July 1, 2022

Bookending a momentus year


As we start a new financial year, Merricks Capital would like to thank its investors, capital and industry partners and staff for their ongoing support through FY22.

The Merricks Capital Partners Fund paid a distribution of 8% for FY22.

In its inaugural year the Merricks Capital Agriculture Credit Fund raised approximately $250m and also paid a distribution of 8% for FY22.

FY22, the year that was:

Global commodity markets were supported by the macro-economic impacts of Covid-19 and war in Ukraine. Whilst these events have led to higher inflation, rising interest rates, and a sharp correction in equity markets, it is important to note that commodity prices have largely benefited from this volatile economic environment.

This is particularly the case in Australia and New Zealand (NZ) where we enjoy relatively low sovereign risk and a lower than historical average exchange rate.

Agriculture will not be immune from inflation, however record prices for grains, livestock and dairy have significantly outpaced recent input cost increases. We believe that this has generated an agriculture industry surplus that will drive further reinvestment and efficiencies across the sector.

We consider the war in Ukraine to be a burden on global food security that we expect to persist and underpin high agricultural commodity prices for the foreseeable future. In the context of this strong economic backdrop for Australian and NZ agriculture, providing debt to the sector continues to be attractive.

High quality real estate assets in Australia and NZ have proven to be resilient in the residential and commercial real estate sectors, with surprisingly low levels of vacancies protecting income and a positive outlook for demand balancing against declining new supply. At some point rising bond yields are expected to start impacting valuations as record low capitalisation rates will need to give way. For a number of years, we have proactively prepared our investment portfolios for a climate of declining asset values and should the market experience a downturn, our focus on senior secured loans with floating rates at modest loan- to-values and a credit default swap hedging program is expected to generate consistent performance for our investors.

Capital deployed in FY22:

Real Estate Credit
• In FY22, Merricks Capital settled 19 loans and $1.05bn was deployed across mixed use, infrastructure, industrial, land subdivision, office, hotels, residential asset classes in Australia & NZ.
• There are currently three loans totalling $154m to settle in July, $845m of transactions with agreed terms and another $939m of opportunities in the pipeline.

Agriculture Credit
• In FY22, Merricks Capital settled 16 loans and $450m was deployed in the broadacre cropping, mixed farming, dairy, poultry, horticulture, industrial, viticulture & major agriculture infrastructure industries across Australia & NZ.
• There are currently three loans totalling $85m to settle in July, $170m of transactions with issued terms and another $645m of opportunities in the pipeline.

Specialised Infrastructure
• In FY22, Merricks Capital settled two loans & deployed $63m into a grain handling transportation terminal on the Eyre Peninsular, South Australia and one of Australia’s largest independently owned craft beverage and packaging facilities in Goulburn, New South Wales.
• There is currently a $150m new specialised infrastructure investment in due diligence.

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