Lendlease to book at least $230m loss as COVID-19 devaluations bite

Lendlease to book at least $230m loss as COVID-19 devaluations bite

Property project developer Lendlease (ASX: LLC) has joined the likes of Stockland (ASX: SGP) and Mirvac (ASX: MGR) with portfolio devaluations due to COVID-19, and its bottom line will suffer as a result.

The company was already expecting to record restructuring costs due to the exit of its engineering services division, which Lendlease has today indicated will be in the upper range of estimates at $550 million.

In an unaudited results update released today the group forecast a loss of $230-340 million after tax.

This partly driven by an estimated $130-160 million after tax hit to investment valuations, or just over 1 per cent of Lendlease's $4 billion portfolio.

LLC shares dropped 5 per cent on the news to $11.75 each this morning, which was likely also influenced by the indication a final divident likely would not be paid.

But Lendlease's drop in asset values is relatively minor compared to Stockland - a comparably sized company in terms of market capitalisation - which took a six per cent cut to commercial property book values, or approximately $624 million.

Meanwhile Mirvac's property portfolio has been reduced by $349 million due to COVID-19 impacts, representing a 9.9 per cent fall.

Despite an expected loss in statutory terms, Lendlease anticipates a core profit after tax of $50-150 million, amidst plans to push ahead with billions of dollars' worth of projects in Sydney, Milan, San Francisco and elsewhere.

"The Development segment has experienced delay in the conversion of a number of opportunities across urbanisation projects due to the impact of COVID-19, including at Melbourne Quarter, Barangaroo and International Quarter London," the company said.

"The segment has also been impacted by delays in apartment settlements along with elevated cancellations across the Communities business.

"Performance of the Construction segment was impacted by COVID-19 in all regions. The impact was greater in our international regions, particularly in cities where mandated shutdowns were implemented. This has included lower productivity, projects being put on hold and delays in the commencement or securing of new projects."

Lendlease expects to complete the sale of its Acciona business in FY21, and the company retains the Melbourne Metro Tunnel Project, NorthConnex and Kingsford Smith Drive projects.

"As previously advised, the Cross Yarra Partnership consortium for the Melbourne Metro Tunnel Project is continuing to work with the Victorian Government on a confidential basis to resolve issues in relation to the scope and costs on the project," the group says.

"The NSW Government has indicated that NorthConnex will be operational in the coming months and the Kingsford Smith Drive project in Brisbane is scheduled to complete by the end of CY20.

"The Group will enter FY21 in a strong financial position with gearing at 30 June 2020 expected to be below 10 per cent and total liquidity above $5 billion, representing cash on hand and undrawn facilities."

The company recently raised $950 million in an institutional placement, followed by a further $260 million share purchase plan (SPP).

Updated at 10:31am AEST on 1 July 2020.

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