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Artis Real Estate Investment Trust Releases Strong Third Quarter Results, Provides Business Update on the Impact of COVID-19 and Strategic Initiatives and Announces a 3% Distribution Increase – Canada NewsWire

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WINNIPEG, MB, Nov. 5, 2020 /CNW/ – Today Artis Real Estate Investment Trust (“Artis” or the “REIT”) issued its financial results and achievements for the three and nine months ended September 30, 2020, provided an update on the impact of the COVID-19 pandemic and Artis’ strategic initiatives and announced a 3% distribution increase.  The third quarter press release should be read in conjunction with the REIT’s consolidated financial statements and Management’s Discussion and Analysis (“MD&A”) for the period ended September 30, 2020.  All amounts are in thousands of Canadian dollars, unless otherwise noted.

THIRD QUARTER HIGHLIGHTS (1)

Portfolio Activity

300x250x1
  • Completed the development of Park 8Ninety IV, a build-to-suit industrial development located in the Greater Houston Area, Texas which is 100% leased to a multi-national tenant.
  • Completed the development of Linden Ridge Shopping Centre II, a retail densification project located in Winnipeg, Manitoba which is 100% leased to two national tenants.
  • Disposed of an office property in the Twin Cities Area, Minnesota for a sale price of $US41.0 million.
  • At September 30, 2020, entered into unconditional sale agreements for two office properties in Toronto, Ontario for a sale price of $114.0 million and a parcel of development land in the Twin Cities Area, Minnesota for a sale price of US$5.5 million.
  • Subsequent to the end of the quarter, entered into unconditional sale agreements for a retail property in the Greater Vancouver Area, British Columbia and a retail property in Regina, Saskatchewan, for aggregate sale prices of $50.3 million.

Financial and Operational

  • Announced a 3% increase to common unit distributions, effective for the December 2020 distribution payable on January 15, 2021.
  • Increased FFO per unit by 8.8% to $0.37 for the third quarter of 2020, compared to $0.34 the third quarter of 2019 and increased $0.01 or 2.8% compared to the second quarter of 2020.
  • Increased AFFO per unit by 8.0% to $0.27 for the third quarter of 2020, compared to $0.25 the third quarter of 2019 and unchanged compared to the second quarter of 2020.
  • Reported a conservative AFFO payout ratio of 51.9% for the third quarter of 2020, compared to 56.0% for the third quarter of 2019.
  • Same Property NOI decreased 1.2% period-over-period for the third quarter of 2020.
  • Reported portfolio occupancy of 90.0% (91.6% including commitments) at September 30, 2020, compared to 90.6% at June 30, 2020.
  • Weighted-average rental rate on renewals that commenced during the third quarter of 2020 increased 6.0%.

Balance Sheet and Liquidity

  • Reported NAV per unit of $15.35 at September 30, 2020, compared to $15.56 at December 31, 2019.
  • Reported unencumbered assets of $2.0 billion at September 30, 2020, compared to $2.0 billion at December 31, 2019.
  • Decreased total long-term debt and credit facilities to GBV to 51.9% at September 30, 2020, compared to 52.3% at December 31, 2019.
  • Reported total long-term debt and credit facilities to EBITDA of 9.5 at September 30, 2020, compared to 8.8 at December 31, 2019.
  • Increased EBITDA interest coverage ratio to 3.55 times for the third quarter of 2020, compared to 2.85 times for the third quarter of 2019.
  • Improved liquidity and debt profile by issuing three-year Series D fixed rate senior unsecured debentures for gross proceeds of $250.0 million, bearing interest at 3.824%.

(1) Inclusive of properties held under joint venture arrangements.

IMPACT OF COVID-19

Tenant Support Program and Rent Collection

As a diversified REIT, Artis’ portfolio comprises industrial, office and retail properties which, at September 30, 2020, were 90.0% leased (91.6% including commitments on vacant space) to high-quality tenants across Canada and the U.S. with a weighted-average remaining lease term of 5.4 years.  Artis expects that the COVID-19 pandemic will continue to have the largest impact on its retail segment, which represented 19.2% of Q3-20 Proportionate Share Property NOI.  At September 30, 2020, the REIT’s retail portfolio was 87.9% leased (89.5% including commitments on vacant space) with a weighted-average remaining lease term of 4.0 years.  Overall, Artis is confident that the quality of its retail properties, strong tenant base and limited exposure to this asset class will mitigate the impact on its overall business. 

