Lendlease strategy: Property major prepares master plan to bring $4bn back home

The Lendlease boss Tony Lombardo is expected to take a significant step towards reshaping his pressured property play.

Lendlease is expected to outline plans to bring billions of dollars back to Australia. Picture: AAP

Lendlease boss Tony Lombardo really has one job ahead of him: deliver a credible path for his property play to grow again.

And if the chief executive can change the narrative around his deeply-pressured Lendlease during Monday’s strategy update, it might just buy him the time needed to see through his turnaround.

Lendlease CEO Tony Lombardo is under pressure to rebuild management credibility. Picture: John Feder

Lombardo is expected to take a significant step towards reshaping Lendlease and much of this involves putting the brakes on offshore development to bring a large slice of the 66-year-old company back home. This is a major step in shifting Lendlease back to its core market.

It is believed Lombardo is preparing to sell down developments and exit markets as part of his push to recycle more than $4bn in funds from the US and European operations.

The cash windfall is then expected to be split across three areas.

Some will be redirected to fund local growth, where Lendlease’s returns have been historically higher.

The returns will also pay off some of Lendlease’s $3.7bn in debt, and some of the cash will be returned to investors.

Added to the shake-up, Lombardo is believed to be planning to make a commitment to reducing Lendlease’s exposure to non-core assets.

This is likely to involve the possible sale of the offshore construction business, a move that could deliver in excess of $300m. And this comes on the heels of Lendlease’s sale in recent months of a $1.3bn slice of its Australian residential development projects to Stockland.

With a smaller offshore business, there will be scope to make a commitment to reduce costs further.

Dissident dance

If Lombardo gets the tone right at the strategy day, this will have the dual effect of calming dissident shareholders while offering others a reason to stay on board for the recovery.

John Wylie’s Tanarra Capital, Allan Gray and David Di Pilla’s HMC Capital have been the loudest pushing for change at Lendlease, including an effective break-up of the offshore and domestic businesses. Lendlease currently has a development pipeline of more than $8bn, most of this is in Australia, underscoring its growth outlook here.

However, it was heavyweight super fund Aware that dramatically ramped up the pressure in recent weeks, taking the unusual step of going public to call for a shake-up of Lendlease’s boardroom.

With long-serving chairman Michael Ullmer in Aware’s sights, the former banker last week made a commitment to step down by this year’s annual meeting. A search is underway for an external replacement. Ullmer chose to make his move before the investor day to provide some clear air in order for Lombardo to keep the focus of the on strategy, not people.

Lombardo knows there is a lot at stake on Lendlease’s Monday update.

Lendlease chairman Michael Ullmer has agreed to step down. Picture: Britta Campion

With shares at the lowest level since the global financial crisis and down more than 25 per cent over a year, and big investors out of patience, Lombardo needs to convince investors he is the right one to pull this one-time blue chip out of its downward slump.

The chief executive is going to have a monumental task ahead. Management credibility is wearing thin, given Lendlease’s long history of falling short in previous efforts to reboot.

As investors like Wylie have long-argued, Lendlease’s competitive strengths and highest returns are in right here in Australia. The question is whether the restructuring plans to be outlined can offer Lendlease the spark needed to get back on track.

For some months, Lendlease’s shares have been trading below the company’s net asset value, putting a big takeover or break-up target on it.

That means if Lombardo misses the mark, it might be more than his own job on the line.

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Originally published as Lendlease strategy: Property major prepares master plan to bring $4bn back home