Positively Committed to their Markets

Dr. José Viñals, Group Chairman, Standard Chartered Bank

On his recent visit to the United Arab Emirates, Dr. José Viñals Group Chairman of Standard Chartered Bank talked with MEA Finance Magazine about the bank’s lasting commitment to Africa and the Middle East and the growth opportunities in these regions. Dr Viñals also explained the bank’s management of digital transformation and how ESG is now a core consideration for banks today

On the current macroeconomic outlook for Africa and the Middle East, Dr. Viñals describes these regions as heterogeneous, highlighting the mix of commodity producing countries and commodity importing countries across these areas. Given the current elevated levels of oil and other commodity prices, times are good for those sitting in the first group, such as the UAE and Saudi Arabia, but providing a contrast, it is harder for markets and low-income countries in other parts of these regions that are more vulnerable to debt distress, noting that, “we can see a little bit of everything.” But in spite of the current difficulties in some countries, Africa and the Middle East have had the best performance in many years, with the bank retaining a very positive outlook for them.

Opportunities

Describing Africa and the Middle East as “so broad and so diverse,” Standard Chartered sees abundant opportunities. Some are clear to see, such as in the UAE, with it being an international trade hub and the bank, as he points out, having trade and connectivity in its DNA. The bank acts as a bridge between the different parts of the region, and from the region to the rest of the world. Those corridors which are now well established across the emerging markets - between Africa and the Middle East, and Asia, or for example, between Africa, the Middle East, Europe and North America, are where the bank is in a strong position to bring their capabilities into play to help their clients do business.

There are also opportunities to help finance development across these regions, particularly in Africa where there is a clear need for building the infrastructures necessary for development and growth. More

opportunity still, resides in providing sustainable finance, a critical element in the along the path to the transition to Net Zero, something that will happen gradually.

Digital innovation across the regions will also offer opportunities for the bank as it allows for the wider inclusion of people to join financial channels and brings better services to the full range of their clients, be them retail, affluent or corporate. Additionally, the demographics of these regions and the increasing rate of urbanisation, particularly in Africa means there is, “no shortage of opportunities in the region.” Overall, the bank is very positive about the region and is well placed to understand and navigate its challenges.

Performance, commitment, positioning

Standard Chartered has an extensive franchise in the region. They are the main international bank in Africa and one of the leading such banks in the Middle East. The bank continues to invest and strengthen

its capabilities so as to continue providing all customers and clients with the best possible services, “Our strong commitment to Africa and the Middle East has been there from the beginning and will always remain,” states Dr. Viñals.

This is underlined by their recent entry into two very important regional markets, Egypt and Saudi Arabia. In Egypt, where they have an active set of clients, they have attained a provisional banking license, whereas before they just had a representative office. In Saudi Arabia, the bank had a capital markets license prior getting their banking license and have opened a bank there. The kingdom is diversifying its economy as it pursues its

OUR STRONG COMMITMENT TO AFRICA AND THE MIDDLE EAST HAS BEEN THERE FROM THE BEGINNING AND WILL ALWAYS REMAIN

vision, and the bank is pleased to be in the country and to address the opportunities that will arise.

Their strong commitment to these regions can be seen in the eighteen markets that they operate in and though they have exited a few of the smaller markets in Africa, this rearrangement of their positioning has been made in order to allow the optimum contribution to their clients and their business.

Digital Transformation

The trend toward digital transformation taking place before the pandemic has accelerated dramatically and is noticed in both our personal and business lives, observes Dr. Viñals. The majority of their operations with their retail clients are generated digitally and they are now increasingly working digitally with corporate clients. In the past, technology was positioned as useful to improve the efficiency of your internal operations and to save on costs, now it is, “fundamental to provide second-to-none service to your client.”

