Global retreat buys Tony Lombardo another year running Lendlease

In London, Lendlease has its Stratford Cross and Elephant Park developments. Picture: iStock

Lendlease boss Tony Lombardo has bought himself another 12 months in the job with his promise to retreat from offshore markets and sell assets that he hopes will reap $4.5bn.

Monday’s share price rally of 10 per cent following his strategy day announcement (before closing up 8 per cent to $6.36) shows the market has given him the benefit of the doubt that he is taking the company in the right direction by retreating from international construction management and development.

But now he is under pressure to execute on his ambitious targets.

Not only does he need to sell the assets for the prices he has promised, but he also needs to demonstrate he’s running the Australian operations well and can boost its returns from that part of the company.

He expects that $2.8bn worth of the non-core assets would be sold by the end of the 2025 financial year.

UBS analysts said once the dust settled, the key question is what is left in Australia for Lendlease, with a $13bn development pipeline that lacked scale compared to Mirvac Group’s $31bn pipeline.

One market observer believes that Lendlease has recently sold one of its best businesses in the local market – its Communities housing operation to Stockland for $1.3bn.

It still has to lease the Victoria Cross office tower in North Sydney and then there’s the head office costs that continue to be in the spotlight.

There’s a view around the market that Mr Lombardo has been on the right track with his offshore retreat, but he could have moved faster with retreating from unprofitable markets and quarantining the poorly performing parts of the business from those holding up strongly.

Construction projects and developments in the United States and Europe have been making poor returns for a while compared to Asia and Australia.

Industry sources say Lendlease has bid for US-based construction projects at returns of 5 per cent. Overseas, it has $4.1bn of invested capital.

Once, Lendlease could have commanded higher margins from being a premium builder, but that is no longer the case.

It has outlaid money buying properties and the Bovis Construction business in 1999 for a reported £285m.

Italy, where Lendlease has projects, is a tough market, where it takes years to gain development approvals as Unibail-Rodamco knows only too well with its Westfield Milan shopping mall project that has taken a decade.

Many of the assets on the list of Lendlease’s “Capital Release Unit” (to be overseen by Mr Lombardo) are assets that the group is known to have been trying to sell for some time, including Ardor Gardens in China, and Military Housing in the United States.

Others where it partners with pension funds could be challenging for Lendlease to extract itself from, developments such as Stratford Cross in London and Milan Innovation District in Italy.

And then there is the fact that some major investors such as TCorp have handed over about $3bn to Lendlease because it was a global developer, while market experts say Aware Super was there for the same reason.

But Mr Lombardo refused to rule out a re-entry into international markets during an analyst call.

The $500m share buyback promised would be when its forecast gearing is between 5 and 15 per cent for the 2027 financial year.

There’s no ruling out that by the time this happens, Mr Lombardo has departed, and a new chief executive is calling the shots.