Lendlease counts on Baby Boomer demand for luxury apartments
Lendlease is banking on growing demand from Baby Boomers wanting luxury accommodation – and largely untroubled by interest rates – to drive a residential development business that is now more focused after the sale of its masterplanned communities business.
While the diversified developer, builder and investor could still provide housing for buyers on a range of incomes in large urban precincts and would also like to develop build-to-rent housing, it was strongly chasing wealthy downsizers, chief executive Tony Lombardo said.
“On the luxury segment, we continue to see a trend of Baby Boomers looking at their current detached houses and looking to downsize,” Lombardo said after announcing first-half earnings for the company.
“There are a number of off-market sites that we’ve been looking at that fit the luxury genre here in Sydney. We think that trend is something that will continue for the years to come, as we can see a significant amount of Baby Boomer wealth being unlocked.”
Lendlease flagged the $118 million EBITDA earnings boost from settlements at the Residences Two tower at its One Sydney Harbour development and talked up further opportunities in the luxury residential pipeline. The company is undergoing a major turnaround process and reported a mixed bag of results on Monday.
Revenue fell 7.8 per cent to $4.5 billion in the six months to December, but it got a boost from proceeds from the sales of assets such as its life sciences properties and masterplanned communities business, pushing it to a pretax profit of $39 million, from a $173 million loss a year earlier.
Interim net profit after tax rose to $48 million from a loss of $136 million in its 2024 first half. The $74 million in devaluations of investment properties was down from $125 million a year earlier.
The company’s gearing rose to 27 per cent from 21 per cent in June 2024 for reasons including delayed receipts from some sales and expenditure for projects underway, but would materially decrease during the second half, remaining above the company’s targeted 5 per cent to 15 per cent range, and would only return to range by the end of FY26.
The company reaffirmed its earnings per security guidance of 54¢ to 62¢ this year, comprising about 18¢ in the first half and 36¢ to 44¢ in the second half.
Lendlease declared a 6.04¢ dividend – less than the 6.49¢ it paid a year earlier – payable on March 12.
The shares, which have fallen 11 per cent over the past 12 months – while the broader ASX S&P 200 index has gained 11 per cent – ticked down 6¢, less than 1 per cent, to $6.68 after the announcement.
Operating EBITDA earnings rose 39 per cent to $375 million, lifted by stronger performances at the company’s investments and development arms.
Building still tough
Lendlease’s construction business – hit last year by $50 million in costs as subcontractors went bust – swung to a loss of $25 million from $58 million profit as a result of two Australian fixed-price projects struck in the 2020-2021 period that it only identified as problematic after the current financial year had started, Lombardo said.
“As we continue to monitor the performance of the portfolio, those risks and issues do continue to emerge,” he said.
Chief financial officer Simon Dixon said the problems were limited to those two projects and Lendlease’s construction business would return to profitability in the current half.
Lendlease is undergoing a major overhaul of operations under a turnaround strategy forced upon it by investors in May last year. It said it had divested $2.2 billion worth of the $2.8 billion target it had set for this year, and was on track to meet its FY25 target.
Late last month, Lendlease said it had sold its Capella Capital infrastructure financing business to Japanese trading company Sojitz Corporation for $235 million, advancing its strategy to radically downsize the business with $2.2 billion worth of deals.
Going for luxury
Lombardo said Lendlease was restocking its residential development pipeline, with sites such as 1 Darling Point Road in Sydney’s Edgecliff, which it acquired with Mitsubishi Estate Asia last year for $132.5 million and for which it unveiled a $500 million scheme last week.
Lendlease will keep bidding for large precinct developments, such as Sydney’s Blackwattle Bay redevelopment project – on which it is on a shortlist of three, with rivals Stockland and Mirvac – and Melbourne’s Arden precinct, for which it was one of four shortlisted tenderers, he said.
The company was in exclusive discussions or negotiations where it was one of two bidders for over $20 billion worth of urban regeneration, residential and commercial projects, and was involved in early stage discussions over a further $16 billion worth, he said.
But Lombardo highlighted that the company was pursuing exclusive off-market opportunities and had signed a preliminary agreement for a “large luxury residential development” it would unveil in the current trading period.
“There’s very good, positive and strong demand that is not interest rate sensitive,” he said. “It’s really about disposing or, transacting on, existing dwellings that support that.”
