Lend Lease Group, Australia’s biggest property developer, plans to create a fund that will invest in property developments in China’s biggest cities within the next three years as it reduces its exposure to Europe and the Middle East.
The Sydney-based company, which has had a construction business in China for the past 20 years, is seeking to develop retail properties with a mix of its own and other groups’ capital, Chief Executive Officer Steve McCann said. It has identified 12 cities for possible developments, he said.
“We’ve been talking to a number of potential partners for some time now,” McCann said in an interview. “The medium-term ambition will be to launch a fund in China using off-shore capital and invest alongside our investors in some development projects.”
The shares climbed 2.6 percent to A$8.40 at the close of trading in Sydney, the highest since September 2011. They’ve risen 17 percent this year, compared with a 6.4 percent gain in the benchmark S&P/ASX 200 Index.
Lend Lease today reported profit rose to A$501.4 million ($517.6 million) in the year ended June 30, driven by increases in income from its Asian development and investment management businesses, and its Australian construction and infrastructure divisions. Earnings in the Americas fell to a fifth of last year’s, and profit from its Europe, Middle East and Africa business dropped 33 percent.
The company will maintain its focus on London and seek to shrink its business in Spain, Russia and the Middle East, McCann said.
In Australia, where Lend Lease saw a 10 percent decline in residential land settlements, the group will consider shrinking lots and reducing the cost of homes to combat “challenging trading conditions,” McCann said.
“People are a lot slower in making their investment decisions today than they have been historically,” he said. “There’s significant price discounting in some markets, so in a market like that, to maintain margins, you need to be very focused on managing costs.”
Australian home-building approvals declined in July by the most in almost a decade as weakness outside the resources industry hurt housing, government data showed today.
Lend Lease, which is also developing the A$6 billion Barangaroo South financial precinct in Sydney’s center, in June said Westpac Banking Corp. and KPMG LLP will take space in the first two towers at the site. It said in July it had created a property trust with A$2 billion of its own and other investors’ capital to fund the project, and this month said it’s in talks with billionaire James Packer’s Crown Ltd. to build a six-star resort on the site.
The group, which sold its first Singapore dollar-denominated bonds in July, won’t borrow to fund the Barangaroo project, McCann said. Rather, the Barangaroo trust will issue debt, likely as it nears completion of the two towers, McCann said.