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Development sales lead a Lend Lease 13pc earnings bump

Glenn Freeman  |  19 Aug 2016Text size  Decrease  Increase  |  

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Lend Lease announces $698-million profit and a distribution of 30 cents a security for fiscal 2016 after a series of substantial development windfalls.


Lend Lease (ASX: LLC) on Friday announced $698.2 million in profit after tax for fiscal 2016, up 13 per cent from $618 million in the previous year.

Shareholders will receive a distribution of 30 cents a security for the final half, bringing a total of 60 cents a security for the year.

A series of substantial windfalls from the diversified REIT's development division made a significant contribution to the earnings result, with asset sales of $500.2 million in fiscal 2016, 30 per cent higher than a year earlier.

These came from its residential and commercial developments. During the year, Towers two and three at Sydney's Barangaroo South were sold upon completion, and forward sales were secured for three major commercial buildings--two in London and one in Darling Square, Sydney.

While a net positive, this will see a continuation of investors' concerns over Lend Lease's lumpy earnings pattern.

In residential, 4,790 settlements were made during fiscal 2016, including more than 1,200 apartments, which was up from 440 apartments in fiscal 2015.

Its non-settlement rate of less than 1 per cent was improved from around 3 per cent a year earlier--something which had also been of concern to investors.

Record apartment presales revenue of $5.9 billion for the year was up 13 per cent on fiscal 2015.

Results were considerably more modest across construction, where revenue grew just 3 per cent to $288.1 million in fiscal 2016, from $279 million in fiscal 2015.

Earnings before interest, tax, depreciation and amortisation (EBITDA) increased 52 per cent in Australia; Asia and Europe broke even; and EBITDA declined 51 per cent in the Americas due to changes in contract types.

Earnings from Lend Lease's investments business declined 4 per cent to $457.7 million in fiscal 2016 on the back of a diminished Asian contribution.

However, Tony Sherlock, a senior equity analyst at Morningstar, drew attention to the growth of the company's lucrative retirement ownership and management operation, which he believes offers an attractive income stream.

"Retirement living has outstanding growth prospects, as Australia's population distribution means the number of people turning 75--the typical entry age to a retirement village--will exponentially increase over the next five years," said Sherlock.

In terms of outlook, Lend Lease declined to provide guidance, in line with established company policy. However, Steve McCann, group CEO and managing director, said it is well placed heading into fiscal 2017.

He highlighted "financial strength, with low gearing, high levels of liquidity and access to third party capital" and a "resilient business model with diversity by both business and geography".

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Glenn Freeman is Morningstar's senior editor.

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