PLQ completion, launch of global commercial Reit spur Lendlease on

/ EdgeProp Singapore |

November 15, 2019 9:00 AM SGT

SINGAPORE (EDGEPROP) - Tony Lombardo, Lendlease CEO for Asia, talks about the group’s A$100 billion development pipeline and future opportunities in Singapore and across the region

Exterior of PLQ Mall at Paya Lebar Quarter, which is now 90% leased (Photo: Samuel Isaac Chua/EdgeProp Singapore)

Tony Lombardo, property group Lendlease CEO for Asia, is usually on the “early shift” of global conference calls. That means waking up at 4.30am. “It’s just part of working for a global Australian business,” he says. “To get everyone across the world at the same time, we have to get up at different times.”

As Lombardo starts his day between 5am and 5.30am, waking up at 4.30am is no trouble for him. On a typical weekday, Lombardo goes for a 5km run, followed by a visit to the gym and sometimes yoga. He is usually in the office by 8am. Weekends will see him running 12km from his home in Novena to Singapore Botanic Gardens and back. He reckons he chalks up an average of 30km to 50km a week. “I love the outdoors,” he says. Being “self-motivated”, he does not need a personal trainer, and has shed some 16kg since last year.

Besides this personal milestone, Lombardo is even more pleased with the achievement logged by Lendlease’s integrated development, Paya Lebar Quarter (PLQ). The $3.7 billion project was completed in 4½ years from the time that Lendlease acquired the 99-year leasehold site in May 2015 for $1.67 billion. “This is one of the fastest developments of such a scale that we’ve done around the world,” he says.

Lombardo: [PLQ] is one of the fastest developments of such a scale

Fully sold, 90% leased

The 429-unit Park Place Residences at PLQ, which was launched in two tranches – in March 2017 and April 2018 – is already fully sold. The last unit was taken up on Monday, Nov 11. Average price of units sold is $1,875 psf, which has set a new benchmark in the area.

PLQ’s three Grade-A office towers with about 1 million sq ft of space is 90% leased and so is the PLQ Mall, which has about 340,000 sq ft of retail space and about 200 retail and F&B outlets.

As Lendlease still owns a 30% stake in PLQ, with Abu Dhabi Investment Authority holding the remaining 70%, the office and retail components of PLQ could potentially be injected into the new Lendlease Global Commercial Reit. “I think we will wait for it to stabilise, although it’s already well leased,” observes Lombardo.

The Lendlease Global Commercial Reit debuted on Oct 2 at 88 cents a share, hit a high of 94 cents on the first day of trading, and has since stabilised at around 92 cents. “The Reit is something that we’ve been wanting to do – to hit the market, get the timing right, achieve a good response and trade well,” says Lombardo.

The Singapore Exchange was chosen for the listing of Lendlease Global Commercial Reit as Singapore has become an established Reit market, with Reits of Asian, European and US assets listed on it, explains Lombardo. “We felt that this market understands property and there’s a good global client base here in terms of investors,” he says.

Cornerstone investors in Lendlease Global Commercial Reit include AEW Asia, Blackrock, Fullerton Fund Management and Lion Global Investors.

The 313@somerset mall on Orchard Road was sold to Lendlease Global Commercial Reit for $1.003 billion and is the biggest asset in the initial portfolio (Photo: Samuel Isaac Chua/EdgeProp Singapore)

Setting up a global commercial Reit

The rationale for such a global commercial Reit is because Lendlease has a global development pipeline approaching A$100 billion ($93 billion). About A$35 billion of that development pipeline is made up of commercial assets – both office and retail. The growth in the development pipeline also means an increase in capital needs, says Lombardo.

The difficulty was in choosing the assets for the initial Reit portfolio as most of Lendlease’s assets are owned in property funds or sold off. “We don’t hold a lot of assets on our balance sheet,” says Lombardo.

The initial portfolio is made up of the 313@somerset mall, which is linked directly to the Somerset MRT Station in Singapore’s Orchard Road shopping belt; and Sky Complex, three newly completed office buildings in Milan that is 100% leased to Sky Italia, an Italian digital satellite TV platform owned by News Corp.

