Stockland hits Lendlease wall

Stockland is Australia’s largest residential developer.

Stockland is believed to have reached an impasse on its negotiations to buy the Lendlease communities business.

The chatter in the market is that Lendlease is trying to extract a higher value from Stockland, but the nation’s largest residential developer is refusing to budge on price, which is why there has been no news on the sale since reporting season in August.

The company is expected to provide an update at its annual general meeting on November 17.

While there could the threat to Stockland by Lendlease that it sells off communities assets to rivals to extract more value, as part of negotiations, there’s a lot riding on a sale of the business all in one line for over the $1bn book value, because of the recent earnings targets provided in the Lendlease annual result.

If it does not sell the unit for more than $1bn, some market experts believe the only other alternative for Lendlease is a dilutive capital raising to get about $1.5bn through the door.

There’s a lot of attention on Lendlease’s Victoria Cross office tower that it is building above the North Sydney train station and remains committed to completing.

It is yet to sell down more than 25 per cent and announce any major leasing commitments.

There’s a view that it would be keen to secure $300m-$500m to fund the building of the project.

Lendlease offloaded the 25 per cent interest at a capitalisation rate of between 4.5 per cent and 4.75 per cent. Now the 10-year bond rate is 4.6 per cent.

Some estimate it would get a yield of about 5.5 per cent in the current market.

The other asset it is selling is its remaining stake in its retirement living business.

DataRoom has heard talk that existing shareholder Aware Super was offered the 25 per cent stake at a 20 per cent discount to book value. But some believe Aware would not be a buyer, as it owns just under 50 per cent, even at a cheap offer.

Any interest over 50 per cent would trigger a stamp duty payment.

Working on the sale of the retirement unit is Gresham.

The retirement living operation comprises 76 villages across Australia and is tipped to have a value of about $2bn. APG owns 25 per cent and the remainder is owned by Aware Super, with Lendlease selling down to both parties over time.

APG bought a 25 per cent stake in Lendlease’s retirement business in 2017, paying $425m, while Aware Super bought a 25 per cent interest in 2021 for $460m.

In March last year, Aware Super bought an additional 24.9 per cent interest in the Lendlease retirement business for $490m.

The unit comprises new developments, established villages, luxury residences and serviced apartments.