I must advise you that this call is being recorded today, Monday, 17th of August, 2026. Today's address will be provided by Joint Interim Chief Executive Officers, Andrew Nieland, Group Chief Financial Officer, and Penny Ransom, Chief Executive Officer Investment Management. I would now like to hand the call over to Andrew Nieland. Thank you, Andrew. Please go ahead.
Thank you. Good morning, and thank you for joining the Lendlease 2026 full year results presentation. I'm Andrew Nieland, Joint Interim CEO and Group CFO of Lendlease. With me today is Penny Ransom, Joint Interim CEO and CEO of Investment Management. Sitting here today in Sydney, I acknowledge the traditional custodians of the land on which we are meeting and pay my respects to elders, past and present. As an investor, developer, builder, and manager of assets across Australia, we also acknowledge the traditional owners of the many lands on which Lendlease operates, and value their continuing custodianship of country. Today, I will provide an overview of our FY26 result, and Penny will present the operational performance of the business, covering investments, development, and construction, or IDC. I will then take you through the group's financial performance and FY 2027 outlook before we open up for questions. Starting on slide four.
FY 2026 was another year of disciplined execution against our strategy. The group continued to simplify its operations, recycle capital, build growth and momentum across IDC, and reduce its overheads. IDC earnings of AUD 0.337 per security were delivered for the year at the top end of guidance. Notwithstanding the performance of IDC, the group result was impacted by segment losses in the Capital Release Unit, or CRU, as we continue to execute our strategy to restore Lendlease to a more profitable and sustainable business. During FY 2026, AUD 1.2 billion of transactions in CRU were contracted. These include the sale of TRX retail and office interests, which are now complete, and the announced divestment of our remaining interest in Keyton Retirement Living. The remaining invested capital balance of CRU post these transactions is AUD 2.5 billion, with processes continuing to advance.
Post balance date, a U.K. development joint venture with The Crown Estate, known as the Impact Partnership Joint Venture, was established with three of six projects transferred. Operationally, construction produced a very strong result with the business delivering an EBITDA margin of 4.3%, which is above the target range. This was supported by improved project performance and strong revenue growth, together with a disciplined approach to executing new work. We also continued to secure new opportunities across the development and construction platforms and delivered strong outcomes for our investment partners. On costs, savings initiatives saw net overheads for the group reduced by 22%, while we continue to pursue further savings in FY 2027. Balance sheet strengthening together with driving growth and operational performance remains a key priority. Turning now to slide five, our full year financial performance.
IDC segment EBITDA was AUD 542 million, reflecting a broadly stable investments result and a strong recovery in construction's operating performance. As anticipated, development EBITDA was subdued, reflecting limited completions in the year. The group recorded a statutory loss after tax of AUD 749 million. This included AUD 182 million of non-cash negative investment property revaluations and impairments. Group operating profit after tax was a loss of AUD 567 million, comprising a positive AUD 233 million contribution from IDC and a loss of AUD 800 million from CRU, driven by non-recurring charges and operating costs. This is obviously a disappointing outcome, which I will cover later in the presentation. Reported gearing was 30.3% at year-end. Lendlease maintained strong financial flexibility with committed and available liquidity of approximately AUD 4 billion to support business operations and orderly recycling of capital.
The group's investment credit grade credit is stable, with both rating agencies confirming their positions in recent months. The full year distribution was AUD 15.7 per security. I'd now like to hand over to Penny, who will cover the group's operational performance.
Thank you, Andrew. Starting with the investment segment on slide seven. In investment, we remain focused on delivering strong outcomes for our partners throughout the year, centered on performance, liquidity, and growth. The Australian Prime Property Funds, Commercial and Industrial, continued to outperform their benchmarks, including over three, five, and 10-year periods. While Lendlease Global Commercial REIT delivered a total annual return of more than 20%, and the divestment of our first Japanese data center returned an IRR of more than 40%. We facilitated approximately AUD 7 billion of liquidity on behalf of our investment partners, with nearly 60% of this activity driven by the successful completion and monetization of development strategies following stabilization. Key strategies included our U.K. multifamily, Japan data center, and PLQ Singapore retail mall divestment development partnerships.
Further to our recent announcement, we also exchanged contracts for the sale of the APPF retail assets within eight months of the fund's liquidity window closing. This reflects a disciplined focus on returning capital to investors while delivering sale outcomes above book value, alongside continued above-benchmark fund performance. Overall, the number of transactions increased across the platform, particularly in Asia, which included the partial sale of TRX management rights and the Lendlease Global Commercial REIT's successful acquisition of the PLQ retail mall, enhancing the REIT's portfolio composition and performance. We also continued to leverage our strengths across the Asia Pacific region through the establishment of two new partnerships to support future growth. The first introduced a new investor to our platform, Malaysia's largest public sector pension fund, through a mandate focused on opportunities across Malaysia and Australia with the potential to invest across multiple sectors.
