The $500 million Leighton Properties business is likely to be carved up by separate buyers as the Spanish conglomerate that controls Leighton Holdings launched a fresh sales process this week allowing for a split of the commercial and residential development units.
The move comes just two weeks after property tycoon Lang Walker was tipped as a potential bidder for the entire Leighton property business.
The billionaire property magnate’s fleeting interest, which is competing against his operation on a major office development in Parramatta, in Sydney’s west, followed on the heels of Stockland’s talks to buy the whole business.
The listed diversified property giant conducted due diligence on Leighton Properties before walking away from the deal just before Christmas.
Before that, Singapore’s City Developments had been tipped as a buyer. It also walked away from a deal but this month said it would again look at deals in Australia.
Leighton Properties has a development pipeline with an end value of $7.6 billion, including 177 Pacific Highway in North Sydney and a new office tower in Melbourne’s Lonsdale Street in partnership with the Uniting Church. It is one of the top apartment developers in Australia.
Leighton Holdings is hoping that splitting the two arms will enlarge the field of bidders and draw out the highest value for individual projects.
Splitting the business would appeal to office players who want to secure developments at an early stage, such as A-REITs that are desperate to secure high-quality towers.
Buying Leighton out of the individual projects that it is developing could be appealing to certain end buyers of the towers.
Mirvac could be well positioned if there is a split as it has the upper hand over one of the jewels in Leighton Properties’s crown by virtue of holding certain rights over Leighton Properties’ 50 per cent stake in Perth City Link.
However, it is uncertain whether this option will be on the table and Leighton will be hoping to sell the Andrew Borger-led commercial development operation in one line.
The residential arm, led by Gavin Tonnet, has surged in value as both apartment sites and residential property businesses are trading at heavy premiums.
Most residential operators are tipped to look at the business, and the split will allow offshore bidders, including Chinese groups, a cleaner run at this side of Leighton Properties.
Leighton Holdings said at its results this month that it was reviewing strategic options for its property business and indicated that it would be dealt with in this half. Leighton Holdings reported property development revenue surged to $728.4m in fiscal 2014, well up on the $519.6m in fiscal 2013.
US investment bank BAML is handling the sales process and interested parties have received preliminary information this week.
Leighton’s majority stake in listed residential property developer Devine is also being sold. That company reported a solid first half this week and said negotiations were continuing.
The selldown of Leighton Properties comes as the owners of its parent Leighton Holdings, ACS-controlled Hochtief, is slimming down its business to focus purely on engineering and infrastructure operations.
A spokeswoman for Leighton Properties declined to comment.
This article first appeared in The Australian Business Review.