Release Date: August 18, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Lendlease Group (LLESF, Financial) has made significant progress in its capital release strategy, with $1.9 billion of transactions already announced towards the FY25 divestment target of $2.8 billion.
- The company achieved $3.4 billion of underlying growth in funds under management and completed more than $8 billion in development projects.
- Operationally, Lendlease Group (LLESF) reported no fatal incidents across its portfolio and remains on track to reach its net zero carbon target by FY25 for Scope 1 and 2 emissions.
- The company has removed more than $60 million of overheads in FY24 and is targeting a further $125 million of pretax run-rate cost savings by the end of FY25.
- Lendlease Group (LLESF) maintains strong liquidity with $2.2 billion, comprising $1.2 billion of available undrawn debt and $1 billion of cash and cash equivalents.
Negative Points
- The group recorded a statutory loss after tax of $1.5 billion, which included $1.38 billion of impairments and charges required to implement the refreshed strategy.
- Core operating earnings per security were $0.381, equating to a return on equity of 4.4%, which is relatively low.
- The company faced delays in the completion of the Australian communities sale and the Asia Pacific Life Sciences joint venture, impacting the financial results.
- Gearing of 21% includes a 1% impact due to strategy-related impairments and charges, which is above the group's FY24 target range.
- The construction segment was impacted by supplier insolvencies, leading to retendering for various goods and services, with an estimated impact of $50 million in FY24.
Q & A Highlights
Q: Can you provide an update on the progress of asset sales, specifically TRX and China?
A: The process for each of the three divestments is underway. We anticipate working on these throughout the next 12 months. The TRX sale process is well underway, and we expect it to materialize soon. We are targeting more than $900 million in proceeds from these sales. (Anthony Lombardo, CEO)
Q: Can you elaborate on the guidance range of $0.54 to $0.62 for FY25?
A: We have standardized our approach to guidance, focusing on clear earnings from investments, development, and construction segments. The $0.48 is secured or highly probable, including base fees in the Investments business, construction secured workbook, and development management fees. The additional $0.14 to reach the top end will come from other transactions in early stages. (Anthony Lombardo, CEO)
Q: Are there any assumptions for Victoria Cross in the guidance?
A: We are not assuming any profits from Victoria Cross this year. There was a $57 million revaluation downwards in FY24 due to cap rate expansion. However, we are positive on leasing progress with significant tenant interest. (Simon Dixon, CFO)
Q: What is the outlook for overhead cost savings in FY25?
A: We are targeting further overhead savings of $125 million on a run-rate basis by the end of FY25. For FY25, it is reasonable to assume we will realize half of those savings, with the full benefit coming through in FY26. (Simon Dixon, CFO)
Q: Can you clarify the approach to guidance and any one-off assumptions in the $0.54 to $0.62 range?
A: Going forward, we are simplifying our core operating profit definition, only adjusting for investment property revaluations. We are not currently anticipating any large one-off items. (Simon Dixon, CFO)
Q: What is the status of the buyback of UK sterling bonds?
A: We have completed the buyback of UK sterling bonds and are not assuming any further buybacks in our guidance. (Simon Dixon, CFO)
Q: Can you discuss the stabilized yield of 3.3% and its potential to reach 4% or 5%?
A: The distribution yield has been impacted by the cost of debt. We are aiming to drive performance and improve yields, but the biggest factor will be interest rates. (Anthony Lombardo, CEO)
Q: How are settlements at One Sydney Harbour progressing?
A: Settlements are tracking to plan. The third tower, which includes key worker housing, always had a lower margin attached. (Anthony Lombardo, CEO)
Q: What is the expected debt reduction in FY25 and FY26 to reach the 5% to 15% gearing target?
A: We expect to reduce debt by $1 billion in FY25. Additional capital recycling and allocation will help us reach the 5% to 15% range by the end of FY26. (Simon Dixon, CFO)
Q: What is your latest view on real estate markets?
A: We are seeing positive signs in capital markets and deal activity, particularly in the US and Australia. Long-term bond rates have dropped, and there is strong momentum in luxury residential and build-to-rent sectors. (Anthony Lombardo, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