The second partnership builds upon a long-standing wholesale investor relationship, and through this new mandate, we intend to pursue up to AUD 1.1 billion of modernization opportunities across the office and logistics sectors in key Japanese cities. Importantly, this partnership reflects a broader trend that we are seeing across our investor base, with capital partners seeking to deepen relationships in markets where managers have specialist expertise, local capabilities, and a demonstrated track record of performance.
Both opportunities see Lendlease participating as a co-investor at 5% or less, maintaining alignment with our investment partners and supporting stronger returns for security holders. Striking this right balance was also evident this year from the recycling of overweight co-investment positions to improve segment returns. Turning to development on slide eight. A sharp focus on restocking our Australian development pipeline to support future earnings saw high-quality projects added to our pipeline, which grew to AUD 13.2 billion.
Complementing this pipeline is the Impact Partnership Joint Venture with The Crown Estate, which includes the first transfer of assets into the joint venture, along with the Comcentre joint venture in Singapore. Major completions in FY 2026 included Victoria Cross Tower in North Sydney and West Tower at Melbourne Quarter. Looking ahead, there is a strong completion profile for FY 2027, with AUD 1.2 billion of Lendlease gross proceeds to settle across One Circular Quay and Victoria Harbour, with associated project margins supporting FY 2027 development earnings. Major projects secured in the year were Sydney's Metro Hunter Street West Overstation development, with an end value of approximately AUD 2.2 billion, and the premium residential partnership at 175 Liverpool Street in Sydney, which has an end value of more than AUD 2.5 billion. We progressed significant origination initiatives during the year, including in-portfolio conversion opportunities at Rozelle Bay in Sydney and the RNA Showgrounds, Brisbane.
We were also awarded preferred partner status for the development of the Visy site on the Brisbane South riverfront. Additionally, we have leveraged our development capabilities to act as master developer to C Capital on the Northern Freight Precinct in Victoria, securing an option over industrial, logistics, and data center land, post-rezoning, which is expected to have an end value of more than AUD 4 billion. We will continue to maintain a disciplined approach as we seek to further restock our Australian pipeline with opportunities aligned with our capital allocation framework and return hurdles above the group's cost of equity. Our development model continues to evolve with a strong shift to upfront capital partnering and the continued use of capital-efficient land structures to drive improved portfolio returns and lower capital intensity.
Approximately 89% of our work in progress is structured as either joint ventures or fund throughs, reducing the capital requirements of the Lendlease balance sheet. Our medium-term earnings from FY 2027 through to FY 2029 are supported by a strong completion profile of more than AUD 8 billion, and new earnings streams are anticipated from the Impact Partnership Joint Venture as master planning is progressed and land locks are sold or packaged for vertical development. Importantly, we have high-quality projects secured or controlled within our portfolio that provide future monetization opportunities from early capital partnering. Moving now to construction on slide 9. The construction segment delivered a strong operating performance in FY 2026 with growth in revenue and EBITDA margin above the target range and a record level of new work secured.
Revenue recorded in the year was AUD 3.9 billion, up 29% on FY 2025, with major projects ramping up, including the new Melton Hospital and progress across defense and data center projects. New work secured was AUD 6.4 billion, up 28% on FY 2025, and was achieved through a disciplined approach to origination and includes fee-based work, which balances the risk profile of our backlog. Backlog revenue for the year was AUD 8.4 billion, up 42%. Growth was led by new work secured, adding to existing social infrastructure, defense, and data center projects. More than 1/3 of backlog revenue is now fee-based, which is typically less impacted by escalation and supply chain pressures due to the reimbursable nature of the contract. Fixed-price work yields higher returns and remains an attractive source of earnings.
The preferred workbook was AUD 5.2 billion, with a further AUD 13 billion of active bids underway across defense, transport, social infrastructure, and data center projects to support the future pipeline. The business continues to build a national portfolio that considers regional operating environments, a combination of government and private works, diversity in sectors and clients, and a balance in fee versus fixed-price work. I will now hand back to Andrew to talk through the financials and outlook for FY 2027.
Thank you, Penny. Starting with the group's financial performance on slide 11. IDC segment operating EBITDA was AUD 542 million for the year. The result reflected a strong recovery and operating performance in construction, and another year of material transaction earnings from investments with a broadly stable underlying performance, and as anticipated, a period of low completions in development. CRU recorded an EBITDA loss of AUD 500 million, including AUD 196 of operating costs. I will speak to the segment drivers in more detail on the following slides.
