Lendlease falls to $1.5bn loss amid costly international exit

The embattled listed property developer is winning local jobs, but still faces a tough task getting capital back to Australia from its offshore unit.

The Lendlease Victoria Cross development in North Sydney.

Embattled listed property developer Lendlease has fallen to a $1.5bn annual loss after taking heavy writedowns on its offshore operations but insists that its turnaround plan is on track and it is chasing fresh opportunities in Australia.

The developer says it is making progress on its pledge to sell off the bulk of its international development and building businesses and return about $4.5bn of capital to Australia, where it is staking its future on winning higher-return projects.

The storeyed company in May dumped its global ambitions after pressure from activist shareholders including David Di Pilla’s HMC Capital, John Wylie’s Tanarra Capital and investment house Allan Gray for it to change strategy after years of disappointing earnings.

Chief executive Tony Lombardo said the company was now on track to simplify its business and was advancing on its sell down of a series of local and international businesses, including large-scale assets across the US, Britain, Europe, Asia and interests in its retirement living operations.

Mr Lombardo said the results “reflected challenging business conditions and the early actions from our refreshed strategy” in a nod to both the tough environment for commercial property globally and the company’s rapid move to sell off its US construction arm, with its British building business also being readied for sale.

“We have made significant progress towards our target of recycling $2.8bn of capital in the 2025 financial year, with further cost savings realised as a result of our simplified management structure,” he said.

Lendlease CEO Tony Lombardo said it was progressing towards the target of recycling $2.8bn of capital. Picture: Jane Dempster

“Our priorities remain strengthening our balance sheet, returning capital to securityholders, investing in our high return Australian operations and growing our international investments platform.”

It has made solid progress in its sales with $1.9bn of deals announced, which includes selling the bulk of its local housing estates business to a venture between Stockland and Thai group Supalai, although this is under scrutiny from the competition watchdog.

Lendlease still has a stake in its local retirement living village business, a China seniors operation, part of a project in Malaysia, and British development precincts on the block, though some may take years to exit. It has already sold an Asian life sciences business into a joint venture and its US military housing business.

Mr Lombardo has emphasized he wants to simplify the company and said the processes for Malaysia and retirement assets were progressing “a little bit slower” but he expects to close a deal to sell its remaining US construction business by month end.

He added that the company was getting data rooms ready to sell off some larger land holdings in the US and Britain but had already had inbound inquiries on some assets even though they are not planning to sell them this year.

Lendlease has development management agreements for large projects in London and it is working with the British government on working out “ways for us to accelerate some of the release of capital in those opportunities”.

Lendlease said it was moving ahead on its strategy of coming back to its home market, and it has been buying properties in Australia to restock its pipeline, and it gave cautious earnings guidance for this financial year in a sign of its confidence. The company expects earnings per security of between 54c and 62c in fiscal 2025 with at least 48c of this already banked or highly probable.

The Lendlease Melbourne Quarter development.

Lendlease’s core operating profit after tax bumped up by 2 per cent to $263m for the year ended June 30, and its core operating earnings per security came in at 38.1c, while it kept its full-year distribution at 16c per security.

But it was lumbered by the headline $1.5bn loss, which included $1.38bn of impairments and charges on businesses it is selling off as it seeks to become a leaner operation focused on investment funds. A big component of the loss was a $513m write-off of goodwill, primarily related to its ill-fated 1999 acquisition of British building firm Bovis Construction, which is being prepared for sale.

The company was also hit by the industry-wide slide in property valuations, slashing its holdings by 10 per cent, and it took a $260m hit. Lendlease is geared at about 21 per cent – and it had available liquidity of $2.2bn – staving off concerns about an equity raising to right its balance sheet.

Lendlease’s focus back on Australia will pit it against large listed rivals for both commercial and residential schemes, including in hot areas like build-to-rent and urban redevelopments.

Lendlease projects

Mr Lombardo pointed to wins like its $1.3bn project at Melbourne’s Queen Victoria Market and the $500m luxury residential apartments at 1 Darling Point in Sydney. He said the company had a local pipeline of about $40bn worth of opportunities and with about half of those large urban schemes, with the remainder commercial buildings and residential projects.

He said the company was the market leader in luxury residential projects, pointing to both its near complete Barangaroo towers and the under construction One Circular Quay, which it is undertaking with Mitsubishi Estate Asia.

“This is an area in which we’ve got a significant competitive advantage,” he said, noting the attraction of other sectors like build-to-rent and developments near transport. “There’s great opportunities as governments have rolled out their metro station developments across Victoria, New South Wales and the like; we see the opportunity to do a number of those infill type developments,” he said.

Lendlease had a lower contribution from investments – which the company hopes to make a focus in future – that was more than offset by improved development and building earnings.

Investments were down after the company sold a slice of its US military housing operations and its funds under management dropped by 2 per cent to $47.3bn as about $3.4bn of new stock was offset by negative revaluations.

Development earnings jumped by 80 per cent to $509m with big ticket apartment towers in Australia paving the way, including Residences One and One Sydney Harbour at Barangaroo. But it was hit by a $57m write down on the Victoria Cross over station development in North Sydney, which has struggled to get tenants, although it is now in talks for with occupiers over another 45 per cent of the space.

Building earnings lifted by 40 per cent to $126m and almost $5bn worth of new work was secured. But it suffered about $50m of losses as it scrabbled to find new subcontractors as insolvencies ripped through the industry.

Lendlease shares dipped by 5c to $6.30 on Monday.

Originally published as Lendlease falls to $1.5bn loss amid costly international exit