UPDATE 1-Lend Lease H1 jumps as Aussie property catches foreign eye

Mon Feb 18, 2013 1:33am EST

* Lend Lease H1 profits up 39 pct

* Australian property attracting sovereign funds

By Jane Wardell

SYDNEY, Feb 18 (Reuters) - Australia's Lend Lease Corp Ltd saw first-half profits jump 39 percent on commercial sales for its $6 billion Barangaroo Sydney waterfront development -- a project that has underscored growing interest in Australian property from foreign sovereign funds.

"(Foreigners) are seeking strong yield," said Andrew Cannane, head of business development at The Trust Company, a leading property and infrastructure custodian. "Australia is a place where they can get that yield."

Australian commercial property yields are around 7 percent, compared with less than 5 percent for the rest of the world.

Lend Lease, the country's largest property developer, signed tenants and capital partners last year for the first two towers of Sydney's largest urban development project in decades, boosting net profit after tax to A$302.3 million ($312 million), compared with A$217 million a year ago.

Construction has since begun on the first phase of the project that will eventually transform 22 hectares of former industrial land into three commercial office towers, apartments, a headland park, a luxury hotel and - authorities permitting - a high-roller casino.

"The Australian economy is facing its challenges but remains an economy that's strong on a relative basis," said Chief Executive Steve McCann.

The $170 billion Canada Pension Plan Investment Board, one of the biggest pension funds in the world is one of the project's main capital partners, investing A$1 billion, its single biggest investment and first direct foray into real estate.

CPPIB and other Canadian state pension funds are spearheading a move into Australia, having invested, or agreed to invest, almost $10 billion in infrastructure and property in the country since mid-2010.

High yields combined with clear market regulations and strong export links to Asia, especially China, Australia's biggest trade partner, is putting the country firmly on the radar for sovereign investors.

Foreign investment into Australian property, including hotels, office space and retail malls, rose to A$39.4 billion last year, from A$20.6 billion the previous year, according to Jones Lang LaSalle.

"Will this interest continue into 2013? Absolutely," said Cannane, noting sovereign investment from Malaysia and South Korea in other sectors.

OMERS Strategic Investments, a unit of the $55 billion Ontario Municipal Employees Retirement System, which has traditionally invested mainly in Canada, is also interested.

"We're coming," OMERS Chief Executive Jacques Demers told investors at a function in Sydney last week. "We have identified Australia as a strategically significant market for us."

Azerbaijan's $34 billion sovereign wealth fund reportedly said last week it plans for a delegation to travel to Australia later this year to put out feelers for investment in property.

In a boost for offshore investors, the government announced last week it would amend federal tax laws to ensure foreign pension funds are not excluded from a break -- a discrepancy that had threatened to triple withholding tax for foreign capital providers to 45 percent from 15 percent.

Lend Lease's shares dropped 2.5 percent to A$10.40 in part on concerns about potential delays to the third and final tower at Barangaroo.

While existing investors including CPPIB, which have committed A$2 billion for the first two towers, are expected to stump up the necessary cash, that can only be finalised once pre-leasing deals hit an agreed threshold.

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.