Rent Collection

Rent collection has been a key focus for Artis and its stakeholders during this time.  As at October 31, 2020, Artis has collected 98.4% of rent charges excluding deferred rent and 97.6% of rent charges including deferred rent for the three months ended September 30, 2020. 

With respect to Artis’ retail portfolio, as at October 31, 2020, Artis has collected approximately 96.5% of rent charges, excluding deferred rent, for the three months ended September 30, 2020.  The REIT continues to work diligently with its tenants as government restrictions related to the pandemic are eased. 

As at October 31, 2020, Artis has collected 97.4% of October rent charges, excluding deferred rent and 97.4% of October rent charges, including deferred rent.

Rent Deferrals

Due to government-mandated capacity restrictions and temporary closures of certain non-essential businesses, a number of tenants have had to limit operations.  In an effort to support tenants through this difficult time, qualifying tenants who are in need of assistance have been given the option to defer a portion of their rent, with an agreement to repay the amount at a specified later date.  As at September 30, 2020, the outstanding balance of rent deferrals granted to Artis’ tenants was $5.5 million ($5.6 million on a Proportionate Share basis).

Allowance for Doubtful Accounts

The REIT anticipates that the majority of rent deferrals and rents receivable will be collected, however, there are certain tenants that may not be able to pay their outstanding rent.  As at September 30, 2020, Artis has recorded an allowance for doubtful accounts in the amount of $2.2 million ($2.2 million on a Proportionate Share basis).

Leasing Update

Also during the third quarter of 2020, Artis completed construction of Park 8Ninety IV, a 100,000 square foot industrial build-to-suit development for a multi-national tenant located in the Greater Houston Area, Texas.  Artis has a 95% interest in Park 8Ninety IV in the form of a joint venture arrangement.  Artis also completed the construction of Linden Ridge Shopping Centre II, a 17,070 square foot densification project in Winnipeg, Manitoba which is 100% leased to two national tenants.

Artis’ portfolio occupancy at September 30, 2020, was 90.0% (91.6% including commitments) compared to 90.6% (92.9% including commitments) at June 30, 2020.

Financial Position and Liquidity

Artis is focused on several strategic initiatives, one of which is to strengthen its balance sheet.  The REIT’s current liquidity includes cash on hand and undrawn credit facilities.  There are no credit facilities maturing prior to December 2021.  The Series C senior unsecured debentures mature in February 2021 and Artis has adequate room available on the revolving credit facilities to fund the repayment.

Artis’ current liquidity sufficiently meets working capital requirements, obligations and capital commitments related to ongoing development projects and distribution payments to unitholders.  The REIT will continue to monitor this rapidly evolving situation closely and to prudently manage its capital resources.

Risks

Due to uncertainty with respect to the duration and severity of the COVID-19 pandemic, it is not possible to reliably estimate the future impact of the COVID-19 pandemic on financial results and operations.  For more information on risks related to the COVID-19 pandemic, please refer to the Risks and Uncertainties section of the Q3-20 MD&A.

Overall, Artis’ first priority is to maintain a safe environment for its tenants, employees and the community.  During this unprecedented and uncertain time, Artis is committed to minimizing the impact on its business and, as a diversified REIT, Artis confident that it is well-positioned to handle the economic challenges that may lie ahead.

FINANCIAL AND OPERATIONAL RESULTS

Selected Financial Information


Three months ended
September 30,


Nine months ended
September 30,

$000’s, except per unit amounts

2020



2019


% Change


2020



2019


% Change











Revenue

$

113,328



$

127,005


(10.8)

%


$

345,907



$

394,480


(12.3)

%

Net operating income

68,017



75,724


(10.2)

%


204,308



234,735


(13.0)

%

Net income (loss)

45,699



44,632


2.4

%


(10,881)



89,860


(112.1)

%

Total comprehensive income

15,250



62,238


(75.5)

%


26,205



46,972


(44.2)

%

Distributions per common unit

0.14



0.14


%


0.41



0.41


%











FFO (1)

$

50,816



$

48,603


4.6

%


$

146,615



$

150,796


(2.8)

%

FFO per unit (1)

0.37



0.34


8.8

%


1.06



1.04


1.9

%

FFO payout ratio (1)

37.8

%


41.2

%

(3.4)

%


38.7

%


39.4

%

(0.7)

%











AFFO (1)

$

37,671



$

35,769


5.3

%


$

107,831



$

112,746


(4.4)

%

AFFO per unit (1)

0.27



0.25


8.0

%


0.78



0.78


%

AFFO payout ratio (1)

51.9

%


56.0

%

(4.1)

%


52.6

%


52.6

%

%



(1)

Represents a non-GAAP measure.  Refer to the Notice with Respect to non-GAAP Measures.