Prior to the acquisition by the Reit for $1.003 billion, Lendlease had owned a direct 25% stake in 313@somerset. The balance 75% was held by Lendlease Asian Retail Investment Fund 1 (ARIF1). Lendlease held another indirect stake in the asset via its 14.4% stake in ARIF1. 313@Somerset was therefore injected into the Reit “as Lendlease had a large co-investment stake, and some of the investors who wished to exit their positions agreed to exit via the Reit”, says Lombardo.

Meanwhile, Sky Complex, in Santa Giulia, is located near an upcoming arena for the 2026 Winter Olympics to be held in Milan. Lendlease has plans to develop more office buildings at Santa Giulia, as the area is expected to see strong growth, says Lombardo.

Jem, an office and retail complex in Jurong East, was developed and completed by Lendlease in 2013; the mall is 99.1% leased today (Photo: Samuel Isaac Chua/EdgeProp Singapore)

Pipeline

“Over time, we will work with the board to pick other assets – as long as they meet the return profile and the strategic direction of the Reit,” says Lombardo.

In Singapore, Lendlease developed Jem, an office and retail complex in Jurong East, which opened in 2013. It is 99.1% leased today. The 25% stake that Lendlease held in the mall was sold for $227 million to Lendlease Jem Partners, an investment vehicle backed by a group of global institutional investors in 2013. The remaining 75% in Jem is held by Lendlease Asia Retail Investment Fund 3 (ARIF3). Lendlease still holds a 20.1% stake in ARIF3.

Meanwhile, Parkway Parade shopping centre in the east is owned by real estate fund, Parkway Parade Partnership Ltd (PPPL). The retail asset is valued at A$1.5 billion and has an occupancy of 99.9%. The two cornerstone investors in PPPL are Singapore’s insurance cooperative, NTUC Income; and PGGM Private Real Estate Fund, an investment vehicle for Dutch pension funds. Lendlease’s stake in PPPL is 6.1%.

The open space at the PL integrated development, where the three office towers and the mall are 90% leased and the 429-unit Park Place Residences is fully sold (Samuel Isaac Chua/EdgeProp Singapore)

Future sites

Now that PLQ is substantially completed and leased, Lendlease has set its sights on future developments in Singapore. The group is scouring the development sites in the government land sales (GLS) programme. “We want bigger sites,” says Lombardo.

One GLS site that Lendlease is eyeing is the Kampong Bugis white site that the URA has offered for sale under the Reserve List. The 9.2ha (about 990,316 sq ft) site is located at the mouth of the Kallang River, and has the potential to be developed into a new precinct with 4,000 private homes, and 50,000 sq m (538,215 sq ft) of retail, office, community and recreational spaces. For white sites, developers have the flexibility of developing a wide range of different components and uses within the parameters set by the URA.

“The Kampong Bugis site is one which we’ve always said we wanted to look at,” says Lombardo. “We would probably want a joint-venture partner because of the significant master developer role.”

National Development Minister Lawrence Wong, who was at the official opening of PLQ last month, outlined the longer-term plans for the transformation of Paya Lebar in his speech on Oct 24. The relocation of the Paya Lebar Airport to Changi by 2030 will free up 800ha of land for redevelopment. The surrounding industrial estates can also be redeveloped. “The redevelopment footprint is larger, it is in fact, equivalent to 2.5 times the size of a Bishan town,” said Wong.

Lendlease is “definitely interested” in looking at more sites in Paya Lebar that will be put up for sale in the future, says Lombardo.

Data centres

The group is diversifying into the development of data centres in the region. In June this year, Lendlease announced a partnership with an institutional investor, believed to be a sovereign wealth fund, to invest US$1 billion ($1.36 billion) in data centres in Asia. These will include both completed and development opportunities in markets where Lendlease already has a significant presence, namely, Australia, China, Japan, Malaysia and Singapore.

Over the past decade, Lendlease has been involved in the construction of about 20 data centres in Australia and across key markets in Asia. “The explosive growth in data and cloud infrastructure is a trend where we could leverage our construction expertise and move into the development space,” says Lombardo.

Artist’s impression of Ardor Gardens, Lendlease’s flagship senior living community in Qingpu district, Shanghai, which will have 850 apartments in a low-rise development with landscaped gardens and waterways (Photo: Lendlease)

Urban renewal, senior living

He sees Asia as “a key growth region”, especially with urbanisation and changing demographic trends across the different markets. Having constructed many of Japan’s telecommunication towers over the past 30 years, Lombardo sees more opportunity to make inroads into the telecommunications sector with the advent of 5G cellular network.

