Sitara Heights (Pvt.) Limited (“Sitara Heights” or “the Company”) is a private limited company incorporated in Pakistan in 2019 under the provisions of the Companies Act, 2017. The Company operates within the domestic real estate development sector and is subject to applicable corporate, regulatory, and tax frameworks governing private limited entities in Pakistan.

The Company is engaged in the development of residential and commercial real estate projects. Its portfolio spans residential apartments, housing communities, and commercial developments, including office buildings, markets, and mixed-use spaces. These developments are positioned to cater to urban residential demand and commercial activity, contributing to local infrastructure development and economic activity within their respective regions.

During the review period, Sitara Heights was actively involved in multiple projects located across Lahore and Faisalabad. These include 3 Jays Tower and Sitara Serene Tower in Gulberg III, Lahore; Gold Vista in Moza Kanjraa, Lahore; The Edge on Sargodha Road, Faisalabad; and Sitara Icon Tower in Samanabad, Faisalabad. The Company’s operations are project-based, with cash flow and execution timelines closely linked to construction progress and unit sales across these developments.

Sitara Heights (Pvt.) Limited has a highly concentrated sponsor ownership structure. As per the latest shareholding disclosed (Form-A), Mr. Khalid Riaz holds 88.0% of the Company’s share capital, while Mr. Fazeel Abdullah (son of the sponsor) holds 10.0%. The remaining 2.0% is held by other minority shareholders in small individual stakes. Effective control and strategic decision-making remain sponsor-led, with ownership now concentrated within the immediate family.

Ownership concentration provides continuity and stability, as strategic direction and key decisions remain aligned with the majority sponsor. The sponsor’s involvement in other established businesses, including Gas and Oil Pakistan Limited and an oil distribution company, further strengthens the stability of the ownership structure by providing financial depth and business experience.

The sponsors of Sitara Heights bring extensive experience from the oil trading, distribution, and transportation sectors. Mr. Khalid Riaz has over three decades of industry experience and operates one of the country’s largest oil transportation operations. This background provides strong commercial acumen, operational discipline, and infrastructure management experience, which support the execution of large-scale real estate projects and long-term strategic planning.

The financial profile of the sponsors is supported by diversified and profitable business interests. Gas and Oil Pakistan Limited carries a PACRA rating of “A+”, while Sitara Petroleum Services Limited is rated “A-”. These ratings reflect the sponsors’ established financial standing and enhance Sitara Heights’ overall financial strength by improving its capacity to manage liquidity pressures, support project financing, and withstand sectoral volatility.

The Board of Directors comprises three members, all of whom are affiliated with the Company. Mr. Khalid Riaz serves as Chairman, alongside Mr. Muhammad Ammar Ali Talat and Mr. Fazeel Abdullah. At present, the Board does not include independent directors.

The Board collectively brings experience in oil marketing, distribution, strategy, and infrastructure-related businesses. Mr. Khalid Riaz’s extensive background in oil retail and transportation supports strategic oversight, while Mr. Talat contributes experience from senior roles in strategy and retail engineering at K-Electric and Gas & Oil Pakistan Limited.

The Board structure is still evolving, and formal board committees have not yet been established. Management has indicated plans to strengthen governance arrangements through the formation of committees, which is expected to enhance oversight and decision-making processes over time.

The Company’s financial statements for the year ended June 30, 2025, were audited by Ilyas Saeed & Co., Chartered Accountants, who issued an unqualified audit opinion. This reflects adherence to applicable accounting standards and supports the reliability of reported financial information.

Sitara Heights operates through a defined organizational structure comprising Operations, Finance, and Sales functions. Each function is supported by dedicated sub-units, allowing focused execution across project development, financial management, and sales and recovery activities. Overall coordination and oversight with the Chief Executive Officer.

The Company is led by Mr. Khalid Riaz as Chief Executive Officer. The management team includes experienced professionals responsible for project execution, finance, sales, and operational coordination. This includes a Project Director overseeing construction activities, a dedicated head for sales and recovery, and senior finance personnel responsible for financial planning and reporting.

Management effectiveness is supported by relevant sectoral experience and clearly defined roles. The leadership team’s collective experience enables coordinated project execution and supports operational continuity across multiple developments.

