Lendlease bets on luxury wave as offshore exit steps up

The developer is making headway on simplifying its business and is turning to luxury units to spark returns. Investors are backing its new strategy.

Lendlease chief executive Tony Lombardo pointed to its success at Barangaroo, which included the sale of a $140m penthouse, and where only about 25 apartments remain for sale.

Investors were buoyed as property developer Lendlease flagged its luxury apartment projects were selling well, despite the company copping losses on two major construction projects in Australia.

The company also insisted that it was making progress in refocusing on the local market as it exits its international operations and pours more into what has become a lucrative luxury apartment business.

Investors also backed Lendlease’s vision for a push further into the area, with Lendlease flagging it was in talks to acquire or joint venture on more sites as its existing projects sell out.

Lendlease chief executive Tony Lombardo pointed to its success at Barangaroo, which included the sale of a $140m penthouse, and where only about 25 apartments remain for sale. At the company’s One Circular Quay project about 77 per cent of the luxury apartment stock by value has been sold.

Lendlease CEO Tony Lombardo. Picture: Jane Dempster

Lendlease has made about $3bn worth of unit sales across Sydney and Melbourne, which are expected to return future profits, and the company flagged projects ranging from mid-market to luxury would be the focus, rather than housing estates after it sold off that business to a Stockland venture last year.

Mr Lombardo said the company would still chase larger urban schemes and expand in build-to-rent. He is hopeful about a rate cut, which could improve affordability. “It’ll probably give the market a little bit more confidence to go ahead on the larger transactions,” he said.

The Lendlease chief said that the two problem building projects had fixed price contracts, but the industry had experienced material cost inflation and wage rises.

He also pointed to progress Lendlease had made in selling off its international building operations, exiting US military housing and its stake in local infrastructure business Capella Capital. Investors are awaiting the sale of projects in China and Malaysia, as well as its exit from its remaining interest in its local retirement operation.

Lendlease shares dropped by 32c to $6.42 in early trade as the market was caught off guard by the company suffering losses in its building unit but recovered on its overall outlook to $6.77.

Mr Lombardo said the company was focused on closing out a number of offshore and local transactions as it looks to simplify. It is looking to accelerate the release of capital from its international developments, where it plans to sell land parcels in the US, and bring partners into its major, long-dated projects in Britain.

The company is pouring the funds back into local projects where it has identified about $36bn worth of opportunities, and it is advanced on about $20bn worth of projects, mainly along the eastern seaboard.

“There’s a number of off-market deals that we’re working on,” Mr Lombardo said. The company is putting the capital it gets back from offshore into backing new projects, and it is also taking on partners earlier.

Overall, Lendlease turned in a $122m operating profit after tax and pointed to its turnaround program being on track, and it is short-listed on projects including Melbourne’s Arden precinct and Sydney’s Blackwattle Bay.

At the company’s One Circular Quay project about 77 per cent of the luxury apartment stock by value has been sold.

Lendlease reported a net profit after tax of $48m, which included a $74m hit from property devaluations. The profit was a turnaround from the $136m loss in the previous first half, when the company was hit by writedowns and was yet to dramatically pull back to Australia.

Lendlease’s gearing has been cut back to 27 per cent, and it has $2.6bn of liquidity available, as well as substantial cash flows coming in from selling offshore businesses and apartment settlements at Sydney’s Barangaroo. It made about $2.2bn worth of disposals as it exits international development and construction, saying it was on track to achieve $2.8bn of sales in this financial year.

The company stuck to its earnings per security guidance of 54 to 62 cents is anticipated in fiscal 2025. The range includes about 18c secured in the first half, with between 36c and 44c expected in this half.

Gearing is expected to materially decrease in the second half of 2025, moving down towards, but remaining above, the top end of the target 5-15 per cent range. But this will fall once more sales are made and Lendlease again flagged a buyback once it was in a position to undertake it.

The company’s construction revenues fell from $1.9bn to $1.5bn as some projects were finished and projects where Lendlease is preferred took longer to commence. The segment fell to a $25m loss due to losses predominantly on the two projects, which the company said were also hit by subcontractor insolvencies and productivity issues.

Lendlease said that recoveries are being pursued, which had not been taken into account in this result.

Mr Lombardo said the contracts dated back to 2020 and 2021 and since then the sector had experienced material cost inflation with industry-wide increases of 25 per cent to 40 per cent.

The company insisted that the issues were contained and the building unit now has new managers and, of its $6.2bn pipeline, about 54 per cent of the work was fee based.