Lendlease seeks to raise $1.15bn

Lendlease is raising up to $1.15bn in fresh equity, in the biggest move by a property company in response to the coronavirus crisis.

Lendlease-built towers at Barangaroo in Sydney.

Global development and construction giant Lendlease is seeking to raise up to $1.15 billion in fresh equity, in the biggest move by a property company in response to the coronavirus crisis.

Other stretched groups are expected to follow suit.

The move adds to the bumper $15bn of equity raised this year as companies scramble to stabilise their balance sheets.

Lendlease is heavily exposed to hard-hit offshore markets, including key cities in Europe and the United States.

The company has tapped three investment banks - Goldman Sachs, Morgan Stanley and UBS - to undertake a $950m rescue placement as it deals with a series of international and local projects that have been shut down or delayed.

The underwritten placement is being undertaken at $9.80 per share and will be followed by a $200m share purchase plan for retail investors.

The price is an 8.2 per cent discount to Monday’s closing price and a far cry from the $19.28 it traded at in February.

Lendlease said the move was a prudent measure to strengthen its balance sheet “given the current market uncertainties” and it would be “well positioned” to deliver its development pipeline and take advantage of opportunities as markets stabilised.

“This equity raising, coupled with the actions we have already taken, will strengthen the group’s balance sheet position during this uncertain economic environment with available liquidity increased to $3.95 billion, support the delivery of the group’s $112 billion global development pipeline and provide additional flexibility and capacity to pursue further investment opportunities,” chief executive Steve McCann said.

Lendlease’s pipeline of global projects includes a sprawling estate planned for Google in California and a series of urban regeneration projects in London, and it is also one of the biggest builders in New York.

While the projects are long-dated, the company is exposed to the coronavirus as it has focused on global cities, and it will be stung by the blow the virus has dealt to global economies, as launching major projects depends on winning precommitments and selling luxury units, which is likely to become much tougher.

Lendlease is also building James Packer’s Crown Resorts project at Barangaroo in Sydney and developing three neighbouring apartment towers.

Lendlease said pre-sales at its One Sydney Harbour project totalled $1.5bn, representing over 75 per cent of the first tower and both PLLACes - a kind of presale of receipts from selling units - and capital partnerships options were progressing well.

Lendlease is also dealing with its exposure to cost blowouts on the Melbourne Metro and will be hit by the slowdown in new housing development as the local economy falls.

Lendlease said the $180m sale of its engineering business to Acciona was progressing and it has won approval from the Foreign Investment Review Board, but it warned the sale may not complete in this half.

After earlier attempting to offload the troubled project the company said it “now expects” to keep the Melbourne Metro project and its consortium is in confidential government talks.

But it has paused the sales process for its services business that John Holland walked away from buying. The company stuck to its estimate of a $450-$550m exit cost from its engineering and services businesses.

Melbourne's Metro tunnel project. Picture: Ian Currie

Lendlease said most of its projects had continued operating by using different ways of working. But it has been hit by shutdowns in Singapore, Kuala Lumpur, Milan, New York and Boston, although some cities were now moving towards restarting projects.

Lendlease said it would not budge from its core strategy of undertaking major precincts in targeted gateway cities.

The company said it was making good progress before the crisis struck. It struck a conditional framework agreement for a 50-50 investment partnership with a new capital partner for Milan’s $4bn Milano Santa Giulia precinct.

It also won approval for another build to rent building at London Elephant Park, where it already has a capital partner.

But it cautioned its investment portfolio could be hit and this year’s development profit was dependent on major deals being completed, while building would also be hurt in the short term.

In a nod to its stretched position the company said that despite the near-term uncertainty created by COVID-19, it was focused on delivering its portfolio of 21 major projects across nine gateway cities, and would also look to capital partnerships with major pension funds.

Lendlease said it was yet to determine if it would pay a final dividend and had cut fixed pay for senior executives and board members by 20 per cent.