Corporate costs of AUD 221 million included an underlying cost base of AUD 107 million and AUD 114 million of additional charges, including restructuring costs relating to international operations as well as finance and ICT transformation initiatives. Operating EBITDA was a loss of AUD 179 million. Depreciation and amortization was lower at AUD 72 million, reflecting the roll-off of IT amortization costs and lower depreciation associated with exited tenancies.
Lower net finance costs of AUD 194 million benefited from the issuance of hybrid securities, circa AUD 30 million of higher interest income, and a lower average cost of debt. Despite recording an operating loss, the group incurred a material tax expense, primarily due to the impairment of deferred tax assets and the non-recognition of tax benefits relating to FY 2026 losses incurred in the U.S. and U.K. Statutory profit was impacted by negative asset movements, predominantly in the CRU portfolio.
Investment valuations were lower year- on- year, although movements were positive in the second half of FY 2026. Moving to slide 12 and the IDC segments. In investments, strong liquidity outcomes were delivered for investors throughout the year. A net reduction in FUM of AUD 5 billion impacted fee revenues and margins, with management EBITDA reducing to AUD 74 million. Co-investment EBITDA improved, aided by higher earnings from the LREIT.
Notably, divestment of lower ROIC co-investment positions in FY 2026 enhances the capital efficiency of our portfolio and supports a stronger return profile going forward. Total EBITDA was AUD 297 million, supported by AUD 136 million of other EBITDA, derived mostly from transaction earnings. This included the sale of TRX investment management rights and the divestment of Paya Lebar Quarter retail assets. Management EBITDA was 35.9%, compared with 40.6% in FY 2025, due to a lower FUM balance and fees. Inclusive of transaction earnings, total segment margin was 41.1%. In development, EBITDA was AUD 78 million, reflecting lower anticipated completions scheduled in FY 2026, contributing to a development ROIC of 3%. Earnings included development gains on land holdings and completed assets, West Tower at Melbourne Quarter and Exhibition Place in Brisbane, and further apartment settlements at One Sydney Harbour.
In construction, revenue increased from AUD 3 billion in the prior year to AUD 3.9 billion as the business continues to grow in scale. EBITDA increased materially to AUD 167 million with challenge construction projects rolling off in FY 2025. A strong operational performance was recorded with an EBITDA margin of 4.3%, which is above the target range. Turning to slide 13 and CRU. The primary purpose of the Capital Release Unit is to accelerate capital recycling. As I mentioned earlier, there were AUD 1.2 billion of transactions contracted in FY 2026, with multiple processes underway for the remaining AUD 2.5 billion of CRU invested capital. Committed joint venture projects within CRU are now substantially complete, which greatly reduces capital requirements from the segment going forward. The focus on completed assets is to improve leasing and operational performance ahead of future divestment and to advance sales of completed inventory.
CRU's EBITDA loss of AUD 500 million was led by non-cash impairments and other charges, most notably AUD 340 million of asset impairments. These included the impairment of Gilead Communities land in Australia and Milano Santa Giulia North in Italy. Provisions of AUD 92 million were taken in relation to retained international construction risks. This was more than offset by provision reversals and insurance recoveries in other EBITDA. Underlying operating costs of AUD 196 million for the year are expected to reduce as CRU winds down. Turning to costs on slide 14. FY 2026 saw further productivity improvements as the group becomes a more focused organization. Net overheads reduced from AUD 466 million in FY 2025 to AUD 363 million in FY 2026, a reduction of more than AUD 100 million, or 22%. The largest contributor to the improvement was an AUD 84 million reduction in net employee overhead.
With the full benefit of cost action still to be realized, we have entered FY 2027 with an exit run rate for net overheads of circa AUD 350 million, in line with our prior target. Further productivity and cost-saving initiatives will also be pursued across FY 2027. These include targeted cost reductions in CRU ahead of asset sales in order to preserve long-term value, along with further cost initiatives to improve group operating performance. As previously flagged, CRU segment overhead is anticipated to unwind as transactions complete. Moving now to net debt on slide 15. The slide summarizes the key cash flow movements across IDC and CRU. In investments, movements reflected asset divestments, fees, and distributions, partially offset by acquisitions such as Australian Prime Property Fund Industrial units and operating costs.
In development, there was a net cash outflow of AUD 1.1 billion, led by net Australian production spend and land payments at Victoria Harbour, 175 Liverpool Street, and Victoria Cross. This also includes the final land payment at One Sydney Harbour. Construction working capital increased, reflecting higher production and the growth in activity across the workbook. Within CRU, development production and operating spend included approximately AUD 600 million of production spend to progress development projects and other operating costs, partially offset by AUD 500 million of capital recycling settlements and other receipts. CRU construction and other liabilities included operating costs, payments relating to international construction, U.K. building remediation, and the run-off of engineering provisions as projects completed. We have entered FY 2027 with an elevated net debt position due to delays in capital recycling and a period of high capital expenditure across major Australian and international development projects.