Same Property NOI (1)


Q3-20

Q2-20

Q1-20

Q4-19

Q3-19







Same Property NOI (decline) growth

(1.2)

%

(2.0)

%

1.5

%

3.3

%

2.0

%



(1)

Represents a non-GAAP measure.  Refer to the Notice with Respect to non-GAAP Measures. 

The REIT reported a decline in period-over-period Same Property NOI of 1.2% for the third quarter of 2020.  Excluding bad debt (recovery) expense and rent abatements resulting from the COVID-19 pandemic, Same Property NOI decreased 0.7%.

Occupancy and Leasing

Occupancy at September 30, 2020, was 90.0% (91.6% including commitments) compared to 90.6% (92.9% including commitments) at June 30, 2020, excluding properties held for redevelopment and new development projects. Weighted-average rental rate on renewals that commenced during the third quarter of 2020 increased 6.0%.

Artis’ portfolio has a stable lease expiry profile with 50.4% of gross leasable area expiring in 2024 or later and 57.9% of the remaining 2020 expiries renewed or committed to new leases at September 30, 2020.  Weighted-average in-place rents for the entire portfolio are $12.60 per square foot and are estimated to be 0.9% below market rents.  Information about Artis’ lease expiry profile is as follows:

BALANCE SHEET AND LIQUIDITY



2020


2021


2022


2023


2024
& later












Expiring square footage


5.1

%


14.0

%


11.1

%


9.2

%


50.4

%

Committed percentage


57.9

%


23.7

%


6.6

%


2.4

%


0.7

%

In-place rents


$

13.69



$

13.56



$

10.68



$

14.40



$

12.31


Comparison of market to in-place rents


4.1

%


(3.1)

%


5.2

%


(0.5)

%


1.2

%

Balance Sheet Highlights and Metrics

The REIT’s balance sheet highlights and metrics, on a Proportionate Share basis, are as follows:


September 30,



December 31,



2020



2019








Fair value of investment properties

$5,121,562



$     5,249,275


Fair value of unencumbered assets

1,972,693



1,968,369


NAV per unit (1)

15.35



15.56


Secured mortgages and loans to GBV (1)

28.0

%


27.9

%

Total long-term debt and credit facilities to GBV (1)

51.9

%


52.3

%

Total long-term debt and credit facilities to EBITDA (1)

9.5



8.8


EBITDA interest coverage ratio (1)

3.55



3.05


Unencumbered assets to unsecured debt

1.55



1.47




(1)

Represents a non-GAAP measure.  Refer to the Notice with Respect to non-GAAP Measures.

Information regarding the REIT’s mortgage financing, on a Proportionate Share basis, is as follows:








September 30,



December 31,



2020



2019








Weighted-average effective interest rate

3.20

%


3.98

%

Weighted-average term to maturity (in years)

2.3



2.4


Unhedged variable rate mortgage debt as a percentage of total debt

21.3

%


22.7

%

Liquidity and Capital Resources

At September 30, 2020, Artis had $35.2 million of cash on hand and $423.3 million available on its revolving term credit facilities.  Liquidity and capital resources may be impacted by financing activities, portfolio acquisition, disposition and development activities, debt repayments and unit purchases under the NCIB occurring subsequent to September 30, 2020.

PORTFOLIO ACTIVITY

Disposition

During the third quarter of 2020, Artis disposed of the following property:










Property

Property
count


Location

Disposition date

Asset
class

Owned
share of
GLA


Sale price










Millwright Building (1)

 

1


Twin Cities Area, MN

August 25, 2020

Office

138,781


$US40,960



(1)

The REIT held an 80% interest in the Millwright Building in the form of a joint venture arrangement.

During Q3-20, Artis repaid mortgage debt related to the disposition of the above property in the amount of US$24,007.

New Developments

During Q3-20, Artis completed the following new developments:

Property

Property count


Location

Asset class

Owned
share of
GLA

% Occupied

% Committed









Park 8Ninety IV (1)

1


Greater Houston Area, TX

Industrial

95,000


100.0

%

100.0

%

Linden Ridge Shopping Centre II (2)


Winnipeg, MB

Retail

17,070


100.0

%

100.0

%



(1)

The REIT has a 95% interest in Park 8Ninety IV in the form of a joint venture arrangement.

(2)

This is a densification project which added an additional 17,070 square foot building to an existing retail property.

