Lendlease under pressure on funds management front

The Lendlease share price has fallen more than 30 per cent in the past year to $5.41, with the company’s market value at $3.7bn. Picture: AAP

Lendlease is back in the spotlight, but this time it’s not its management and directors that are in focus but the future of its $48bn funds management operation.

With some real estate managers smelling blood in the water following Lendlease’s poor performance, parties are circling in the hope they can repeat the events that unfolded with AMP and wrestle the funds from the control of the real estate heavyweight should dissatisfaction grow about how they are managed.

It’s early days, and a lot will have to go wrong for Lendlease before it ends up in the same position as AMP.

But there’s talk that shopping centre owner Vicinity Centres, the partial owner of Chadstone Shopping Centre in Melbourne, has its sights on the Lendlease Australian Prime Property Fund Retail that controls some of the most prized retail assets in the nation.

There’s also chatter that a party has called for the register on the main Lendlease-controlled industrial fund.

Meanwhile, there are suggestions that powerful super fund investors such as Aware Super, TCorp and Host Plus are staring down Lendlease over its planned exit from offshore operations and developments backed by its funds, with the suggestion they will appoint their own new manager before Lendlease sells the management rights.

Overseas, Lendlease developments include major projects such as Stratford Cross in London and Milan Innovation District in Italy, and they are mainly owned by its fund investors.

AMP had a $30bn-plus real estate and infrastructure funds management platform in the form of AMP Capital.

But its superannuation fund investors became dissatisfied with its performance around the time it was hauled over the coals in the royal commission into the financial services industry.

Dexus first won control of the $4.5bn AMP Capital Diversified Property Fund when funds such as Unisuper and Victoria super funds became dissatisfied with AMP’s management.

Then AMP placed Collimate Capital (renamed from AMP Capital) up for sale when it became clear that investors in the funds were weighing an exit or a move to put in a new manager.

As a result, Dexus bought Collimate Capital’s then $28bn local real estate and infrastructure funds management business for $250m from AMP.

But AMP was unable to sell the $7bn Australian Wholesale Office Fund to Dexus, because its fund investors instead voted to hand over the management rights to Mirvac.

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

In total, there are $48bn in funds under management in numerous funds, and its core operating earnings before interest, tax, depreciation and amortisation fell 39 per cent to $120m for the six months to the end of December.

However, the challenge is that to gain control, parties would probably have to offer lower fees when they are already low.

Another factor as to why they may remain within Lendlease’s grasp is that the majority of the assets within the funds are in the area of office and retail, which are out of favour.

Super funds are fixated on low fees, according to sources, more so than performance.

Other possible real estate groups that may be interested in taking over the funds management are Charter Hall, Mirvac and GPT.

David Di Pilla’s HMC Capital is believed to have had an interest in the past, but it is thought to be unlikely to be in the frame should the funds be up for offer.

It comes as Lendlease remains sharply out of favour with investors due to losses, excessive debt and project writedowns as it searches for a new chairman, and chief executive Tony Lombardo remains under pressure.

The group has moved to cut costs by axing hundreds of jobs and is retreating from offshore markets. Mr Lombardo has said he anticipates that $2.8bn of non-core assets across its global portfolio would be sold by the end of the 2025 fiscal year.

The Lendlease share price has fallen more than 30 per cent in the past year to $5.41, with the company’s market value at $3.7bn.