Lendlease Group (LLC) – Swings and Roundabouts

Lendlease is a property developer and fund manager. The company was founded in 1958 and is headquartered in Barangaroo, Australia. Ord Minnett reviewed its Lendlease (LLC) model ahead of the property development and funds management group’s FY26 results scheduled for release on 17 August.

‍

Overall, we trimmed our FY26 earnings estimate from the investments, development and construction (IDC) arm by a modest amount, albeit still in line with company guidance, but our forecast loss for the capital release unit (CRU) – the arm established to divest its offshore assets – increased significantly given higher gearing, up 600 basis points (bp) on the first half of the fiscal year, and disappointing results from asset sales so far. Further out, we forecast a strong rise in IDC earnings in FY27, largely driven by settlement on the One Circular Quay project, along with a wider construction margin and better performance from its funds management operations.

‍

For the CRU unit, however, we expect only a minor improvement in FY27 given the drag from higher gearing levels and other elevated other costs in the segment. In Ord Minnett’s view, the broader market is not factoring this into its expectations, with our forecast operating loss for CRU being almost double that of consensus. We previously forecast a $500 million share buyback over the far end of the forecast horizon (likely FY28 or FY29), but have now removed this assumption from our model given gearing will still be in the upper half of Lendlease’s 5–15% target range, albeit lower than it is now, and our reduced expectations for sales prices for the remaining $2.1 billion assets on the block – we now forecast an 11% discount to book value is achieved, steeper than our prior assumption of a 6% haircut on book value.

‍

Post our review, we have increased our estimated loss at the funds from operations (FFO) per security level by circa 18%, more than doubled our forecast for positive FFO per security in FY27, albeit the law of small numbers makes the percentage change irrelevant, and downgraded our estimate for positive FFO per security by 38.1% in FY28. We raised our target price on Lendlease to $3.20 from $2.85, however, as our lower assumed weighted average cost of capital (WACC) of 10.8%, down from 11.4%, the value of asset sales already agreed, and lower forecast gearing, outweighed the changes to our earnings estimates.

‍

We maintained our Hold recommendation despite the apparent upside on offer, given the uncertainty around further asset sales and business performance as the one-time blue-chip company reshapes its business.

‍