Bedrock Mortgage Fund – July 2024

July 2024 Fund Commentary

Recognising the Development Sector Risk: Built-Form and Civil Construction across geographies

Ark is acutely conscious of the pressures currently faced by property developers and building contractors resulting from input cost inflation, labour shortages, high interest rates, and in certain property sectors a dampened demand for finished product. We note however that the pressures are not uniformly distributed across development sectors, sub-sectors or geographies.

We see the pressures as particularly apparent in residential built-form construction in Victoria and NSW, whilst Queensland, SA and WA appear less troubled in this sector, with relatively stable demand for residential property likely due to interstate migration inflows. It is apparent to us that industrial, and certain commercial built-form construction sub-sectors are less impacted by the current pressures, whilst land and civil construction (sub-division) developments appear the most resilient.

Notwithstanding the pressures, we do continue to see borrower demand for quality land and civil construction projects across all sectors, even in the more “troubled” states, with sound lending opportunities still presenting. Ark has nevertheless deliberately refocused its lending attention toward these types of loans, with a strong eye on Queensland, SA and WA, and a more wary approach to opportunities in Victoria and NSW, particularly in the residential sector.

So what does this mean for the Bedrock Fund?

Ark Capital and Ark Bedrock’s primary focus is delivering quality, risk-adjusted returns to investors whilst observing our guiding principle: “The Protection of investor capital is paramount.” Given the preceding commentary, it follows that Bedrock is heavily weighted toward land and civil construction loans, which we absolutely see as being at the lower end of the risk spectrum, and where we are most comfortable lending. At the end of July, the Bedrock fund holds 93.4% of its investments in land and land civil construction loans, with just 6.6% invested in high-quality commercial and industrial built-form loans. Bedrock holds legacy investments in a number of well-performed loans in Victoria, where much of Ark’s previous lending was focused, however, given Ark’s refocus toward other states, this will be reflected in the Bedrock Fund progressively as current loans are repaid and new loans are made.

July 2024 Fund Performance and Composition

The July ’24 month saw another strong return, at 0.96% (11.30% annualised). FUM rose by $0.7m during the month and ended July at $41m, with new applications and pledges of approximately $4.5m received for unit issue in August.

The portfolio diversity metrics were maintained during the month, with the Manager’s clear determination to maintain a fully diversified portfolio reflected in the fact that at the end of July Bedrock was invested in 19 separate loans with 13 borrowers, across 9 different geographies in 6 states/territories, in 3 different development sectors and in 3 different loan types. The weighted average LVR of 61.9% is 90 basis points lower than in June, 180 bps below May, and remains comfortably within the Manager’s risk settings.

Platforms

We are pleased to report that in July the Ark Bedrock Mortgage Fund was added to, and became available for investment on the Mason Stevens investment platform, and are advancing same with the Netwealth platform, where we are currently available to Advisors who request Bedrock’s addition to their APL’s