Lendlease abandoning offshore markets to recycle $4.5b into Australian opportunities

The move, which is aimed at “right sizing” the group’s cost base, will lead to Lendlease recycling $4.5 billion in capital by completing transactions either announced or under way and the acceleration of capital to be released from offshore projects and assets.

The phasing out of international projects will see Lendlease turns its attention to Australian development opportunities while retaining its existing international investment management capabilities.

The strategy is expected to deliver $125 million in pre-tax savings from the company’s cost base over the next 12 months, while investors can expect future capital returns from the company.

Lendlease estimated the restructure will release about $3.42 per security of net tangible assets from a newly established capital release unit (CRU), with most of this expected by the end of FY25.

The news sent Lendlease shares 10 per cent higher to an intra-day high of $6.47 this morning.

“We recognise that our security price performance and securityholder returns have been poor as we have faced structural challenges and a prolonged market downturn,” says Lendlease chairman Michael Ullmer who announced last week that he will be retiring from the role at the company’s AGM in November.

“We need to take significant action at an accelerated pace to deliver value for our securityholders, capital partners and customers.

“Today we have announced the blueprint to position Lendlease for success – focusing on our core strengths and competitive advantages.

“We have thought very carefully about the necessary strategic refocus and made some tough decisions.”

Group CEO Tony Lombardo has declared the proposal as a “decisive” move that will see the emergence of a “new Lendlease” that is “fit for purpose”.

“This new Lendlease will be more easily understood by our people and customers, and transparent and predictable for securityholders,” says Lombardo.

“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.”

At the end of December last year, Lendlease had $10.4 billion worth of work in progress globally, including its latest project for Melbourne - the $1.7 billion Gurrowa Place in the Victoria Markets precinct.

It’s Australian development pipeline comprises $13 billion while it is actively competing on $13 billion of new development projects from an existing target market of $40 billion. Some $25 billion of this target market comprises mixed-use urban regeneration projects and $8 billion in pure residential projects.

However, the restructure will come at a cost with Lendlease expecting to post impairments of between $1.15 billion and $1.475 billion, including a writedown of goodwill on its US and UK construction businesses.

The company has maintained its FY24 guidance of 7 per cent return on group equity, equating to about $450 million of operating profit after tax.

Lombardo notes that Lendlease is not launching its new strategy from a “standing start” as the company has already undertaken significant work to progress its strategy.

“We are well advanced on several transactions, and we have clear plans of action to implement the necessary change to reorient the organisation,” he says.

“We are confident in the strategy and have conviction in how we will execute.

“The optimum path we have chosen is built upon the creation of lasting economic value. We will not walk away from commitments to our valued customers, and we will treat our people around the world with the care and respect they deserve as our business changes.”

Lombardo says Lendlease holds a market leading position in Australia where the company sees significant opportunities to grow its business.

“We are exceptionally well placed to benefit from the key structural shifts underway in the economy,” he says.

“We have retained our Investments platform in international markets for several compelling reasons. Lendlease has deep relationships with major capital partners, and this presents an appealing long-term growth vector through continuing to build our funds under management.”

Lendlease plans to reduces its co-ownership interests over time and remove regional cost structures that have weighed on performance.

“The establishment of the Capital Release Unit (CRU) is central to our new strategy,” he says.

“The CRU will facilitate the recycling of $4.5 billion in capital of which $2.8 billion is anticipated by the end of FY25.

“Our priority will be to pay down debt and efficiently return capital to securityholders. This is a profound change and is based upon making some very tough but necessary decisions.”