Lendlease to double developments to $8bn annually

The company has laid out plans for the next decade and insists the coronavirus pandemic won’t slow its progress.

Lendlease chief executive Steve McCann. Picture: Britta Campion / The Australian

Global development and construction giant Lendlease will ramp up its project completions to about $8bn annually and take on more partners as it looks to speed up work on its $113bn global pipeline.

The company revealed it was shifting how it worked, partly in response to the coronavirus pandemic, but it still believes its model of building super-sized urban precincts in cities including London, Milan, New York and San Francisco, as well as in Australia, will see it through the crisis.

“The 12 gateway cities we have exposure to have strong underlying real estate fundamentals and deep capital markets. Once they navigate the current COVID-19-induced recession we believe the market absorption potential is significant,” CEO Steve McCann said. “We also have confidence that our global operating model will ­facilitate execution at scale.”

The acceleration is possible as Mr McCann said “significant” planning progress had been made on projects in Milan, London and San Francisco, where the company also intended to lodge plans for the first phase of its massive project for internet giant Google.

Lendlease indicated it was pivoting towards build-to-rent projects both globally (it already has schemes in London and Chicago) and locally, where it could convert existing sites previously slated for other uses.

The company also indicated it would look at ways to convert some shopping centres into mixed-use developments. While inquiries for large office towers had dried up in some areas, Lendlease believes it could also benefit from the switch to a hub-and-spoke model for work space.

The ramp-up of the development pipeline would require more capital and Lendlease indicated it would set up more property funds at an earlier stage to realise gains from mega-projects more quickly. It is known for passive investment funds but also would look at core-plus and development funds.

“The more than $50bn of investment-grade product that we expect to create for the development pipeline provides a significant opportunity to materially boost our investments platform,” Mr McCann said.

“A lot of scope remains to ­attract US and European investors … and we intend to deepen our relationships with existing investors, convert other relationships into platform investments and form new partnerships.”

Lendlease will also sell down some unwanted businesses, has agreed to the sale of its US telco unit at book value and will resume the sale of its services unit when conditions pick up. It is also in the early stages of readying to sell down more of its retirement unit after selling a 25 per cent stake to Dutch company APG in 2017.

Investors who are keen for Lendlease to accelerate its pipeline drove up the company’s shares by 3.8 per cent on Monday to $11.62.

Lendlease will also switch the way it reports earnings towards operating profits and look to boost its investment arm. It also appears set on devoting more capital to offshore markets. However, the company reiterated its commitment to Australian land estates, acknowledging it had come through a tough period but was now benefiting from government stimulus.

Macquarie analyst Stuart McLean said the pick-up in completions would be an 86 per cent rise over the past five years and said Lendlease had cited origination, market absorption in key gateway cities and strong investment partner appetite as key to increasing the production rate.

UBS analysts Tom Bodor and Grant McCasker said Lendlease had a positive take but added that Lendlease needed to deliver.

“While some profit will be shared with partners, the acceleration of projects should, if feasible, more than offset any leakage,” they said.