Finishing touches put on harbour project

At Lend Lease's investor day briefings a month ago, David Hutton, the group head of development, confirmed his team was in advanced stages of due diligence with investors for the $985 million Barangaroo South (tower 1).

The first office block is due for completion in 2015. Lend Lease confirmed it has received planning consent for all three commercial towers over the next 10 to 15 years.

Real estate analysts said yesterday they were expecting an announcement by the end of the current financial year, which is in 10 days' time. Lend Lease said details had not changed since the investor day.

One of the delays over leasing has been due to Westpac consolidating staff from other sites across the Sydney central business district into the existing head office in Kent Street, and deciding which staff will occupy the additional space at Barangaroo.

Lend Lease is also in the throes of finalising the financing of the venture with the Canadian Pension Plan Investment Board.

As part of the deal, Lend Lease's Australian Prime Property Fund Commercial wholesale trust has also taken up a small stake in the project, with suggestions it could own 12.5 per cent in the medium term.

The market's anticipation of a pending Barangaroo update comes after the surprise sale of the group's stake in the #100 million ($155 million), 80-hectare Greenwich Peninsula regeneration project in London to the joint venture partner, Quintain Estates & Developments PLC.

Simon Garing, the head of property research at Bank of America Merrill Lynch, said the sale of the Greenwich stake allowed Lend Lease to get out of what had been a problematic project since 2001, several years behind schedule.

"We have not adjusted our 2013 financial year forecasts, as the Barangaroo project tenant and finance details may be announced shortly, creating a potentially material swing factor to the 2013 financial year," he said. "Recent lowering of swap rates improves development of internal rates of returns if the finance is available.

"Lend Lease will generate about #100 million of cash proceeds, which it will look to invest in its two remaining key UK projects, such as Elephant and Castle, being London residential, and The International Quarter, Stratford, office project."

Mr Garing said his team had lifted the Lend Lease price objective by 6? to $6.94 to account for the #25 million profit recognised from the sale of Greenwich, "albeit we would expect Lend Lease to initially run higher on any substantial positive news of Barangaroo".

"Retirement, residential and non-resi building construction weakness remain further issues to be resolved," Mr Garing said.

Deutsche Bank's analysts said the British sale represented about 7 per cent upside to its current 2013 financial-year earnings per share (EPS) growth forecast of 24 per cent.

"Barangaroo remains a key swing factor (representing 11 per cent of our 2013 EPS) however, in our view the Greenwich announcement skews the risk to the upside for the 2013 forecast earnings," the brokers said. But Deutsche Bank said the downside risks to its forecasts and valuations for Lend Lease included the potential for further deterioration of Australian residential market conditions, which could affect the achievable returns from urban regeneration projects, such as Barangaroo and the RNA Showgrounds project in Brisbane.