April 2024 Newsletter
April was another active month with one new facility settled in Box Hill, Melbourne and two significant maturities at Prestons, NSW and Mt Barker, SA.
The Prestons NSW facility is significant given its facility limit at ~$33 million and the success of the development that played out in line (in fact exceeded) the initial investment thesis. The facility funded the development of a two-level warehouse and self-storage facility with 38 smaller style units. After some early delays in the construction start, due to finalising required biodiversity offsets, the construction completed in line with cost and program budgets. The developer also over delivered on leasing expectations, with the majority of the 38 units achieving a pre-lease at or in excess of the budgeted rents. As a result, the developer has secured investment finance (to take out the Ark facility) from one of the major Australian banks and will hold the property for long term investment having realised significant equity in the completed project. Ark partnered the developer from the initial acquisition of the site in 2021 and has continued to provide funding through to completion. The project is a great example of our approach to providing ‘best-in-class’ capital solutions to our development partners. Most importantly, the investment delivered an outstanding outcome for investors, achieving a net return of ~11.00% p.a. over the term of the facility at an LVR of less than 55%.
The Mt Barker SA facility was also an outstanding outcome for investors. Secured by second mortgage, this facility assisted in the construction of 22 self-contained warehouse units in an emerging industrial precinct southeast of Adelaide. Ark had high confidence in the developer and the project with 50% of the units pre-sold when Ark settled. The developer exceeded initial revenue and program forecasts and as a result paid out the Ark facility approximately 6 weeks prior to its expiry date. Investors received a net return of 17.50% p.a.
Ark Bedrock Mortgage Fund
Bedrock achieved another significant milestone during the month with new applications (issued on 1 May 2024) taking funds under management to more than $25 million. The Fund continues to get strong interest from new and existing Ark investors, building on the back of the independent ‘investment grade’ rating issued by SQM Research in March ’24 and the ongoing performance of the Fund delivering an annualised return of 11.27% p.a. from a diversified portfolio of 10 Ark Wholesale Mortgage Fund loans.
Residential Property Market ‘remarkably resilient’
The Australian Financial Review recently published a survey of leading housing economists forecasting growth in housing prices across Australia over the next 12 months (AFR, April 21, 2024). The survey highlighted the overall resilience of the national housing market, with consensus that house prices are likely to grow between 5-7% and units 2-4%. Within these figures however are some stand out markets with Perth tipped to post gains of up to 16% and Adelaide and Brisbane not far behind. Melbourne and Sydney (our two biggest housing markets) are likely to be more subdued at 0-4.5%.
Given the backdrop of higher borrowing costs and a weaker economy, these forecasts on face value may surprise. However, it is market fundamentals that supports these outlooks. In all markets, limited supply of new and existing housing is underpinning existing prices and in Perth, Adelaide and Brisbane, significant migration (offshore and interstate) and strong affordability dynamics (compared to Sydney and Melbourne) are fuelling growth.
Ark is exposed to all major markets and has significant investments in Adelaide and southeast Queensland in particular. This consensus view from leading Australian housing economists supports our underlying thesis for investing in these markets.
Company Updates
As the month draws to a close, our executives had the pleasure of participating in Hewison’s annual charity Golf Day. The golf day is a great opportunity to raise money for the Hewison Foundation which supports charities and not for profit organisations. Ark Capital thoroughly enjoyed the day networking and meeting with various stakeholders.
Open for Investment Opportunities
The Base, Oakleigh VIC
Term: 20 Months
LVR: 60%
Interest Rate: 9.75% p.a. (variable, linked to RBA Cash Rate)
Maturity: 02/02/2025
Investment and Performance
Deal Settled: 20
Funds under management: $286.3 Million
Weighted Average LVR (Current): 61.73%
Forecast Investor Rate: 11.19%
Investment Updates
Banks, ACT
The Borrower continues to progress the refinance and ARK anticipates that the facility will be refinanced on or prior to the maturity date.
Kingaroy, QLD
The Borrower has now secured a funding offer from a major bank and is on track to refinance the facility in early May.
