Atif Abdulmalik, Chief Executive Officer of Arcapita Group Holdings (Arcapita), a Sharia compliant global alternative investment firm, has set out Arcapita’s strategic transformation plan for the coming five years. The strategy aims to increase the size and volume of Arcapita’s transactions in the private equity and real estate sectors by introducing new product offerings. This new phase of expansion builds on Arcapita’s track record of 100 transactions with a total value of US$31 billion over the past 25 years.
Abdulmalik explains that Arcapita’s business activity is a mix of direct private equity investments and investments in real estate with a particular emphasis on industrial properties in the Company’s core markets of the Gulf Cooperation Council (GCC), mainly in Saudi Arabia and the United Arab Emirates, and the US. Through its transformation strategy, Arcapita intends to diversify its asset base further and minimize risk exposure by acquiring real estate and private equity assets in sectors that demonstrate solid long-term fundamentals.
Abdulmalik added that Arcapita is expanding its logistics activities in the Kingdom of Saudi Arabia by creating a logistics-focused real estate fund with investments of up to US$1 billion. Combined with other funds in Saudi Arabia and the UAE, this will bring the Company’s total investments in the industrial sector to US$1.6 billion.
These investments reflect growing demand among foreign and institutional investors for attractive investments in the Saudi market, with much opportunity for growth being driven by Vision 2030 and changing investment approaches by a new generation of investors.
Arcapita has been investing for the past 25 years. What are your plans for the Company’s next phase?
Over the past 25 years, Arcapita has completed 100 investments with a total value of US$31 billion. For our next phase, we have adopted a five-year transformation plan based around making further quality investments in promising markets, increasing the size of our transactions in private equity and real estate, and introducing new product offerings. We are also looking to consolidate our presence in important strategic markets, including opening our offices in Riyadh in April. This new office is an important milestone in furthering our business in the region and will help us capitalize on the opportunities generated by Saudi Vision 2030.
What are the goals of Arcapita’s strategic transformation plan?
Arcapita’s investment strategy focuses on private equity and real estate and with the transformation plan we will increase our activities in both sectors. In terms of real estate, Arcapita intends to diversify its asset base and minimize risk exposure by targeting assets in defensive real estate sectors with strong long-term fundamentals such as the industrial sector and the long-term residential rentals market. In private equity, we look to acquire asset-light technology-enabled companies that have the potential to growth organically and through bolt-on acquisitions.
In addition, Arcapita supports socially responsible investments with select product and service offerings, including deal by deal investments, investment funds and managed accounts. Arcapita also aligns its interests with the interests of its investors by seeking to co-invest a 5% to 10% stake in each investment opportunity.
What are Arcapita’s main investment segments in the private equity sector?
Private equity investments have been a mainstay of Arcapita’s investment strategy over the past two decades. In this space we largely focus on acquisitions in the business services, logistics, and consumer segments, each of which has its own characteristics, growth potential, and return profile.
The outsourced business services sector has considerable growth potential and Arcapita is acquiring companies in areas such as waste management and property valuation. For example, we recently acquired Nationwide, which provides valuation services to large mortgage institutions throughout the United States. Logistics companies and consumer services are also benefiting from the growth of e-commerce, last mile delivery services, and tech-enabled retail; trends which were accelerated by the COVID-19 pandemic.
What about Arcapita’s real estate investments?
Arcapita’s real estate investment strategy focuses on the industrial, multifamily, and student housing sectors.
In the industrial space, we focus on properties that are either leased to a single long-term tenant, or leased to a variety of smaller tenants on shorter term leases. The sector has proven resilient and has historically maintained high occupancy rates during recessionary periods given the vital importance of storage and distribution facilities in supply chains. This was clearly demonstrated during the COVID-19 pandemic as the demand for industrial space was boosted by e-commerce activity. In general, the industrial sector outperformed the office, retail, and hospitality sectors during the pandemic.
Within the multifamily sector, Arcapita strategically invests in markets with strong employment and population growth rates, and concentrates on Class B properties with a selection of Class A properties.
In student housing, we seek properties serving large US public universities with over 10,000 students and located relatively close to campus. Arcapita recently exited the University of Tennessee’s Quarry Trail student housing property after maintaining an occupancy rate of almost 100% despite challenges presented by the pandemic and growing net operating income by approximately 24% over a two year holding period.
Does this expansion in global markets support Sharia compliant products?
As you know, Arcapita has been committed since its inception in 1997 to providing Sharia compliant investment services and products. The key values and ethical standards we have adopted are reflected in all our transactions and activities to date, and that will not change.
We opened our first international office in Atlanta, Georgia in 1998, when Arcapita was the first Sharia compliant private equity investment firm in the United States. Since then, we have witnessed growing global demand for Sharia compliant products, particularly in key international markets where we are now focusing our expansion plans.
Reports show increasing growth in many sectors in the US market. What is the size of Arcapita’s private equity investments in the United States?
Arcapita has invested more than US$17 billion in US private equity and $13 billion in US real estate over the past 25 years, including in some landmark transactions.
For example, one success story was our relationship with Caribou Coffee, the global coffee chain. After acquiring and growing the business, Arcapita took the company public, making it the first Sharia compliant listing on a US exchange. We also partnered with Prologis, a leader in US logistics real estate, and jointly acquired approximately 80 industrial real estate properties across the country and successfully exited that investment in 2006.
We have built a track record of investing in business services companies, and currently have a substantial controlling interest in a number of asset-light US companies. One such example is Nationwide Property and Appraisal Service, the second largest independent appraisal management company in the US, which serves mortgage lending institutions across all 50 states. Nationwide is a market leader with a network of over 15,000 licensed appraisers, with its clients including more than 100 blue-chip lenders and 21 of the top 25 wholesale lenders in the US. This investment is a continuation of Arcapita’s US private equity strategy focused on asset-light, tech-enabled business services companies.