Merricks Partners Fund Report – November 2021

Market Review

Australia’s residential pricing has reached record highs, with continued growth across almost all markets. The national median house price had risen 18.4% over the year to June with the national median unit price up 8.6% according to CBRE.

We continue to focus on office opportunities in Sydney and Auckland. National office demand remained strong over the quarter with five of the six CBD office markets recording positive net absorption despite the extended lockdowns in NSW, Vic, and the ACT over Q3-21 according to JLL (JLL Office Market Overview Q3 2021). The national CBD vacancy rate remained broadly unchanged over the quarter (14.1%) as uncommitted space in new office completions as well as backfill vacancy offset positive net absorption. Office and industrial sales lead the New Zealand market, the top three largest sales above NZ$100 million were office assets, with activity in vacant land/development sites showing a lift in sales volumes.

In Australia, November 2021 was the wettest month in 122 years with rainfall 124% above the monthly average according to the Bureau of Meteorology. Widespread rain across pastoral production regions was enjoyed by livestock producers. Cattle prices increased in response to the climatic conditions driven by La Niña with the Eastern Young Cattle Indicator reaching a new record high of 1,102 cents per kilogram carcass weight above the five-year average of 659 cents per kilogram. We are cognisant that these macro tailwinds could ease over a two-to-three-year horizon, so we have entered beef and cropping opportunities at a lower LVR to the rest of the portfolio. As at the date of this report, the average portfolio LVR for a beef or cropping loan is 54%, compared to the overall portfolio average of 57%.

In New Zealand, Fonterra lifted its milk payment for this season to the highest in 20 years. The company is now expecting to pay its farm suppliers between $8.40 and $9.00 NZD per kilogram of milk solids. According to NZStat, increases in the value of raw milk and dairy products have been a key factor driving the producer price to increase more in the year to September 2021 than in any other year for the past decade. With limited competition in the New Zealand market for alternate debt funding, the fund’s investment allocation to NZ dairy is expected to increase in 2022. Dairy also remains one of the fund’s best performing investment classes returning a +12% investor IRR (net of fees and costs) in 2021.

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Merricks Partners Fund Report – November 2021


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