July 2024 Newsletter

Welcome to the July 2024 newsletter.

July was a month of stability for Ark, with a steady focus on our existing investments with no new investments settled and only one investment repaid within the Ark Bedrock Mortgage Fund.

This month we look at our investment settings and what continues to drive our focus on investment in residential markets that are experiencing strong demand fundamentals due to population growth, undersupply of housing and supportive government policy settings.

Ark Bedrock Mortgage Fund

Bedrock continues to attract significant investor capital inflows and after 1 August unit allocations will achieve Funds Under Management (FUM) of circa $45 million. The Fund is receiving strong interest from new and existing Ark investors attracted to the returns that have been consistently in excess of 11.25% p.a. net to investors, derived from a diversified portfolio of Ark mortgage investments. During the month the Fund was accepted onto two investment platforms, Netwealth and Mason Stevens, providing easier access for investors who are directed via wealth advisors and/or prefer platform investing.

Development Sector Risk: Built-Form and Civil Construction

Ark constantly monitors pressures faced by 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. The pressures are not uniformly distributed across development sectors nor across geographies, with currently the pressures particularly apparent in residential built-form construction, and most apparent in Victoria (VIC), New South Wales (NSW) Southeast Queensland (QLD), Western Australia (WA) and South Australia (SA) appear less troubled in the residential sector, likely seeing relatively stable demand for residential property due to interstate migration flows. Industrial, and certain commercial built-form construction sub-sectors also appear less impacted by the current pressures in most states in which we operate. 

We continue to see borrower demand in our focus areas – quality land and civil construction (sub-division) projects in residential, industrial and certain commercial subsectors. Projects can vary in viability but are significantly strengthened when tier 1 and higher quality civil contractors are engaged by the borrowers. It is apparent that the difficulties faced by developers in this space are muted compared to built-form construction, meaning sound investment opportunities are still presenting.

Ark Capital’s focus

Protection of investor capital is our guiding principle and the key informer of our investment settings, which remains heavily weighted toward land and civil construction investments. We see these investments as the lower end of the risk spectrum and is where we are focussing the majority of our investing. At the end of July, across all Ark funds 90% of investments are in land and land civil construction loans, with just 10% invested in commercial and industrial built-form loans.

The Ark team prior to our end of financial year lunch in July

Company Updates

Investment and Performance

Deal Settled: 0

Funds under management: $323.8 Million

Weighted Average LVR (Current): 63.30%

Forecast Investor Rate: 11.23% p.a.

Investment Updates

The latest investment updates are set out below with most projects progressing steadily.

As an overview, residential projects/investments in southeast Queensland, SA and WA continue to benefit from relatively strong markets being driven by population growth and in respect of SA and WA affordability advantages compared with Melbourne and Sydney. Interestingly, the median house price in Brisbane recently surpassed Melbourne’s median house price, although demand for residential land remains strong in urban fringe markets. Likewise major regional markets in Victoria and New South Wales are benefiting from affordability differences when compared to their capital city counterparts.

Conditions in the Industrial sector generally remain sound with an ongoing underlying shortage of land; as well as the Social (health and childcare) sector where significant government support underpins occupiers.

Bedrock Mortgage Fund Update

We are delighted to share that in both June and July 2024 Ark Bedrock pooled mortgage fund has continued to deliver outstanding returns, returns of 11.30% (annualised) being delivered for both months. The three month return at end of July was 11.34% (annualised) and the inception-to-date has an annualised return of 11.35%.
 
With now over $40m of funds under management, our ability to strengthen the portfolio diversity metrics is enhanced, and at the end of June Bedrock was invested in 18 separate loans with 14 different borrowers, across 10 different geographic regions in 6 states/territories, in 3 different development sectors and in 3 different loan types. The weighted average LVR of 62.8% is 90 basis points lower than in the previous month and remains comfortably within the Manager’s risk settings.  

To find out more about the Ark Bedrock fund, please see the Fact Sheet on the Bedrock Mortgage Fund page. If you qualify as a wholesale investor and wish to learn more about investing in the Ark Bedrock Mortgage Fund, please contact our Investor Relations team.

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 2^nd mortgages
LVR: Average 65% across the 1st Mortgage investments
Fees: 0.75% Fund Manager fee
Direct Costs: Up to 0.25% direct costs