Lendlease sells retirement stake to Aware Super for $490m

The developer has unveiled the deal, to one of the country’s largest superannuation funds, will free up capital for it to pour into new projects.

Lendlease chief executive Tony Lombardo. Picture: Rendy Aryanto

Global developer and builder Lendlease has unveiled a deal that will see one of the country’s largest superannuation funds, Aware Super, buy an additional 24.9 per cent interest in the trust which owns the company’s retirement operations.

The acquisition, for a consideration of $490m, had long been on the cards and is expected to complete on Thursday. It will help the developer free up capital to pour into new projects as it is aiming to lift production to $8bn per annum.

The move is also part of Lendlease’s shift into managing funds rather than focusing on the ownership of assets, which has become a mantra under new chief executive Tony Lombardo.

On completion of the deal, Aware Super will hold a 49.9 per cent interest in the unlisted Lendlease Retirement Living Trust, Lendlease will hold a 25.1 per cent interest and Dutch pension asset manager APG Asset Management will hold a 25 per cent interest.

Lendlease last year said that it was under audit by the Australian Taxation Office in relation to the earlier sales of stakes in its retirement village business.

The issues, which could relate to an estimated $300m, came in the wake of reports that Lendlease’s former tax adviser had accused the company of double dipping on tax deductions.

Lendlease noted it had engaged with the ATO in 2018 to review the retirement living transaction, prior to submitting its 2018 tax return. The ATO audit is in progress and the company said that no assessment had been issued.

In 2019, the issued an industry-wide draft tax determination which was prompted by how Lendlease accounted for its retirement villages.

“We’re confident our tax treatment is consistent with the law and the ATO’s tax ruling on the taxation of the retirement living industry,” a company spokesman said.

Lendlease Retirement Living is one of Australia’s largest owners, operators and developers of retirement villages with more than 30 years’ experience in the sector. Its portfolio comprises 75 retirement villages that are home to about 17,000 residents across Australia.

The acquisition includes ownership of the retirement village portfolio, its associated operating platform, as well as its development capabilities and retirement living development pipeline. The retirement business will continue to trade under the Lendlease Retirement Living brand.

The deals grows the relationship between Lendlease and Aware Super including the Lendlease Americas Residential Partnership which invests in projects in Chicago, Boston, New York and Los Angeles. Aware Super is also a key investor in a number of Lendlease funds across the Australian investments platform.

Lendlease chief executive Tony Lombardo said the deal “further cements the relationship between our two organisations”.

“Strategically, we flagged sometime ago our intent to further reduce our ownership of retirement living, consistent with our strategy to reallocate capital towards the delivery of our $112bn development pipeline and grow our investments platform,” he said.

After being getting into the sector more than a decade ago the big listed property companies have been slashing their exposure to retirement businesses as the investors have disliked their poor cash generation and opaque accounting.

In February, rival property company Stockland sold off its retirement portfolio to EQT Infrastructure for $987m – a small 1.9 per cent discount to its book value – although Stockland said it was performing well.

Lendlease Australia chief executive Dale Connor said the “overriding focus of the retirement living business is to provide current and future residents the highest quality residences, services and support”.

“Aware Super’s acquisition of an additional interest in the Lendlease Retirement Living Trust is a vote of confidence in the quality of our team and their service offering, and further supports the execution of our Australia strategy,” he said.

Aware Super chief investment officer, Damian Graham, the deal was an exciting opportunity for Aware Super’s members, to increase its interest in a high-quality investment.

“Through our deep relationship with Lendlease, and our years of experience supporting Australians as they prepare for, and transition to retirement, we see enormous potential for the future of retirement living,” he said.