Lendlease (LLC) – Weak sale result

Lendlease is a property developer and fund manager. The company was founded in 1958 and is headquartered in Barangaroo, Australia. Lendlease (LLC) has sold its stake in the Santa Giulia mixed-use project (MSG North) in Milan to Italian developer Bizzi & Partners for a headline price of $250 million, a sharp discount to book value that results in a loss on sale of $175 million and a surprisingly weak outcome given the property group’s long history in Italy. The deal sent shares in Lendlease down almost 6% on the day.

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It appears to Ord Minnett that Lendlease did not stay abreast of conditions in the Italian market, which meant the value of the MSG North asset had not been written down to a more realistic valuation.  We note the Australian company still has another Italian asset to sell, being its share of a partnership with Canadian pension fund CPP Investments to develop the so-called Milan Innovation District.  Under the deal, Bizzi & Partners acquires Lendlease’s stake in the fund that owns the MSG North development rights for $250 million, comprising $90 million in cash and the assumption of $160 million in project debt, along with responsibility for future remediation works and infrastructure.

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The divestment continues the company’s retreat from offshore markets to focus on Australia, but the MSG North sale has led us to adopt a more conservative view of the prices the capital release unit (CRU) – the arm established to divest its offshore assets – can realise for the other assets on the block. We now assume CRU asset sales will be sold at a 6% discount to book value, versus 4% prior, while our FY26 estimates for CRU are downgraded by more than 40% to a loss at the operating earnings (EBITDA) line of $581 million as we incorporate the MSG North result. We also reduce our valuation of the CRU arm to $1.3 billion from $1.4 billion in mid-May – which was already a devaluation from $2.6 billion – and a steep discount to Lendlease’s book value for the CRU assets of $3.7 billion. At the funds from operations (FOO) per security level, this drives a 48% increase in our estimated loss for FY26. Our positive FY27 FFO per security forecast is upgraded by 16.7% and our FY28 estimate is downgraded by 5.8%.

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This leads Ord Minnett to cut its target price on Lendlease to $2.85 from $3.05.  We maintain our Hold recommendation despite apparent upside on offer, given the uncertainty around further asset sales and business performance as the one-time blue-chip company reshapes its business. We also argue consensus is taking a far too optimistic view of the company’s earnings outlook, noting our expected loss at the FFO per security level for FY26 is more than double market expectations, while our FY27 and FY28 forecasts are below consensus estimates 73.2% and 43.0%, respectively.

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