenges and addition work scope, project timeline has been extended, now targeting completion by Dec’26. Progress is steady, with construction milestones aligned with improved market conditions. Sales performance in FY24 faced challenging market conditions, leading to slower than projected progress. GRR has sold 51% of its inventory (including additional floors) by Sep’24. A Musharaka agreement with Meezan Bank to co-develop and sell 537 apartments has supported sales and mitigated inventory risks. Cash flow pressures from slower sales and collections led to renegotiated loan terms.

While the real estate sector has faced challenges, including rising costs and affordability concerns, the rating takes comfort in the project’s long-term viability. Ratings are supported by the strong and experienced profile of it sponsor, a prominent entity in rental and developmental REITs. The project also benefits from a strategically located planned community, favorable macroeconomic conditions that encourage real estate investment, and rising demand for quality housing among middle-income residents. Additionally, variations in costs and the project timeline remain within acceptable thresholds, mitigating completion risk and reinforcing the project’s long-term viability.

Going forward, ratings are underpinned by the successful execution of the sales strategy, timely collections of installments, and prudent debt management to maintain a stable leverage profile. These factors will be key to ensuring the project’s successful completion.

For further information on this ratings announcement, please contact at 021-35311861-64 or email at info@vis.com.pk.


Applicable Rating Criteria: 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

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