Lendlease flags annual loss as developments hit by coronavirus

Developer Lendlease expects a net loss of up to $340m due to COVID-19 disruptions, but says it’s getting back on track.

Lendlease-built towers in Sydney.

Lendlease has revealed the heavy toll the coronavirus has taken on its global operations, with the construction and development company saying it will post a full-year net loss of up to $340m as some key projects are set back by the pandemic.

The company also revealed that its $5bn shopping centre fund will weigh on profits as it deals with struggling tenants as it also faces $2bn worth of redemptions from pension groups.

Lendlease said it expects core annual profit after tax to be in the range of $50m-$150m reflecting COVID-19 impacts, which include a hit to investment valuations in this half of $130m-$160m after tax.

But the company is sticking to its estimated pre-tax costs of $550m for the exit of its troubled engineering business. About $525m pre-tax is expected to be accounted for in fiscal 2020.

Lendlease says it will fall to a full year statutory loss expected to be between $230m - $340m after tax.

However it says it will enter this financial year in a strong financial position with gearing at June 30 expected to be below 10 per cent and total liquidity above $5bn, after the company undertook a $1.15bn equity raising.

The company also has a development joint venture to deliver the first residential tower at One Sydney Harbour at Barangaroo that is anticipated to contribute about $100m to fiscal 2021 profit after tax.

Lendlease said its development unit had experienced delays in the conversion of a number of opportunities across urbanisation projects due to the impact of COVID-19, including at Melbourne Quarter, Barangaroo and International Quarter London.

It was also hit by delays in apartment settlements along with elevated cancellations across its local land estate business.

Building was also impacted by COVID-19 in all regions, especially offshore, particularly in cities where mandated shutdowns were implemented. This included lower productivity, projects being put on hold and delays in the commencement or securing of new projects.

Lendlease and its partners in the Cross Yarra Partnership consortium for the Melbourne Metro Tunnel Project are still working with the Victorian government on resolving cost blowouts.

Lendlease Corporation won‘t pay a dividend but there will be a small distribution from the Lendlease Trust.

Lendlease warned in April that profit would depend on the conclusion of some material transactions in the development unit and the impact of reduced productivity in construction, as it pulled earlier guidance.

The investments segment will be hit by lower valuations across the company‘s $4bn portfolio, including co-investments within the funds platform and retirement living business.

Lendlease said the retail asset management business in its investment unit had been working with retail partners as they navigate through a difficult period. This will have a negative impact on the operating earnings of the investments segment in both fiscal 2020 and fiscal 2021.

But some projects are going ahead. It has struck a partnership to develop the $4bn Milano Santa Giulia project with PSP Investments, one of Canada’s largest pension funds, which will be a development partner. The forward sale of the first two buildings has contributed to results.

Lendlease has also executed agreements to establish a development joint venture with Mitsubishi Estate, who will acquire a one quarter interest in the delivery of the first residential tower at One Sydney Harbour, Barangaroo.

Progress has been made on planning consents for projects in the urbanisation pipeline, including approval being obtained for Milan Innovation District and 30 Van Ness, San Francisco which supports the conversion of these projects to delivery.

The company‘s land estates are also receiving inquiries back at pre COVID-19 levels.

The cost of exiting engineering and services had been previously disclosed at $450-$550m on a pre-tax basis and will now be at the higher end of the range.