At September 30, 2020, the REIT also had one ongoing development project, 300 Main, a mixed-used residential/multi-family property located in Winnipeg, Manitoba.  Further details regarding this project can be found in the Q3-20 MD&A.

UPDATE ON STRATEGIC INITIATIVES

November 2018 Initiatives

On November 1, 2018, Artis announced several initiatives that were focused on improving its growth profile, strengthening its balance sheet and ensuring the REIT is best positioned for long-term and sustainable growth.  These initiatives included revising the REIT’s distribution, purchasing units under the NCIB and optimizing the portfolio by narrowing its focus to key assets in fewer markets and pursuing accretive development projects.  Artis’ Board and management have demonstrated their commitment to unlocking unitholder value by proactively pursuing and successfully completing these strategic initiatives.

As part of these initiatives Artis embarked on a non-core disposition program with a target to sell between $800,000 and $1,000,000 of assets over a three-year time frame.  From November 1, 2018 to September 30, 2020, Artis has completed asset sales of $797,977, ahead of schedule at an aggregate value that equates to a premium over IFRS values.  Proceeds from dispositions were used to repay outstanding debt and to fund purchases under the NCIB program, described below. These strategic non-core asset dispositions have also significantly enhanced the overall quality of Artis’ portfolio of investment properties.

To further improve unitholder value, Artis actively repurchased common and preferred units through the NCIB at market prices which were at a significant discount when compared to its NAV.  From November 1, 2018 to September 30, 2020, Artis purchased 18,274,170 common units at a weighted-average price of $10.50 and 387,030 preferred units at a weighted-average price of $19.87 for total market prices of $191,876 and $7,689, respectively.  During 2019, Artis also completed the redemption of the outstanding Series G preferred units with an aggregate face value of $78,463.  From November 1, 2018 to September 30, 2020, Artis has repurchased common and preferred units (including the redemption of the Series G preferred units) for aggregate total market prices of $278,028.

To enhance the quality of its portfolio, Artis also focused on accretive new development opportunities.  The REIT completed six new industrial development projects located in key target markets in the U.S. and two retail development projects in Winnipeg, Manitoba.  Artis also has one ongoing development project in process in Winnipeg, Manitoba. Artis has an ongoing commitment to continue to pursue high-yield development projects in its key markets.

September 2020 Initiatives

On September 8, 2020, Artis announced further initiatives to unlock unitholder value. The comprehensive plan included the initiatives described below.

Enhanced Debt Reduction

To strengthen its balance sheet and improve the calibre and growth profile of its portfolio, Artis implemented an enhanced debt reduction initiative which involves the continuation of the successful non-core asset disposition program, with a target of an additional $550,000 of non-core dispositions.  Proceeds from these asset sales will be used to repay outstanding debt which will result in an improvement to Artis’ credit profile. This initiative is expected to meaningfully lower leverage to 45% of debt to gross book value, bolster liquidity and enhance balance sheet strength.

At September 30, 2020, this initiative is well underway and Artis has entered into unconditional sale agreements for the following properties:

Property

Property

count

Location

Disposition date

Asset

class

Owned

share of

GLA


Annualized

Property

NOI (1)


Capitalization

rate (2)


Sale

price


Fair

value (3)












801 Carlson Land 
(unconditional)

Twin Cities
Area, MN

November 2020

Office


$

(218)


N/A


$

7,324


$

5,185


Concorde Portfolio
(unconditional)

2

Toronto, ON

November 2020

Office

565,605


5,176


5.00

%

114,000


112,085



2




565,605


$

4,958



$

121,324


$

117,270






















(1)

Based on the annualized Property NOI reported for the quarter prior to disposition. 

(2)

Capitalization rates based on 12-month forward looking Property NOI, as of the date of closing. 

(3)

Based on the fair value reported at the quarter prior to disposition.

In addition, at September 30, 2020, Artis has one industrial property, three office properties and four retail properties classified as held for sale, representing a total fair value of $170,236.

Disposition Activity Subsequent to September 30, 2020

On October 15, 2020, Artis entered into an unconditional agreement to sell Delta Shoppers Mall, a retail property located in Greater Vancouver Area, British Columbia for a sale price of $34,280, which represents a capitalization rate of 5.2%.  The sale is expected to close in November 2020.

On October 23, 2020, Artis entered into an unconditional agreement to sell Shoppers Landmark, a retail property located in Regina, Saskatchewan for a sale price of $16,000, which represents a capitalization rate of 6.2%.  The sale is expected to close in November 2020.

