Lendlease faces writedowns amid pressure for split
Embattled property company Lendlease faces the prospect of taking deep writedowns on its portfolio as it ponders whether it will pursue a controversial demerger.
Business
Don't miss out on the headlines from Business. Followed categories will be added to My News.
Embattled property company Lendlease faces the prospect of taking deep writedowns on its portfolio at next month’s strategy day, when it will reveal whether it will pursue a controversial demerger to exit the bulk of its international operations.
The developer has called in a trio of investment banks – Macquarie Capital, Morgan Stanley and long-time adviser Gresham – as it seeks to answer calls for a company split, which have been sparked by activist investor John Wylie’s Tanarra Capital writing to the board.
Writedowns could include long-dated international projects in Europe and potentially stalled developments like office and apartment complex in San Francisco. In Australia, the company’s under-construction Victoria Cross Tower in North Sydney is in focus after struggling to attract tenants.
On Friday, Lendlease’s flagship office fund APPF Commercial was downgraded by rating agency S&P, with development spending for its quarter stake in the North Sydney project weighing on credit metrics.
The company insisted on Friday that no decisions had been made ahead of its strategy day next month. “Discussions regarding the May strategy update remain ongoing,” a company spokesman said.
Analysts said that even if Lendlease took writedowns a demerger could still be worthwhile, but the company’s shares may have further to fall while uncertainty remains about its strategy. “I like the initiative, but the board appears to be the impediment to all this,” one analyst said.
Demergers have a mixed track record. Real estate listings company Domain traded poorly after being spun out of Fairfax Media and one-time Westfield spin-off Westfield Retail Trust failed to inspire investors.
After the Global Financial Crisis GPT spun off the bulk of its offshore operations into BGP Holdings, which began with negative equity of about €600m. It restructured to stay afloat as a German apartment owner that was finally sold off after eight years.
Wylie’s Tanarra this week wrote to Lendlease’s board demanding it consider carving off the company’s underperforming international operations, with a slew of assets worth about $4bn to eventually be sold off.
The plan would see Lendlease become a local developer and builder, along with a funds management unit and a successful Singapore operation, in an attempt to regain value after heavy losses in recent years.
Tanarra’s idea won support from investment house Allan Gray, which put forward a plan for a dramatic restructure to Lendlease. Another activist, HMC Capital, is also pushing for local and international asset sales to turn the company around.
Senior sources told The Australian that a demerger had merit as it would make the company more investable and bring it into line with local peers like Mirvac and other large developers in Australia.
Industry players claimed that tensions between Lendlease chief executive Tony Lombardo and the Michael Ullmer-led board were undermining the company’s chances of implementing a new strategy. Others, however, have pointed to their close ties.
Mr Ullmer joined Lendlease’s board in 2011 and was appointed chairman in late 2018. Mr Lombardo, an accountant, joined Lendlease in 2007 as group head of strategy and M&A. He became chief financial officer in 2011 and in 2016 took charge of the Asia operations.
As the company has deteriorated, investors have expressed a desire for management change and have called out the company’s “arrogance” for failing to realise the depth of problems it faces.
One analyst said the board was unwilling to listen or change.
“They genuinely need to jettison a lot of things, including assets and businesses. A change of CEO may be painful near term, but hopefully beneficial longer term. Still very doubtful they do this,” he said.
Lendlease denied that change was in the offing, with the chairman saying in a statement that Mr Lombardo “is doing an outstanding job in difficult trading conditions and enjoys the Board’s full support”.
Originally published as Lendlease faces writedowns amid pressure for split
Queen’s Wharf scores QUT graduation events
In a bit of a coup for the $3.6bn Queen’s Wharf project, QUT is moving all of its graduation events to the riverside precinct for the next two years.
Green Iron consortium looks to export via Port Pirie
South Australia could supply Asian markets with high-value green iron for decades to come, a newly formed consortium, Green Iron SA, says.