With over 38 million residents, Greater Tokyo is considered the world’s most populous metropolitan area. For Lombardo, that means opportunities for urban renewal and urban regeneration projects. The company has collaborated with two of Japan’s biggest property groups, Mitsubishi Estate and Mitsui Fudosan, in projects in Melbourne and Sydney in Australia. He hopes to be able to collaborate with them in projects in Japan.

In China, Lendlease intends to launch its first senior living community sometime during Chinese New Year 2020. Called Ardor Gardens, it is a premier senior living community that will have over 850 apartments when completed in 2021.

The Ardor Gardens senior living community in Qingpu is currently under construction, with the new sales centre opening later this year. Instead of strata-titled units, Lendlease will be selling memberships on a 50-year lease. Prices will start from $380,000 to $400,000 for a one-bedroom apartment.

Located in Qingpu, the design is inspired by the nearby Zhujiajiao water village. There will be waterways and landscaped gardens within the compound, with recreational and wellness facilities such as a spa, swimming pool, restaurant and a large community clubhouse. Transport amenities include a newly opened Zhujiajiao station that will provide access to Shanghai city centre; and Hongqiao’s integrated transportation hub, including Shanghai Hongqiao International Airport.

According to Lombardo, Lendlease is able to leverage its expertise as “the largest owner and operator of senior living communities in Australia”, with 70 communities and 17,000 residents across the country.

Artist's impression of The Exchange TRX in Kuala Lumpur, which will feature a luxury hotel, offices, six residential towers and a large-scale shopping mall with over 2 million sq ft of gross floor area, about 500 retail outlets and a 4.2ha rooftop park (Photo: Lendlease)

Asia’s largest integrated development

In Malaysia, Lendlease is developing its largest integrated development in Asia, namely The Exchange TRX in Kuala Lumpur. The mixed-use development is situated on a 17-acre (6.9ha) site and is a joint venture between Lendlease (60%) and TRX City (40%), a wholly-owned subsidiary of the Malaysian Ministry of Finance.

The project will have a luxury hotel, offices, six residential towers and a large-scale shopping mall with over 2 million sq ft of gross floor area, about 500 retail outlets and a 10.4-acre (4.2ha) rooftop park. The shopping mall is due to be completed by end-2021. It is close to 50% pre-leased.

The first residential tower is scheduled for launch around Chinese New Year next year. “We will be targeting both local and foreign investors,” says Lombardo.

The mixed-use development will be connected to the TRX Park and have a dedicated MRT station, access to the MEX Highway, SMART Tunnel and Jalan Tun Razak.

The future KL-Singapore High Speed Rail where the terminus was to be located in Bandar Malaysia nearby has been postponed. “From a sustainability point of view, I believe the rail will offer a good solution for people to travel between Kuala Lumpur and Singapore,” says Lombardo.

Artist’s impression of the exterior of Lendlease’s One Sydney Harbour residential tower at Barangaroo South, where a penthouse was recently sold for a record price of A$140 million, which translates into over A$100,000 psm or A$9,290 psf (Photo: Lendlease)

Residential – resilience, record price

In Australia, Lendlease set a new record price when a penthouse at its One Sydney Harbour residential tower in Barangaroo South, Sydney, was sold for A$140 million last month. The price translated to about A$100,000 psm (A$9,290 psf) for the penthouse with an internal area of 1,000 sq m (10,764 sq ft) across two floors.

“Hopefully, more Asian investors and Singaporeans will come over [to Australia] to buy,” says Lombardo.

Being a global city, Singapore has not been spared the effects of the US-China trade war. “Things are slowing down,” Lombardo concedes. However, with the ongoing events in Hong Kong, Singapore is likely to be a beneficiary as MNCs consider setting up their Asian headquarters here.

Singapore’s residential market seems to be holding up quite well, he adds. The resilience could stem from en bloc beneficiaries in the recent collective sale wave of 2017-2018 who are shopping for replacement homes, reckons Lombardo.

“Singapore is exemplary when it comes to affordable housing with its HDB public housing flats,” he adds. “I think a lot of cities around the world can learn from this model to ensure that there’s enough affordable housing so that social issues do not emerge.”

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