Lendlease will dramatically ramp up its real estate development program, completing as much as $8 billion in projects each year, while significantly expanding its funds management arm.
The lift in production represents an 80 per cent increase on the amount of real estate Lendlease, led by Steve McCann, typically generates each year. More than $50 billion worth of institutional investment grade assets could flow out of that development pipeline, with much of it to be captured by Lendlease’s own investment platform.
The property giant will also increase its own co-investments in assets managed by that expanding platform, improving the proportion of annuity-style earnings for its shareholders. Within its global portfolio, Lendlease will increase the allocation of capital to its offshore markets in Asia, Europe and the Americas.
“We are on the cusp of a substantial uplift in development activity,” Mr McCann said at a strategy update on Monday.
The Lendlease chief singled out a series of recent planning approvals for major projects in Milan, London and San Francisco. On Monday as well, Lendlease lodged plans for its ambitious San Francisco Bay Area project, after striking a deal last year with Google to develop the tech giant’s land holdings around Silicon Valley.
As part of its expanding investment management platform, Lendlease will look at rolling out new funds taking in acquisitions while tapping its own development pipeline, including in Australia with the prospect of build-to-rent apartments.
While Lendlease is active in the BTR sector aboard, the asset class is only beginning to emerge in the local market. Lendlease is looking at residential components at its Melbourne Quarter and Brisbane Showgrounds projects for their potential to become build-to-rent housing, Mr McCann said.
“We do believe there is capacity for conversion of some product. We are already focused on how we might tweak the design aspects to maximise their value as rental products.”
As it earmarks capital for development and investments, Lendlease will reduce its weighting in other areas. It has struck a deal to exit its US telecommunications holdings, will sell down more of its stake in its retirement living and will divest its services business, allowing it to recycle another $1 billion of capital.
“The update generally addressed some market concerns but could have gone further,” CLSA’s James Druce said.
“The $8 billion per annum development completions target is very encouraging, but the share price suggests investors are waiting for more signs the development pipeline is being properly executed.”
Mr Gupta said Lendlease had typically converted around 80 per cent of the institutional garde properties it develops each year into assets held by its investment management arm.
“Our appetite is to retain even more than that. We would like to retain almost everything.”
The stock closed 43??, or 3.8 per cent, higher at $11.62.
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