This article is from the Australian Property Journal archive
PROPERTY development and investment giant Lendlease saw more than 15% slashed from share price after it cut its full-year profit expectations and as announced an interim loss of $136 million.
Announcing its first-half results, it said it had cut its return on equity guidance to 7%, “reflecting lower certainty of transaction timing and higher execution risks”.
That guidance incorporates the first receipts from the $1.3 billion sale of 12 master-planned communities across the country to rival Stockland, which it executed as it seeks to reweight capital to investments, reduce gearing, and realise value created in its projects. Net cash proceeds of $1.5 billion expected to be received in second half also include settlements at Residences One, One Sydney Harbour, which is 98% sold.
It said it recorded a statutory loss after tax – compared to a $141 million loss in the prior corresponding period (pcp) – and a modest core operating profit after tax of $61 million, down 42%, as it “continues to face difficult real estate capital market conditions with slower first-half activity and lower property valuations”.
Lendlease booked $125 million lower investment property valuations in its investments segment, $56 million in redundancy costs from business optimisation, and a $22 million provision relating to retrospective building remediation regulations in the United Kingdom.
“In the second half Lendlease is expecting a consistent performance from investments, a much improved performance from development and a higher contribution from construction,” said CEO and managing director, Tony Lombardo.
“There should also be a benefit from cost out initiatives actioned in the first half.
“From a regional perspective, another strong full-year contribution is anticipated from Australia. A consistent performance in Asia is expected, while the financial performance in Europe and the Americas continues to be impacted by ongoing challenged capital markets.”
Lombardo said there would be a strategy update in late May. Lombardo took over in 2021 with a five-year turnaround strategy planned for the company.
Lendlease shareholders slammed the company with a first strike and protest vote against the re-election of board members in November, after the company posted a $232 million full-year loss.
Gearing to come down
Gearing of 22.9% is anticipated to reduce to at or around the mid-point of the 10% to 20% target range by the end of FY24.
“As Lendlease reached capital deployed on several major projects, contracted and announced cash inflows of ~$1.5 billion expected in the near term, highlight a clear pathway back to the group’s target gearing range,” global CFO, Simon Dixon said.
“Capital recycling and a further ~$1.1 billion of contracted and announced cash inflows expected in FY25, relating to presold apartments and the final receipts for the Communities transaction, provides additional confidence in the group’s capital position.”
Lendlease has total available committed liquidity of $1.6 billion.
The investments segment generated an annualised return on invested capital (ROIC) of 4.5%, with established platforms in Australia and Asia generating ROICs of approximately 6.0%. Core operating EBITDA of $120 million was down 39%.
The development segment generated a ROIC of 1.4%, down from 1.9% on the pcp. EBITDA of $112 million was up 26%. A key contributor was a payment received in relation to the San Francisco Bay Area project. A gain of $37 million was recorded following completion of $1.5 billion retail project The Exchange TRX, which is now open and 96% leased. The revaluation of the Victoria Cross over station development negatively impacted earnings by $28 million.
Revenue from the Construction segment was down 18% to $3.0 billion. The segment EBITDA margin of 1.7% was impacted by a settlement in relation to a prior year project in the United Kingdom.
New work secured was up 13% to $2.6 billion, up 13 per cent. A recovery in European activity led the growth, with the Americas and Australia also contributing.
