This article is from the Australian Property Journal archive
RETROSPECTIVE action by the UK government over residential building standards has whacked Lendlease with a $200 million provision, and the builder and developer has posted a $141 million interim loss as a result – albeit a better outcome than the previous year.
Core operating profit improved from $28 million to $105 million. Earnings per security was 15.2c and Lendlease announced an interim distribution of 4.9c per security.
“Notwithstanding the impact of the UK Government’s retrospective industry-wide action on our statutory result, we achieved solid progress against our key operating metrics after successfully resetting the business,” said CEO and managing director, Tony Lombardo said.
The provision is largely related to a portfolio of buildings Lendlease took over through its acquisition of builder Crosby in 2005. They are subject to a UK government edict that extends the period for defects liability from six years to 30 years, and Lendlease to remediate affected residential buildings or face significant trading restrictions as a result. Lendlease said it remains in dialogue with the UK government.
Any cash expenditure relating to the provision will be spread across a period of at least five years, Lendlease said.
Lombardo said accelerating the group’s transition “to being an investments-led company is a priority”.
“The high quality and sustainable product from our development pipeline will be a key driver of our funds growth to more than $70 billion by FY26. Delivering our development pipeline safely, sustainably and profitably at a rate of more than $8 billion of completed product per annum is equally a focus.”
The group remains on track to achieve the target of more than $8 billion of completions by FY24, while a return on equity target of eight to 10% is also expected to be met by FY24.
Funds under management grew by 8% over the half as the group added the $3.1 billion Sydney Harbour project One Circular Quay to its development pipeline.
Challenging business conditions were reflected in the development segment’s return on invested capital of 1.9%, below the expected range of 4% to 6% for FY23, although earnings were higher than the previous corresponding period. The Exchange TRX project in Malaysia is 70% pre-leased and recorded a gain as it nears expected completion in FY24.
There were $2.8 billion of completions including Sydney Place, which was fully divested in FY22. It is 85% leased with Salesforce as the anchor tenant.
Some $2 billion of commencements was underpinned by San Francisco mixed-use project Hayes Point, comprising apartments for sale and office.
Lot sales of 766 in the Australian communities business were “subdued”, reflecting current high interest rates, but strong margins are still being achieved, the group said. Settlements of 1,022 for the period were an improvement, however are anticipated to be below the full year target of 3,000 to 4,000 lots due to weather and associated production delays.
About $6 billion of work is expected to commence in the second half, subject to market conditions and planning approvals. This is expected to include One Circular Quay and La Cienega in Los Angeles. There is about $18 billion of work in progress.
The investments segment generated a ROIC of 7.1%, within the expected range, lifted by the partial divestment of the asset management income stream from the US Military Housing portfolio. Investments EBITDA rose from $141 million in the prior corresponding period to $197 million.
Growth in funds under management of 8% to $48 billion was underpinned by a new office partnership with TCorp and a Japanese institutional investor which acquired 21 Moorfields in London, a premium grade office development expected to complete this half and 100% let on a 25-year lease.
The construction segment was impacted by a claim on a past non-residential project in the UK, Lendlease, without which the segment delivered a “steady performance”.
Gearing was maintained within the 10 to 20% target range at 16.8%.
Net debt was $2.6 billion.
