Lendlease sells US construction unit to Consigli Construction as it marches home

The sale of the property developer’s New York-headquartered business is part of a strategy to bring capital back to local shores.

Lendlease, led by Tony Lombardo, has struck a deal to offload its US east coast construction operations to US builder Consigli Construction. Picture: Jane Dempster/The Australian

Embattled development company Lendlease has struck a deal to offload its US east coast construction operations to US builder Consigli Construction as it consolidates its operations back to Australia.

The company’s international construction business has been a millstone on returns, and it said the overall business, which includes operations in Britain that are also on the block, had generated a low earnings margin of about 0.6 per cent in financial years 2019 to 2023.

Lendlease said at its strategy update on Monday that it was targeting trade sales of the units as going concerns, so its construction operations would shrink back to focus solely on Australia. The sale of the entire international building business will see about 1,400 jobs trimmed when it is completed.

Set up in 1975, the Lendlease became one of the top providers of development and construction services in the New York metropolitan area, and still has a large workbook and has undertaken projects ranging from apartments, multifamily complexes and traditional skyscrapers.

The sale, for an undisclosed sum, marks one of its first steps back towards focusing on Australia as part of the dramatic reversal that will see Lendlease pull out of most international markets.

The overall shift will see Lendlease look to return up to $4.5bn worth of capital back into its local operations, and it will next look to exit its costly British building arm.

The US transaction is subject to due diligence and finalisation of documents, which will include customary conditions precedent. Under its terms, Consigli will acquire Lendlease’s east coast construction operations including about 45 current, under contract and pre-construction projects and most of Lendlease’s US construction workforce will shift over to Consigli.

Lendlease said the move was in line with its new strategy and was consistent with its objective to divest its construction businesses in the US and Britain during the next 18 months, lowering the group’s overall risk profile. Key contract terms remain commercial in confidence until the transaction completes, which is expected in the next half.

Lendlease chief executive Tony Lombardo said that the move “represents another step to simplify Lendlease to create a more focused company for securityholders”.

“It’s the culmination of more than 12 months’ work refining our US construction activities to focus on the US East Coast, where we have a clear competitive advantage. The sale represents a great outcome for both our people, the majority of whom will move across to Consigli, and for our customers,” he said.

Citi analysts said that Lendlease had a $2.6bn construction backlog in the Americas division at the end of 2023, which included the US West Coast construction business.

“We see this announcement as positive, but we believe details on price will be key for investors to form a view on how Lendlease is tracking against the release of $4.5bn of capital in its Capital Release Unit,” they said.

UBS analysts Tom Bodor and Cody Shield said Lendlease’s strategy switch was broadly in line with investor expectations, with a commitment to exit offshore development and construction, while maintaining a global investment footprint.

UBS said there was broad support for the company’s plan, with its time frames better than low market expectations. Lendlease will reap about $1.3bn from the sale of its local housing estate business to a Stockland venture, about $400m from selling out of US military housing, about $400m from its remaining stake in the local retirement living unit and about $700m from exiting international developments.

The UBS analysts noted that a further $1.7bn of assets were to be sold – including the offshore construction business – and this may allow further capital returns and redeployment of capital into new projects in Australia to replenish the local pipeline.

Morgan Stanley analysts said after a Lendlease event that the company’s planned $500m buyback was not dependent upon finalisation of all asset sales, and gearing dropping to within Lendlease’s 5-15 per cent target.

They said that over the next two to three years, profit from the company’s Capital Release Unit as it sold down offshore, could ensure overall earnings did not deteriorate as the Australian pipeline is reloaded.

However, more wary observers said it would be very hard for the company to exit its offshore development commitments in a profitable way.

Lendlease shares were down 15c to $6.09 on Wednesday.