Lendlease to carve up $3bn mall portfolio amid market bounce

Macarthur Square Shopping Centre, Campbelltown, is among the malls in play as the Lendlease fund sells down.

Listed property group Lendlease will look to undertake an orderly sale of the remaining assets in its flagship $2.9bn retail property fund after its investors called for a substantial swath of their capital to be returned.

The move follows The Australian last week revealing that Hong Kong’s Link REIT made an unsolicited offer for 50 per cent interests in three malls – Sunshine Plaza, Macarthur Square and Lakeside Joondalup. These stakes are valued at about $1.57bn.

The Australian has reported that Link is working with GPT on the move. It is not known if it is also working with Vicinity Centres, which co-owns and manages Lakeside Joondalup, but that group is considered a likely buyer of the other 50 per cent of the asset.

Under the Lendlease move, the Australian Prime Property Fund Retail will likely wind up over the next year with its manager hoping to capitalise on the strength in the retail property market in which big investors have chased regional mall assets.

The fund, alongside co-owner South Korea’s National Pension Service, is already selling off the sprawling Erina Fair shopping centre on the NSW Central Coast to funds house Fawkner for $895m.

Although this is well below its peak valuation, Lendlease is betting that mall values will edge up as interest rates decline and consumer spending also surges.

However, the wind-up of the fund is a rebuff for Lendlease’s management, which had hoped to persuade investors to stay and back its strategy to transform the malls into mixed-use town centres.

That would have had to overcome hurdles, including winning over the co-owners of the remaining four major malls, and these groups will remain a powerful influence in how the assets are carved up.

The decision came after a liquidity window for the fund closed. Lendlease cited the “strong market” for high-quality retail assets and level of redemption requests received as the drivers for making an “orderly realisation” of the portfolio.

The orderly sale is also a rebuff to what Lendlease has dubbed an opportunistic bid from Link REIT for most of the assets.

The Westfield Carindale centre is also part of Lendlease’s portfolio. Picture: Richard Walker

The local company said the liquidity strategy would “seek to maximise value through competitive processes in the context of a buoyant Australian retail market as evidenced by recent transactions”.

Lendlease managing director investment management Australia Vanessa Orth said the fund had delivered strong long-term returns for unit holders.

“The fund’s assets are located in strong growth markets and dominate their trade areas,” she said. “Premium assets like these are difficult to acquire, with an internal rate of return outlook for the portfolio in excess of 11 per cent.”

Lendlease last month fought off a bid by superannuation fund Hostplus to sack it as manager and replace it with Mirvac.

Lendlease pointed to the strength of competition for Erina Fair as reason for optimism about the value of the fund’s remaining assets. They include 50 per cent stakes in Sunshine Plaza in Maroochydore and Macarthur Square in Sydney, which are co-owned by GPT and its main shopping centre fund respectively. The fund also owns 50 per cent interests in Lakeside Joondalup, in Western Australia, and Westfield Carindale in Queensland.

Westfield Carindale, which is co-owned with a Scentre-managed trust, was not part of the Link REIT offer. That centre’s future is viewed as less certain. Scentre has previously brought in investment bank Barrenjoey to launch funds with stakes in Westfield centres but the Queensland complex is viewed as too large.

Analysts had previously thought the sale of the interest in Erina Fair and a $200m liquidity commitment from Lendlease would be sufficient to cover the liquidity event.

While Lendlease has dubbed the Hong Kong group’s play opportunistic it shows the depth of demand in the sector.

“The proposed transaction from Link REIT highlights the resurgence in demand for retail malls and is a positive read-through for the major mall REITs,” JPMorgan analysts said.

They said the implications for Lendlease were more mixed as the company would lose funds, although the company had only earned $13m from managing the three APPF funds last year.