Lendlease posts $264m loss amid restructure costs

The global builder and developer is in an earnings trough but insists that it will make a come back in the second half. The shares fell.

Lendlease CEO Tony Lombardo says the company is getting on track through its strategy reset. John Feder/The Australian.

Development major Lendlease has plummeted to a $264m loss in the first half as it restructures the business, but it says that it’s through the worst of the crisis and is stepping up new developments.

The company, under chief executive Tony Lombardo, is looking to take on new projects and launch more funds but the loss is expected to spark concerns about its progress in getting returns out of the $112bn pipeline.

Lendlease claimed it was in a “reset year” and is dealing with the impacts of Covid-19.

“Despite the ongoing impacts of Covid-19, we’ve made significant progress in reducing the cost base of the organisation as well as improving operational execution and capital allocation decisions,” he said.

“We also made significant headway progressing projects and initiatives we expect will drive future profits. This includes introducing major new investors to our platform, growing our funds under management, and achieving important planning milestones across projects in San Francisco, London and Sydney.”

Lendlease was driven into a loss from restructuring charges and development impairments, which offset revaluation gains, as well as a $30m loss in a non-core unit.

It copped restructuring charges of $124m and says that all up it was spending $150m to $170m on the reset.

The switch in development strategy saw the company hit with $299m of charges on underperforming projects, ahead of initial estates of $230m to $290m.
The news hit company’s shares, which were off by 18c to $10.13 in early morning trade.

Lendlease admitted its reset was taking place while the operating environment for real estate markets across global cities remained challenging and warned this was impacting the operating and financial performance, with developments exposed.

But the half-year period is expected to mark the trough in both activity and profitability with the company saying a “significant improvement” is anticipated from the second half onwards.

“We’re confident Lendlease has passed the low in profitability. While Covid risks remain, improved visibility of factors within our control provides more certainty on the outlook for the group,” Mr Lombardo said.

He added that the group was “well positioned” to achieve improved returns over the medium term as operating conditions recover with high return targets expected to be met by the 2024 financial year.

Lendlease wants to boost its funds to more than $70bn by fiscal 2026, a big jump from $42bn currently, and to start developing $8bn of product per annum.

The company said it made a core operating profit of $28m and it paid an interim distribution of 5c per share, ahead of its earnings per share off 4.1c,

The company has slashed its head office and says it is on track to hit its savings target of more than $160m per annum.

Lendlease launched about $6bn worth of investment partnerships to grow funds under management, including in US military housing where it took on a financial partner, and it also pushed ahead with about $5bn worth of developments.

The company trimmed expectations for development returns this year to just 2 to 4 per cent but upped its estimate on investments to 7.5 to 8.5 per cent. The expected construction earnings margin was left stable at 2 to 3 per cent.

Lendlease’s lagging residential estates business was also showing signs of a strong recovery and investments are also up in the wake of Covid-19, backed by the retirement business.

Development was down as few projects were completed but work in progress jumped by $1.6bn to $16.1bn. Construction was hit as there was less work won in the US since the pandemic.

Lendlease remains on track to achieve targeted savings in operating costs of greater than $160m per annum, with benefits to be realised from the second half of fiscal 2022.