Lendlease makes $4bn retreat from offshore markets

The developer’s shares rally on decision to sell its offshore building units and major developments and bring the capital back home, where it also faces challenging markets.

Lendlease CEO Tony Lombardo announced a major restructuring of its operations. Picture: Jane Dempster

Property group Lendlease has unveiled its dramatic return to Australian shores, with its plans to sell off its international building arm and exit major offshore developments backed as the company’s best course despite it flagging $1.5bn in write-downs this year.

Investors welcomed the once blue chip developer’s retreat as it will bring about $4.5bn capital in total back to the more profitable local operations, with the company betting on its capacity to generate returns as one of the dominant local players.

The switch was unveiled by departing chairman Michael Ullmer and chief executive Tony Lombardo with their plan winning the approval of share market investors on Monday and the activists who have been pushing for radical cuts, despite it rejecting the option of completely carving off its international arm.

Lendlease shares jumped by 8 per cent to $6.36 as investors backed the company’s ability to exit key projects in London, Milan and other global capitals, with the company already well-advanced on selling its US building business, with the British arm to follow. It is also offloading its remaining stake in its retirement living business in Australia, a seniors living unit in China and its remaining holdings in US military housing.

Lendlease will be left as a smaller company that its management believes will thrive locally as it builds on its secured pipeline of $13bn, with the group chasing the same quantum of new projects, with a focus on large mixed-use sites, as well as lower risk construction.

“What we are focusing on is becoming the market leader, again, as an integrated player in Australian real estate, and continuing to grow our local and international investments business,” Mr Lombardo said. He said the company wanted to keep its international investment platforms, which are focused on Asia.

However, the switch marks Lendlease bowing to investor demands after months of dissent, and it still faces instability as thousands of jobs are cut, mainly in overseas markets. Activists including John Wylie’s Tanarra Capital and HMC Capital were supportive.

A Tanarra spokesman said the changes were a “clear step in the right direction” and flagged the investment house would now focus on the appointment of a new external chair with strong Australian property experience and on Lendlease’s broader board renewal process. “It’s great to see the company prioritising investor returns as it looks to the future,” he said. “From here, execution and a sustained focus on returns and capital allocation will be critical.”

HMC Capital chief executive David Di Pilla said Lendlease had taken decisive action at its update to simplify the business and focus on its core, high return business in Australia.

“The plan is a major step forward in positioning Lendlease to deliver appropriate returns for its securityholders. It aligns with the recommendations we set out in our white paper in August 2023 and that we have been constructively engaging with Lendlease on over the intervening period.,” he said.

Aware Super, which holds a near 9 per cent stake, and pushed for the rapid exit of chairman Mr Ullmer, who is going at the annual general meeting, is yet to comment.

Lendlease still faces the tough task of getting out of its unstarted or unfinished mega projects as the global commercial property market has slumped.

Mr Ullmer blamed tough conditions for the company’s reversal – although the company’s board oversaw the offshore push that built up a $100bn-plus pipeline of work globally. “We recognise that our security price performance and securityholder returns have been poor as we have faced structural challenges and a prolonged market downturn. We need to take significant action at an accelerated pace to deliver value for our securityholders, capital partners and customers,” he said.

Mr Lombardo said that a “new Lendlease is emerging”. “By reshaping the portfolio, concentrating on our core competencies in markets where we have proven we have the right to play, and the competitive advantage to win, the financial and operational risk profile will be lower, and we believe the quality of our earnings ultimately higher and more sustainable,” he said.

Lendlease said it would take charges of between $1.15bn to $1.475bn pre-tax this financial year. The impairments and charges include a writedown on goodwill attached to the US and UK construction businesses which arose as a consequence of its ill-fated acquisition of Bovis in 1999, impairments on overseas development projects and charges related to redundancy and break costs.

Lendlease is also selling the bulk of its local housing operations to a Stockland venture for $1.3bn and sold an Asian life sciences unit into a joint venture but did not take low ball offers for other assets.

Lendlease said it would make a further $125m of annualised pre-tax savings over the next 12 months, with more cuts to follow afterwards. The moves are designed to release about $3.42 per security of net tangible assets from a newly established Capital Release Unit, with most of this expected by the end of fiscal 2025.

The complicated plan is aimed at giving Lendlease a stronger balance sheet, with lower gearing, to within a range of 5 per cent to 15 per cent by the end of fiscal 2026. The unit is intended to facilitate the recycling of $4.5bn in capital, of which $2.8bn is anticipated by the end of fiscal 2025, with proceeds going to pay down debt and return capital to shareholders, and undertake an initial $500m on market buyback.

UBS analysts Tom Bodor and Cody Shield said the strategy addressed key investor concerns around the unprofitability of offshore while proposing an orderly exit. “Once the dust settles the key question is what is left in Australia, with the $13bn development pipeline currently lacking scale. Lendlease have pointed to a further $27bn of projects in early stages which will need to be converted if the business is solely focused on Australia.”