Lendlease looks to partner deals to boost funds management to $70b

Global property giant Lendlease says sales are rising at its key luxury $3.1 billion apartment and hotel development in Sydney’s gateway zone of Circular Quay and the nearby Barangaroo and is confident its transition to become an investment-led business will steer the company through volatile economic conditions.

In the next two years group is targeting $70 billion in funds under management and with new capital partners has already reached $48 billion. The company’s global development pipeline is sitting at $121 billion, including the four planned Google projects in Silicon Valley and the Melbourne Quarter development.

Artist impression of Lendlease’s One Sydney Harbour Residences at Barangaroo .
Artist impression of Lendlease’s One Sydney Harbour Residences at Barangaroo .

In Sydney, sales have reached 80 per cent across the Barangaroo residential towers, while at the planned One Circular Quay site, mostly local buyers have snapped up 30 per cent of the 158 apartments.

Lendlease chief executive Tony Lombardo said while the rest of the fiscal year would be challenging with rising interest rates, inflation could be peaking leading to improved conditions across its business in 2024.

“Accelerating our transition to being an investments led company is a priority,” he said. “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 2026,” Lombardo said.

The $5.72 billion ASX-listed diversified group has focused on becoming a leaner and more efficient business, which led it to almost halve its net loss of $141 million for the first half of the financial year, compared with $264 million loss this time a year ago.

However, the loss also included an unexpected $200 million provision after the UK government extended the defects liability period for residential building from six to 30 years. The retrospective hit was industry-wide and impacts the group’s 56 home portfolio it acquired from British group Crosby in 2005.

Investors reacted with a 6.4 per cent sell-off in the share price to $7.76.

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Lombardo described the need to make the provision as “disappointing by the UK government”, but said Lendlease had insurance in place and was confident it would be able to reduce the costs in due course.

“It is disappointing when the government introduces retrospective legislation, and it’s changed the game … some of what we’re being asked to remediate actually predates the acquisition of the portfolio when it was actually in construction,” Lombardo said.

“We expect that any cash expenditure relating to this provision will be spread across a period of at least five years. This estimate is before anticipated recoveries from third parties, including insurances and supply chain.”

Lendlease operates under three main areas of investment, development and construction.

Sequoia Asset Management’s Winston Sammut said hopes for support for the share price rests on a general improvement in the current second-half.

“The 2023 guidance, whilst being reaffirmed, is at the low end of expectations. Whilst headline net profit after tax was marginally below consensus, it was helped by the one-off $78 million profit from partial sale of military housing in the US combined with lower costs,” Sammut said.

Lendease’s construction was down about 20 per cent year-on-year due to supply chain issues, high shipping costs and labour shortages.

Lombardo assumed the helm at Lendlease in June 2021 as the global pandemic was starting and reviewed the business with the aim to simplify the structure and lower costs.

He said at the results briefing he wanted to see between 40 per cent to 60 per cent of revenue generated from the Australian operations and increase capital partners across the global business.

The group reported an interim dividend of 4.9¢ payable on February 17.

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Source: Thanks smh.com