The investments the bank has been making on their digital front have been “fantastic,” in retail and corporate terms, but also in terms of new the digital platforms they have created. In Africa, they created eight digital banking platforms and away from the region, they have built a very successful digital bank, Mox, in Hong Kong, reproducing the model in Singapore. In Indonesia, they have entered into partnership with Bukalapak, an e-commerce company serving over 100 million customers. In India they have created a platform which was reproduced in Kenya call Salt, to provide services for SMEs. Dr. Viñals is very pleased with the innovative stance of the bank, saying, “And digital is yes, one of our key bets going forward.”

ESG

“Well, ESG is extraordinarily important nowadays for any organisation, but particularly, I would say, for financing, for global banks like us.”

Focusing on the “G” of the acronym, Dr. Viñals says that the right governance is needed make sure that the organisation moves in the right direction. In Standard Chartered’ s case, they want their profit to be fully aligned with their purpose; to use banking to improve the lives of everyone they touch as clients and other stakeholders.

The “S” relating to the social dimension accounts for diversity and inclusion. The

THE BANK CONTINUES TO INVEST AND STRENGTHEN ITS CAPABILITIES SO AS TO CONTINUE PROVIDING ALL CUSTOMERS AND CLIENTS WITH THE BEST POSSIBLE SERVICES,

bank has an extensive international footprint in 59 markets and many others where they have operations. With people from over 120 nationalities working for the bank, all facets of diversity are critical. The bank itself was born half in Africa and half in Asia, so its roots are highly diverse and thus they believe that diversity is not only a matter of fairness, but also much better for the business and clients. The ”E” of environmental, is reflected in their commitment to help the world to move to Net Zero, “We have committed, between now and the end of the decade to mobilising $300 billion for green and transition finance.” The bank has developed many sustainable finance products, to provide clients not only with the best professional support, but also with the best financing to help them move toward the transition. Concluding, Dr. Viñals says their strategy is for the bank to deliver three standards. The first is Net Zero. The second is lifting participation, trying to bring in wider inclusivity will improve the lives and the conditions of 1 billion people in our markets. And the third is making a globalisation which is more inclusive, so that the benefits can be distributed among all people, not just a few.

Globe Spanning Presence

With a diverse portfolio of investments, sectors, locations and specialist managers, GFH is a true regional success story in the global real estate market. Hisham Alrayes Group CEO of GFH Financial Group talks with MEA Finance about their many verticals and varied activities in this important and competitive market

Hisham Alrayes, Group CEO of GFH Financial Group

How have your real estate investments performed over the past few years?

GFH’s real estate investments have performed well, delivering sound results for the Group and our investors and shareholders. This is reflected in the growth of our portfolio which was based upon the selection of key themes and sectors we believe are fundamentally sound, the solid performance of the assets included in the portfolio and the expansion of our execution capabilities through the acquisition of the asset managers that operate in our sectors of choice. These three key initiatives enabled us to increase the value of our portfolio to approximately US$6 billion.

As a subset of this strategy, GFH now has direct presence, through its subsidiaries, in Europe (London and Madrid) as well as the USA (Washington D.C., Atlanta and Dallas). Such presence further enhances GFH’s ability to source transactions, manage the assets and provide real time market information and coverage to our investors.

What were the main motivators that led GFH Financial Group’s move into real estate investment?

Our core investor group in the GCC has great affinity and understanding of the asset class and has long resorted to deploying excess capital in real estate as the main diversification play for their investment portfolios.

Demonstrating our ongoing focus on expanding our real estate portfolio and capabilities in the sector, we recently held a two-day investor conference in London

focusing on real estate opportunities in Europe and the US, where we are growing our footprint and looking to further strengthen our presence. Over the past 24 months alone, we have deployed nearly US$6 billion in European and US real estate as well as having acquired majority stakes in Roebuck Asset Management, SQ Asset Management (SQ) and Big Sky, leading real estate operators in Europe and the US.

The event showcased our strong presence and capabilities in the sector. We also think that our success in the sector is underscored by the strong and increasing demand from investors for exclusive, high yield, high-quality assets we continue to identify and acquire in well established markets as we grow our portfolio – especially across logistics, medical clinics, residential and student housing.

Why did you decide to create Infracorp as a specialised company?

