RESEARCH & FORECAST REPORTREIT - REAL ESTATE INVESTMENT TRUST - 2015

Accelerating success.

REAL ESTATE INVESTMENT TRUSTRESEARCH & FORECAST REPORT

2015 | REITS

INTRODUCTION

A REIT, or Real Estate Investment Trust, is a company that owns or finances income-producing real estate. Modelled after mutual funds, REITs provide investors of all types with regular income streams, diversification, and long term capital appreciation. REITs typically pay out 90% of their taxable income as dividends to shareholders. Some salient features of REITs are the diversification they offer, high dividend returns, liquidity and transparency. REITs first originated in the U.S during the 1960s to describe vehicles used for collective investments in real estate. The concept quickly spread throughout the world, and many countries introduced REITs in their respective jurisdictions. Currently, total real estate owned by REITs globally is valued at $1.273 trillion. Over most long-term perspectives, stock exchange-listed REIT returns outperformed the S&P500, Dow Jones Industrials and NASDAQ Composite.

DIFFERENT TYPES OF REIT

HYBRID REIT RENTAL REIT DEVELOPMENTAL REITSTRUCTURE 1 component under construction,

the other is to be leased outThe entire holding is on a leasing model with minimum occupancy of 80%.

Acquire land for selling/letting of projects

REVENUE MODEL

Generates income from rent, capital gain and interest

Higher returns reflected in annualized dividend yield which usually increases annually. Realized capital gains distributed

Fundraising is done at the time of conception

REGULATORY FRAMEWORK

Vague regulations in Pakistan in the current SECP report

90% income generated is given out in the form of dividend to unit holders. Dividends are generally high

70% of fund’s total assets are invested in real estate and the remaining 30% can be invested in non-real estate related assets

OYESTER COURT, LAHORE

Oyster Court, Gulberg II, Lahore is a fantastic new development in Lahore. The site is unique in its position and rises above, both literally and figuratively, all other high-end developments in the city. The elite location of the development and its high-tech underpinnings make for an enhanced experience of exclusivity, sophistication and security.

Apartment Features Include:• Luxury apartments • 24-hour security• Two seven story buildings connected through a central courtyard• Central Courtyard with water features • Fitness Gym, and Sqimming Pool facility • 50% of plot area allocated as an open space for side gardens• 2 Floors reserved parking for residents• Separate parking for guests

For further details please contact Jawad ul Hassan +92 333 541 2030

The Gordon growth model, also known as the dividend discount model (DDM) is used to calculate the intrinsic value of a company using its expected dividend per share (DPS) in the next year, the growth rate in a company’s dividends and the investor’s required rate of return. This model can be used for assessing REITs. REITs have stable growth rates because they are governed by investment policy. The rules and regulations of a REIT cause it to pay dividends constantly, creating a stable dividend growth rate.

COMPARISON OF REITS TO OTHER TYPES OF REAL ESTATE INVESTMENT OPTIONS

REIT DIRECT PROPERTY OWNERSHIP REAL ESTATE COMPANY EQUITY CORPORATE PROPERTY BONDSTYPES OF INVESTMENT

Units in a listed trust/share of corporation owning real estate properties

Investment in physical real estate Shares of a listed company owning real estate and other businesses

Debt issues by the underlying real estate company

PAYOUT Majority of taxable income paid to unit holders Majority of income paid to owner Discretionary dividends to shareholders Fixed payout

INVESTMENT STRATEGY

Focused Activity Focused Activity Investment choices determined by the com-pany board

Investment choices determined by the company

LIQUIDITY Liquid investment Illiquid investment Liquid investment Low liquid investment

DIVERSITY Diversified portfolio Concentration risk Diversified portfolio Concentration risk

RISK Perceived low risk Perceived high risk Perceived high risk Perceived low risk

GEARING Gearing is limited by regulations High gearing level between 70-80% Moderate gearing level between 60-70% Moderate gearing level

P. 2 | COLLIERS INTERNATIONAL

REITS GLOBAL PRACTICES

Prior to 1990, REITS were operational in only a handful of developing countries. However, within two decades it quickly spread throughout the world. In 2001, Standard & Poor recognized the evolution and growth of the REIT industry as a mainstream investment by adding REITs to its major indexes, including the S&P 500. Today, there are approximately 200 publicly traded REITS in the U.S with assets totaling more than $475 billion. These shares are traded on major stock exchanges, setting them apart from traditional real estate. In Asia, REITS are functional in Japan, Hong Kong, Australia, Singapore, Taiwan, Malaysia, and Hong Kong.

