Aware Super to acquire 25% interest in Lendlease Retirement Living business

Lendlease today announced that one of Australia’s largest superannuation funds, Aware Super, had entered into an agreement to acquire a 25 per cent interest in the Group’s Retirement Living business.

Lendlease 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 more than 16,000 residents across Australia.

The Aware Super (the new name for First State Super) acquisition includes ownership of the retirement village portfolio and its associated operating platform, as well as its development capabilities and associated pipeline. The Retirement Living business will continue to operate under the Lendlease brand and the network of retirement villages will continue to be managed by Retirement Living.

Lendlease and Aware Super have worked together previously. The pair established the US$2 billion Lendlease Americas Residential Partnership (LARP) in 2018 to develop and hold residential for rent assets in targeted US gateway cities. In October the pair extended this partnership with of a large site in New York.

Lendlease will hold a 50 per cent interest in the Retirement Living business with Dutch pension asset manager, APG Asset Management, and Aware Super each holding a 25 per cent interest.

The trading performance of the Retirement Living business in FY2020 was solid with 874 resales across the established village portfolio, up 3.8 per cent on the prior year. However, a modest decline in average prices and delays in development activity which was affected by COVID-19, impacted the carrying value of the entire portfolio (down -6%), offsetting the underlying trading performance.

Aware Super will acquire its 25 per cent interest in the Retirement Living business at book value.

Property Chief Executive Officer, Kylie Rampa said, “We’re delighted to welcome Aware Super as a strategic partner to our Retirement Living business. We will continue to provide quality services and support to over 16,000 residents in our retirement villages across the country.

“As a leader in the retirement sector, we’re committed to maintaining our focus on supporting the needs of Australia’s ageing population.

“This transaction builds on our wider strategic partnership with Aware Super while further strengthening our Australian Retirement Living Joint Venture between Lendlease, APG Asset Management and now Aware Super.”

Aware Super Chief Investment Officer, Damian Graham said, “We’re excited to be investing in the Lendlease Retirement Living business alongside experienced partners in this growing sector of the property market.

“Following the impacts of bushfires, drought and COVID-19, we have seen a strong uplift in Australians considering the safety, security and affordability of retirement living.

“This investment aligns with our overall property strategy which has an increased focus on the residential – including affordable housing, multi-family and retirement living – and industrial sectors.

“Investments such as this support Aware Super to do well for our members in terms of strong, sustainable, long-term returns while doing good in the communities where they live, work and retire.”

Our Views

Lendlease will be pleased to have sold down another 25% interest in this business, which has been troubling the group for some time.

Lendlease came under attack a few years ago for their complex resident agreements and older style deferred management fees. IN 2017, and in response to the negative industry coverage, Lendlease changed its offer to allow residents to elect one of three financing options at 15 of its 71 retirement villages, with plans to extend them across the board after market feedback. These include a pre-paid plan, a refundable contribution option, and a pay-as-you-go scheme.

The Group then came under scrutiny for alleged “double counting” on retirement village contracts reaping a $300M tax benefit. A ruling from the ATO noted that items should either be deductible for income tax purposes or included in the cost base of an underlying asset for CGT purposes, but not both. The allegation was that somehow the conversion of the resident contracts enabled Lendlease to reap a tax benefit. No doubt with a sale of 25% of the business and assets, the ATO will be reviewing our Lendlease have dealt with the capital gains tax issues.