The vision behind the establishment of Infracorp was to create a dedicated development arm for the Group that can execute projects on a vast land bank owned by GFH consisting of approximately 250 million square feet.

What’s also unique about Infracorp is its sustainability mission – to leverage the Group’s accumulated experience of supporting the sustainable development of the communities and economies where it operates. Its sustainability roadmap positions Infracorp as the region’s pioneer in sustainability investments, and in bringing social infrastructure developments to life through a portfolio that spans social infrastructure, mixed use developments as well as developmental solutions.

The company was also established because infrastructure and real estate assets have a longer timeframe compared to the Group’s financial assets so it was critical to segregate these. In doing so, the Group is able to focus more on the financial assets, while Infracorp can more effectively focus on the development of infrastructure and real assets, creation diversified portfolio of global real estate assets – across sectors and geographies. Our assets include those in our subsectors like Logistics, Medical Offices, Student Housing, Multifamily, Senior Living, Hospitality and Commercial real estate.

We have also been traditionally deploying equity capital in the assets that we originate and underwrite on behalf of our investors. Given current market conditions we are expanding our offerings to include debt investments in real estate assets and transactions.

When it comes to Logistics in particular, GFH has built a sizable portfolio of assets in the logistics space in the US and Europe. In order to grow our presence and capabilities in the space in December 2020, we acquired a majority stake in Roebuck Asset Management, a UK-based pan European logistics real estate asset manager. Since GFH’s acquisition, Roebuck has significantly grown in terms of team members and

Hisham Alrayes, Group CEO of GFH Financial Group and Shaikh Fawaz Al Khalifa, the Ambassador of Bahrain in the United Kingdom at the opening of GFH London Office

GFH HAS BUILT A VERY STRONG AND WELL DIVERSIFIED PORTFOLIO OF GLOBAL REAL ESTATE ASSETS – ACROSS SECTORS AND GEOGRAPHIES

of value from the Group’s land bank and the monetisation of these assets over a phased time frame. We believe this will have a notably positive impact on GFH’s results and our balance sheet.

In terms of sector verticals, how diverse is your portfolio of real estate investments?

GFH has built a very strong and well

new offices, with more being opened in London and Spain and plans for further office openings over the next 18 months.

With GFH’s backing and support, the intention is to continue to grow assets under management (AUM) and collectively as a group target new acquisitions of c.US$500 million over the course of 2022. Roebuck is using its local market expertise and significant track record to establish new investment vehicles in the Core + and Value Add space working with existing and new institutional investors.

As for Medical Offices, this is a another sector where we see strong ongoing opportunity for further growth and diversification of our portfolio. Supporting the investments we currently have and continue to pursue in this sector are strong fundamentals. This segment of the US real estate market has been strong performing and highly resilient to economic downturns, with 99% rent collection during the COVID-19 pandemic. Furthermore, the medical clinics occupancy reflected the strong demand for the sector in the first half of 2022. The sector also continues to benefit from population growth and the aging of the US population accompanied by a steady increase in healthcare expenditure, which accounted for 19% of the US GDP in 2021, as well as the continued increase in demand for outpatient services that are provided in the medical clinic sector. We are focused on continuing to take advantage of these positive trends. In doing so and to ensure we can maximise both the opportunity and the management of our assets in this space, GFH has also taken a majority stake in September 2022 in Big Sky Medical (Big Sky), a highly reputed and experienced asset management platform focusing on medical assets with a proven track record of acquiring and managing healthcare properties. The principals of Big Sky Medical have invested in nearly 6m square feet comprising approximately 100 medical assets across 19 states with an overall current portfolio value of US$2 billion. GFH aligns interests with Big Sky medical as both share the same focus of investing in and aggregating assets in the high-demand and downturnresistant medical sector. GFH’s investment with Big Sky has already resulted in a number of acquisitions totaling approximately US$500 million in the past six months alone.

Another vertical where GFH continues to grow and diversify its holdings is Student Housing. Our investment strategy in the student housing sector focuses on building a diversified portfolio that targets universities within the top public 150 universities in the US, which are considered flagship universities in their respective states. These are institutions with proven pedigree, strong academic and sporting facilities and that have shown steady growth in enrollments yearon-year.

