Economic slowdown could have affected Dolmen City REIT’s profits in 1HFY20. Where earnings for 1QFY20 were seen climbing by around 9 percent year-on-year, the 2QFY20 saw over 10 percent decline in the REIT’s earnings. A key factor has been tepid growth in rental income; 1QFY20 rental income grew by around 6 percent, while in 2QFY20, it remained below 5 percent. 1HFY20 rental revenue grew by 5 percent whereas the growth remained in double digits in the FY19 and earlier.
This could likely have come from a further fall in occupancy levels that were at 96 percent in 1QFY20. The occupancy rates for Dolmen Mall remained stagnant at 98.3 percent in 1QFY20, while those of the Harbour Front Building saw a decline from around 97 percent to 92 percent in 1QFY20 due to vacation of office by Siemens Pakistan Engineering Limited and partial vacation by Philip Morris Pakistan Limited. However, market is expecting a decline in the mall tenancy in 2QFY20 due to decline economic slowdown, and smaller brands going out of business.
Where the decline earnings for 1HFY20 was somewhat arrested by two times increase in the other income, a decline in the unrealised gains on the change in the fair value of investment property offset these gains.
Back in FY19, the real estate investment trust closed its fifth year of operations on a high note. Revenue and income growth stood at around 10 percent year-on-year, while earnings grew by 35 percent. Remember that the REITs enjoy tax advantage, and hence Dolmen City REIT is not liable to income tax provided it meets certain conditions.
Though the country only has one REIT operating as of now, FY19 was a year of some improvement. The SECP had promulgated amendments in the regulations governing REITs in December 2018 that allowed REITs to borrow. However, a favourable tax regime is what the REIT is demanding for the proliferation of REITs in the country.