Lendlease Group (ASX:LLC) outlined progress on its May 2024 “strategy reset,” provided half-year financial results, and reiterated key FY2026 targets during its earnings call from Sydney. Management emphasized a repositioning toward its “IDC” platform—investments, development, and construction—alongside an accelerated capital recycling program under its Capital Release Unit (CRU), which is intended to reduce gearing and enable capital returns and reinvestment.
Strategy reset centers on IDC growth and CRU capital recycling
Chief Executive Officer Tony Lombardo said the group is being repositioned to focus on IDC, which he described as businesses that have historically delivered double-digit returns through the cycle and are currently showing “strong operating momentum.” A second major component is the CRU, established to recycle capital from “underperforming or non-core parts of the group.”
He said contractual visibility had improved in the first half through signing actions and progress toward satisfying conditions precedent for both the joint venture with The Crown Estate and the TRX transaction. He added that processes for Keyton Retirement, UK build-to-rent assets, and the recapitalization of the Australian Prime Property Fund Retail (APPF Retail) were “now in exclusivity,” and that other capital recycling initiatives were underway.
Half-year results: lower IDC EBITDA and group loss driven by revaluations and provisions
Lombardo said limited development completions and lower transaction earnings in investments weighed on performance. IDC segment EBITDA was AUD 204 million, down from AUD 341 million in the prior comparative period, though management highlighted improved construction performance.
For the group, Lombardo said AUD 318 million was recorded for the half, including AUD 108 million of negative investment property revaluation and impairments, “primarily Singapore.” He also cited after-tax charges including AUD 95 million related to community land parcels that had been flagged previously, and a further AUD 14 million tied to “tail risks” in exited international construction businesses.
Chief Financial Officer Simon Dixon provided additional detail, reporting:
- Group operating profit after tax (OPAT) was a loss of AUD 200 million, compared with a prior period gain of AUD 122 million.
- Statutory profit after tax was a loss of AUD 135 million, compared with a prior period gain of AUD 318 million.
- Net finance costs decreased to AUD 8 million, reflecting lower average cost of debt and lower average net debt levels.
- Depreciation and amortization declined as IT amortization wound down and tenancies were exited following simplification.
Dixon also said CRU recorded an EBITDA loss of AUD 284 million. That loss included a write-down in communities development land parcels (AUD 136 million pre-tax, described on the call as non-cash) and AUD 44 million related to tail risks in exited international construction businesses, along with ongoing underlying costs (people, IT, legal, insurance). He contrasted the result with the prior period, which included AUD 160 million of capital recycling profits that did not repeat in the half.
Investments, development, and construction updates
In investments, management said funds under management were stable at AUD 48.7 billion, and noted AUD 4.4 billion of gross property transactions across the investment platform in the period. The company reported AUD 2.9 billion of co-investment capital and said the co-investment yield remained 4.4%.
Management said the platform had more than 80 investors, with additional capital available to deploy and capital being raised for a Japan value-add mandate. Portfolio movements cited included increasing investment in the APPF Industrial Fund and reducing ownership in an “L REIT.”
In development, the company reported AUD 1.3 billion of development completions in the half, including in Sydney. Across the residential business, management said gross apartment pre-sales increased to AUD 3.3 billion through FY2027, expected to deliver gross cash proceeds of around AUD 1 billion.
Lendlease also described progress in expanding its Australian development pipeline, citing new projects secured during the half, including the Sydney Metro development and a luxury residential project at 175 Liverpool Street in Sydney in partnership with entities including Lendlease’s stated partners. It also referenced future development opportunities from balance sheet holdings, including RNA and Rozelle Bay in Sydney, and two residential projects in Melbourne.
In construction, management said revenue growth was strong, supported by project commencements such as the new Melton Hospital and data center projects. Dixon reported construction segment EBITDA of AUD 69 million, driven by 22% higher revenues and improved project performance, and said the segment achieved an EBITDA margin of 0.7% for the half. Management also cited an AUD 4.0 billion work intake result and said the business had AUD 8.0 billion of work in hand, with an additional AUD 9.0 billion of active tenders and a preferred workbook of AUD 6.9 billion.
Balance sheet, gearing, and cost-out targets
Management reported FY2026 half-year gearing of 25.8%. Dixon said that excluding the benefit of recent hybrid issuances, underlying group gearing was 32.9%. The company cited available liquidity of around AUD 2.7 billion, including committed undrawn debt and cash equivalents, and said debt maturities were “well balanced,” with an average maturity of 2.5 years.
On costs, Dixon said net overhead was AUD 197 million, implying a run rate below AUD 400 million. He said the company actioned pre-tax run-rate cost savings during the half, with further savings targeted by the end of FY2026 and a targeted overhead exit run rate of around AUD 350 million. Lombardo later stated the company was targeting an exit run rate of around AUD 300 million by the end of FY2026, reflecting additional targeted cost-saving initiatives to be actioned throughout FY2026.
FY2026 outlook, medium-term expectations, and leadership change
Lombardo said FY2026 remains a “transitional year,” maintaining IDC earnings guidance of AUD 0.28 to AUD 0.34 per security. He said second-half IDC earnings are expected to be stronger than the first half, supported by anticipated transactional profits, and that IDC earnings are expected to recover in FY2027 with major development completions, a strong construction outlook, and continuing initiatives in investments.
Management said no guidance was provided for CRU earnings per security in FY2026, given the unit’s focus on execution while balancing value and speed of capital realization. The company said it was targeting total capital recycling of AUD 2 billion in FY2026, and reiterated a goal to reduce gearing to 15% by the end of FY2026, subject to completing outlined recycling initiatives.
During Q&A, executives said the IDC guidance range depends primarily on operational delivery across investments, development, and construction, as well as timing of the TRX and The Crown Estate transactions. They also said the hybrid issuance benefit in the first half was AUD 9 million, and described a AUD 47 million reversal of a prior period impairment in development as tied to provisions reversing as projects progressed.
The company also confirmed that Dixon will step down as CFO at the end of February as he relocates to Asia, with Andrew Neal to take over from March. Lombardo said other executive changes were also underway, and that leadership appointments were in place to support execution of the turnaround and CRU capital recycling plan.
About Lendlease Group (ASX:LLC)
Lendlease Group operates as an integrated real estate and investment company in Australia, Asia, Europe, and the Americas. It operates through Development, Construction, and Investments segments. The Development segment develops inner-city mixed-use developments, apartments, communities, retirement, retail, commercial assets, and social and economic infrastructure. The Construction segment provides project management, design, and construction services primarily in the commercial, residential, mixed use, defense, and social infrastructure sectors.
