This article is from the Australian Property Journal archive
PROPERTY giant Lendlease will book a writedown of up to $1.48 billion as it bowed again to pressure from frustrated investors, and is set to jettison its problematic international construction projects.
As part of the overhaul, Lendlease said it will recycle $4.5 billion of capital by exiting its international construction business and accelerating capital release from its offshore development projects and assets.
Key shareholders, including Aware Super and John Wylie’s Tanarra Capital have been pushing hard for management change – effectively claiming the scalp of chair Michael Ullmer, who will be stepping down in November – following a string of soft results and returns, and ongoing scepticism around the viability of its overseas activities.
Lendlease has a number of projects on ice in the United Kingdom, United States, Malaysia, China, Singapore and Italy, a legacy of the company’s attempts to take advantage of then-low interest rates and higher values, and the cycle turning against it, making the numbers difficult to stack up. Shareholders have wanted a simpler company, focussed on its projects at home. Lendlease is readied to deliver, while keeping its international investments platform.
“Through the decisive actions announced today, a new Lendlease is emerging,” chief executive Tony Lombardo said yesterday in the company’s strategy update.
“This new Lendlease will be more easily understood by our people and customers, and transparent and predictable for securityholders.
“By reshaping the portfolio, concentrating on our core competencies in markets where we have proven we have the right to play, and the competitive advantage to win, the financial and operational risk profile will be lower, and we believe the quality of our earnings ultimately higher and more sustainable.”
Around $2.8 billion in capital is expected to be recycled by the end of the 2025 financial year.
“Importantly, we do not launch this strategy from a standing start,” Lombardo said.
“We are well advanced on several transactions, and we have clear plans of action to implement the necessary change to reorient the organisation. We are confident in the strategy and have conviction in how we will execute,” Lombardo said.
Lendlease has already just announced a $147 million sale of its Asia life sciences real estate interests into a joint venture with Warburg Pincus.
Lendlease will also undertake a phased return of capital to shareholders with an initial $500 million on-market buy-back.
Through its changes, Lendlease is targeting $125 million of annualised pre-tax savings, releasing $3.42 per security of net tangible assets from a newly established capital release unit, with the majority anticipated by end of FY25, and a stronger balance sheet with significantly reduced gearing to within a revised target range of 5% to 15% anticipated by the end of FY26, down from its current range of 10% to 20%. FY24 group gearing is expected to be “modestly above the mid-point” of the latter range.
Ullmer said, “We recognise that our security price performance and securityholder returns have been poor as we have faced structural challenges and a prolonged market downturn. We need to take significant action at an accelerated pace to deliver value for our securityholders, capital partners and customers.”
The impairments and charges will be in the order of $1.15 billion to $1.475 billion pre-tax in the current financial year and are not expected to be recorded within core operating profit after tax (OPAT). These impairments and charges include a writedown of goodwill attached to the US and UK construction businesses, as a consequence of the Bovis acquisition in 1999, impairments of certain overseas development projects, and other charges related to redundancy and other break costs.
Lendlease maintained its FY24 guidance of 7% return on group equity, equating to approximately $450 million of OPAT.
“Lendlease has today announced further asset sales, cost reductions and the exiting of underperforming businesses, combined with intentions to reduce debt and targeted gearing levels,” Ian Chitterer, vice president and senior credit officer, Moody’s Ratings said.
“If executed as planned, these measures will be credit positive in the longer term.
“However, Lendlease’s credit quality over the next 12 to 18 months will still be heavily dependent on improving earnings, receiving proceeds from already announced transactions, and reducing debt levels.”
Share price jumps
Lendlease’s share price jumped by nearly 8% at the news of the company’s overhaul, closing at $6.36, or 47c higher.
Key investors had become increasingly restless. Aware Super, which holds a near-9% stake in Lendlease, had last week called on Lendlease to shake-up its leadership, starting with the removal of Ullmer.
“We support much-needed board renewal with Aware Super having made clear its expectations for an accelerated transition to a new, independent and external chair,” Aware Super’s chief investment officer Damian Graham said.
Also among the vocal critics has been John Wylie’s Tanarra Capital, which called for “urgent board renewal” in a letter to Ullmer and Lombardo last month that criticised the company’s “arrogant” culture and argued that its international business should be jettisoned.