However, peak development spend is now largely behind us. With further cash inflows weighted in the second half from pre-sold apartment settlements, there is a clearer path to lower gearing in FY 2027. Although note that gearing is anticipated to remain elevated at the half. Given this backdrop, a reduction in net debt for FY27 is expected from contracted transactions at balance date across CRU and IDC of AUD 1.3 billion, of which circa AUD 500 million has already settled, and further CRU and IDC transactions to be announced in FY 2027. Turning to group net debt and liquidity on slide 16. At FY 2026, underlying gearing was 37.7%, which excludes the benefit of hybrid securities issued in the year. Taking into account the AUD 1.3 billion of contracted transactions discussed on the previous slide, pro forma underlying gearing was 30.2%.
Any additional capital recycling initiatives across CRU and IDC are expected to primarily be directed to further net debt reduction. As gearing remains elevated throughout the year, the repurchase of securities was not undertaken. Until gearing is reduced, this will continue to be the case. The group continues to maintain strong balance sheet flexibility with AUD 4 billion of available and committed liquidity to support business operations and the orderly execution of our capital recycling program. In May of this year, $600 million of U.S. dollar bonds were redeemed. Upcoming maturities in FY 2027 are expected to be funded with existing facilities and further capital recycling proceeds. Lendlease will continue to prioritize maintaining its investment-grade credit ratings, with Moody's and Fitch Ratings issuing credit opinions in May and July of this year, respectively. Slide 17 sets out an important transition to Lendlease's capital model across its development and investment segments.
Actions undertaken across our business should see capital released from development, investments, and within CRU. Capital is expected to be unlocked as major development projects complete or near completion. This includes JV assets within CRU that are substantially complete and are being stabilized for sale. We will continue to recycle a further AUD 2.5 billion of invested capital from CRU and divest overweight positions within our investment segment portfolio, releasing further capital. Our new development model supports greater capital productivity with a focus on upfront capital partnering. Likewise, we will continue to target a 5%-10% average holding across our co-investments portfolio and will seek to divest further overweight positions to release capital. Finally, we are continuing to grow our Australian construction operations, which is expected to see our working capital benefit increase.
These factors will help support a return to more sustainable gearing levels and higher returns on security holder capital. Moving now to slide 19 and the FY 2027 financial outlook. Lendlease remains focused on growing and improving the performance of the IDC segments while balancing value realization and speed of execution within CRU. IDC earnings per security of AUD 0.37- AUD 0.41 is anticipated in FY 2027, an improvement on FY 2026, reflecting circa 16% EPS growth at the midpoint of the range. In investments, lower FUM from divestment activity is expected to reduce income in FY 2027, together with the moderation of large transactional profits that were achieved in prior years. Partially offsetting these impacts is the expected deployment of new strategies and mandates throughout the year.
Looking ahead, we remain focused on deepening relationships with our investment partners by providing compelling investment opportunities that leverage our specialist expertise, local capabilities, and access to attractive market opportunities. In development, a strong earnings recovery is expected from the settlement of pre-sold apartments at both One Circular Quay and Victoria Harbour, with circa AUD 1.2 billion of Lendlease pre-sales achieved to date that have embedded development profits. These profits are likely to be weighted to early in the second half of the financial year given settlement timing. Our Impact Partnership Joint Venture in the U.K. is now operational, with targeted second phase asset sales expected to contribute additional profits. In construction, continued growth in revenue is anticipated, supported by a strong backlog and preferred work position. The business continues to target an EBITDA margin of 3%-4% through the cycle.
Group net finance costs allocated to both IDC and CRU are expected to remain elevated due to a higher opening net debt balance, with development cash inflows anticipated to be weighted to the second half. Consistent with prior disclosure, no specific FY 2027 earnings guidance has been provided for CRU. We remain focused on progressing capital recycling while accelerating CRU cost-saving initiatives. In closing, the group is entering FY 2027 with improved operating momentum in IDC, strong liquidity to support its operations, and ongoing priorities to de-lever the balance sheet, drive growth, and improve operational performance. Lendlease's depth of capability across the real estate spectrum provides us with a strong competitive position that supports the positive outlook for the group. We will remain disciplined with our capital allocation decisions and focused on creating long-term value and sustainable returns for our security holders.
