Lendlease holds IDC earnings guidance as gearing lands in the mid-30s

About Lendlease

Lendlease Group (ASX: LLC) is an Australian-listed property and infrastructure group operating across investments, development and construction, alongside a Capital Release Unit established to divest non-core assets and simplify the business. The group has been executing a strategy, set out in May 2024, to reduce net debt, exit international construction operations and concentrate on its Australian development pipeline and funds management platforms.

Investments, Development and Construction

Lendlease maintained FY26 earnings per security guidance for its Investments, Development and Construction (IDC) business at 28–34 cents per security, a range that includes targeted transaction profits in the second half that are yet to be received. The guidance therefore remains subject to the group achieving its targeted FY26 completions.

Following $4.7 billion of new Australian projects secured in the first half, the group is working to unlock more than $10 billion of balance sheet positions at Rozelle Bay in Sydney and the Brisbane Athlete Village, and continues to progress further near-term opportunities, subject to approvals, partner commitments and finalisation of commercial terms.

In Construction, new work secured in FY26 is expected to be around $6.5 billion, supported by social infrastructure, defence, transport and data centres. Backlog revenue at 30 June 2026 is expected to be approximately $8 billion, supporting earnings momentum into FY27. Within Investments, the focus has been on performance, liquidity and growth, with $4.9 billion of capital recycled for investors across the group’s platforms during the year as it actively deploys mandate capital and sources value-add opportunities.

Capital recycling and the balance sheet

Lendlease reported significant progress on contracted transactions. Several conditions precedent have been satisfied on the TRX Retail and Office divestment in Malaysia, expected to deliver around $400 million of proceeds and achieve full cash settlement before 30 June 2026. The joint venture with The Crown Estate, comprising six UK development projects worth around $300 million, has had a number of conditions precedent satisfied and is anticipated to part-settle across FY26 and FY27 depending on the timing of conditions on individual projects.

Capital Release Unit (CRU) land holding divestments include the recently announced sale of MSG North, at around $90 million of net proceeds, and the June sale of a mixed-use commercial land parcel at TRX to joint venture partner TRX City at around $50 million, at book value. Both are anticipated to complete in the first half of FY27, with approximately $140 million of cash proceeds to be received.

The group is also progressing several other major divestments representing around $1 billion of anticipated cash proceeds across FY26 and FY27, including the sale of the Keyton retirement living co-investment, the UK Build-to-Rent portfolio transaction, and the release of capital from the APPF Retail liquidity redemption process.

Gearing and cash flow

While Lendlease continues to prioritise capital recycling to reduce net debt and simplify the business, it now expects underlying gearing — which excludes the benefit of hybrid securities — to be in the mid-30% range at FY26, reflecting transaction timing and more challenging market conditions. The position incorporates around $1 billion of second-half development and land payments, principally net production spend and deferred land payments on the completed One Sydney Harbour and Victoria Cross projects, plus around $200 million of capital expenditure to complete major projects within the CRU.

With those commitments now largely complete, the group expects FY27 cash flows to benefit from materially lower CRU capital outflows, targeted residential settlements, and the application of capital recycling proceeds primarily to debt reduction. Capital requirements from development operations are expected to reduce materially, supported by a more capital-efficient partnering model and settlements from One Circular Quay and Victoria Harbour, while Construction generates additional cash flow as revenues grow and Investments becomes self-funding through recycling of co-investments. On 25 May 2026, Moody’s restated its Baa3 investment grade credit rating with a stable outlook.

CRU progress and outlook

Consistent with prior disclosure, no specific FY26 earnings guidance was provided for the CRU or the group. The group noted strong progress across FY25 and FY26, including the exit of international construction operations, major simplification of the group, more than $150 million in annual overhead cost savings, and $2.9 billion in announced or completed transactions. Since the May 2024 strategy update, the CRU has announced or completed around $2.9 billion of capital recycling, with contracted transactions of about $840 million announced but not yet completed.

With the largest and most complex transactions now well advanced, Lendlease said it is considering a more aggregated and streamlined approach to capital recycling, and will continue to assess value-maximising pathways for the residual CRU portfolio as the pipeline progresses.

Conclusion

The update reinforces Lendlease’s continued shift toward a simpler, less capital-intensive business, with most of its largest divestments now complete or near completion and a clear focus on directing proceeds to debt reduction. While higher-than-targeted gearing and the slippage of some transactions into early FY27 reflect a tougher market, the group points to materially lower capital outflows and improving cash generation ahead, the realisation of which will depend on transaction timing, valuations and external market conditions.