Lendlease has garnered about $110 million in the sale of two unique Sydney buildings across its Barangaroo and Darling Harbour developments.
The distinctive Barangaroo House, leased to Matt Moran and Bruce Solomon's Solotel business at 35 Barangaroo Avenue on Barangaroo South’s waterfront was sold to a private investor for about $40 million. The lease will remain in place with the new owner.
The Exchange at Darling Square, called the "bird's nest" for its spiralling wood facade, and designed by the Japanese architecture firm Kengo Kuma & Associates, was snapped up by a Chinese group based in Australia for about $70 million.
John Burton, managing director of Lendlease's Urban Regeneration division said the sale of the buildings is consistent with our strategy to leverage Lendlease’s integrated business, "to deliver high quality urban regeneration projects that enhance value for our security holders and partners".
The sales were advised by Sharon Yang, senior director, CBRE who said the bidding was "highly competitive" boosted by the buildings' designs, location and tenants.
"The buyer demand and acquisition of The Exchange by a first time Australian investor highlights the continued strong interest in well-located commercial assets that offer strong cash flows and future rental upside," Ms Yang said.
But amid the sales, the investment house, UBS, issued a downgrade recommendation on Lendlease last Friday.
It was based on the group's pending sale of the engineering and services business. The CBD column in The Sydney Morning Herald, reported that the China Railway Construction Corporation, one of the largest builders in the world, was a possible buyer.
Lendlease was forced to make a $500 million provision against the engineering business due to three underperforming engineering projects being the Gateway Upgrade North and the Kingsford Smith Drive projects in Brisbane and the NorthConnex M1/M2 Tunnel in Sydney.
Lendlease's chief executive Steve McCann said at the group's results in August, that several parties are undertaking detailed due diligence of the business, but a restructuring cost estimate of exiting the business of $450 million to $550 million "remains appropriate".
UBS' analysts Grant McCasker, who downgraded it to "neutral from a buy" recommendation, continue to believe in a likely long-term price earnings re-rating of Lendlease to a share price of about $21, "however, this is reliant on the sale of the engineering and services business and reflects the successful execution of its global development pipeline and integrated funds management business".
Mr McCasker said, in the event the business is not sold, the share price could be closer to $12.50. The stock closed on Friday at $16.93.
"We estimate the market is pricing in a solid outcome for the sale of the engineering and services business which is divided by about $400 million for services and about $300 million for engineering, less indemnities/implementation costs of about $500 million, Mr McCasker said.
"However, we think the net sales proceeds are likely to be materially lower than market expectations, given higher-than-expected negative working capital balance for the engineering business."
Offsetting the losses is the recent win by Lendlease to develop about $21 billion in work for the internet giant Google in the US.
There are also market expectations Lendlease will work with Google in its plans to develop a 90,000 square metre head office hub at the back of Sydney's Central railway station at the southern end of the City.
Lendlease also recently moved back into the listed sector with the launch of a $1 billion globally focused real estate trust on the Singapore exchange that will own one of the city state's largest shopping centres and trio of office buildings in Milan.
Source: The Sydney Morning Herald