Lendlease, Australia’s largest property developer, builder, and real estate investor, reported a significant widening of its annual loss, attributing the downturn to the impacts of a strategic overhaul and delays in reviewing the sale of key community projects. The company reported a full-year loss after tax attributable of A$1.50 billion (US$1.00 billion), a sharp increase from the A$232 million loss recorded a year ago.
Operational Challenges and Strategic Shift
Lendlease is undergoing a major operational shift, particularly in retreating from its overseas construction business. This strategic move is aimed at freeing up capital, with the company targeting up to A$4.5 billion (US$3.01 billion) in capital by exiting these operations. The firm has already sold A$1.9 billion in assets as part of its goal to divest A$2.8 billion by June 2025.
However, the company’s efforts have been hampered by delays in the Australian Competition and Consumer Commission’s (ACCC) review of a major A$1.3 billion sale of community projects to Stockland Corp. The ACCC’s review, delayed by over two months, has impacted Lendlease’s ability to finalize the transaction within the expected timeframe, contributing to the financial losses reported.
Impact of Strategic Overhaul
The strategic overhaul has seen Lendlease divest its U.S. construction business, including winding down operations on the West Coast and in Central regions, with agreements in place to sell its East Coast operations. This move is part of a broader strategy to simplify the company’s operations and focus on core areas of growth.
Despite these efforts, Lendlease continues to face challenging business conditions. Chief Executive Tony Lombardo noted that the results for FY24 reflect these challenges, as well as the early actions taken under the company’s refreshed strategy. “Our results for FY24 reflected challenging business conditions and the early actions from our refreshed strategy,” Lombardo said, emphasizing that the company has realized further cost savings through a simplified management structure.
Investor Pressure and Market Reactions
Lendlease has been under increasing pressure from shareholders, including major investors like John Wylie’s Tanarra Capital and David Di Pilla’s HMC Capital, to streamline its operations and improve financial performance. The company’s recent moves, including the sale of its U.S. construction business, are seen as responses to this pressure.
However, the underlying operational business remains challenged. Analysts at UBS have flagged concerns about the ongoing difficulties facing Lendlease, while brokerage Citi has highlighted that the market may raise questions about the company’s development pipeline, strategy, and cost management measures.
Market Performance and Dividend
Lendlease’s financial challenges have been reflected in its share performance, with shares falling as much as 2.7% following the announcement of the annual loss. Despite the losses, the company declared a final dividend of 9.5 Australian cents per share, a move that may aim to reassure investors amid the ongoing strategic changes.
Conclusion
Lendlease’s wider annual loss underscores the significant impact of its strategic overhaul and the challenges it faces in navigating complex business conditions. As the company continues to divest non-core assets and streamline its operations, investor scrutiny will likely remain high, with a focus on how effectively Lendlease can execute its strategy and return to profitability. The coming months will be crucial as the company works towards its asset divestment goals and addresses the operational challenges that have weighed on its financial performance.