Retail Spin-Off

Artis announced its intention to spin-off its Canadian retail properties into a newly formed real estate investment trust (“Retail Spin-Off”) enabling investors to better value the quality of the retail portfolio and to enable the REIT to simplify its business and pursue strategies focused on its high-quality industrial and office properties.  The Retail Spin-Off is anticipated to include a portfolio of 40 retail properties in Canada and would be implemented by way of a statutory plan of arrangement under the Canada Business Corporations Act.

Artis’ Board and Management remain firmly committed to the execution of Artis’ previously announced comprehensive plan that includes both debt reduction initiatives and the Retail Spin-Off.  While the Board, in consultation with its advisors, has unanimously determined the Retail Spin-off is a potentially effective strategy to maximize unitholder value as it simplifies Artis’ business, ensures public markets ascribe proper value to the retail portfolio, and represents a non-taxable transaction to Artis, it is not prepared to let a vote on the Retail Spin-Off become a distraction to the REIT and disrupt other important business initiatives. Since the Retail Spin-Off was announced, an unnecessary and resource consuming proxy fight has been initiated, adding further distraction.  In light of this development, the Board has determined to defer the unitholder meeting related to the Retail Spin-off until a later date.  In the meantime, the Board and Management will continue to execute on its comprehensive plan with a focus on debt reduction, portfolio optimization and Board renewal.

The REIT will continue to provide updates on the strategic initiatives as progress is made.

UPCOMING WEBCAST AND CONFERENCE CALL

Interested parties are invited to participate in a conference call with management on Friday, November 6, 2020, at 12:00 p.m. CT (1:00 p.m. ET). In order to participate, please dial 1.416.764.8688 or 1.888.390.0546. You will be required to identify yourself and the organization on whose behalf you are participating.

Alternatively, you may access the simultaneous webcast by following the link from our website at www.artisreit.com/investor-link/conference-calls/ during or after the conference call and webcast. Prior to the webcast, you may follow the link to confirm you have the right software and system requirements.

If you cannot participate on Friday, November 6, 2020, a replay of the conference call will be available by dialing 1.416.764.8677 or 1.888.390.0541 and entering passcode 765210#.  The replay will be available until Monday, December 7, 2020. The webcast will be archived 24 hours after the end of the conference call and will be accessible for 90 days.

NOTICE WITH RESPECT TO NON-GAAP MEASURES

In addition to reported IFRS measures, the following non-GAAP measures are commonly used by Canadian real estate investment trusts as an indicator of financial performance: Proportionate Share, Property NOI, Same Property NOI, FFO, AFFO, FFO and AFFO Payout Ratios, NAV per Unit, Debt to GBV, EBITDA Interest Coverage Ratio and Debt to EBITDA.  “GAAP” means the generally accepted accounting principles described by the CPA Canada Handbook – Accounting, which are applicable as at the date on which any calculation using GAAP is to be made.  Artis applies IFRS, which is the section of GAAP applicable to publicly accountable enterprises.  These non-GAAP measures are not defined under IFRS and are not intended to represent operating profits for the period, or from a property, nor should any of these measures be viewed as an alternative to net income, cash flow from operations or other measures of financial performance calculated in accordance with IFRS.  Readers should be further cautioned that these non-GAAP measures as calculated by Artis may not be comparable to similar measures presented by other issuers. These non-GAAP measures are defined in the REIT’s Q3-20 MD&A.

CAUTIONARY STATEMENTS

This press release contains forward-looking statements.  For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements.  Particularly, statements regarding the REIT’s future operating results, performance and achievements, including the COVID-19 pandemic and the implementation of Artis’ strategic initiatives, are forward-looking statements.  Without limiting the foregoing, the words “expects”, “anticipates”, “intends”, “estimates”, “projects”, and similar expressions are intended to identify forward-looking statements.

Artis is subject to significant risks and uncertainties which may cause the actual results, performance or achievements of the REIT to be materially different from any future results, performance or achievements expressed or implied in these forward-looking statements.  Such risk factors include, but are not limited to, risks related to the COVID-19 pandemic, implementation of Artis’ strategic initiatives, real property ownership, debt financing, foreign currency, credit and tenant concentration, lease rollover, tax related matters, illiquidity, reliance on key personnel, future property transactions, general uninsured losses, cyber security, environmental matters, land and air rights leases, public market risk, availability of cash flow, fluctuations in cash distributions, potential dilution, unitholder liability, potential conflicts of interest, changes in legislation and development risk.  Artis cannot assure investors that actual results will be consistent with any forward-looking statements and Artis assumes no obligation to update or revise such forward-looking statements to reflect actual events or new circumstances.  All forward-looking statements contained in this press release are qualified by this cautionary statement.

