Lendlease shareholders back Bunnings boss to turn around the developer’s fortunes

Lendlease is retreating back to Australia after billions of dollars’ worth of writedowns but shareholders have backed new chairman John Gillam to restore its fortunes.

About 76 per cent of Sydney’s under-construction One Circular Quay luxury apartments are presold.

Embattled property developer Lendlease has avoided a second strike against its pay practices and says it is getting back on track after plunging in value ahead of resetting its strategy this year to focus on the local market.

The company had been under fire from shareholder activists, including David Di Pilla’s HMC Capital and John Wylie’s Tanarra Capital, to turn around its performance but at Friday’s annual general meeting they supported board changes.

They are backing the company’s efforts to sell off its unwanted international projects and return its focus to Australia, where it has an advantage. Earlier this year they had pushed for changes to the board.

Long-serving chairman and former banker Michael Ullmer departed after the meeting and ex-Bunnings chief executive John Gillam has now taken the helm as chairman.

Although the former banker bowed to pressure to depart, and the board searched for an external appointee to take the helm, he withstood pressure for a more rapid exit.

Lendlease in May unveiled a strategy to sell off the bulk of its international developments and building units, and return about $4.5bn of capital to its main operations.

The company’s dramatic fall from being one of corporate Australia’s global champions to losing billions of dollars and its retreat back home came under fire from some shareholders.

A former finance director from the 1990s, Sean Wareing, called the company’s recent performance appalling and questioned its retreat internationally, which had taken decade to build up.

“To witness what has happened to Lendlease in the last few years, to say that it’s appalling is an absolute understatement,” he said.

“We’ve seen a complete collapse of capability on the part of an organisation in terms of being able to handle its business.

“It’s a company that I know and love. And I hate to see what’s happened to it. The current position of Lendlease, as exemplified by its current share price which is equally appalling, leaves me completely confused.”

Michael Ullmer and the man who has succeeded him as Lendlease chairman, John Gillam. Picture: Aaron Francis

Lendlease shares added 18c to $6.82 on Friday, but are well on the $20 they traded at in 2018.

Mr Wareing said the company seemed to be retreating internationally from its development and construction arms. “That was, and I hope still is, the major strength of Lendlease,” he said, adding that it was making a “rather untidy retreat at that, back to Australia”.

Mr Ullmer said construction margins in offshore markets had “come down considerably” as the barriers to entry, particularly in the US, were very low and the risks could not be justified. He cited the impact of the pandemic on global property stocks, and that Lendlease was hit hard due to its international exposures.

“I think what has surprised a lot of people is that three years post Covid the property cycle globally is still depressed,” he said. Lendlease had built up a large international development book since 2015 but this was exposed in the wake of the pandemic as delays emerged and there was a downturn in the cycle, he said.

Mr Ullmer said these shifts had “really exposed our balance sheet in a way that we need to now pull that capital back”. “We have strong support for that strategy,” he said.

Lendlease has fallen from about 11,000 staff globally and will be under 4000 once its cuts are completed.

The company flagged that it would keep up the pace of selling assets overseas, and that a $500m share buyback was likely once it offloaded more unwanted holdings. Mr Ullmer said the company had taken adequate writedowns but cautioned that exiting some areas could take two to four years.

The company in May committed to recycling $4.5bn of net capital, with $2.8bn targeted by June 2025. It cited its progress in selling off 12 housing estates to a Stockland venture and its exit from US construction. It has sold its US military housing business and struck up a venture with Warburg Pincus to build a life sciences business in Asia.

It is selling its British building business and it is working on selling assets including a stake in a retirement living business in Australia and the Ardor Gardens senior living project in China, TRX in Malaysia.

A potential protest against Mr Gillam did not eventuate with only 0.3 per cent of votes against his election – and the company also avoided a second strike, despite almost 8.4 per cent proxies being lodged against the remuneration report.

It was a turnaround from last year’s meeting when big investors ratcheted up the pressure on Lendlease’s board by delivering a hefty protest vote of more than a third against two board members – former Westpac deputy chief executive Phil Coffey and former public servant Elizabeth Proust.

It was also hit by a large first strike against the company’s pay practices with 39.82 per cent of proxies against its pay plan.

Chief executive Tony Lombardo said opportunities to grow Lendlease in its home market were significant. He said gearing was anticipated to remain elevated in this half due to the timing but this is expected to come down in 2025.

He pointed to development successes like Sydney’s under-construction One Circular Quay luxury apartments, which are already 76 per cent pre-sold by value. He flagged local building margins would also get back to normal next financial year.