Lendlease fields interest in retail fund from Link REIT as edgy investors weigh options

Lendlease faces fresh upheaval as Hong Kong giant Link REIT launches a surprise raid on its Australian shopping centres portfolio.

A 50 per cent stake in Lakeside Joondalup in Perth is one of the assets remaining in APPF Retail.

Australian property giant Lendlease has received an unsolicited offer for most of the assets inside its $2.8bn Australian Prime Property Fund Retail from the largest real estate investment trust in Asia.

The proposal, for about $1.5bn of shopping centre assets, has come from Hong Kong-listed Link REIT, and is part of a trend in which opportunistic funds are making large-scale moves on local commercial real estate as the cycle improves.

The offer is for the 50 per cent interests in shopping centres across NSW, Queensland and Western Australia that the fund owns, and comes after APPF Retail survived a bruising battle to preserve Lendlease as its investment manager defeating opposition from dissident unitholders.

If the play comes to fruition – and sources cautioned it could be premature to count on a formal proposal – then it could unleash concurrent auctions as rights held by the malls’ co-owners may be triggered.

Industry superannuation funds Hostplus and allied funds including UniSuper had sought to dump Lendlease as manager of its flagship $10bn funds empire and switch to Mirvac.

As the public company mergers and acquisitions playbook was exhausted, Lendlease kept its grip on both the retail fund and a $2bn industrial property fund. 

But the drawn out contest left a minority of the register split – with about 35 per cent of votes cast favouring a change of manager – and Lendlease seeking to raise capital to find a way for Hostplus to exit.

The APPF Retail fund is already facing a liquidity event this month in which investors can redeem their holdings in full or in part and it is selling its stake in the huge Erina Fair complex on the NSW Central Coast to fund the expected outflows.

It owns that centre 50/50 with South Korea’s National Pension Service and is selling to local group Fawkner Property for $895m. That would leave the fund with just four major assets – all of which are co-owned, and any bid likely to trigger their pre-emptive rights.

The proposal from the Hong Kong group covers the fund’s 50 per cent interests in Sunshine Plaza in Queensland and Macarthur Square in Sydney. It co-owns the Queensland centre with GPT and the NSW asset with GPT’s specialist shopping centre fund.

The Lendlease-run fund held its 50 per cent interest in Sunshine Plaza at about $575m and its 50 per cent stake in Macarthur Square at $518m. Sunshine Plaza, in Maroochydore, has tenants including Myer, David Jones, three discount department stores and two supermarkets. Macarthur Square, in Campbelltown, is anchored by a David Jones department store, and two discount department stores in Target and Big W.

GPT has also been expanding in retail property. It acquired the management of both centres from Lendlease earlier this year and it has both mandates and its own shopping centre fund which could be a buyer if they were available.

The offer also includes APPF Retail’s 50 per cent interest in Lakeside Joondalup in WA. It held this at about $452m at the end of June. It owns this alongside Vicinity Centres, which would also be likely to exercise its rights, as it too took on the centre’s management when it bought into it last year.

The last major asset in the fund, Westfield Carindale in Queensland, is co-owned by a Scentre Group-run trust, and is not included in the proposal. The fund also owns another smaller centre.

The presence of active co-owners may make the opportunistic play difficult to execute. Some fund investors may also want to stick with Lendlease while it seeks to raise money for the fund and aims to push ahead with a mixed use strategy to develop apartments on some sites.

Link REIT is still well-placed to make an offer and it is already a major investor in Australia. In 2021, striking the largest deal for city retail assets after the pandemic, it snapped up half stakes in three of the country’s best-known shopping centres – The Queen Victoria Building, The Galeries and the Strand Arcade – in the heart of Sydney for $538.2m. A year later, Link REIT took an interest in a collection of the country’s top buildings being sold by Canada’s Oxford Properties Group.

While Lendlease and Link REIT declined to comment, the combination of lower interest rates and greater liquidity in the market has put the sector back on an even keel after years of write downs in the wake of the coronavirus crisis and subsequent rate hikes, which slashed valuations.

Retail is only one area of focus but it is becoming among the most heavily bid. Listed mall companies Scentre and Vicinity Centres posted strong updates this month, as did the GPT. Consumer spending is also surprising with its resilience even after the Reserve Bank’s interest rate pause and sentiment this month was measured at the strongest in seven years.

Originally published as Lendlease fields interest in retail fund from Link REIT as edgy investors weigh options