Lendlease inks tie up with King Charles’ Crown Estate in British sale

The property giant’s selldown of global assets is picking up pace as it signs off on a deal with King Charles’s real estate company.

Lendlease CEO Tony Lombardo says the deal with The Crown Estate gives the company options to develop in the future. Picture: Jane Dempster

Property company Lendlease has unveiled the sale of its major British development assets into a 50/50 joint venture with the King’s property company, The Crown Estate, as it advances plans to return $4.5bn worth of capital to its local operations.

The sale, flagged last week, includes six of Lendlease’s UK development projects, comprising high-profile projects in London and Birmingham, and, in a twist, gives it the option to work with the monarch’s property entity on future deals.

The move puts Lendlease chief executive Tony Lombardo’s turnaround strategy slightly ahead of expectations but it still faces a significant challenge in winning new development jobs and fund mandates.

The company said the deal will accelerate the release of more than $300m of capital from its longer-dated international development book and will halve its future funding commitments to $125m.

Lendlease chief executive Tony Lombardo said the partnership would create an industry leading alliance, which is expected to unlock value in its high-quality British development portfolio, while accelerating the release of capital for the company.

“With our expertise in delivering city shaping urban regeneration projects, the joint venture aims to deliver positive outcomes for our securityholders, communities and partners,“ he said.

Mr Lombardo said since unveiling a strategy to return capital to Australia last year it had made “strong progress” to simplify the company and reduce its risk profile. “While we have completed or announced $2.5bn of capital recycling initiatives, achieved our cost out target and exited international construction, we have also grown our network of global capital partners,” he said.

Mr Lombardo told The Australian that British authorities were “very comfortable” with The Crown Estate coming in as a joint venture partner. He flagged the company will renew its focus on restocking its Australia pipeline and growing its investment management arm.

Lendlease is targeting about $40bn worth of developments, focused on mixed use assets and luxury residential along the east coast. But its funds management arm is expected to come under pressure as rivals circle its prized Australian Prime Property Fund vehicles, which make up a key part of its $50bn funds empire.

Mr Lombardo said there had been no proposals received by the group. “They’re not for sale,” he said, adding that investment management was a critical part of Lendlease’s operations.

He pointed to the company’s record of winning mandates locally and in Britain, noting it was one of the largest investment managers in the country. “We’re going to continue to make sure we drive the right returns performance for investors,” he said.Analysts queried why Lendlease did not make a clean exit from its costly foray into the British market as it will still remain a joint venture partner of The Crown Estate.

Morgan Stanley analyst Simon Chan and Lauren Berry said Lendlease retained the option of participating in the vertical development of projects. “This is somewhat a step away from the May strategy update, when it flagged the intention of a full exit of international developments,” they said.

The company said that as the master developer of a series of mega-projects it had significant obligations and was simply creating the option to develop stock for its international funds arm in future.

The Crown Estate chief executive Dan Labbad, who ran Lendlease’s international operations in their heyday and acquired many of the sites for the Australian company, said it ”looked forward to working with Lendlease and others to realise the potential of these projects”.

In a sign international property markets are picking up, the deal is expected to release capital slightly above book value on completion and contribute positively to future earnings through lower funding costs and the company getting development management fees.

The venture will be development partners for London projects including the £4.9bn ($10.1bn) Silvertown Quays projects in the Royal Docks, the High Road West Estate regeneration projects, and the Stratford Cross office precinct, as well as the £1.9bn ($3.9bn) Smithfield Market site in Birmingham.

An impression of the completed Silvertown Quays project.

Lendlease is also master developer on the £5.5bn ($11.4bn) over-station development at London’s Euston station which has been embroiled in uncertainty.

The venture is being billed as creating an industry-leading alliance with the capacity to complete city-shaping projects. Lendlease had come under fire for taking on the large long-dated projects on its own and last year capitulated to investors by agreeing to focus on its local business.

Lendlease said The Crown Estate was an ideal partner, with more than $30bn of core land and asset holdings across Britain and a commitment to deliver profitable, long-term national outcomes. The projects will see 26,000 homes and more than 900,000sq m of prime office and life sciences space developed. Lendlease will be the development manager and receive fees on a cost-plus basis.

The Australian company said it would assess any co-investment stake against its own capital allocation and its model of having 10 per cent co-investments.

The release of capital brings Lendlease’s announced or completed capital recycling initiatives to $2.5bn this financial year out of a target of $2.8bn. It is also moving the company closer to undertaking a share buyback but it is yet to commit to one, partly as it must still retire assets in China and Australia, as well as property in Malaysia.

Lendlease has separately won a $1.2bn investment mandate in Australia, on behalf of an existing investor, the National Pension Service, to manage Sydney landmark Aurora Place. It had been held by US private equity house Carlyle.

Originally published as Lendlease inks tie up with King Charles’ Crown Estate in British sale