I must advise you that this call is being recorded today, Monday, 19th of May, 2025. I would now like to hand the call over to Mr. Tony Lombardo, Group Chief Executive Officer. Thank you, Tony. Please go ahead.
Good morning, and thank you for joining today's market briefing. I'm Tony Lombardo, Group Chief Executive Officer and Managing Director of Lendlease. With me is Simon Dixon, Group Chief Financial Officer, and Tom McCallum, CEO of Development. In May last year, we announced an updated strategy to simplify the group and recycle $ 2.8 billion of capital in FY 2025, and to accelerate the release of capital from our offshore development projects and assets. In line with that strategy, I'm pleased to announce we've agreed to enter into a landmark partnership with The Crown Estate for a new 50/50 joint venture that will include six of Lendlease's development projects in the U.K. The establishment of the joint venture is subject to conditions precedent, including public authority consents, with parties working to satisfy these conditions precedent during FY 2026.
This partnership will create an industry-leading alliance with deep sector experience, and we believe creates value for our security holders, communities, clients, and partners. The Crown Estate is an independent commercial business that holds more than GBP 30 billion of core, land, and real estate asset holdings across the U.K. and is tasked with returning its profit to the U.K. government. They are an ideal partner for Lendlease to unlock value within our high-quality U.K. development portfolio and accelerate the release of capital. This will be achieved by partnering with The Crown Estate to progress the master planning and entitlement of around 26,000 new residences and more than 900,000 sq m of prime sustainable office and life sciences space. The transaction is expected to release more than $300 million of development capital when the transaction is completed, slightly above Lendlease's current book value.
It will also halve our share of future funding commitments, which will further reduce Lendlease's capital commitments by another $ 125 million. Additionally, remaining funding commitments to progress master planning and entitlement across the portfolio are expected to be self-funding through the anticipated sale of entitled land plots to third-party developers. Lendlease will act as master developer for the joint venture and will receive development management fees for these services on a cost-plus and performance basis. After three years, both joint venture partners will have the right to each sell down a 25% interest in the joint venture. Additionally, both partners will have the right but not the obligation to pursue vertical development, as planning milestones have been achieved.
For example, Lendlease may choose to participate in the development of new investment products across build-to-rent, life sciences, and sustainable office assets within the portfolio, in support of its international investment management platform. Any election by Lendlease to participate in vertical development would require an initial minimum equity commitment of 10%. Lendlease's participation in vertical development would provide it with additional development management rights for the project, earning a percentage fee on the total development value. In addition, when the investment product is completed, Lendlease will continue to earn investment management fee streams. Lendlease's interest in the joint venture is expected to be earnings accretive in year one, with the benefit of interest cost savings and development management fee streams on a cost-plus and performance basis as master developer for the joint venture.
There is also potential for Lendlease to receive future performance fees, subject to planning, valuation, and project outcomes. Lendlease expects its returns from the joint venture to exceed the group's cost of equity. If any vertical development is pursued, it will also be on the basis it exceeds the group's cost of equity and will be assessed against the group's capital allocation framework. The release of more than $ 300 million of capital at slightly above book value brings Lendlease's total of announced and completed capital recycling initiatives to $ 2.5 billion in FY 2025, out of a target of $ 2.8 billion, and provides additional progress towards launching a security buyback. This partnership leverages our expertise in delivering city-shaping urban regeneration while unlocking value for our security holders within our high-quality U.K. development portfolio.
Positively, it will also accelerate the release of capital for the group in line with our strategic objectives and commitments to our security holders. In other operational updates, I'm pleased to announce that an investment mandate secured earlier in the year for the management of $ 1.2 billion Australian office assets has now commenced. The mandate for Aurora Place in Sydney is on behalf of an existing client, the National Pension Service (NPS) from South Korea, and was secured as part of a competitive process. This is an endorsement of Lendlease's investment management capabilities in Australia from a major global investment partner and brings Lendlease's funds under management of Australian office assets to approximately $ 20 billion, with circa 80% in Sydney out of our $ 50 billion-plus funds under management, as we continue to increase scale across our Australia and international platform.
Lendlease is a leader in the investment management of prime and A-grade sustainable office assets in Australia, with a strong presence in the Sydney market. This news also followed Lendlease's recent introduction of two new investment partners into 21 Moorfields in London, leveraging our local and international capabilities. Lendlease remains committed and focused on driving the performance of its funds and mandates across its Australian and international investment management platform. Thank you, and we'll now open up for analyst questions.
Thank you. The line is now open to analysts. Your first question comes from David Pobucky from Macquarie Group. Please go ahead.