We are pleased to welcome and look forward to working with incoming Group CEO, Nick O'Neil, who commences in the role next week to drive Lendlease and its strategy forward. Finally, we would like to acknowledge the hard work of all our Lendlease people and thank them for their ongoing commitment as we continue to execute the group strategy. We will now open the line for analyst questions.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you are on a speakerphone, please pick up the handset to ask your question. Your first question comes from David Pobucky with Macquarie. Please go ahead.
FY 2027 earnings guidance for IDC, and thank you for-
Sorry, David, we are struggling to hear you. Can you maybe try speaking up?
Hi, is this better?
That is better. Thank you.
Apologies for that. Just the first question on FY 2027 IDC earnings guidance. I know you provided a little bit of color on that already, but if you could just talk to the guidance range of AUD 0.37-AUD 0.41 and the two bookends there, please.
In terms of the bookends and what ends at the lower compared to the upper range, that comes down to investments, how we go in terms of growing that pipeline. In terms of development, it really relates to progress on continuing sales at One Circular Quay and Victoria Harbour and settlement of those next year, and construction, its execution. Then more broadly, just where interest cost lands with the capital recycling trajectory.
Thank you. On corporate costs, there were AUD 114 million of additional restructuring charges this year. Are there further charges expected to be incurred in FY 2027?
Potentially. That comes down to our ongoing restructuring initiatives to reduce cost out. We look at those each year as to how we can drive those costs down in the group.
Thank you. On capital recycling, I think there is AUD 2.5 billion of capital still to recycle. If you could provide a little bit of color on the multiple processes currently underway, and what are some of the biggest hurdles that you might face in terms of achieving the next wave of those asset sales?
Sure. If we look at the breakdown of that AUD 2.5 billion, there is about AUD 600 million, which is in joint venture projects which have recently completed. We are focused on stabilizing those projects and working with joint venture partners to realize value out of those. The AUD 1.7 billion in international land and inventory, we have given a breakdown, within the appendix of what particular countries those are in, and there are multiple processes underway. That is a mix of projects where we are working with Joint Venture Partners on value realization. They are in a variety of different markets, some of which are in recovery, and we are looking at how we move those processes through as those markets recover. In terms of balance inventory, we are working that through in terms of condo sales in the U.S., for example.
Yeah. Just the last question from me, in terms of how that flows through to gearing over the next 12 months. Pro forma is still at 30%, still well above your 15% target. If you can just help us with how you are thinking about bridging that gap to 15% and the time frames that investors should be assuming.
Yeah. I guess if you commented in the presentation, we are coming off the back of a very high peak CapEx cycle with production spend going into those CRU projects offshore, along with in development in Australia, projects such as One Circular Quay and Victoria Cross. As we move into FY 2027, that CapEx profile really shifts. We have settlements coming through from One Sydney Harbour and One Circular Quay and Victoria Harbour. Broadly, the group moves into a more neutral cash profile. In terms of deleveraging pathways and the levers we have, obviously, you have highlighted CRU. Also within investments in development, we are looking at circa AUD 1 billion-AUD 1.5 billion of capital that can be recycled.
I think you have seen us be quite successful over the last 12 months within those segments in reducing capital, and we will continue to look at that along with improved working capital and operating performance as we reduce cost base. We are not really looking at one with CRU on that deleveraging path. There are multiple levers there that we are pursuing.
Okay. Thanks for your time, Andrew.
Thank you.
Thank you. Your next question comes from Richard Jones with JPMorgan. Please go ahead.
Oh, hi, Andrew. Thank you. Just interested in the progress on One Circular Quay. It is obviously 79% pre-sold is what you are calling out. But understanding most of the high-end stuff is still to sell, and I assume that is going to be where most of the margin is. So just interested, one, I guess on the progress of the high, the penthouses and sub-penthouses, how the sale process is going and how you are thinking about earnings recognition, whether you hold back margin in your assumptions or maybe just some color around how you think about that in your guidance and progress on those remaining sales.
I might ask Penny just to make a few comments on the project progress, and I can cover the rest.
Yeah. Thanks. As you said, Richard, we are quite a way through, sort of over 80% of the way through there. What we are certainly seeing in the market at the moment is still very strong interest. It is fair to say with the uncertainty that is in the market, buyers are taking more time to consider their transactions. But what that also brings is a real focus on quality. What we have produced there is a very unique product, and what we are doing is just making sure we are working through with those that are interested. You need to have patience, but we think the rewards will come from that. So the undersupply in the market is generally going to be helping us, especially for that kind of product. As it relates to any sort of guidance-
Yeah. Maybe I will comment on the guidance part. I would say a large portion of our earnings from settlements is secured in FY 2027. There is a residual to be sold and settled, which is where you might get some variance within that guidance range. But I would not characterize it as the majority of the margin being in the unsold stock. That is not the case.
