Lendlease gets the nod to keep $2.8bn retail fund from independents

Lendlease Group chief executive Tony Lombardo has won some backing as he fights to keep the APPF empire. Photograph by Arsineh Houspian.

Lendlease’s chances of keeping its flagship $10bn property funds empire intact have received a shot in the arm with the independent directors of its shopping centre vehicle recommending it remain within the stable

The company’s Australian Prime Property Funds has been under siege from the heavyweight investor Hostplus and other superannuation funds, which have sought to change manager to rival Mirvac.

The super fund called meetings for both the $2bn industrial fund and the retail fund, which has about $2.8bn worth of assets. Both the incumbent manager, Lendlease, and Mirvac have put forward plans for the retail fund, and its independent board committee has now recommended that investors back the incumbent manager.

It has proposed selling the huge Erina Fair complex in regional NSW, which it owns with South Korea’s NPS, with hopes for a price of more than $860m. The funds would be poured into meeting redemptions and then overhauling the remaining four assets it owns, with some slated to become mixed use town centres.

A letter from Simon Perrott, the independent chairman of the fund board, gave four key grounds for staying put.

Super fund investors were told the Lendlease proposal offered them better liquidity, greater certainty and was more aligned with the interests of unitholders. The letter also cited the absence of a once-off liquidity facility in Mirvac’s plans for the fund.

By contrast, Lendlease is planning a $200m liquidity facility, which could aid investors who want to get out. Mirvac has not matched this facility, which could cause problems in the future as some investors are likely to want to exit after the tight contest to decide the manager.

Lendlease has put forward a quarterly liquidity mechanism which Mirvac has not matched. But this move is subject to an investor vote, sources said. Mirvac has not provided details on its own plans here, creating uncertainty, the letter said.

Lendlease has also committed to remain invested in the retail fund if it keeps its grip on the management. But Mirvac’s proposal to take a stake is subject to conditions, including a deal to tip an interest in a Sydney shopping centre into the fund.

Switching to Mirvac could also trigger pre-emptive rights over an unidentified shopping centre co-owned with another landlord. This would result in the loss of control of a major asset to a co-owner, raising the chance of a forced divestment. Co-owners include GPT and Scentre.

While this could increase the likelihood of investors staying put, some have told The Australian they are concerned the fund is shrinking under Lendlease.

They worry that if it remains on the same path it will ultimately be wound up due to the likelihood of further redemptions. Lendlease has put forward plans to develop apartments on some of the sites but would have to win over co-owners before proceeding.

Mirvac has flagged that it would like to grow the fund, using its pipeline of developments. The battle for the fund means that if Lendlease is retained as manager, a significant portion of the register has made clear it will seek liquidity.

The companies and board declined to comment.