Lendlease flags plans to grow $10bn funds amid super fund dissent

A stake in Erina Fair is part of the Lendlease’s APPF empire.

Listed property company Lendlease has vowed to defend its flagship local real estate funds, even as it called off a vote on modernising the lucrative $10bn trusts where rival group Mirvac wants to eat its lunch.

Lendlease’s grip on the trusts is unclear after it called off the meetings to decide the way the Australian Prime Property Funds wholesale investment vehicles are run, after key investors revoked their support at the last minute.

Lendlease managing director for investment management Vanessa Orth on Monday declined to be drawn into detail on the situation when asked about it. She said there was a process underway that was being overseen by an independent board.

She would not speculate on the outcome of impending votes on the management of the industrial and retail funds, saying only that Lendlease had good products and a great team running them.

The industrial fund was outperforming its benchmark over all measureable periods and the retail fund has outperformed its peer sets since inception, Ms Orth said. But critics have pointed to the $2bn industrial vehicle’s small scale and the retail fund’s trouble paying redemptions, even ahead of the pandemic.

Lendlease’s Sunshine Plaza Shopping Centre in Maroochydore.

Ms Orth emphasised the importance of governance and overhauling the funds so they offered the highest standard of both. “That’s been something that we’ve been doing for the last three years,” she said, regarding having an independent board.

“It’s really important that you’ve got an independent board that takes their fiduciary responsibilities seriously. So for us, it’s performance, it’s governance, but it’s also growth, and it’s how these funds will continue to grow,” she told the Financial Review Property Summit in Sydney. The APPF trusts are forecast over the next seven years to deliver returns of more than 11 per cent.

However, the dramatic cancellation of Tuesday’s vote rattled investor nerves.

Sentiment had suddenly turned against changes proposed by Lendlease. The sudden shift was led by the intentions of large super funds including Hostplus and UniSuper. The former is leading the charge to switch APPF’s management to Mirvac.

If realised, these proposals would have improved the liquidity mechanisms of the funds, which had been a bone of contention for investors. Opposing the changes was a shock coming from both UniSuper and Hostplus as the pair had, five years ago, sought to improve both governance and liquidity mechanisms in the $2bn industrial fund.

Their previous emphasis on better liquidity – which was brought up at a time when Lendlease was having trouble paying back investors in its $2.8bn retail trust – had apparently been dropped. The move was interpreted as a tactic by the funds in advancing their desire to replace Lendlease with Mirvac.

Ms Orth told investors in a letter obtained by The Australian that the planned joint meeting of investors in the three APPF vehicles promised a quarterly withdrawal cycle and removing pre-emption rights on new units and pre-emption rights on transfers of secondary units by existing investors.

Lendlease said in the letter it undertook an “extensive consultation” about the changes, attracting “strong support” for the new measures. It noted that several investors who had previously indicated their support, including some large players, had recently indicated their support was withdrawn.

Those seeking to force Lendlease out were unhappy at the risk the manager could have brought “friendly” investors into the funds ahead of separate votes to decide who will run them. They also pointed to the poor optics of cancelling a meeting that could have made the scale of the revolt against Lendlease public.

The manager, in its letter, flagged its ongoing commitment to the funds and said that having “a more frequent liquidity mechanism represents the right way forward for the APPF series”.

Amid the scrapping over the future of the vehicles, the need for a quick resolution of its management is becoming a priority as the funds have been unable to fully capitalise on the shifting market while uncertainty about their future prevails.

The fight could drag on as executives familiar with the thinking of dissatisfied funds pointed to the split between the Lendlease funds’ responsible entity, which had recommended the modernisation resolutions, and the investors who effectively went against this plan.

The responsible entity has separately recommended the rejection of Mirvac as the incoming manager of the retail fund after reviewing the competing proposals from the challenger and Lendlease.

Shares of Lendlease rose 11c to $5.66.