Okay. Then just, you touched on the potential realizations within CR U. Can you touch on within the investment business, a bit more color around the, I think you said AUD 1.2 billion, I think was the number around potential realizations within the invested capital you have in that business, which I think is about AUD 2.5 billion.
Yeah. I called out AUD 1 billion- AUD 1.5 billion across investments and development. So it did include projects like Victoria Cross, which has been in our development segment. I think in terms of the investments book, we have called it out previously, positions where we have a high co-invest percentage, and we have got an aligned co-investment partner who is looking to also seek liquidity, would be where we are looking within that portfolio to rebalance.
You have seen us do that recently with the build-to-rent portfolio in the U.K., where you had some high-quality assets which had stabilized, aligned with a joint venture partner who wanted to exit at that point, and we did so, which releases capital back into the group and helps us drive ROIC further and stabilize for our growth. So that is an example I would point to. There are others across the portfolio.
Yeah. I think importantly, we are also in all of these partnerships aligned with other third-party capital as well, and we will look at going through market processes. It does depend what comes back from that market process, and weighing up the recycling against the realization of value.
Okay. One final question, if you don't mind. Can you talk about how you price data center construction projects? Are they fee or fixed price?
Depends on the clients as to how they are approaching things. Often, our contracting is done in a two-stage ECI model, which allows us to work with those partners early upfront, progress design to ensure they get the right solutions. That's the kind of model that we're seeing more clients want to work with us on, and for us, is a very good model. That then would lead to a fixed price once we progress that design, and got to a level of procurement in order to be able to deliver it on a good risk-adjusted basis.
Thanks, Andrew.
Thank you.
Thank you. Your next question comes from Simon Chan with Morgan Stanley. Please go ahead.
Hey, good morning, guys. I just want to circle back on gearing. If I take into account all the stuff that you've contracted and not yet settled, your pro forma gearing is 30.2%, right? Which is as per your disclosure today. At one point in time, i.e., six months ago, you were aiming for gearing today to be 15%. Can you just explain to me the gap there between the 30%, even if I take into account all the stuff that has spanned into FY 2027 and the 15%? What's the reason for that large gap? What asset sales have been letting the team down?
Okay. Thanks for the call-out, Simon. I would say that the gap's really driven by transaction timing and the rate of being able to work through those CRE transactions. That's broadly the comment. That's the reason behind it.
Which specific transactions?
I don't really want to get into specifics, Simon. We continue to progress those transactions across the CRE portfolio. I don't think we really want to be calling out specifics.
Okay, fair enough. Hey, can we talk a little bit about the Comcentre and also One Darling Point?
The target completion date seems to have been moved back to FY 2029. What's the reason for that?
Yeah. For Comcentre, there have been some in-ground delays. We're working with a third-party contractor there that's pushed out a few months, and that has pushed the completion out into FY 2029. One Darling Point, we're working through pre-sales with our JV partner there. It is trading well relative to comparable product in the area. As we build those up, we'll look to launch those, but that has moved from 2028 into 2029.
Has this one-year delay impacted margins or anything like that?
No.
I would just add, if anything, both Comcentre and One Darling Point are both product in their markets, which will only benefit, we think, from the market conditions that we have at the moment in Singapore. The office market conditions are getting more and more favorable from a demand-supply perspective. Similarly, here at the moment in Australia and in Sydney in particular, we think that will, if anything, enhance the returns that we can get from those assets.
Cool. Thanks. Penny, can you just remind us what the timing is for the remaining two APPF funds in relation to liquidity?
Yeah. The APPF I and C liquidity windows are coming up in November. They are windows that occur every seven years. We have recently amended the liquidity provisions of both those funds, to move from a seven-yearly window to more regular capped windows post this window, but we will go through these windows first.
Right. What happens in November? Is November the date when you will decide what is going on, or is that the day when, I guess, the investors need to hand the form in to you? You get what I am saying? What is the-
Yeah.
one of the milestones, yeah.
Yeah, it is the latter. The November date is the date on which the investors can decide whether they want to participate in that liquidity window. That liquidity window has a requirement to meet any liquidity redemption requests over a two-year period. It is just a line in the sand of which those investors can nominate whether they want to participate in a redemption of their units in the following ensuing two-year period. Depending on the level of interest there with the investors for redemption requests, we will then work through those investors to come up with proposed strategies to meet those requests reflecting the environment that we are in at the moment.
That is really clear. Thanks, Penny. Thanks, Andrew.
Thank you, Simon.
Thank you. Your next question comes from Suraj Nebhani with Citi. Please go ahead.
