Languishing Lendlease, undervalued Vicinity are takeover targets: JPM

The report notes that Vicinity, which is led by Grant Kelley and jointly owns the country’s largest mall, Chadstone in Melbourne with Rich Lister John Gandel, is trading at about a 15 per cent discount to its net tangible assets.

“If [it] continues to languish at current levels [it] could be subject to M&A,” the report said.

Lendlease, led by Steve McCann, has been put in the same basket along with a handful of other stocks around the world, as it looks to offload its troubled engineering and services division after unveiling a shock $350 million provision last November, which sent the stock tumbling.

“A successful divestment could see a substantial rerate or alternatively if the stock continues to languish [it] could be subject to M&A,” the report said.

On the JPMorgan view, Lendlease has as much as 18 per cent upside to its net asset value.

Vicinity and Lendlease declined to comment on the analysis.

“Both [companies] are well run with sensible strategies,” Mr Brayshaw told The Australian Financial Review. “But [both] are trading well below our estimate of net asset value and that puts them in territory where the risk of potential M&A increases.”

Since the report was issued just before the Easter break, Lendlease has been hit with a shareholder class action over allegations the property giant failed to adequately disclose problems in its engineering business.

Filed in the NSW Supreme Court by law firm Maurice Blackburn, the litigation rests on the claim that Lendlease failed to properly inform the market of problems in its engineering arm that led to millions of dollars being wiped off its market value when the full extent of the issue was revealed.

Lendlease is also losing one of its heavy hitters, Dan Labbad, a veteran of 22 years with the company who has mostly recently been overseeing its $30 billion development pipeline in Europe.

Mr Labbad’s appointment as the next chief executive of Crown Estate and its £14 billion portfolio is expected to be announced this week.

More broadly, the JPMorgan report paints a rosy picture of the progress made by real estate investment trusts globally over the past year and property stocks in Australia in particular.

REITs have outperformed global equities in the past 12 months with a total return of 18.5 per cent compared to 7.6 per cent.

With a 27 per cent total return, Australia’s property sector is second only to Hong Kong’s. But that strong performance means less upside to come, especially for Australian REITs, which are now trading 5.6 per cent above valuation, according to JPMorgan.