TPL REIT fund is looking to raise Rs 403 million via IPO

TPL Real Estate Investment Trust (REIT) Fund-I is scheduled to offer a minimum of 1.25% or 22.94 million shares at Rs 17.59 per unit, expecting to raise Rs 403 million from the market. This can be supplemented further by an additional offer of 1.22% or 22.39 million shares by the fund runners as a part of a green shoe option which can raise an additional Rs 403 million from the placement.

So much market jargon might sound confusing, so let’s unpack it all bit by bit.

What is REIT?

There are certain concepts which are known to investors in the capital markets. Initial Placement Offer (IPO) is one where they understand that a company is looking to list their company in the stock in order to raise funds for investment. A new word that has been added to the capital market jargon is REIT. 

Imagine it to be a mutual fund for real estate. Just like a mutual fund looks to collect investments from investors small and large, a REIT looks to do the same. The difference between a mutual fund and REIT is that the latter only invests it in real estate projects. A mutual fund is allowed to invest in any asset that it wants that is mandated by its style of investment. A REIT is limited to investing these funds in real estate projects. Even though it may sound like REITs are limited in their avenues of investment, they can invest in any real estate project they like.

The return earned by an investor in a mutual fund is the income that is generated by the asset itself and the capital gain or change in price that the asset experiences over a period of time. Similarly, the real estate owned by a REIT is able to generate income in the form of rental income and marketing income and from time to time the assets are revalued which provides the gains to an investor. The REIT management company earns through these means and deducts a management fee after which these gains are distributed to the investors.

Now a question arises, why would investors give someone else their investments when they can do it themselves? Well first of all, REITs are supposed to be massive in size. An example is the Dolmen City REIT (DCR) which is currently traded in the stock exchange. DCR is traded in the stock market and holds in its portfolio the Dolmen City Mall and the Harbour Front located in Karachi. The current valuation for the two projects stands at Rs 70 billion. Unless they have some good chunk of change lying around, small investors do not have the ability to be able to invest in such a huge project so they are given an opportunity to do so with a REIT where they can own a small percentage of the investment.

REITs can be held by the initial sponsors themselves but in certain cases they can look to sell some of their shareholding in order to raise some capital and funds. Just like a company shareholder might sell their shares in the market through an IPO, a similar measure can be taken where a REIT investor can offer his shares to the market which is taking place here. The IPO sale taking place in this case is mandated by the regulations that have been put into place by the Securities and Exchange Commission of Pakistan.

What is TPL?

TPL Corporation is one of the leading companies in Pakistan providing technology based solutions. The company was established in 2000 and has expanded its portfolio into asset management, tracking, real estate, security services, venture capital and general insurance. The company established its real estate business in 2007 named TPL Properties which was involved in carrying out investment in real estate projects. TPL REIT Management Company is a subsidiary of TPL Properties and provides REIT management services in Pakistan. REIT Fund-I is the largest REIT Fund which is focused on generating sustainable development and high yield real estate assets in the country. The fund is also the first and largest hybrid Shariah-compliant REIT. 

The fund has made investments in three key projects namely Mangrove, One Hoshang and Technology Park. Mangrove is a master planned community which includes mid-rise apartment towers, commercial offices, hotel and retail space at waterfront locality. One Hoshang is one of a kind premium end luxurious residential apartment tower and showrooms located in the city’s posh area. Technology Park is the first of a kind technology park in Pakistan with high end IT infrastructure with 42 key business hotels. 

The initial investment in the REIT was valued at Rs 18.35 billion from which 39% was invested by TPL Properties while 61% was held by eight commercial banks.

The units of the REIT are now being offered to the public at a price of Rs 17.59 per unit which is equal to the net asset value (NAV) of the REIT. The net asset value is the value of the investments once all the liabilities are deducted from the assets. The remaining value is what is seen as the value of assets that the investors are investing in. The NAV of the REIT will be released to the market on a quarterly basis in the future which will provide the market an assessment of the value of the REIT units. The goal of carrying out the IPO is to get access to additional funds and to discover the unit price of the REIT as it will be quoted and traded on the market on a daily basis.