Thank you so much. A couple of quick questions from me. Firstly, on the construction business, the implied second half margin looks like it was 5%, 4.9% to be precise. Can you just clarify the outlook into FY 2027? That is obviously a pretty strong number.
Yeah, it is a strong number. It reflects some really good work by our project teams as they closed out projects in the book this year. Looking forward, you have seen construction grow quite well this last 12 months. It is heading into FY 2027 with the largest revenue backlog it has had for, I think, quite some time, or as long as I can remember, of AUD 8.4 billion. So in terms of revenue outlook, you could expect that to be circa 4.5% mark. We continue to target 3%-4% as the target range through the cycle.
Got it. Thank you so much. Maybe one question, Andrew, on the CRU side. I know there is no guidance, but that does tend to swing things around a lot. What are you budgeting, firstly, in terms of CRU overheads, heading into next year and then maybe other key items to call out? Or if you can help us with any sort of guide there.
Sure. Look, we do not provide guidance on CRU, but to, I guess, help you along there, we have given our starting point, for FY26, which is circa AUD 190 odd million, of sort of an underlying cost base. We are looking to take costs out of that ahead of asset sales, and then that will wind down. With asset sales, in terms of other outflows, we called the majority of CapEx spend is complete. There is circa a couple of hundred million to go there, would be the other thing I would flag. But, consistent with our comments, we do not provide guidance on more specifics in that segment, as it is dependent upon the rate of those capital transactions in the main.
Just on the corporate cost, trying to understand that jump that we are seeing versus last year. Is that just a restructuring charge that was flagged, or is there something else happening there in CRU?
No, not something else happening. It largely relates to finance and ICT transformation initiatives, which we have called out previously. So it would be just under half of it and then other restructuring expenses to break contracts and accelerate cost out.
Thank you. Just one final one on the co-investment side. I noticed that the co-investment is now 11%, up. I had it at a slightly lower number previously. What is the strategy going forward? It sounds like some of the newer funds, you guys are more like 5% equity stakes. I am just wondering, what is driving that 11% number, the Lendlease share and how should we think about that going forward?
Yeah, that 11% number is just the average of our funds, co-investment rather than across all our co-investments across the entire business, is probably the first comment there. We definitely are looking to continue to reduce that. The two new mandates that we launched in the last 12 months actually have us at 5% or less. But typically, investors might want us to be up to 10% for alignment purposes. So the assumption going forward is that we would be either 10% or less in our co-investments going forward. Some of those recycling that we are looking to do in the next 12 months is where we do hold a greater proportion of that in our stabilized assets.
Thank you.
Thank you, Suraj.
Thank you. Your next question comes from James Druce with CLSA. Please go ahead.
Yeah. Good morning. Can we go through just a really simple overview of the major cash flow movements in 2027? Just the committed CapEx from CRU, the committed CapEx from IDC, what is definitely coming back from CRU, what is definitely coming back from IDC and the pool of sort of transactions, which is more uncertain.
If we break it down a bit, investments as a segment is net cash flow producing. Development next year has some committed spend to complete, across Victoria Harbour, and One Circular Quay of other projects. It also has some incentives and leasing payments to pay across the projects, but they are roughly offset by expected inflows from settlements at One Circular Quay in Victoria Harbour. If you go investments in development, roughly neutral, construction should be broadly positive as it continues to grow. If you then work into the CRU book, the net production spend along with outside of CRU corporate cost and interest would be largely offset by the security inflows that we have.
Really what that leaves is the transaction inflows from CRU, from investments and development, which is the deleveraging path that I spoke to before, along with further working capital improvements and operating performance improvements.
Okay. The range of gearing outcomes for 2027 is what?
We are not giving guidance on a specific gearing outcome for FY 2027. What we are pointing to, what our starting point is, what our levers are to reduce it, and we continue to be focused on that. What we have called out is that, the cash inflows are weighted to the second half, so we expect it to remain elevated at half before reducing in the second half.
Okay. I appreciate you are not going to give guidance on the operating costs for CRU for 2027, but how do we think about the trajectory though, just in very broad terms?
The brief term on the operating cost is downward. I appreciate that is not overly helpful, but we have got actions underway to reduce those, as I said, ahead of exits. Perhaps to give you some helpful points, which might be one way to think through it. If you look at those underlying costs, we call that in CRU, approximately half are in the U.S., and there is circa just over 30% in Europe. So our focus is on ensuring that we are very focused on getting efficient in how we deliver and exit CRU over the coming period in those areas.
Okay. That's helpful. Thank you.
Thank you, James.
Thank you. Your next question comes from Ben Brayshaw with Barrenjoey. Please go ahead.
Hi, Andrew and Penny. Thanks for your time. I was wondering if you could talk about the factors that contributed to the decline in the management EBITDA margin for the second half, and whether you think the margin will bounce back in FY 2027.
