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Dive brief:
- “We’re not there yet,” was the message from Lendlease CEO Tony Lombardo about the company’s ongoing shift in strategy that favors real estate investment over construction and development. The company reported its first-half earnings for fiscal 2024 on Monday, posting a net loss of A$136 million ($89.3 million).
- CFO Simon Dixon attributed the loss to slumping valuations of the company’s property portfolio, reorganization costs and charges due to UK building refurbishment regulations.
- Lendlease has moved from building and developing to an investment-based model. With that shift, it has been more selective with its projects amid higher borrowing costs, but the shift remains arduous. Lombardo said the company has struggled to get development capital into the investment segment to generate higher earnings.
Diving knowledge:
Lendlease was previously required to pay nearly A$300 million by the 2023 fiscal year due to changes to UK laws on defect claims in residential projects in the country. In the first half of fiscal 2024, Lendlease had an additional A$22 million loss related to the changes.
The biggest hit, however, was A$125 million in lower property valuations in the company’s investment segment.
In the US, Lombardo echoed a similar sentiment to the one he aired Skanska during its earnings call earlier this month: the lack of sales has made it increasingly difficult to price their properties
“In the Americas, the outlook for commercial real estate in the sectors in which we are active remains challenged by a lack of transactional activity,” he said on the call.
On the bright side, Lendlease recovered an undisclosed amount from Google for its massive cancellation San Francisco Bay Area Project. The $15 billion project required millions of square feet of residential, commercial and office space, forming a campus for the search engine company. Google announced its intention to continue the project without Lendlease in early November.
Lendlease’s construction business generated revenue of A$3 billion in the period, down 18%. However, the company achieved A$2.6 billion in new work, an increase of 13%. While it characterized its backlog of work as “solid”, related revenue of A$8.3 billion was down 5% from a year ago.
Lombardo said the company has shifted its construction priorities in the US as part of the pivot to an investment-led business. The company has taken on fewer projects on the west coast and central region of the country, and has instead prioritized projects on the east coast, mainly in life sciences and health. In addition, the company has stopped listing residential projects for sale and projects worth less than A$150 million, Lombardo said.
Despite several back-to-back reports in the red, Lombardo’s message was that the company will stay the course.
“We have not changed the overall strategic direction of the group,” he said.