Good morning, Tony, Simon, and Tom. Thanks for taking my questions. Just the first one on the $300 million of proceeds, just wanted to clarify whether you have any other funding requirements across the rest of the business, or will the proceeds be used to pay down debt initially?
Yeah, I think, firstly, we've highlighted, if you look at the ASX release this morning, we did do a property project and capital summary. We were projecting out that the total funding for this part of the portfolio would be in the vicinity of somewhere between $ 604 million-$ 644 million by 31 December 2025. There is some CapEx that the group will be spending as we continue to progress various commitments that we have with our government partners, and that's in regards to planning, site-wide infrastructure, and the like. What we will assume is when we do complete that $ 300 million or so on completion, Lendlease will use those funds to pay down debt.
Yep, that's right. To turn to Tony's earlier point, at the joint venture level, in terms of progressing master planning, that is expected to be self-funding through ongoing land sales.
Thank you. Just the second one on the $10-$30 million contribution in FY 2026, do you expect that to flow through to OPAD, or is that asset-level profit? I know that you mentioned you expect this to be earnings accretive in year one.
Yeah, on completion of transaction, we are anticipating there will be some profits, and we would, on completion, give a clear indication of those profits that we will generate. Going forward, the biggest things for forward earnings should start to see a lower cost of funding for the group, and the group will earn development management fees, and the margin on those fees is circa 30%.
Thank you. And just the final one before I turn it over, you're not obligated to undertake future development, so I just wanted to understand the likelihood in your thinking around participating in that vertical development versus selling down in the three years post the establishment of this JV. Thank you.
I think, David, on that last point, firstly, we'd put it through our capital allocation framework. It needs to earn above our cost of equity, as we've clearly articulated to the market. If we do decide to make that decision, Lendlease will participate in that development. We are committed to then putting 10% of that equity. Our partner, Crown, if they participate, would put in 50%, and Lendlease would look to find another 40% from our international and Australian investor management partners. That will then allow us to continue to scale up our investment management business going forward internationally. As you've pointed out, it's just a right. There's no obligation. We will assess every opportunity with the capital framework we've established and exceeding our cost of equity.
Okay. Thank you very much. Appreciate that.
Thank you. Your next question comes from Simon Chan from Morgan Stanley. Please go ahead.
Hi, good morning, guys. Hey, Tony, you're not teasing us here with a potential return into international developments, right? I mean, in May last year, right, about a year ago, that bucket of assets was land management agreements to be revised. You're going to satisfy planning obligations, and then you sell all the parcels of land, right? Pretty clear, right? Now it's a joint venture, and you've left yourself the option of going back into vertical developments, right? So are you actually getting back into international development here?
No. The joint venture we've announced today is across being the master developer. That's one. When we announced the strategy 12 months ago, what we were very clear is that the master development had significant obligations, which would see Lendlease manage those obligations for four to five years, potentially, as we continue to do what we needed to do for our key clients and customers there. Today's announcement is positive because, fast forward 12 months on to today, we're now bringing back $ 300 million of that capital, which we didn't have any certainty to bringing back previously, so that's a positive one. We'll continue to fulfill the master development obligations and look to sell down and recycle capital. What we have done is make sure we've given ourselves optionality.
If we felt in our investment management platform there was product that was in excess of our cost that would deliver above our cost of equity, we have the ability to participate. It creates that optionality for the business to go vertical in the investment management platform.
Fair enough. In your ASX release, you talked about how this is right at the bottom of the front first page. You talked about how it is anticipated that entitled landlords should be able to be sold to third parties. Is there something funny with the wording? What do you mean it should be able to be sold to third parties? Why would it not be able to be sold to third parties?
We've got various obligations with our partners, and it's very important to make sure that we're speaking to the boroughs that we deal with and making sure that that's fine. It's not trying to be tricky. It's just been stating the obvious that there's partnerships, and it's making sure with our partners that they are fine with us continuing down that pathway.
Cool. Just one last one from me. Any updates as to the rest of your capital release unit strategy? I think originally you were targeting $4.5 billion of asset sales across two tranches, a $2.8 billion and a $1.7 billion tranche. You've done $2.5 billion now. How's the rest of the $2 billion looking?
Yeah, I think we have three other key processes that we talked about, that being retirement living Australia, retirement living, which is Ador Garden in China, and also TRX. They are all ongoing processes. We bid in each of those processes today as we run through them, and we are continuing to progress them. Hopefully, in the not-too-distant future, we will come back to market with some updates on that program. You are right. We called out that we were targeting $ 2.8 billion in FY 2025, and we have now achieved $ 2.5 billion based on completed and announced transactions.
