Global construction and infrastructure group Lendlease will look to its construction and development pipeline for growth in the coming year, boosted by the strong office leasing markets.
Overall, for the half year, Lendlease reported a 12 per cent rise in profit after tax of $394.8 million, with an interim unfranked distribution of 33¢ per stapled security.
Lendlease chief executive Steve McCann said commercial development, particular in the Australian office sector, was a highlight of the first-half result. Lendlease do not give out earnings guidance.
Mr McCann said the group would continue to increase its overseas exposure where more than half the earnings are generated outside of Australia.
Lendlease's Barangaroo South Tower 1 in Sydney had now reached practical completion, with all three office towers in the complex operational.
Lendlease had 13 major commercial buildings across the globe in delivery, with a combined estimated end value of about $7 billion. These projects would provide future secured funds under management of about $3 billion, he said.
The group had additional commercial development with an estimated end value of $9 billion in the pipeline.
"Importantly, the conversion of that pipeline will underpin future earnings across all three segments of our integrated model," Mr McCann said.
Total residential pre-sales of $5.7 billion would also underpin future earnings, with a default level of about 1 per cent.
Mr McCann said timing issues meant the group's residential settlements straddle different reporting seasons, with 86 per cent of settlements in the December 2016 half and the remaining 14 per cent in the coming half.
Lendlease's construction margin improved by 70 basis points to 2.7 per cent and along with higher revenue generated a strong lift in construction earnings.
Mr McCann said the investments segment, representing 40 per cent of operating earnings, continued to deliver recurring-style earnings.
"We will continue to seek out capital partnering deal, in the form of joint ventures, where we can lower our development risk. Over the December half, Lendlease raised $800 million of new equity in the period, mainly due to the sell-down of its interest in the Circular Quay Tower development," Mr McCann said.
"We have also said, while we are not looking to exit from the retirement living business, which is valued at $1.7 billion, its no secret we are looking for a capital partner. There is plenty of cash in the market for investments and we have to weigh up if we bring in partners for the projects, ot do it ourselves and these are so big, we can't do them all oursleves."
Brokers at Macquarie Equities said Lendlease's share price has lagged in the last 12 months reflecting fears of significant apartment defaults which will derail an otherwise very strong earnings and cash flow profile "in our view".
"Whilst elevated capital recycling has supported the first half of 2017, Monday's result highlights the strong backlog to underpin the full year-plus earnings and with its still trading on about 11 times earnings, we reiterate our Outperform recommendation," Macquarie Equities said.