ABOUT ARTIS REAL ESTATE INVESTMENT TRUST

Artis is a diversified Canadian real estate investment trust investing in industrial and office properties in Canada and the United States.  Since 2004, Artis has executed an aggressive but disciplined growth strategy, building a portfolio of commercial properties in select markets in Canada and the United States.  As of September 30, 2020, Artis’ commercial property comprises approximately 23.8 million square feet of leasable area.

During the three months ended September 30, 2020, Proportionate Share Property NOI by asset class, was approximately 35.2% industrial, 45.6% office and 19.2% retail.  Proportionate Share Property NOI by geographical region, was approximately 2.7% in British Columbia, 16.2% in Alberta, 6.9% in Saskatchewan, 13.1% in Manitoba, 11.6% in Ontario, 9.7% in Arizona, 4.3% in Colorado, 21.5% in Minnesota, 0.7% in New York, 3.5% in Texas and 9.8% in Wisconsin.

The Toronto Stock Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this release.

SOURCE Artis Real Estate Investment Trust

For further information: please contact: Mr. Armin Martens, President and Chief Executive Officer, Mr. Jim Green, Chief Financial Officer or Ms. Heather Nikkel, Vice-President – Investor Relations of the REIT at 204.947.1250.

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http://www.artisreit.com

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Lenders Rally After India’s Central Bank Eases Investment Curbs – BNN Bloomberg

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(Bloomberg) — Indian banks and shadow lenders rose Thursday after the country’s central bank eased capital requirements for a unique type of investment, a move that may free up more funds for loans.

The gains came after the Reserve Bank of India issued Wednesday modified rules on lenders’ required provisions for exposure to alternative investment funds, or AIFs, that invest in the lenders’ borrowers. Under the new policy, a lender needs to set aside capital only for the amount the AIF invested in the debtor company, and not the entire investment of the lender in the AIF.

Shares of Piramal Enterprises Ltd., which reported among the biggest provisions for such investments, closed 1% higher after rising as much as 6% during the day. A gauge of financial services firms climbed 1%, the most since March 1.

300x250x1

Lenders led the rally in the broader market, with the NSE Nifty 50 Index registering its best day since beginning of the month.

The RBI’s softening stance came after industry players raised concerns over clarity and uniformity after it announced in December restrictions on lenders’ exposure to AIFs that hold stakes in their borrowers. The latest move will likely help firms including Piramal, HDFC Bank Ltd. and IIFL Finance Ltd. reverse some of their relevant provisions made previously, according to analysts at Citigroup Inc. and Jefferies Financial Group Inc.

Read more: India’s Crackdown on Financial Risks Puts Industry on Watch

“Select private banks and NBFCs like Piramal had provided for their entire AIF exposure during 3Q and could see some write-backs in 4Q if they decide to reverse the excess provision,” Jefferies analyst Bhaskar Basu wrote in a note.

Regulators introduced a flurry of new rules last year to prevent a buildup of financial stress at a time when India’s economy remained resilient in the face of rising interest rates, slowing global growth and unabated geopolitical tensions.

©2024 Bloomberg L.P.

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What is Islamic halal investment and why is it on the rise?

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The global Islamic halal economy is set to reach a market value of $7.7 trillion by 2025, more than double the $3.2 trillion it reached in 2015 and significantly higher than the $5.7 trillion it was valued at less than three years ago in 2021, according to industry experts.

A report by the General Council for Islamic Banks and Financial Institutions revealed last year that the global Islamic funds market has grown by more than 300 percent over the past decade, with nearly $200bn now under management globally.

The statistics depict a rise in both demand for halal – or “sharia compliant” – investments and opportunities.

Investing is permitted under Islam, but certain aspects of investment practice – such as charging or paying interest – are not. This has traditionally meant a lack of opportunities for Muslim savers and investors in the past.

300x250x1

What is halal investment?

Halal is an Arabic term meaning “permitted” and stipulating that:

  • Transactions cannot involve “riba” (interest).
  • Investments must not be made in “haram” (unlawful) assets or commodities such as pork products, alcohol or military equipment, among others.
  • Investments cannot be made based on “gharar”, which has been described as “highly uncertain transactions or transactions that run contrary to the idea of certainty and transparency in business”.