The student housing sector has performed well historically, even during the pandemic, as evidenced by an average stable occupancy rate well above 90% and an equivalent high rental collections rate. Overall, the sector has witnessed supply shortages with the need for purpose-built student housing assets that are within walking distance of Tier I institutions

throughout the country spurred by rising enrollments and limited availability of university provided accommodations.

In May 2022, we acquired a majority stake in Student Quarters, a US-based specialist living sector asset manager and property manager focused on student housing, with a demonstrated track record of value generation and execution. Since its founding in 2013, Student Quarters has built a meaningful portfolio in its target markets. Student Quarters currently has US$1.2billion in AUM, comprised of 34 student housing properties with more than 11,000 beds under management.

An additional subsector of focus for the Group is Multifamily, in which we have a strong diverse portfolio in the US multifamily residential sector in particular. This is an area we have continued to grow amid increasing demand for US multifamily residential properties among renters. Our strategy in this segment is focused on diversification and plans to acquire residential properties across the US which will vary in terms of location, size, and local demographics to generate stable cash flows. Our ambitious but calculated real estate strategy favours resilience and is focused on delivering growth and value creation for stakeholders.

More specifically, GFH is targeting US multifamily residential properties based on several key factors. Assets are located in areas with strong medical centres and education facilities to support stable population growth. There is also an increasing demand for suburban living as the preference for larger living spaces, property amenities, and outdoor space are becoming priorities for renters, which has been further accelerated due to COVID. Assets are located in Sun Belt states, which stretch across the southern and southwestern portions of the US. The US has been witnessing a migratory shift to these states for several years. Almost half of all population growth in the country between 2010 and 2016 happened in the 22 metro areas of the Sun Belt regions, where we will continue to grow and diversify.

How diverse are the locations of your real estate investments?

GFH’s real estate assets are also very well diversified geographically. In the US, they span across several states from the East to West coast including some of the fast-growing urban centres, in addition to investments in the UK and Europe.

With the further expansion of our international footprint, we will continue to even further diversify our geographic reach and those of our investments. We have recently launched the Group’s London office to support our global expansion strategy and we will continue to enhance our capabilities in key markets and locations where we see strong further opportunities for investment with a particular focus on the US and European real estate.

We will do this through our existing majority owned asset management businesses like Roebuck Asset Management, SQ and Big Sky as well as through the acquisition of other geographically diverse asset managers on the ground. We have a strong pipeline of opportunities, and we look forward to closing additional deals that will help us achieve our objectives and further diversify our portfolio.

WHEN IT COMES TO LOGISTICS IN PARTICULAR, GFH HAS BUILT A PORTFOLIO OF US$4 BILLION OF ASSETS IN THE LOGISTICS SPACE IN THE US AND EUROPE

What are the key factors driving the real estate investment decisions for GFH Financial Group?

GFH’s strategy for investment in real estate focuses on a thematic based approach. In identifying and acquiring assets we look at long-term fundamentals, evaluate the economic and regulatory environment, engage in location analysis and gauge investor demand.

We also employ strong partnerships models where we either establish joint ventures or acquire majority stakes in specialist, local asset managers that have long track records, know-how and on-the-ground capabilities to help

maximise the value of our investments and help us deliver strong returns for our shareholders and investors.

What are GFH Financial Group’s day-to-day involvements in your real-estate investments?

We take an active involvement approach at the Limited Partner and General Partner levels – this means direct engagement by our real estate team with the asset managers and advisors.

We also engage in active involvement at BOD levels within the Strategic Investments area of our business which is basically the acquisition of specialist real estate asset managers such as Roebuck, SQ and Big Sky.

In addition to the specialist knowledge, we have gained through these acquisitions, it is integral that the team handling various assets develop knowledge whereby they become experts in the sectors too, which we have done across our core real estate team at GFH. This helps us better work alongside the asset managers to develop the strategies and exits to achieve targeted returns.