I might open up with a couple of comments. Penny, if you've got any adds. I'd say the reductions are really linked to the fund reductions that we've seen, in the main. We're sitting at circa 35% now. If you include transaction earnings, the margin's 40.1%. We are quite strong on margin in Australia and Asia. It's closer to mid-40s for those businesses. That's the margin picture in terms of where we're at. It really has been a driver of fund reductions and asset sales. Looking forward, we would look to see that stabilize and look to grow from there. Penny, you want to-
Yeah. Because FUM over the period reduced by AUD 5 billion, and 60% as I mentioned in my speech, 60% of that was actually just because of natural development partnerships coming to an end. Those assets were stabilized and together with our partners, we agreed to recycle the capital out of those stabilized development partnerships. So a combination of reduced FUM and then also some reduced fees. As you know, across the APPF fund, our fee is now the most competitive in the market. What we've had to do across our platform is also just look at how are we working better, how can we be more efficient in how we leverage the expertise we've got on the table and in the business.
We're doing that and our focus going forward is whilst we still anticipate some recycling to come, we are focused on growth and the two opportunities, in Asia, one in Malaysia and one in Japan, are very key examples of that, together with working with our existing investors to do more with them in the areas where we've got some really strong track record and capability.
Terrific. Thanks. Just on the development revenue guidance for FY 2027, just having a bit of difficulty reconciling the AUD 1.2 billion. Are you including the three Victoria Harbour projects due to settle in FY 2027 in that revenue number? Or you're making other adjustments there around One Circular Quay in terms of the repayment of leases, for example. Could you just expand on the composition of that, please?
I just want to clarify quickly, the AUD 1.2 billion you are referring to, is that the pre-sales, do you mean?
That was, I think, Penny's comment earlier around One Circular Quay and Victoria Harbour development revenue expectation for FY 2027.
Okay. And you are trying to bridge that through to earnings for FY 2027?
I was just trying to understand the assumptions on the revenue that are included in the AUD 1.2 billion, noting that you have a one-third interest in One Circular Quay with AUD 3.3 billion of revenue, and you have three Victoria Harbour projects coming online with AUD 1.2 billion of revenue, two of which are build to sell and one of which is build to rent, which you have a 50% interest in.
Part of it, and we can perhaps help you with the maths later in the day, part of it may be the HL in the revenue at One Circular Quay, which we have sold down. I think as you do the maths between the revenue and both inflows and earnings, other things to consider would be the construction debt that we have got on One Circular Quay and also the Victoria Harbour projects have leases against them. We can give you more detail and help you reconcile that later today.
Yep. Terrific. Thanks, Andrew.
Thank you. Your next question comes from Winky Tan with Morningstar. Please go ahead.
Winky, we cannot hear you.
Sorry, guys. Can you hear me now?
Yes. Hello.
Excellent. Hi, good morning, Andrew and Penny. Just a follow-up question on potential capital recycling in investment and development, because previously you alluded to that being the main path of bringing gearing down. Just wondering in terms of how many percentage points reduction in gearing can we expect from that, assuming that you can execute that entire AUD 1 billion-AUD 1.5 billion divestment in investment in development assets?
I think I gave some broad building blocks before, but if you take that broadly neutral position that I outlined, we have AUD 4.6 billion net debt at the end of 30th June . There is AUD 2.5 billion in CRU, AUD 1 billion-AUD 1.5 billion in investments and development. So that can total down that net debt in the main, along with working capital improvements and operating performance. So that is the outline to it. I will not put percentages or timing on it, but that is the deleveraging path that we are focused on.
Right. Thank you. Looking at some specific projects that you previously said you're going to look into sell down, for example, for Victoria Cross, could you just give an update on the leasing conditions there and what kind of the level of interest that you're getting from your potential buyers there?
Yeah, maybe I'll take that one. So yeah, look, at the moment, we're about just over 40% leased in the office and over 95% in the retail. We have quite a bit of interest in the remaining space. The asset is now TPC, so it's very much something that you can touch and feel. I think the positioning of the asset above this new station there is very unique and very attractive. The type of tenants that we've got that are interested are a range and a full cross, also coming from a range of different types of locations. It's just up for us to convert on the remainder, but we're really quite enthused by the interest we've got on the remaining space now that the asset's complete.
Great. Thanks.
Thank you.
Thank you. There are no further questions at this time. I will now hand back to Andrew for closing remarks.
Thank you. That concludes our call for this morning. I would like to thank you all for joining us today, and we look forward to talking to you all further during the week. Thank you.
Thank you. That concludes our conference for today. Thank you for participating. You may now disconnect.