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Merricks Capital Partners Fund Portfolio and Market Update June 2023

Crab Creek in Broome is the epitome of where the red dirt meets the ocean

The Merricks Capital Partners Fund (the Fund) returned 0.7%* in June and 9.0%* annualised for the financial year (FY23). The Fund has returned 10.2%* on an annualised basis since inception. The Fund declared a FY23 final distribution of 4.0%, a total distribution of 8.0% for FY23. The distribution will be paid in the third week of August 2023. Underlying loan performance returned 86bps for the month, with floating rate loans benefiting from the 25bps cash rate increase in Australia. The Fund’s hedging cost was 14bps.

Four new loans settled in June, a 4.0% total allocation of the Fund’s NAV. The new loans are diversified across geography, sponsor, and asset sectors, with two commercial real estate (CRE) loans, one agricultural loan and one specialised infrastructure loan.

The first settlement, a specialised infrastructure loan providing funding for the development of a floating wharf in Broome, Western Australia. The new wharf will be more efficient than the existing structure and utilised by oil and gas companies, cruise ships, fishing boats and live export ships. The loan is forecast to return 12.4%* to the Fund and loan-to-cost 62%.

The second, a loan facility to allow an avocado producer based in Blackbutt, southern Queensland to purchase a neighbouring avocado farm. The new property will double the business operations and allow packing of their own fruit.

The third settlement was a 37-level residential development in Adelaide’s CBD, comprising 285 apartments and 11 commercial units.

The fourth settlement was a bank refinance to provide an internal refurbishment for an existing office in Auckland’s CBD, the starting LVR is 27% on an ‘as-is’ basis and <50% for duration of the loan.

One key loan restructure occurred during the month, a 8.3% allocation to the Fund for a loan facility that is secured against a mixed-use land development in the seaside town of Mangawhai, New Zealand, approximately 80km north of Auckland and additional land security in Homestead Bay, Queenstown. The borrower has been delivering on the project, which allows us to maintain a conservative LVR of 55%. One loan was repaid in June, a strategic development site in Beckenham, Western Australia, representing 1.2% of the Fund.

Portfolio risk management for the month included managing an expiring loan in New Zealand, Happy Valley Nutrition (HVM). HVM is an ASX-listed New Zealand based company that represents 0.9% of the Fund. On 5 July, HVM was placed in Voluntary Administration by the company’s directors. HVM had been seeking to develop a milk processing plant but was unable to raise the required equity.

The Fund’s senior security is an industrial site (18ha), dairy farm (155ha), grazing property (142ha) and rural lifestyle block (1.9ha) in Otorohanga, New Zealand originally funded at a 53% LVR and now estimated at approximately 65-70% LVR.

Across our 60 loans, we haven’t seen a material change from FY22 to FY23 on covenant breaches. The construction of the Melbourne Place Hotel project, 2.3% of the Fund’s NAV, continued to schedule during the month and the incoming equity partner for the project is expected to be finalised over the coming months.

Our outlook for private credit in FY24 is positive with over $900m of new loan opportunities across residential, residual stock, horticulture and special industrial & infrastructure currently in due diligence.

*These returns are stated net of fees and costs

 

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