* Lend Lease H1 profits up 39 pct
* Australian property attracting sovereign funds
By Jane Wardell
SYDNEY, Feb 18 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
"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
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
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.