Lendlease calls in Macquarie as housing partner search steps up
The developer has tapped Macquarie Capital to find a joint venture partner as it looks to expand land estates and release capital from a key $1.7bn-plus unit.
Lendlease has tapped Macquarie Capital to find a joint venture partner to take a 50 per cent interest in its $1.7bn-plus Australian Communities business as it looks to release capital from the land subdivision unit.
The move comes as the housing market shows signs of recovery after bottoming in February, with average dwelling prices in the five largest capital cities up by 1.3 per cent, with Sydney leading with a 2.6 per cent lift.
The market is being spurred by a mix of bargain hunters, first home buyers and investors stepping in after sharp falls, as well as expectations that mortgage rates have peaked, the return of immigrants and low listings, according to AMP Capital.
Home prices are still tipped to fall further later this year due to the impact of interest rate hikes and slower economic growth but the faster than expected bounce in immigration, low rental vacancy rates and supply constraints have prompted economists to reign in pessimistic housing forecasts even as the building industry is under pressure.
The Lendlease portfolio of 14 land estates is one of the largest in the country and the company is also targeting new projects to replenish its pipeline as it is well-placed to capitalise on the forces which are expected to spur demand for new homes.
The deal is being pitched as an opportunity to partner with the country’s premier master planned communities business, which has the capacity to source new projects and to deliver growth in coming years.
Bidders for the stake in the business could range from offshore entrants looking for an active exposure to Australian residential development to local superannuation funds wanting to help boost housing supply, as well as strategic buyers whose own operations could align with the operation.
Lendlease, which has a trio of activist investors on its register keen for a turnaround in the performance of the overall business, has also kicked off a separate process to exit its retirement villages.
While the company has not commented on the process for the Communities business, Lendlease chief executive Tony Lombardo said at a recent investment forum that the company was “out in the market looking for a joint venture partner to release some of that capital”.
Mr Lombardo also confirmed at the forum that the company had started a separate process on its $2bn retirement village business, in which it has a 25.1 per cent stake. Aware Super has a near half stake in that portfolio and Dutch pension fund manager, APG Asset Management, has a 25 per cent interest.
The land business has a $1.7bn-plus portfolio and is a mainstay of the local development landscape but like its rivals endured a tough period as it was hampered by wet weather.
But it is poised for growth as interest rates stabilise and migration surges, feeding demand for housing packages in growth corridors in major cities.
The business is one of the country’s largest land developers and is well positioned amid the looming housing shortage. It has a pipeline of about 45,000 lots and focuses on developing outer suburban master planned communities.
Lendlease investors are pressing the company to simplify its operations and bring in capital partners where it can in order to lighten the load on its balance sheet.
The unit operates nationally with a heavy concentration of sites in Queensland, which has performed strongly as migration to the state has continued in the wake of the pandemic.
The housing business had to deal with the pandemic but it weathered that storm, partly aided by government housing stimulus packages.
More recently it has faced challenges from high interest rates, surging material costs and construction firms collapsing.
At its interim results, Lendlease flagged the move to bring in a partner and noted an improved contribution from the Australian Communities business.
But analysts said that repositioning the business was proving a challenge with fiscal 2023 settlement guidance downgraded to beneath the target range of 3,000 to 4,000 lots per annum due to bad weather and associated delays.
While lot sales of 766 were subdued, reflecting current high interest rates, the company said strong margins were still being achieved. Settlements of 1,022 for the half were an improvement on the previous period impacted by Covid-19.
In a split first half across the business, there were settlements of 1,022 lots, a 103 per cent increase, but sales of 766 lots, were down 50 per cent.
The land estate business sports a $16bn-plus pipeline. The Queensland business spans about 29,000 land lots and includes projects like Elliot Springs, Springfield, Yarrabilba, Shoreline and the Kinma Valley.
In Victoria, the business comprises about 7,000 land lots and includes estates like Atherstone, Aurora, Harpley and Averley. In NSW, there are about 6,100 land lots across the Calderwood Valley, Figtree Hill, Jordan Springs, the New Rouse Hill and Kings Central.
In WA, there are about 1,250 land lots at projects including Alkimos Beach and Alkimos Vista.
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