The Lendlease Group (ASX: LLC) share price has jumped 9% after announcing a plan to sell over $4 billion of assets in the next few years.
Lendlease is currently a globally integrated real estate group that’s involved in developing, constructing and designing projects. examples include Sydney’s Barangaroo precinct, London’s Elephant Park urban renewal project, Singapore’s Paya Lebar Quarter and New York’s Claremont Hall.
However, the business is planning to downsize.
$4.5 billion asset sales planned
It’s going to simplify its organisational structure and “right size” its cost base, with a further $125 million of annualised pre-tax savings to be achieved within 12 months and “additional opportunities to follow”.
It’s going to recycle $4.5 billion of capital by exiting international construction and accelerating its capital release from its offshore development projects and assets. The sale is expected to occur within the next 12 to 18 months.
Lendlease will release approximately $3.42 per share of net tangible assets (NTA) from a newly established capital release unit, with the majority anticipated by the end of FY25. But, the business is retaining its investments platform in international markets.
With the cash, there will be debt reduction and capital returns. Lendlease intends to buy back at least $500 million of Lendlease shares.
It’s going to reduce its debt levels/gearing to between 5% and 15%, down from between 10% to 20%.
Lendlease said it will be a lower risk business positioned for profitable future growth with an attractive return on equity where Lendlease has a “proven track record and competitive advantage.” The business is also expecting improved earnings on a “like-for-like basis”.
Management commentary
Lendlease Chair Michael Ullmer said:
We recognise that our security price performance and securityholder returns have been poor as we have faced structural challenges and a prolonged market downturn. We need to take significant action at an accelerated pace to deliver value for our securityholders, capital partners and customers.
Today we have announced the blueprint to position Lendlease for success – focusing on our core strengths and competitive advantages.
Final thoughts on the Lendlease share price
Investors seem to like this move, so ultimately it could be a good thing for the business. However, it is a shame the international growth did not play out as hoped.
Hopefully, in the next two years, the business can deliver stronger profits and that can help achieve stronger returns.
However, it’s not the sort of industry I want to invest in with my own portfolio because of the low margins. There are other ASX growth shares I want to buy instead.