“Halal investment is basically managing your money and finances in line with your faith,” Omar Shaikh, director of Islamic Finance Council UK (UKIFC), told Al Jazeera. “Muslims believe that earning money in a way which is halal is better than earning money (even if that is more) in a way that is harmful to society and against the morals of the religion.”

Umar Munshi, co-founder and managing director of Islamic finance group Ethis, said sharia compliance is key, but institutions and investors looking for ethical investments need to go even further to ensure a business is completely ethical.

“The actions of a business must not have a negative impact on society or the environment,” Munshi told Al Jazeera. “So it’s not only compliant, but refraining from having a negative impact. Investing in a tobacco company, for example, may be sharia compliant, but it’s not good for society.”

How does halal investment work?

One example of halal investment is Islamic business financing, which works using new models of profit-sharing, sharia-compliant insurance and sukuk, an Islamic financial certificate that represents a share of ownership.

Unlike with conventional bonds – a form of IOU that investors can buy in order to receive interest payments – sukuk investors receive partial ownership of a business and then receive profit payments, which are generated over time. These payments are made instead of interest in order to ensure sharia compliancy.

“Islamic finance as a sector is barely 30 years old, with the past 15 years seeing the most development,” Shaikh from UKIFC said. “It takes time to educate and create awareness and as this has happened, more banks have focused on servicing the demand for halal investing. This in turn helps to create more products, which then creates more demand.”

Stock markets used to be the traditional modes of investment for many [Marcin Nowak/Anadolu via Getty Images]

A Goldman Sachs report published in December 2022 estimated that by 2075, five of the world’s 10 largest economies – India, Indonesia, Nigeria, Pakistan and Egypt – will have Muslim populations amounting to more than 850 million people.

As the population rises, so does its demand for financial products. According to the State of the Global Islamic Economy Report 2023, published by research group DinarStandard, some $25.9bn was invested into sharia-compliant investments in the financial year 2022-23, marking a 128 percent year-on-year growth.

“In general, it [halal investment] is on the rise. People are a lot more educated and more aware of how their dollar impacts the socioeconomic landscape globally,” said Siddiq Farid, co-founder of SmartCrowd, a real estate investment platform based in Dubai.

“They are a lot more cautious, too, hence leading to more ethical investing, which halal investing is a big component of. It’s on the rise, particularly around the younger generation. The millennials, they are a lot more aware socially. People realise exactly where their money is going and how it’s being used.”

An increase in opportunities for halal investing and their ease of access are also cited as reasons driving the rise in demand.

Israel’s war on Gaza and its impact

More recently, the rise in demand for halal investments has received an additional boost as consumers boycott brands seen as supporting Israel and its war on Gaza.

The war, which has seen more than 32,000 Palestinians killed by Israeli attacks in Gaza, has “adjusted” the mindset of these investors, Farid said.

“Halal investment has been increasing steadily and it has accelerated further in the past six months, mostly among millennials and people under 40,” he said.

“But in the past, it’s more of these people just looking for something halal. As long as it’s not haram, it’s fine. Now, there’s more awareness of not only halal, but halal aligned with values and faith. All these boycott movements have got people much more aware that something may be halal, but you might not necessarily want to use it, be associated with it or invest in it.”

bds
The Boycott, Divestment and Sanctions (BDS) movement has made many people consider where their money goes before they spend or invest it, say experts [Martin Pope/SOPA Images/LightRocket via Getty Images]

How has technology contributed to the rise of halal investing?

FinTech Magazine reported in December last year that while Muslims make up nearly a quarter of the world’s population, barely one percent of financial assets qualify as sharia compliant. This is set to change, say experts, with the arrival of “fintech” – financial technology that can make investing much more accessible for ordinary consumers and individual investors.

“Muslims are generally not as well educated when it comes to investing, and this is partly due to a lack of available options for them as Muslims. Even basic information pertaining to sharia-compliant investments is often not available to most of the Muslim population,” said Ibrahim Khan, co-founder of the online financial platform Islamic Finance Guru, in an interview with FinTech Magazine.

However, the rise of social media has contributed to an increased awareness and significant growth in sharia-compliant finance. In addition, fintech has made halal investment options, which are often much more convenient and easy to use with a smartphone or laptop, more accessible.

Consultancy group McKinsey & Company published research in January this year showing that “revenues in the fintech industry are expected to grow almost three times faster than those in the traditional banking sector between 2023 and 2028”.