Oakleigh, VIC
Construction continues to progress with the ground floor concrete slab now 85% complete, allowing the precast panels to be installed which are currently 25% complete.
The first construction draw under the facility has now occurred and the remaining costs to complete the project will be funded from the facility.
Morwell, VIC (Mezzanine)
All project settlements have now occurred at Mernda.
Stage 1 internal civils at Tatura are 95% complete. Progress has been made with Vic Roads in relation to the intersection works due for completion prior to commencement of Stage 2. A Section 173 agreement has been entered into with Vic Roads and registration is expected in the next 4-6 weeks.
Approval is imminent to continue internal civils with the expectation of practical completion by August 2024.
The Borrower is working through commencement of bulk earthworks for Stages 1, 2 & 3 at Morwell with a well respected civil contractor now appointed.
Ballarat North, VIC
Gazettal of the Ballarat North PSP is still anticipated occur in mid-2025. The Borrower continues to work through the planning process.
Negotiations have commenced with the Borrower to extend the facility a further 12-months, following expected maturity in June 2024.
Mount Cottrell, VIC
Partial repayment of the facility occurred earlier this month from the settlement of two properties, there are two properties remaining in the security pool.
ARK has since agreed terms with the Borrower to refinance the facility into a new 12-month facility upon maturity which will be secured by the remaining properties. The facility size will be subject to updated valuations which are currently underway.
1383 Dohertys, VIC
ARK has agreed terms with the Borrower to refinance the current facility upon maturity into a new 12-month facility. The facility size will be subject to updated valuations which are currently underway.
Leakes Road, VIC
ARK has agreed terms with the Borrower to refinance the current facility upon maturity into a new 15-month facility which will align with the property settlement date in September 2025. The facility size will be subject to updated valuations which are currently underway.
Kyneton, VIC
ARK is currently in discussions with the Borrower regarding a short term facility extension to provide additional time for the Borrower to refinance the facility with an alternative financier.
Grantville, VIC
ARK is currently in discussions with the Borrower regarding a short term facility extension to provide additional time for the Borrower to refinance the facility with an alternative financier.
Gungahlin, ACT
The Borrower continues to explore an alternative development plan for the project as a result of the favourable rezoning of the area where the property is located.
It is likely that the facility will be refinanced into another land facility at maturity which is also expected to be provided by ARK.
Burpengary, QLD
Works continue to progress well onsite.
Key milestones achieved since the previous month are:
• Road works are largely complete.
• Stormwater and water reticulation works are complete.
• Respread of topsoil and verge turfing works is complete.
• Commencement of landscaping works.
Plan sealing process is underway with titles expected to be issued in May and settlements to commence early June.
Baldivis, WA
ARK continues to monitor the construction programme following delays earlier this year.
Preliminary works have commenced on site including the following:
• Boundary markers completed.
• Retaining wall and building set out.
• Retaining wall works commencement.
• Commencement of below ground civil drainage works.
Margaret River, WA
There are 4 remaining unsold lots out of the 75 which are all currently on hold by potential buyers. Settlements continued to occur throughout the month and ARK forecasts that a short-term facility extension up to a maximum of 90 days will be required.
Sellicks Beach, SA
The Borrower has successfully negotiated and executed a civil works contract and is targeting commencement of works in Q2 2024.
To date, 13 of the 42 residential lots within the project have been presold with a further 3 on hold.
ARK is mandated on providing funding for the construction facility which is currently being assessed following the appointment of the civil contractor.
North Melbourne, VIC
Significant interest continues to be received for the project.
Discussions with the preferred builder have advanced however a construction contract is yet to be executed.
The facility will be extended for an additional month in alignment with the senior facility to provide additional time for the Borrower to complete the refinance with their preferred lender for the construction facility.
Mont Albert, VIC
Preparation for submitting the revised planning permit for a boutique hotel project is progressing well.
The Borrower expects to complete the final design for the hotel within the next few months and to receive the updated planning permit by the end of 2024.
Toowoomba, QLD
Works continue to progress well on site.
