With the entry point set at just PKR10 (US$0.035), no one is denied the opportunity of owning a part of one of Pakistan’s glitziest hotels – which is what this country’s first hospitality-based real estate investment trust is aiming for.
The JS Hotel REIT – based on a ‘green hotel’ that’s not just Shariah compliant but also environmentally-responsible – draws on the lure of the project’s site in the southeastern Pakistani city of Hyderabad as it houses one of the world’s largest film studios, an 18th century fort and a palace atop a 2,000-foot hill called ‘Mirror of the sky’.
Pakistani asset manager JS Investments and its real estate partner Gohar Group said that locating the four-star hotel in a second-tier city – instead of the business capital of Karachi – will help democratize the local hospitality industry.
“We have seen that the demand for hotels is quite high in Pakistan and the standard of the hotels within the Hyderabad region is below par,” Musab Iqbal, vice president for REITs at JS Investments, shared with IFN Investor.
And while institutional investors and deep-pocketed individuals were critical for the funding of the 139-key hotel, the JS-Gohar partnership wants ownership of the REIT to be shared as well with ordinary Pakistanis –who typically don’t get to participate in large-scale real estate ventures.
“We want to give the opportunity to retail investors to invest in this fund … to experience and own a unit of this REIT and the underlying asset – which is the hotel itself.”
Shariah hotel REIT – a niche market
Hotel-based REITs that are Shariah compliant are relatively new opportunities in the investment world. Globally, there aren’t too many examples, with the most active opportunities being in Saudi Arabia.
The Jadwa REIT Al Haramain Fund, managed by Riyadh’s Jadwa Investment, is one. This investment trust focuses on multiple hotel assets and other hospitality-related properties in Mecca and Medina.
The Musharaka REIT Fund, managed by Saudi investment banker Musharaka Capital, is another, drawing on a mix of properties that include hospitality and hotel assets in its manager’s investment portfolio.
“At the heart of the JS Hotel REIT is an innovative hybrid revenue structure that blends the growth potential of property development with steady income generation from rental assets,” said Musab.
“It’s a mixture of two; basically where you develop a property and then you have income in perpetuity,” he noted.
From the Shariah compliance perspective, JS Investments and Gohar Group were aiming for a debt-free REIT, said Musab. “We are not computing any leverage on this fund at the moment. We’re trying to keep it away from any debt and we’re trying to get equity-based investments.”
Promise of transparency, resilience
“The hotel will also operate in line with Pakistani values that prohibit alcohol sales and Haram activity,” Musab added.
“Everything is transparent. And it’s there for everyone to look at … from the movement of the funds, how they are being transferred to the REIT, how the profits are going to be distributed and if this is all considered Halal.”
While a public listing of the REIT has been planned, it might not happen for the first three years as the business must generate a solid balance sheet first, in line with the requirements of the Pakistan Stock Exchange.
“But even without a listing, the viability of the project should not be a concern, given the resilience of the hospitality sector,” said Musab, pointing out that hotels typically survived recessions by relying on flexible rentals determined by US dollar-pricing.
“We have seen that during macroeconomic downturns, it’s the residential property that takes the major hit. Hotel rooms that are going to be potentially dollar-denominated are fairly protected.”
“While JS Investments is still working out the exact funding and specific Islamic financing instruments required for the project, its three-decade record in Pakistani asset management should be another surety for investors,” shared Musab.
“We are managing more than PKR100 billion (US$355 million) right now; we were the country’s fastest growing asset management company in the last two years.”
