Lend Lease profits up 38% but steep drop in Docklands apartment sales

Lend Lease has reported a steep drop in demand for apartments in its Victoria Harbour precinct in Melbourne’s Docklands, with interim results boosted by its largest project, the $6 billion Barangaroo South project.

The property developer and infrastructure developer announced interim after tax profits up 38.3% to $302.3 million to December 31.

Lend Lease explained that the increase in profit was “largely due to the recognition of the profit on the first two commercial towers at its major project, Barangaroo South in Sydney".

However, it noted that its development business had been partially offset by “reduced residential activity in the period”.

The outlook for its residential business is mixed, with Lend Lease noting that consumer sentiment towards the housing market "improved slightly in the period, with mortgage affordability increasing due to lower interest rates, steadier house prices and rising income" but at the same time "low consumer confidence and uncertainty in the labour market has lessened the impact on sales".

Off-the-plan apartments sales fell 29% from 710 sales in the December 2011 half year to 502 for the six months to December 2012.

Lend Lease recorded 10 apartment settlements totalling $10.4 million over the six-month period – representing an average price of $1.04 million, compared with 17 sales totalling $33 million (average price of $1.94 million)  in the previous corresponding period.

Lend Lease says the fall of 47% "reflect[s] the change in the product mix from premium apartments to smaller, more affordable apartments in response to changes in market demand".

The previous period included settlement of a higher number of high value apartments.

Residential lot sales fell 10% from 1,625 to 1,460, with the average price per residential lot decreasing by 17% from $243,850 to $201,500, "reflecting a change in the product mix".

Lend Lease has 37 residential projects at various stages of development with a pipeline of 69,000 units.

Lend Lease also reported off-the-plan sales of 121 out of 203 apartments released in its Studio Nine development in Richmond (pictured below), which will feature 505 apartments and townhouses when completed on the heritage site that was once the Heinz canning factory, and then a broadcast studio.

Lend Lease had offered very high 10% interest rate on deposits paid for apartments in Studio Nine, with apartments priced from  about $455,000 to $1.85 million

Construction commenced on Wertheim Square apartments in Stage 1 of Studio Nine in November.

Victoria Harbour is Lend Lease’s second biggest project by value, with an end value of $4.5 billion.

Victoria Harbour is a 30-hectare precinct connected to the CBD via Collins Street and is primarily a commercial precinct with office buildings completed for ANZ, NAB, Ericsson and Myer.

Completed residential projects in Victoria Harbour include Convesso, the first part of the twin project Convesso Concavo and Serrata, a joint-venture project with Japanese developer Sekisui House.

Construction of Concavo is due to start this year, with a sky bridge connecting it with Convesso at level seven.

In its full year results last year, Lend Lease reported that 15 units remained available for purchase in Convesso, which features 220 one-, two- and three-bedroom units.

Other major Lend Lease projects that feature residential include the $1 billion Waterbank urban regeneration project in Perth and the $2.5 billion RNA Showgrounds project in Brisbane, where off the plan marketing has begun for its first residential apartment development, The Green.

Across all its businesses, revenue rose 8% to $6.25 billion with two the majority of this attributed to its Australian business, where revenue rose 5.2% from $3.8 billion to $4 billion.

Over the six-month period to December Lend Lease launched Lend Lease International Towers Sydney Trust with funding for the first two commercial towers, as well reached agreement with James Packer’s Crown Limited group to build an international hotel and casino on the site.

Lend Lease also secured pre-commitments from Westpac and KPMG to take up 71% of the commercial floor space for the first two towers.

The value of Lend Lease’s investment property portfolio have increased by $219.2 million to $3.63 billion primarily due to the acquisition of two retirement villages, Little Bay, in Sydney’s eastern suburbs and Martha’s Point on the Mornington Peninsula and capital expenditure and revaluations on senior living and other development properties. These increases were offset by the sale of the Glen Woodley retirement village in Adelaide.

In December Lend Lease was selected as preferred bidder by the NSW Government to deliver the $1 billion Sydney International Convention, Exhibition and Entertainment Precinct project, as part of the Destination Sydney consortium consisting of Lend Lease, HOSTPLUS, Capella Capital, AEG Ogden and Spotless.

Lend Lease will pay investors an unfranked dividend of 22 ¢ per share on March 27.