Construction
•Bulk earthworks have been completed
•Road pavement, kerb and channels have been constructed on all internal roads with asphalt to be laid shortly.
•External roadworks and water infrastructure due to start in the following month.
•All internal stormwater infrastructure has been completed with the external expected to start in the following month.
•Electrical conduiting is currently being completed.
•External water main alignment has been confirmed to avoid clashes with existing services, minimising tree removals and updated construction drawings issued.
Sales/Marketing
•Current sales register has a total of $6.0M under expressions of interest/executed contracts.
•The marketing campaign is expected to be launched in May.
Box Hill, VIC
The Borrower remains focused on fully leasing the initial phase of the project as the top priority.
Increased efforts in leasing and marketing will continue in the near term.
Newport, NSW
Demolition and site clearing is ongoing, with the commencement of earthworks anticipated by the end of May 2024.
The marketing soft launch in March received a very positive response, with the hard launch occurring the first week of May to attract further interest and publicity.
The project’s webpage is now live, and marketing advertisements will soon follow in leading property magazines including Domain.
Discussions continue with several interested buyers, who have made significant headway in the design for potential builds post settlement of the land.
Gawler East, SA
Draft civil contracts and information on stages 5-8 are expected to be received in early May 2024, with execution expected in the same month.
Further sales continue to be achieved, further underpinning the project fundamentals.
ARK anticipates that the facility will be refinanced into a construction facility prior to the maturity date as most major conditions precedent are on track to be satisfied.
Deception Bay, QLD
Works continue to progress well onsite.
Key milestones achieved since settlement are:
•Clearing and grubbing works completed.
•Bulk earthworks are well advanced.
•Subbase material had been partially placed with compaction to be completed.
•Stormwater and sewer reticulation works are progressing well.
Sales and marketing has progressed well with the project achieving 5 unconditional contracts out of the 38 lots.
Munno Para, SA
ARK reached financial close on the facility and the subsequent settlement of the property during the month.
Morayfield, QLD
The civil contractor is expected to commence works on site in the following month.
Bedrock Mortgage Fund Update
The March ‘24 Bedrock fund performance again delivered on Ark’s goal of offering investors a pooled fund product to complement our contributory style Ark Wholesale fund, delivering strong, contributory-fund like returns from multiple investments in mortgage-secured loans. At the end of March approximately half the Fund’s $20.6m in unitholder FUM is from existing Ark investors who recognise the advantages of investment diversity whilst still investing in trusted, mortgage-secured, Ark Wholesale loans.
The March ’24 return was 0.95% and contributed to a year to date 11.31% annualised return, and follows similar results in each of the previous 3 months. This result was delivered through dynamic investment and cash management, with cash deployment during the month running at close to 100%. The Fund ended March with $20.6m in FUM and investments in 9 mortgage facilities with 8 different borrowers, and a further $1.7m in applications for unit issue in April 2024.
During the month the fund made just one new investment, a significant $10m+ position in a new Ark Wholesale 1st mortgage loan, to a high-quality borrower developing a marina in Newport on Sydney’s Northern Beaches. This investment represents approximately 50% of the portfolio at the end of March. In the coming months it is the fund manager’s intention to allow the concentration to naturally reduce as the fund grows and new investments are made.
During the month Ark Bedrock received its inaugural fund rating by Research agency SQM, achieving an investment grade rating. This rating will enable a broader number of Financial Advisors to recommend Ark Bedrock to its clients, helping the fund grow and deliver better opportunities and risk weighted outcomes for its investors.
Available to: Wholesale investors
Min invest: $50,000
Distributions: Paid Monthly
Redemptions: Quarterly after minimum initial term of 6 months
DRP: Distribution Reinvestment IS available
Unit Issues: First day of each calendar month
Updates: Annual distribution statements and quarterly updates of the Fund’s performance
Investments: At least 85% in registered 1st mortgage securities with up to 15% potentially invested in registered 2nd mortgages
LVR: Average 65% across the 1st Mortgage investments
Fees: 0.75% Fund Manager fee
Direct Costs: Up to 0.25% direct costs