Yeah.
Great. Thanks very much, Tony. Cheers.
Thank you, Simon.
Thank you. Your next question comes from Tom Bodor from UBS. Please go ahead.
Morning, Tony. I'd just be interested in how much residual overhead is in the EMEA region now once this transaction gets done, or does it actually cover the overhead now within the projects?
Yeah, I think that's a good question. What we've done is, over the year, we've progressed a significant amount of cost out. Where we sit today, we're actually above that $125 million target we've set for the FY 2025 year, so that's pleasing. The overhead associated with managing these projects will be covered under the development management agreement. As we pointed out, they'll be done on that cost plus a margin of circa 30% for the resources that we maintain to deliver on those obligations. It's a very good outcome because the cost now is fully funded with a 30% margin on it.
Okay, but you've now still got the Italian projects and an iron business there. Is there some unallocated overhead associated with the EMEA region that's not covered after this transaction?
Yeah, you're right to call out. They're out of the U.K., and we're working through strategies around, sorry, Italy. There are Italy assets that we are working through strategies there, and we're working on what's the appropriate level of cost. At the full year results, we'll provide an update on how we see Italy playing out. Investment management, we've factored that into the global platform that's now being put together over the last 12 months. Those costs are covered in how we are managing, firstly, the investment business under the cost of sales and the right overhead to deliver our targeted margin there at 40% plus.
Would the overhead in the U.K. be less than $10 million now outside these projects, unallocated, the overhead in the U.K.?
Yeah, I don't have the exact number. I will come back to you, Tom, on that detail and will provide again more color at the full year results.
Okay, thanks.
Thank you. Your next question comes from Suraj Nebhani from Citi. Please go ahead.
Thanks, Tony, and thanks tea m. Just a quick one on funding requirements. You called out $ 10 million-$1 50 million funding to 31 December 2025. That's something, Tony, I believe you were referring to self-funding in the opening remarks. Would you say that is that additional capital Lendlease needs to allocate, or is it self-funding?
That's a we've allocated a certain amount of capital that we use based on site-wide costs and the like we need to fund. So we're just forecasting out what that CapEx balance should be across those six key projects that we're talking about as part of the joint venture. As you're pointing out rightly, that we will aim to deliver land sales and the like, which will also help support some of that funding. That's why we've put out a range, because it really is dependent on how we execute some of those land sales and the like as we progress the strategy over the coming six to seven months leading up to the 31 December 2025. We would anticipate, as I called out, the transaction closing in FY26, and that will see Lendlease circa bringing back the $300 capital that we've called out.
I understand. I think there was some worrying around additional progress towards a buyback. What's the latest thinking there? Obviously, it sounded like out of the $ 2.8 billion, $ 500 million was allocated to a buyback. I guess keen to understand the latest thinking there.
Yeah, I think the key for us, we set a couple of key principles to announce that buyback. Firstly, we called out the need to deliver $ 2.8 billion of capital recycling and also have certainty that that capital and those transactions will close within the right respective timeframe. Secondly, we said we updated our gearing range to that 5%-15%, and we stated by the end of FY 2026, we would like to have our projected forecast showing that we'll get back into that gearing target range. Once we're comfortable that we satisfy both those two key objectives, that will give us the ability to then come back to market with launching a buyback.
Yeah. I mean, Suraj, I think that's the right summary. It clearly takes us one step closer. The transactions that are in that $2.5 billion that are yet to close are obviously the transaction that we've announced today and also the Capella transaction. We're waiting for cash close for those two settlements or certainty around cash closing those two settlements and the timing. The other of those three transactions that Tony mentioned earlier on TRX, on Ardor Gardens in Shanghai, and on Retirement Living Australia, clearly we want to see sort of further progress across those three large capital recycling initiatives.
I understand. One final one before Tony again. Clearly, this is a joint venture sale, not a 100% sale. I know you guys have retained optionality for future development, but keen to understand, were there other offers on the table, or did you see this as a potential to strike a deal early, get some capital back? I'm just keen to understand the strategy to get 50% and not 100% out.
Yeah, I think the most important thing was two things when we looked at trying to solve for the land management agreement. They're long dated. They are contractual. What we were looking for was the right partner. By being able to secure The Crown Estate, it brings us the best, I believe, partner that we could have to support us on that. Firstly, that was one. We were looking to ensure, as we said, this was probably a three- to five-year proposition to relieve capital out of the land management. To be able to announce today the certainty around bringing back $3 00 million of that capital at or above its book value, we feel that that's a very good outcome for our security holders. We took those two things as key objectives and principles.
