Mirvac hits delay in battle for Lendlease’s $10bn funds empire

Mirvac CEO Campbell Hanan and Lendlease CEO Tony Lombardo

Lendlease’s property funds empire remains in limbo after a crucial vote on the future of its $2bn industrial trust was adjourned until next week after supportive superannuation funds effectively boycotted a vote on dumping it as manager.

The meeting was called by investment heavyweight Hostplus, with the backing of fellow giant Unisuper, as they seek to dislodge Lendlease from the running of the Australian Prime Property Fund series.

Hostplus has initially targeted the $2bn fund as, alongside Unisuper, it controls about 38 per cent of the register, and had hoped to win over sufficient investors to vote on a handover of the fund to rival Mirvac at a meeting on Wednesday.

They had been campaigning for a change after growing frustrated with Lendlease’s management, particularly the liquidity issues that struck the retail property fund even ahead of the coronavirus crisis.

Their strategy hinged on enough super funds showing up to vote on the proposal to sack Lendlease as manager. But this was derailed by a requirement that two-thirds of investors attend the vote.

Lendlease encouraged a boycott of the industrial fund meeting, which has been portrayed by its camp as a means of protecting its small investors, as some do not want to change managers.

“A quorum was not reached and as a result the EGM will be adjourned until next week on 24 September,” the Lendlease Investment Management independent board committee said in a statement.

The company, however, risks criticism as stymieing challenges on the basis of a high quorum requirement is likely to lead to further conflict and potentially could force a selldown of assets if the dissidents, whose camp claims more than 50 per cent of the register backs them, decide to exit.

The meeting will resume next week with a vote to again depend on whether enough super funds by number attend. If they do not do so then the resolution to sack Lendlease will not be presented, leaving the vehicle in a longer-term limbo. Lendlease’s threat to hold a second meeting if it lost, where it could vote its 17 per cent and then win back the management, also hangs over the fund.

Lendlease’s APPF Retail is selling its stake in Erina Fair in NSW.

Both managers have put up plans that would see them expand the fund, with Lendlease chief executive Tony Lombardo saying it would double its holdings to about $4bn, and Mirvac also able to furnish a pipeline of large projects.

The battle has broader implications for the $10bn APPF empire, which also includes a $2.8bn shopping centre fund, and one of the country’s largest office funds.

The retail fund is selling off its stake in NSW complex Erina Fair but only holds remaining assets in joint ventures with other managers, making a wind-up.a real possibility if a management switch triggers pre-emptive rights.

Lendlease has proposed introducing a mixed-use town centre strategy that would see it develop apartments above the remaining shopping centres if it holds on to the fund, but this would require the agreement of its co-owners. Mirvac has proposed selling an interest in a Sydney shopping centre into the fund and also seeking to grow it.

The office fund has been seen as most likely to stay put with Lendlease as it has a strong pipeline. But it faces some challenges. Notably, the One O’Connell precinct in the Sydney CBD where the developer has proposed a super tall skyscraper is in play as Middle Eastern co-owner ADIA seeks to exit.

The delay in the vote has perplexed some players with the quorum hurdle seen as only delaying an inevitable vote.

Another fund manager noted the highly favourable manager entrenchment clause in the Lendlease fund’s constitution and flagged it may face further challenges.

Lendlease has insisted it is listening to concerns about how it has managed the funds and has pledged to deliver better performance.

The fund manager suggested the alternative of a cash bid for the industrial portfolio would get strong investor support.

This could see Lendlease walk away with its investment of more than $250m intact.

By contrast, if Mirvac were to be voted in, Lendlease’s investment would be stuck in a fund it did not control and it may have to sell out at a discount.

Mirvac is also yet to emerge as a winner from the contest and may come under further pressure to lower fees for investors in order to gain their support.