REITs is a relatively new concept in Asia. The earliest market to embrace the asset class was Japan. Subsequent to the establishment of REIT in Japan, some major developed and emerging Asian economies established the REITs model in Asia within a decade; namely Singapore (2002), Thailand (2003), Hong Kong (2005), Malaysia (2005), Taiwan (2005) and South Korea (2006).

Australia is the second largest player in the REIT market after USA. In Australia about 75% of retail properties are held by REITS. About 50 REITs (known as Listed Property Trusts “LPT”) are registered with the Australian Stock Exchange, with a total market capitalization of around US$ 60 billion. A large chunk of Australian REITS are generated through pension funds, which are part of a workers retirement plan and constitutes US$500 billion. The Australian REITs represent 10% of the worlds listed property companies and deal in various asset classes, ranging from industries, offices, hotels and retail. Some key features are that there are no borrowing limits, they are tax free and most properties are valued on an annual basis.

The Asian REIT market in terms of growth is dominated by Japan, which alone has 32 J-REITs with a market capitalization of $29.5 billion. Japanese REITs are in the process of tremendous growth and thus actively involved in the purchasing of properties. Some key features of J-REITs are that they are treated as tax exempt, and the average dividend yield is 2-4% higher than Japanese government bonds.

In 2005, Axis REIT launched their first REIT in Malaysia. Its property portfolio consisted of five industrial/commercial and office buildings, valued at US$79 million. In Malaysia, for listed REITs at least 75% of total assets must be invested in Real Estate and for unlisted 70%. Malaysian REITS have a borrowing limit of 35% of the net asset value of the fund.

KEY PERFORMANCE INDICATORS OF ASIAN REITS

The introduction of REITs in Asia attracted capital into the real estate sector. It introduced a new and attractive vehicle for institutional and individual investors to invest in commercial real estate and resulted in higher foreign investment as well.

Asian economies have experienced strong GDP per capita growth, driven mainly by investments and exports. As a result, these economies have experienced higher consumption and the expansion of service industries. Furthermore, the low interest rates in developed Asian economies with excess liquidity paved the way for construction and rapid development. The growing population and rising middle class also contributed as prime factors in rapidly increasing demand for real estate. Developed Asian countries have high take up rates in residential, commercial and office sector, which leads to high occupancy rate in short span of investment period and thus results in rental growth of properties and adequate cash inflows for investors and developers of the property in the long run.

Globally, REITs have a track record of proven performance over the last 50 years in the mature REIT markets of the US and Australia. While Asian REITs have only been established in the last ten years, they have been able to learn from this global REIT market experience to ensure Asian REITs are effectively developed and managed. This has seen Asian REITs make considerable progress in recent years and grow strongly.

In Asia, there are 138 REITs with total market capitalization of over US$118 billion. The Asian REIT market accounts for over 12% of the global REIT market. The stature of Asian REITs is further reinforced by Japan, Singapore and Hong Kong being significant REIT markets globally. This also sees Asian REITs now accounting for 13% of listed real estate exposure in Asia, an increasingly important component for general retail investors to achieve their listed real estate exposure in the Asian Market.

58 C, BUKHARI COMMERCIAL, KARACHI

Colliers presents an opportunity to invest in a 3-side corner building located in an upscale commercial area of DHA, Karachi. The building houses two banks, a coffee shop, a restaurant and has a recognized educational institution from floor 1-5. Rental income ranges from 7-9% per annum with guaranteed increments.

Features include: • Brand new 3 side corner building • 27,000 sqft leasable area • Long term leases with reputable tenant• Guaranteed income with increments

For further details please contact Hammad Rana +92 346 821 1000

P. 3 | COLLIERS INTERNATIONAL

RESEARCH & FORECAST REPORT | 2015 | REAL ESTATE MARKET | RESEARCH & ADVISORY

Some of the general benefits of investing in Asian REITs in comparison to major developed REITS market such as US and UK are low capital gearing ratio and high dividend yields. The capital gearing ratio is to be capped at 30-40% for Asian REITS.