“Your phone is often physically the closest thing to you. Fintechs are able to start from this paradigm and build solutions that are efficient and enhance transparency and choice for retail customers. This is where a lot of the action is at. Many banks are now creating fintech-based solutions or acquiring fintech players,” said UKIFC’s Shaikh.

Munshi added the selling point for fintechs is the age of the target audience.

“The younger generation is more open to investing online,” said Munshi, whose company operates an online platform and community for alternative finance and investment opportunities.

The same research by McKinsey & Company showed that the fintech industry raised record capital in the second half of the 2010s. Venture capital funding grew from $19.4bn in 2015 to $33.3bn in 2020, a 17 percent year-over-year increase.

As of July 2023, publicly traded fintech companies had a combined market capitalisation of $550bn, double that of 2019, the research said.

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Amazon completes $4B Anthropic investment to advance generative AI – About Amazon

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Amazon concludes $4 billion investment in Anthropic.

Customers of all sizes and industries are using Claude on Amazon Bedrock to reimagine user experiences, reinvent their businesses, and accelerate their generative AI journeys.

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The work Amazon and Anthropic are doing together to bring the most advanced generative artificial intelligence (generative AI) technologies to customers worldwide is only beginning. As part of a strategic collaborative agreement, we and Anthropic announced that Anthropic is using Amazon Web Services (AWS) as its primary cloud provider for mission critical workloads, including safety research and future foundation model development. Anthropic will use AWS Trainium and Inferentia chips to build, train, and deploy its future models and has made a long-term commitment to provide AWS customers around the world with access to future generations of its foundation models on Amazon Bedrock, AWS’s fully managed service that provides secure, easy access to the industry’s widest choice of high-performing, fully managed foundation models (FMs), along with the most compelling set of features (including best-in-class retrieval augmented generation, guardrails, model evaluation, and AI-powered agents) that help customers build highly-capable, cost-effective, low latency generative AI applications.

Earlier this month, we announced access to the most powerful Anthropic AI models on Amazon Bedrock. The Claude 3 family of models demonstrate advanced intelligence, near-human levels of responsiveness, improved steerability and accuracy, and new vision capabilities. Industry benchmarks show that Claude 3 Opus, the most intelligent of the model family, has set a new standard, outperforming other models available today—including OpenAI’s GPT-4—in the areas of reasoning, math, and coding.

“We have a notable history with Anthropic, together helping organizations of all sizes around the world to deploy advanced generative artificial intelligence applications across their organizations,” said Dr. Swami Sivasubramanian, vice president of Data and AI at AWS. “Anthropic’s visionary work with generative AI, most recently the introduction of its state-of-the art Claude 3 family of models, combined with Amazon’s best-in-class infrastructure like AWS Tranium and managed services like Amazon Bedrock further unlocks exciting opportunities for customers to quickly, securely, and responsibly innovate with generative AI. Generative AI is poised to be the most transformational technology of our time, and we believe our strategic collaboration with Anthropic will further improve our customers’ experiences, and look forward to what’s next.”

Global organizations of all sizes, across virtually every industry, are already using Amazon Bedrock to build their generative AI applications with Anthropic’s Claude AI. They include ADP, Amdocs, Bridgewater Associates, Broadridge, CelcomDigi, Clariant, Cloudera, Dana-Farber Cancer Institute, Degas Ltd., Delta Air Lines, Druva, Enverus, Genesys, Genomics England, GoDaddy, Happy Fox, Intuit, KT, LivTech, Lonely Planet, LexisNexis Legal & Professional, M1 Finance, Netsmart, Nexxiot, Parsyl, Perplexity AI, Pfizer, the PGA TOUR, Proto Hologram, Ricoh USA, Rocket Companies, and Siemens.

To further help speed the adoption of advanced generative AI technologies, AWS, Anthropic, and Accenture recently announced that they are coming together to help organizations—especially those in highly-regulated industries including healthcare, public sector, banking, and insurance—responsibly adopt and scale generative AI solutions. Through this collaboration, organizations will gain access to best-in-class models from Anthropic, a broad set of capabilities only available on Amazon Bedrock, and industry expertise from Accenture, Anthropic, and AWS to help them build and scale generative AI applications that are customized for their specific use cases.

Deepening our commitment to advancing generative AI, today we have an update on the announcement we made to invest up to $4 billion in Anthropic for a minority ownership position in the company. Last September, we made an initial investment of $1.25 billion. Today, we made our additional $2.75 billion investment, bringing our total investment in Anthropic to $4 billion. To learn more about the broader strategic collaboration between Amazon and Anthropic, of which this investment is one part, check out the stories below:

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