Fund manager busy buying assets in a struggling office market

In September, Exceed paid Centuria $40 million for an office building in Robina on the Gold Coast, and in April 2021, it bought another Gold Coast office building in Varsity Lakes, from the ASX-listed Garda Diversified Property Trust for $12.6 million.

Impressively, in a tough market, Exceed has raised about $55 million for its two latest acquisitions from its loyal investor base made up of mainly self-managed super funds.

“We’re a countercyclical investor who’s buying off the A-REITs at a lower point in the market cycle. We know the market will come back in years to come and that we can add value to resell at a higher price,” Mr Hayne told The Australian Financial Review.

All of Exceed’s office investments are performing “exceptionally well”. The fund manager targets cash returns of more than 8 per cent per annum for all its single-asset trusts, which include neighbourhood centres, large-format retail and convenience retail.

“Most of our trusts are returning more than 15 per cent [on a total return basis]. Some upwards of 20 per cent,” Mr Clarke said.

When Exceed bought the half-vacant Varsity Lakes building three years ago, Mr Clarke said people thought they were mad.

“Someone called it the trifecta of death: Gold Coast, office and COVID, but we looked at the numbers.”

For the Exceed directors, it all comes down to understanding the local market and numbers, including the drivers of future demand, surrounding vacancy rates and how value can be added for investors and tenants.

“Since we bought the Varsity Lakes building, we executed a strategy that took it to a fully leased situation and have doubled the asset’s value,” Mr Clarke said.

At Robina – the six-level A-grade office building purchased in September for $40 million – Exceed has already generated $500,000 of additional rental income in six months.

“People say the office market is bad, but is it?” Mr Clarke asked.

Such was its confidence in the office sector that Exceed was now circling larger CBD buildings, he said.

In the case of Exceed’s latest acquisition in Toowong, potential was seen in the three-level office building at 555 Coronation Drive because it was close to universities, transport and future residential development.

“You’ve got the Regatta Hotel across the road, the Citycat Ferry terminal and a residential tower selling units at record prices,” Mr Hayne said.

Across all its investments, Exceed has a vacancy rate of less than 2 per cent, something it puts down to its very hands-on approach to managing its assets.

“It will do the leasing on the smaller shops, stuff that other fund managers would not get out of bed for. But we see the value in that because real estate agents won’t do that kind of leasing,” Mr Clarke said.

Although raising capital is hard, Exceed closed the raising for its Toowong asset three weeks early as investors committed $25.5 million. For its Robina acquisition, it raised about $30 million.

“We’ve been upfront with our investors. Our track record shows there is life in the office leasing market in south-east Queensland,” Mr Hayne said.