REITS IN PAKISTAN

Pakistan being a developing country has immense potential for the development of commercial projects under a REIT scheme structure. With the development of REIT schemes it would be possible for small investors to ma ke investments in real estate, which the current market does not permit due to large investment sizes. Moreover, because of the transparency afforded by REIT schemes, foreign investors will gain exposure and interest in the Pakistani real estate market.

In Pakistan, REIT regulations were implemented in the year 2008, with the government taking various initiatives to promote REIT schemes. A big incentive was that if 90% income derived by REITS is distributed to unit holders then the income of such REITs are considered completely tax exempt. The recently launched 2015 REITs regulations have replaced the previous regulations as only five funds were established under its domain. Few of those are as follows:

COMPARISON OF REIT INDEXES

MAJOR REIT MARKETS DIVIDENDSource: Colliers International Research

Source: Colliers International Research

FORTRESS SQUARE, LAHORE

Sophisticated, trendy and upscale, the Fortress Square enhances the class of its already popular location. The mall accomodates only the most exclusive and cater to the taste and style of Lahore’s new breed of highly sophisticated shoppers. A place bringing together finest fashion stores, global brands, luxury boutiques and designer and lifestyle stores under one roof. Currently Colliers is selling various shops located in Fortress Square with high rental incomes ranging from 6.8-9.5% per annum.

Development Features Include:• High Class Retail Facility • 550 cars parking approx• Multi Screen Cinema • Play Land • Garbage disposal system • High Ceiling • Modern Security Measures • 2 cargo and 2 capsule lift• Branding and Signage facilities for the retailer and much more

For further details please contact Jehanzaib Akram +92 346 821 1041

MARKET CAPITALIZATION OF ASIAN REIT

Source: Colliers International Research

MARKET OUTLOOK

REITs hold tremendous potential in Pakistan, giving an opportunity for a wider bracket of investors to invest in real estate. To create a favorable environment for REITs, the government must take steps to ensure that adequate land related laws are implemented across all provinces in Pakistan to accommodate the REIT schemes and increase transparency. REITs can be successful not only in large cities such as Karachi, Lahore and Islamabad but also in other cities which are business hubs, such as Faisalabad and Sialkot. The injection of funds into the real estate market in these cities will have a positive impact on the economy as a whole.

The recent REIT Regulations of 2015 have streamlined approval processing and have prescribed a performance fee for REIT managers. Furthermore, a rental history criterion has been established for eligible REIT properties. An optimal REIT structure will allow tax transparency, a fluid transfer of capital for investment, efficient management structures. Markets will function in a more efficient manner if tenancy laws are strengthened, issues relating to official pricing of real estate are regulated, and outdated traditions such as the paghri system are abolished.

Minimum stake of a RMC in a REIT Scheme has been reduced from 20% to 5%.

To include mid-size properties into REIT Schemes, the minimum fund size requirement of Rs 2 billion has been reduced to accommodate it to stock exchange regulations

Paid up capital requirement of REIT Management Companies (RMCs) has been reduced from PKR 200 million to PKR 50 million.

Strategic investors have been recommended who will hold 20% stake in a REIT Scheme

In 2016, there will be a capital gains break if a property is sold to a REIT schemeREIT schemes can be set up in cities other than federal and provincial capitals

FIRST REIT DEVELOPMENT OF PAKISTAN - DOLMEN REIT

RESEARCH & FORECAST REPORT | 2015 | REAL ESTATE MARKET | RESEARCH & ADVISORY

COLLIERS INTERNATIONAL | P. 4

Muhammad Hussain KhanManager Research

Contact No. +92 346 821 1002

502 offices in 67 countries on 6 continentsUnited States: 140Canada: 31Latin America: 24Asia: 39ANZ: 160EMEA: 108

• $2.3 billion in annual revenue

• 1.7 billion square feet under management

• Over 16,300 professionals

This document has been prepared by Colliers International for advertising. It

may not be reproduced, either in whole or in part, nor altered in any way,

without the prior written consent of Colliers International. The information

and analysis contained in this report has been obtained from or based on

information from a variety of sources generally regarded to be reliable and

assumptions which are considered reasonable, and which was current at the

time of undertaking market research. However, no representation is made,

or responsibility accepted by Colliers International, in respect of the accuracy

or currency of this information. Potential investors or developers are

encouraged to carry out their own assessment of market potential and

development feasibility.

www.colliers.com/en-gb/Pakistan

Accelerating success.