The management information system provides daily operational performance updates to senior management. This reporting framework enables timely monitoring of project progress, sales activity, and financial performance, supporting informed decision-making.

The Company has committed to implementing internal control systems designed to monitor operations, manage risks, and maintain quality standards. These controls are intended to strengthen operational discipline and support sustainable performance as the project portfolio expands.

Pakistan’s real estate sector contributed approximately 3.7% to national GDP in 1HF25, with a market size of PKR 1936 billion. Sector growth moderated during FY24 due to inflationary pressures, higher construction costs, and flood-related disruptions. Despite these challenges, structural demand for housing remains supported by population growth and a persistent supply shortfall, which continues to underpin residential property prices. 

The Company operates within a challenging macroeconomic environment characterized by elevated inflation and input cost pressures. These factors have affected sector-wide activity; however, continued residential demand provides a degree of resilience to the Company’s operating profile.

During FY25, the Company reported sales of PKR 662 million, compared to PKR 864 million in FY24, reflecting a moderation in revenue generation during the year. Sitara Heights operates under an advance booking model, whereby units are sold through partial upfront payments followed by installment-based recoveries, with final settlement upon completion and handover. Revenue recognition, however, is not linked to booking activity; instead, revenue is recognized based on the percentage of completion of construction activities, in line with applicable accounting standards. Accordingly, the decline in reported revenue during FY25 primarily reflects slower construction progress, which constrained revenue recognition under the percentage-of-completion method, despite continued bookings. The deceleration in execution was influenced by inflationary cost pressures, cash flow constraints, and broader sector-wide challenges affecting the construction and real estate industry.

Profitability weakened during FY25. Gross profit margin declined to 27.5% from 47.6% in FY24, while net profit margin reduced to 2.3% from 24.3%. The compression in margins reflects lower revenue generation and cost pressures during the period.

The Company has announced five projects, with active development ongoing on four. Land acquisition for Gold Vista has been completed, although construction has not yet commenced. During the year, the Company also initiated a new project in Faisalabad, namely Sitara Enclave Housing Society, where bookings have already started.

As part of its longer-term sustainability strategy, the Company is exploring the establishment of a Real Estate Investment Trust (REIT), under which the Gold Vista project is expected to be transferred, with another project also under consideration. The Company is expected to retain a shareholding in the REIT, thereby maintaining exposure to the underlying assets while aiming to improve capital efficiency and generate more stable, recurring income over the longer term. At present, the proposed REIT remains at a conceptual stage, and its credit impact will depend on successful execution, regulatory approvals, and completion and stabilization of the underlying projects.x

Sitara Heights’ reported working capital position appears comfortable, with a current ratio of 3.8x as of Jun-25; however, this is largely driven by a heavy concentration of inventories in the form of work-in-progress. Given the limited cash balances and slow project completion pace, actual short-term liquidity remains closely linked to continued customer advances and uninterrupted construction execution.

Coverage indicators weakened during FY25, with EBITDA to finance cost declining to 36.9x from 77.6x in FY24. However, this metric is not fully reflective of the Company’s true funding exposure, as project-related interest costs have largely been capitalized and are therefore excluded from the income statement. Consequently, reported finance costs mainly comprise late payment surcharges and lease-related charges, which remain significantly lower than underlying project financing costs.

Despite this limitation, the Company’s reduced level of borrowings during the period provided a temporary cushion to cover metrics. Additionally, the Company reported positive free cash flow from operations of PKR 38 million, supporting near-term servicing capacity, albeit cash generation remains modest relative to the scale of ongoing projects.

The Company continued to reduce leverage during FY25, with total borrowings declining to PKR 786 million from PKR 2,036 million in FY24. Total borrowings to capitalization improved to 37.4%, reflecting a strengthened capital structure and lower financial risk during the period. The Company is currently in discussions with banks for funding arrangements related to several ongoing projects. As additional debt is drawn to support construction and completion activities, leverage is expected to increase going forward. While the current capital structure remains manageable, any sustained increase in borrowings could exert pressure on capitalization metrics over the medium term, particularly if project execution or cash flow generation is delayed.