Lendlease marches out of US military housing in $480m deal

Embattled developer Lendlease has kicked off its return to Australia strategy with the sale of its US military housing business for a higher than expected $480m.

Lendlease has sold its US military housing business for $480m.

Embattled developer Lendlease has kicked off its return to Australia strategy with the sale of its US military housing business for a higher than expected $480m but faces challenges in exiting offshore markets.

The sale, to investment house Guggenheim Partners Investment Management, was struck at a premium and will tip into the developer’s profits in the 2025 financial year. Investors drove Lendlease shares up by 22c to $5.63 on Monday on the sale of the business.

The move came amid sharemarket pressure on Lendlease as its stock has sunk in the wake of its June announcement it would seek to return $4.5bn in capital to Australia and take heavy writedowns on offshore projects.

The company has already agreed to sell its local housing operations to a Stockland venture for $1.3bn, although that is subject to the competition regulator’s ruling, with an update expected this week.

This uncertainty has weighed on the share price, along with concerns about the developer’s balance sheet. But big investors who pushed for change at the company are backing the return to Australia strategy with the market now seeing more signs of the company executing its plans.

Lendlease pointed to its successful $147m exit from an Asian life sciences venture and noted that both sales had been on profitable terms. The company also in May agreed to sell US construction business on the east coast for an undisclosed sum.

It is now looking to sell its British construction business but reports from that country indicate that there may be relatively few buyers around and Lendlease is looking to move quickly to preserve value.

Lendlease is retreating to Australia after a shareholder revolt resulted in an about-face in its global strategy in May. After a pop in its share price, it had sunk until it started making progress. The company also faces issues closer to home as rivals look at ways of picking off lucrative parts of its funds management empire, including its prize office and retail vehicles.

Lendlease expects a profit in the 2025 financial year of $105m to $120m from military housing sale and will receive the proceeds in this half year.

Lendlease CEO Tony Lombardo. Picture: Jane Dempster

Lendlease said it was the third deal to achieve a premium to book value and, along with two earlier sales, is expected to contribute $275m to $335m to operating profits in the 2025 financial year.

The company said its exit from its US construction arm was well underway with documentation progressing following agreement of a non-binding heads of terms for the sale of its east coast operations.

Lendlease chief executive Tony Lombardo said with $1.9bn transactions already announced, including the sale of US military housing, “we have made significant progress towards our target of recycling $2.8bn of capital in the next 12 months”.

“Preparations have also commenced to sell our UK construction business within the next 18 months,” he said. “Processes to recycle a further $1.1bn of capital in fiscal 2025 are underway, including the sales of The Exchange TRX in Malaysia, our Keyton Australian retirement living investment and China senior living asset.

“Our priorities remain strengthening our balance sheet, returning capital to security holders and investing in our high return Australian operations, while continuing to build on our Australian development pipeline to support future earnings growth,” he said.

Lendlease anticipates operating profit after tax for the 2024 financial year to be $260m to $275m and gearing to be at the upper end of the 10-20 per cent target range, before the anticipated provision for impairments and charges it took in May.

JPMorgan analyst Richard Jones said the latest US sale had “achieved higher pricing than the $400m expected at the May strategy update and is likely earlier than market expectations”. He noted Lendlease also flagged a delay in the 50 per cent selldown of its Asian life sciences real estate platform to Warburg Pincus from second half 2024 into first half 2025. This shifts about $40m of profits into next year, with investors now focused on the competition ruling on the housing estate sale.