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Lendlease shifts its focus back to Asia

Aussie developer looks to grow its urban renewal, senior living and infrastructure projects as well as funds platform in the region
Monday, November 28, 2016 - 05:50

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Lendlease is building Paya Lebar Quarter (above), a massive S$3.2 billion mixed development in Singapore.

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Mr Lombardo (above) says he's focusing on four core markets: Singapore, Malaysia, China and Japan.

Singapore

AUSTRALIAN developer Lendlease - in a new global strategy to shift its focus from its home ground to Asia, Europe and America - has refreshed its targets for the region for the next five years.

In his first media interview since being appointed Asia CEO in May, Tony Lombardo says he wants to grow Lendlease's portfolio of urban regeneration projects of around S$6 billion to over S$10 billion in the next five years by adding 3-5 such projects in the region.

Urban regeneration projects involve revitalising places that have fallen into disuse.

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For instance, in Barangaroo South in Sydney, Lendlease has turned a former container wharf into a vibrant new waterfront financial district with not just office towers but also retail outlets, an integrated hotel resort, and apartments.

The Paya Lebar Quarter is a local equivalent, currently under construction in what used to be an industrial area. Lendlease is building a massive S$3.2 billion mixed development comprising offices, shops and private homes next to the MRT station.

Another of Lendlease's targets is to export its senior-living expertise in Australia to Asia - particularly China, capitalising on the country's rapidly ageing population.

Mr Lombardo says: "In Australia, we are the No 1 senior-living owner and operator. We are using that expertise to export that to China and hopefully build the business around senior living. We hope to secure and deliver about 5,000 units over the next five years."

Lendlease is also planning to build more telecommunication towers in Japan. On the property investment side, it is planning to grow its funds under management of S$5.6 billion to S$15 billion over the next five years.

In Asia, its fund management business makes up about a significant 60 per cent of its profits, mostly because the development profits of its ongoing projects will be booked only upon completion. It has five funds under management and one single-investor joint-venture mandate in Asia.

Lendlease says it is one of the few large developers to secure investors at the development stage, versus others whose investors participate mostly in asset purchases.

Lendlease has raised A$8.2 billion (S$8.7 billion) in third-party equity in the last five years to support the growth of its investment management platform and development pipeline.

This strategy also allows the developer to capture profits at every step of the process - from development to construction to fund management.

Mr Lombardo expects Asia to turn in a better performance going forward. In its FY16 ended June, the group's revenue from the Asia region of A$406 million made up a mere 3 per cent of the total pie, while losses after tax were A$20 million.

Mr Lombardo says the negative earnings for FY16 was mainly due to the downward revaluation of 313@somerset, of which Lendlease owns 25 per cent, as the retail environment in Singapore softened and rentals fell.

Its Asian performance was not always so poor, he says. "Asia at one point in 2012 and 2013 was delivering about 20 per cent of the group's profits. But it has sort of gone through a restocking process in the last couple of years.

"We have got new projects in development, and these projects won't be completed till 2019-20. Therefore, the Asia contribution will start to increase again only then."

Paya Lebar Quarter, together with the Tun Razak Exchange (TRX) Lifestyle Quarter in Kuala Lumpur - an RM8 billion (S$2.6 billion) project - made up more than a fifth of its FY16 development pipeline. Paya Lebar Quarter is expected to complete in phases in 2018 and 2019, and TRX in stages over the next 3-8 years.

Explaining the drive to diversify back into Asia, Mr Lombardo says the group has been adjusting its domestic-to-international share of projects in tandem with the global macroeconomic environment.

Pre-financial crisis, about 65 per cent of Lendlease's earnings came from offshore, and 35 per cent from Australia. During the financial crisis, a concerted effort was made to switch the portfolio mix to mostly domestic. The group sold off assets in Europe and the US, and reinvested capital back Down Under. In FY16, 70 per cent of its earnings came from Australia and 30 per cent from international markets.

But high GDP and population growth in Asia has now caused Lendlease to sit up to look at the region again.

"At the moment, I'm focusing on Singapore, Malaysia, China and Japan - the four core markets we are already present in," Mr Lombardo says. "We will try to scale up each of the businesses so that we can have a sustainable profit line and don't see the losses that we saw years back."

Last year, the group also generated A$853 million of operating cash, compared to its net profit of A$698 million, as a commercial tower at Barangaroo and a number of apartment projects were finished.

"So now, we are looking to deploy that cash back in other markets around new investments," he says.

In Singapore, that would mean acquiring more land. But this has its challenges, illustrated none more clearly than the recent record bid put in by Malaysia's IOI Properties of S$2.57 billion for a white site on Central Boulevard.

"There was S$13 billion of capital bidding for that one site," Mr Lombardo says. "There is a scarcity value to property in Singapore, and there always will be."

But he adds that it shows there are people who take a long-term view of property investment here, despite the subdued commercial property market right now.

"They don't look at the cycles, and it's the same for us," Mr Lombardo says. "There will be up-and-down cycles and you just have to manage your business through those cycles."

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