This article is from the Australian Property Journal archive
LEND Lease has delivered a full year profit after tax of $822.9 million, up 48% and the group is riding high on the apartment boom, having presold 82% of 3,400 units totalling $2.5 billion.
Lend Lease’s profit result was underpinned by its development pipeline and the sale of its interest in the Bluewater Shopping Centre. Earnings per stapled security was 142.7 cents versus 95.6 cps. The group announced a final distribution of 71 cps compared to 42 cps in the previous year.
CEO Steve McCann said in the last five years the group has reshaped and refocused the business, including a significant pipeline of urban regeneration projects.
“We made further progress during the year on the Barangaroo South project in Sydney, with 100% pre sales of the first phase of residential apartments and the launch of the third and largest commercial tower with recent leasing commitments from PricewaterhouseCoopers and HSBC. We are continuing discussions with other potential tenants for International Towers Sydney,” he added.
Lend Lease had a record year of residential activity with 3,425 settlements and total presales of $2.5 billion. The group currently has some 2,085 apartments in the Australian pipeline and 1,316 units in the UK, which will progressively deliver profits over the next few years towards FY17.
In Australia, two apartments (159 units) at Barangaroo South are 100% presold generating $300 million in revenue; three apartments (538 units) at Darling Square are also 100% presold totalling $580 million; five apartments (356 units) RNA Showgrounds is 92% presold worth $160 million; one apartment building at Studio 9 Richmond (203 units) is 88% presold; and finally at Victoria Harbour, the Concavo building (251 units) is 91% presold and 888 Collins (578 units) is 59%, generating total revenue of $460 million.
Despite the strong residential activity, McCann said profit after tax in the Australian business decreased by 12% to $446.0 million, although the previous year included initial earnings relating to the first two commercial towers at Barangaroo South.
The construction business posted $104.3 million, which were lower than the prior year, impacted by lower revenue, restructure charges of $27.0 million (post-tax), higher bid costs expensed in pursuing major engineering projects still in the pipeline of $18.3 million (post-tax) and an impact from the fire at Barangaroo South in March 2014 of $6.2 million (post-tax).
Investment management profit increased to $110.0 million following after lifting its investment, via the Lend Lease Trust, in APPF Commercial and APPF Industrial. The Lend Lease Trust is now fully invested and delivering higher passive income streams for the Group. FUM increased by 6% to $10.9 billion.
Lend Lease’s Asia business recorded a 34.5% fall in profit after tax to $73.7 million.
Meanwhile the Europe business increased profit after tax to $446.9 million, due to the sale of the Bluewater shopping centre in June 2014, which generated a profit after tax of $485.0 million.
The construction business recorded a loss of $24.0 million for the year, impacted by difficult market conditions in the region in recent years and the sale of the Spanish construction business.
In the Americas, profit after tax increased to $78.9 million up 46.9% with the business supported by military housing.
Lend Lease finished the year with robust global construction backlog revenue of $16.2 billion, with a further $1.8 billion of building and engineering work at preferred status, and a global development pipeline with an estimated end value of $37.7 billion.
McCann said the outlook remains positive and Lend Lease is on track to deliver significant growth.
“Forward pre sales in our residential development business and embedded returns in our existing pipeline clearly underpin our earnings visibility over the next three years.
“We remain comfortable with consensus net profit after tax expectation of $604 million to $622 million for FY15,” McCann said.
Morgan Stanley analyst John Lee said Lend Lease is using the strength in current market conditions to build out its medium-term growth profile on the residential and infrastructure front, particularly given its investment in bids on up to $9.7 billion of infrastructure projects.
Lee added that the delivery on the apartment projects will be the key for Lend Lease.
“LLC has increased its apartment production levels to ~A$2.4bn across 3,400 apartments, of which 82% have been pre-sold. This is expected to drive an increase in settlements from 215 in FY14 to >1,000 p.a. from FY16.
“Whilst we expect this to shift the overall business from investing in FY15 to significantly cash flow positive in FY16, the key risk remains the continued execution / delivery of these projects,” Lee concluded.
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