Lendlease sells off housing estates for $1.3bn as it looks to inner city

Lendlease’s $1.3bn sale of 12 housing communities to Stockland underscores the construction giant’s shift towards higher density inner-city projects.

Lendlease’s $1.3bn sale of 12 housing communities to Stockland underscores the construction giant’s shift away from the traditional quarter-acre block to higher density inner-city projects.

Lendlease Australia chief executive Dale Connor said that while the quarter-acre block was still important for many Australians, demand for affordable housing and expanding urbanisation called for new models, including build-to-rent projects around major transport nodes.

“As our major cities such as Melbourne, Sydney and Brisbane continue to grow, there will be demand for housing close to transport and closer to jobs,” said Mr Connor.

“This sale will allow us to focus on our balance sheet and gearing, but also allow to do what Lend Lease does best and that is creating great new urban products.”

Stockland says the deal positions it to restock its pipeline ahead of an expected residential market recovery. Lendlease is selling a combined 27,000 lots across the 12 communities – Kinma Valley, Yarrabilba, Springfield and Shoreline in Queensland; Figtree Hill and Calderwood Valley in NSW; Aurora, Atherstone, Harpley and Averley in Victoria; and Alkimos Beach and Alkimos Vista in Western Australia.

Mr Connor said the sale was a part of Lendlease’s long-term strategy of becoming a key investor in major projects and building a funds under management portfolio of $70bn.

He said that plan was already paying dividends, with Lendlease’s One Circular Quay urban project in Sydney and its planned partnership with the City of Melbourne on the regeneration of the famous Queen Victoria Market precinct.

Lendlease CEO Tony Lombardo. Picture: John Feder

Mr Connor said Lendlease was also an early mover in the build-to-rent sector, which was a large component of housing stock in international markets. Lendlease and QuadReal Property earlier this year unveiled a build-to-rent residential apartment building at Brisbane Showgrounds providing 443 build-to-rent residences.

Mr Connor said the tough few years for the property sector coming out of Covid-19 had unscored the importance of partnerships.

Stockland described the deal with Lendlease as a “step change” in reshaping its portfolio, as well as opening the door to adjacent development opportunities in assets such as childcare and medical centres.

Stockland chief executive, development, Andrew Whitson, said the fundamentals of the residential market in Australia remained compelling, with ongoing land supply constraints amid strong population growth.

“This acquisition has been secured on attractive terms, with active projects that are well positioned to ramp up development activity into a potential recovery in the residential cycle,” said Mr Whitson. The deal, financed with Stockland’s capital partner Supalai Australia Holdings, will also leverage scale benefits in combination with its existing assets to maximise the potential of the combined portfolio.

The sale of the 12 projects is subject to planning and Foreign Investment Review Board ­approval.

Lendlease CEO Tony Lombardo said the sale provided an “opportunity to crystallise the value we have created in these projects”.

“We remain focused on recycling capital to accelerate our investments-led strategy and to maintain balance sheet flexibility to pursue future opportunities,” he said.

Four master-planned projects that are nearing completion or are expected to achieve greater future value through additional development activities will remain with Lendlease.

Initial approvals and first financial settlement are expected to be received in the third quarter of the 2024 financial year.

Stockland shares closed 3.5 per cent lower at $4.35 with Lendlease falling 1.2 per cent to $7.42.

Stockland also on Monday announced an estimated shareholder distribution for the December half of 8c a security, down from 12c the same period a year earlier.

Meanwhile, Lendlease’s annual market guidance remained unchanged, with group core operating ROE expected at the lower end of the 8-10 per cent range.

The transaction is expected to realise around a 20 per cent premium to Lendlease’s book value pre-tax and contribute $130m to $160m to its FY24 core operating profit after tax, with the exact quantum of the gain to be determined after the transaction completes.