Mirvac’s play for funds business could trigger 9pc earnings hit to Lendlease

Lendlease’s APPF business is a half owner of Lakeside Joondalup in Perth.

Lendlease’s net profit could slide by 9 per cent if Mirvac Group is successful in its efforts to claw away its $10bn Australian Prime Property Funds from the real estate group.

That’s according to Morgan Stanley analysts, who have run the numbers on the prospect after The Australian revealed that Mirvac was firming as the favourite to become the new manager of APPF following dissatisfaction from investors.

The analysts said in a research note that the outcome could reduce Lendlease’s net profit forecast for this financial year by 9 per cent if it had to completely sever ties with the funds management platform and its debt level would fall by about 4 per cent.

“Strategically, this wouldn’t be great for LLC, given APPF has typically been an ultimate owner of developments it has originated (such as the Victoria Cross office development in North Sydney).”

For Mirvac, the uplift for this financial year would be 2.5 per cent, assuming it also secured minority stakes in the APPF funds, the analysts said, and its debt levels would increase by 3 per cent to 3.5 per cent.

At present, LLC charges APPF about a 0.45 per cent management fee, which translates to about $40-45m of revenues annually before costs.

DataRoom earlier reported talk in the market that Mirvac was offering to charge 30 basis points to APPF investors, and Lendlease later dropped its fees to remain competitive.

It comes after talk started in the market a year ago that investors were potentially looking to take their business away from Lendlease.

The APPF platform currently spans about $10bn across three funds managed by Lendlease and including Lendlease’s stake of about $750m, APPF contributes about $50m to $60m annually of earnings before interest, tax, depreciation and amortisation.

APPF consists of three separate funds, including APPF Commercial, which is a $5.8bn office fund, APPF Retail, which is a $2.9bn fund focusing on retail malls and APPF Industrial, which is a $2bn industrials fund.

Lendlease has had a long history in managing these vehicles and was the developer of various assets in these funds.

As of June, the funds have outperformed their sector benchmarks on 3-year, 5-year and 10-year horizons, except for the retail fund on a 10-year basis.

On the other hand, Mirvac’s wholesale office fund has been a relative underperformer, the analysts said, although one could argue that Mirvac really only took on management of MWOF since 2022 from AMP Capital, making its longer-term historical returns may be less relevant.

Lendlease currently derives earnings from APPF by earnings from its minority stakes across each of the funds and management fees.

The analysts estimate the two components combined contribute about $50-60m annual EBITDA to Lendlease group earnings, or 10 per cent to 11 per cent of the Morgan Stanley earnings forecasts for the 2026 financial year.

As earlier reported by DataRoom, there are suggestions that investors may sell all the shopping centres in the APPF Retail fund, and while Mirvac appears to be in the box seat to take over the management of the industrial fund, some question whether conflicts and investor concerns surrounding management concentration could see its office fund go elsewhere.

The Lendlease share price has fallen 17 per cent this year to $5.18, while Mirvac Group shares are up almost 18 per cent since January to $2.23.

GS real estate hire

Elsewhere, Goldman Sachs has hired Samuel Green as a Sydney-based managing director to lead the strategic direction and growth of the Australia equity and credit investing platform and deepen its engagement with the expanding client base in the region.

He was most recently a principal at Apollo Global Management, where he focused on Australia & New Zealand commercial real estate, and previously worked at Macquarie Principal Finance.

He rejoins Goldman Sachs, where he earlier worked in the investment banking division.