• Research focus on key urban cities including Karachi, Lahore, Islamabad, Faisalabad & Gujranwala• Comprehensive market reports• Up to date and extensive research database• In-depth analysis of supply and demand position• Critical watch on pricing trends

• Highest & Best Use Study of large plots• Comprehensive project feasibility reports• Development Appraisal and Due diligence • Coordination with master planners and architects in project planning stages• Investment appraisal using sophisticated Estate Master

• Property valuation based on market evidences and residual land value method• Registered with Pakistan Bankers Association • Registered Pakistan Engineering Council • Registered with Pakistan Council of Architects and Town Planners

• Preparation of title deeds and sales documents• Assisting and management of transactional process• Client & Tenant representations • Preparation of marketing documents including brochures, flyers,pressads• Assessment of lease terms

WHY COLLIERS INTERNATIONAL PAKISTAN?

MARKET LEADERS IN PAKISTAN REAL ESTATE

Amongst the “Big Four” Property Advisory Firms, Colliers International is the only global firm with operational offices in Pakistan. We specifically deal and specialize in real estate sector including mixed use development, residential, commercial, hospitality, retail and industrial projects.

IN-DEPTH LOCAL REAL ESTATE MARKET KNOWLEDGE

Our experience in Pakistan for the last three years has enabled us to establish strong relationship with key stakeholders of the real estate market. This has led us to acquire unmatched market intelligence which assists us in providing systematic recommendations to our clients in order to take key investment decisions.

HIGHLY EXPERIENCED TEAM

We have a highly qualified and competent team with extensive experience and knowledge of the local real estate sector gained over the course of our operation in Pakistan. Our team comprises of:

- Market Research Analysts- Property Valuers- Sales & Lease Executives

ACCESS TO GLOBAL COLLIERS EXPERTISE

Colliers International Pakistan is a part of and linked with Colliers global network. On specific requirements of the project scope of work, we liaise and draw expertise from Colliers offices around the world.

CREATIVE THINKING & RECOMMENDATIONS

We have a methodological approach for carrying out our projects in which experts from research, valuers and sales divisions brainstorm to provide creative solutions to the real estate needs of the client. We pride ourself in providing factual recommendations based on realistic market conditions

EXCEPTIONAL PROJECT TRACK RECORD

During our operations in Pakistan, we have worked on most of the high-profile projects announced in major cities of Pakistan.

HIGH PROFILE CLIENTELE

Similarly, we have worked with all the major developers whether foreign or local currently working in Pakistan. Some of our local clients include Dolmen, Pace, PTCL, Defence Housing Authority (DHA), City District Government of Karachi, Lahore Development Authority, KESC, Associated Constructors Limited (ACL), Eden Builders, JS Group, Nishat Group, National Industrial Park (NIP) and foreign clients include Etisalat, Metro, Makro, Hyperstar, GIGA Group, GlaxoSmithKline (GSK), Pfizer, Sanofi Aventis and the Abu Dhabi Group.

PROPERTY VALUATION INVESTMENT SERVICES (SALES & LEASING)

Colliers International Statistics 2014

Colliers International Pakistan (Pvt) Ltd.Suite 1/A, Level 1, Harbour Houseoff M.T. Khan Road, Lalazar Avenue, Karachi Pakistan

Tel +92 21 3561 2550-2 Fax +92 21 3563 6382Email: hussain.khan@colliers.com

OUR SERVICES (Karachi, Lahore, Faisalabad and Islamabad)

REAL ESTATE MARKET RESEARCH DEVELOPMENT ADVISORY

Kamil NooraniManagement Research Executive

Contact No. +92 346 821 1003

RESEARCH & FORECAST REPORT | 2015 | REAL ESTATE MARKET | RESEARCH & ADVISORY

Accelerating success.

CONTACT DETAILS

DIR +92 21 3561 2550/1/2FAX +92 21 3563 6382

Colliers International Pakistan (Pvt.) Ltd

HeadOffice(Karachi)Suite # 1, Level 1, Harbour House37 A, Lalazar Avenue, Beach Hotel Road,Off M.T. Khan Road, Karachi

LahoreOfficeFortress Square Office, Fortress StadiumLahore Cantt., Lahore

FaisalabadOfficeSales OfficeG-1, Meezan Executive Centre4 Liaqat Road, Faisalabad

http://www.colliers.com/en-gb/Pakistan