Merricks Capital

Prime office asset values appear to be stabilising after an estimated 15-25% price correction over the past 24-36 months. Our discussion with potential buyers (borrowers) suggests the bid/ask spread is narrowing as inflation drives net rents increases quarter-on-quarter. Forecasting is an imprecise science but with the top of the global interest rate cycle in sight and a lack of new floor space projected in coming years, borrower demand suggests the bottom for the sector may be found in coming months. None the less, we suspect there will be some headline grabbing distressed sales that mark the bottom of the cycle in coming months. From a lender’s perspective, we only have interest in precincts with implicit tenant demand, as deep value does not drive interest coverage. Click the link below to read in full. #merrickscapital #fundmanager #fundsmanagement #investment #commercialrealestate #office

Water security is crucial for the stability and growth of agricultural operations in Australia. Fluctuating water availability significantly impacts agricultural productivity and is expected to become even more critical. As a leading private credit fund manager within the agricultural sector we anticipate that the value and importance of water rights will intensify due to evolving government policies and climate conditions. Click the link below to read our key insights on water as an asset class, market dynamics, and policy impacts. #merrickscapital #agriculture #privatecredit #fundmanager #fundsmanagement

This week, the RBNZ maintained its official cash rate at 5.5% but adopted a less hawkish stance, indicating to markets that potential rate cuts may be sooner than anticipated due to declining economic activity and easing inflation pressures. This dovish tone caused the New Zealand dollar and bond yields to slump, with markets now fully pricing in at least two rate cuts this year, potentially starting as early as August. Click the link below to read our insights in full. #merrickscapital #fundsmanagement #fundmanager #commercialrealestate #newzealand

The Merricks Capital Agriculture Credit Fund (the Fund) returned 0.9%* in June and 10.2%* on an annualised basis since inception. Across the Australian agricultural market, the outlook is largely positive with ABARES forecasting the FY25 season to be the third largest GDP contributor for agriculture on record, recovering 2% from FY24 (previously the third highest on record). This will be driven by better conditions over winter and improved livestock prices and production. Click the link below to read the report in full.

The Merricks Capital Partners Fund (the Fund) returned 0.8%* in June and 10.1%* on an annualised basis since inception. During the month, the Bank of Canada and European Central Bank both commenced rate easing by cutting interest rates 25bps, while the RBA’s path is expected to be less linear due to higher-than-expected May CPI (4% YoY), prompting a 50% probability of a rate hike by September. Bond yields remained stable, credit spreads widened, and CDS hedging contributed +2bps to the Fund, with total hedging costs including FX hedging at -1bps of performance. Click the link below to read in full. #merrickscapital #merrickscapitalpartnersfund #privatecredit #fundsmanagement #investmentmanagement #commercialrealestate #agriculture #infrastructure #australia

Merricks Capital is thrilled to announce that Jack Jolly has joined us as Director of Private Credit. Jack will oversee deal origination, structuring, execution, in addition to managing key client relationships across the commercial real estate investment portfolio. Prior to joining Merricks Capital, Jack worked at Icon Construction, a subsidiary of Japanese publicly listed Kajima Corporation, where he held the role of Head of Capital, responsible for supporting Icon’s ability to secure construction projects that incorporated capital placement for projects spanning Australia and New Zealand. He was also responsible for the management of external financier relationships for Icon and involved in complex commercial negotiations with clients. Jack has also held roles with ANZ, where he managed a portfolio of commercial real estate developer and investor clients. #merrickscapital #investmentmanagement #privatecredit

Merricks Capital is thrilled to share that our COO, Sandra Chui, recently participated in an interesting AIMA - The Alternative Investment Management Association panel discussion on the topic of "Due Diligence FOMO (Fear of Missing Out) of an Allocation". During the discussion, Sandra emphasised that the entire firm must be involved in the due diligence process to mitigate this risk. Firms have the opportunity to evolve with each ODD process. Sandra believes being prepared, having a transparent culture and implementing improvements provide firms with resilience. Sandra's insights remind us of the importance of a comprehensive and collaborative approach to due diligence, ensuring that no stone is left unturned. Theo Vosnidis Alex Wise Emma Reekie

Retail Therapy for Private Credit With its income resilience and market liquidity, the retail property market presents a strong contender for additional capital allocation in 2024. Despite the uncertainties in consumer spending and cash rates, retail assets have demonstrated through-the-cycle strength, which is fundamental to senior asset lending. With our anticipation that transaction volumes will remain elevated compared to ten-year averages in the sector, we look at the outlook for private credit opportunities. Based on supply/demand for 2024-25, only 285,700 sqm of new retail space is currently under construction, just 21% of the annual 10-year average (JLL). Existing retail assets are expected to reap the benefits of this undersupply, potentially amounting to a supply/demand dislocation of 2.2m sqm of floorspace nationally by 2032 (Colliers). Landlords have been managing rent increases to maintain occupancy, which is supporting elevated transaction volumes. HomeCo Daily Needs REIT reaffirmed its support for essential and national retailers by acquiring two new Woolworths-anchored centres in high-growth areas in Sydney for $165 million at initial yields of 5.4%. The company reported $77 million in valuation gains for the first half of 2024, a 2% increase driven by strong net operating income growth, partially offset by the minor capitalisation rate easing to 5.64%. According to valuers, shopping center vacancies are generally being kept at 2%–3% (M3 Property)... Click the link below to read in full.

The Merricks Capital Partners Fund returned returned 0.7%* in May and 10.1%* on an annualised basis since inception. The Fund intends to declare a 4.0% distribution on 31 July 2024, which will be paid in mid-August. Global equity markets bounced back to a positive month in May while bond yields traded in a tighter range. Credit and FX hedging cost for the month was 13bps of Fund performance as a result of credit spreads tightening in a risk-on environment. Australia’s CPI print at 3.6% indicates a higher for longer rate environment, and the housing market’s continued supply-demand dislocation is evident with YoY rent growth at 7.5%... Click the image below to read in full. Adrian Redlich Dan O'Donoghue Geoff Davis Matthew Kearney #agriculture #commercialrealestate #privatecredit #hedgefunds #investments #fundmanagement #australia

Loan portfolio positioned for lower commodity prices: Milk sector a case in point The new season farmgate milk price announced this week was 15% lower than last year’s average as major dairy processors responded to higher domestic input costs relative to the lower global milk price (source: Fonterra Australia). With 10 Australian processing factories having closed in the past 18 months, the industry challenges of a milk price 20-30% higher than the global index has taken its toll (ABC News). We have reduced our loan exposure to farmgate dairy (from 9% to <1% across the Merricks Capital Partners Fund and the Merricks Capital Agriculture Credit Fund) as the sector has been well-banked over the past two years, with interest coverage increased due to the higher milk price environment... Click for the image for the full report #privatecredit #agriculture #agribusiness #investments #fundmanagement #milkprice #australia