Focus on Vicinity Centres in potential play for Lendlease retail funds

John Gandel owns about 15 per cent of Vicinity and is the joint venture owner of its flagship asset, the Chadstone Shopping Centre in Melbourne. Picture: Rebecca Michael.

The focus is on Vicinity Centres when it comes to a potential play for the Lendlease funds management business.

Any move would need the backing of billionaire John Gandel, who owns about 15 per cent of Vicinity and is the joint venture owner of its flagship asset, the Chadstone Shopping Centre in Melbourne.

Vicinity is the most likely and logical owner of the Lendlease retail fund because it is least likely to have a conflict of interest with respect to fund investors. It would also have a balance sheet powerful enough to deal with redemption requests from investors.

Sources believe any play group would need to be carefully thought through, because without the money to recapitalise the funds if needed, they could be a poison chalice. And management fees may not be as lucrative as they once were.

As earlier reported by DataRoom, the $48bn Lendlease funds management platform is in the spotlight following a poor performance by the company. Suitors are circling, hoping they can wrest the funds away should dissatisfaction about how they are managed grow.

It’s early days, and a lot will have to go wrong for Lendlease before it ends up in that position. A similar situation was faced by AMP in recent years.

The Lendlease funds management unit controls some of the nation’s best known shopping centres and buildings in funds such as the Australian Prime Property Fund Commercial, Australian Prime Property Fund Industrial and Australian Prime Property Fund Retail.

In total, there’s $48bn under management. The unit’s core operating earnings before interest, tax, depreciation and amortisation fell 39 per cent to $120m for the six months to the end of December.

Lendlease has fallen out of favour with investors because of losses, excessive debt and project writedowns, as it searches for a new chairman. Chief executive Tony Lombardo remains under pressure.

The company has moved to cut costs by axing hundreds of jobs and is retreating from offshore markets.

Lombardo has said he expects that $2.8bn of non-core assets will be sold by the end of the 2025 fiscal year. Lendlease’s share price has fallen more than 30 per cent in the past year, but slightly rebounded after asset sales were announced. It last trading at $6.13, with the company’s market value at $4.2bn.