We have got, as we pointed out in the agreement, some flexibility to sell down post three years another 25%. That has been built into the agreement. I think all in all, I think that is a great way for us to realise capital without, from my perspective, destroying economic value. I think it is the best outcome for our security holders.
Just one, thanks, Tony. That makes sense. Just one final one. I do not want to hog all the time, but just one final one on international development. I guess, is there any aspirations there to do international development, or is it this particular deal where you will see that as a potential outcome so you are happy to do it but not otherwise?
Yeah, I think what we've created under this agreement, Suraj, is the flexibility to participate in the vertical development via our investment management. We've limited our minimum co-investment to 10%. If we were to participate vertically, we would need to firstly, Crown would commit 50%, Crown Estate would commit 50%, and we'd need to find another partner for 40% for us to give ourselves the certainty to participate under that arrangement that we've agreed.
Okay. Thank you. Thanks for the time.
Thank you.
Thank you. Your next question comes from James Druce from CLSA. Please go ahead.
Yeah, hi. Good morning, Tony and team. We're 40 days to the end of the financial year. I was just curious if you could give us a guide to where you think your gearing is going to wind up on that 15%-20% guidance you gave at the half year.
James, perhaps we didn't give guidance at the half year on where gearing would land for the full year. Our expectations are the gearing will be lower at the full year as compared to the half year, so we're trending in the right direction. The guidance we have given is that we expect to be back within the revised range to 5%-15% range by the end of FY 2026.
Okay. Is there anything that sort of has not gone to plan in terms of cash inflows over the last couple of months or is getting a bit held up, do you think?
A lot of moving past, nothing that has not gone to plan per se. We are managing sort of outflows on production and other areas across the group. We have obviously inflows coming in on settlements on apartments. We have inflows coming in on a number of these key capital recycling transactions. No, there is nothing which is unusual at this stage. As I sort of said at the half, we are managing, we are bringing gearing down. We do expect gearing to be lower at the full year as compared to the half. With a very clear pathway through the back of a number of these capital recycling transactions that we have worked through to further deleverage the balance sheet as we move through into 2026 with that sort of 5%-15% range, we expect to be back in by the end of FY 2026.
Okay. Thank you. And then just on the timing of those conditions precedent, do you expect these to be fairly elementary, or are there some issues that you need to work through, and it could take sort of a bit of time to close this transaction?
I will jump on the one slide. Various CPs across the different projects that we've got on foot that relate to things like planning and entitlement, which are things in the ordinary course of actually progressing all these projects, we would anticipate these CPs to be satisfied in the FY 2026 financial year.
Okay. So it's not okay. So that might take a bit of time across FY 2026, is what you're saying?
Yeah.
Okay. That's it for me. Thank you.
Thanks, James.
Thank you. Your next question comes from David Pobucky from Macquarie Group. Please go ahead.
Thanks for just doing the one follow-up. It's unrelated to today's announcement. Just wanted to see if there was an update on the $100 billion of value at risk that related to the land passes that were excluded from the community's transaction.
The announcement we made a couple of weeks ago, just to make sure I'm clear with it.
Yeah, there's no announcement. There's no update on what we previously sort of put out.
Okay. Thank you.
Thank you. Your next question comes from Ben Brayshaw from Barrenjoey. Please go ahead.
Good morning, Tony and Simon. I just have a question on the investment mandate for Aurora Place. I was wondering if you could just comment as to whether Lendlease would look to invest in the asset with NPS, either through a managed fund or even directly on balance sheet?
No. We're not having to put any equity into that. From a Lendlease standpoint, the agreement will run for a circa five-year period.
Terrific. Thanks for your time.
No problem. Thanks, Ben.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Lombardo for closing remarks.
Firstly, thank you for all joining. From my perspective today, it's great to be able to announce the signing of this transformative new joint venture on a 50/50 basis with The Crown Estate. Just to recap, it is a 50/50 joint venture for the master development. That's one thing to note. We are and have not made any commitments on vertical development. It is just optionality for both ourselves, as Lendlease, and our partner, The Crown Estate, for their participation. If we either want to participate from a Lendlease standpoint, we have given ourselves the opportunity and optionality to participate at a minimum 10% equity investment, and The Crown Estate can participate up to the 50% investment if they would like to proceed. I think The Crown Estate, as we've called out, is a great and ideal partner.
I think it's been able to recycle this $300 million of capital compared to where we were 12 months ago. I think it's a great outcome for our security holders. Thank you for those participating and joining us today. If you do have any further questions, please do reach out to our investment IR team. Thank you.
That does conclude our conference for today. Thank you for participating. You may now disconnect.