UPDATE: Dec. 19, 2019: Australian contractor Lendlease announced today it has entered into an agreement with Spanish construction group Acciona to sell its engineering business for AU $180 million (U.S. $124 million).
The transaction, which is expected to be complete in the first half of 2020, is a "bargain basement price" for the division dealing with infrastructure projects plagued by cost overruns and delays, according to The Sydney Morning Herald.
The sale will mark Lendlease's return to its primary focus on property development and building construction, said Group CEO and Managing Director Steve McCann in a press statement.
“Today’s announcement represents an important milestone for Lendlease as we continue to focus on the successful delivery of our more than $100 billion global development pipeline," he said.
Although its so-called underperforming infrastructure division was put up for sale in August, Lendlease is enjoying a burgeoning global pipeline of work in a variety of other sectors.
Lendlease, whose U.S. division is No. 19 on ENR’s list of top contractors in the U.S., said earlier this year that it would sell its Engineering Services Division, which oversees civil projects such as tunnels, railroads, airports, ports and other heavy infrastructure jobs.
At the company’s full-year results earnings call in August, McCann said the decision to offload the division was prompted by troubled projects that led to a AU$461 million (U.S. $312.5 million) EBITDA loss for the division. The issues were related primarily to three road projects in Australia — one of them completed earlier this year and the other two scheduled to be finished next year — that represent a AU$500 million loss.
The earnings call was timed with the ending of the company's fiscal year on June 30.
The search for buyers reportedly generated “a good level of interest from several parties,” McCann said, and the company received bids both for the division as a whole and for certain assets of it. The sale could fetch as much as AU$500 million, according to Reuters.
Leadlease's stock rose slightly after the earnings call, from U.S. $9.35 per share on Aug. 15 to U.S. $10.94 per share on Aug. 21.
McCann said the company is moving toward adopting a lower-risk profile surrounding issues like contract and project types. Two other top construction firms, Fluor and Granite Construction, recently announced similar risk-reducing measures.
It now is more selective in the types of jobs it takes on, especially in its Engineering division, McCann noted.
“Our business is very much focused on lower risk and that will mean that for some complex lump sum projects we won’t have the appetite for risk that will lead us to originate those sorts of projects,” he said. “A lower risk profile is the right approach.”
A global leader
Lendlease will continue its focus on urbanization projects in gateway cities, McCann said, noting that the company’s remaining divisions — Construction, Development and Property Investments — had a solid year with a total after-tax profit of AU$804 million. Most notably, Lendlease’s Development pipeline is at AU$100 billion, he said, thanks in part to the securing of four major projects. They include:
A U.S. $15 billion deal with Google to provide master planning, entitlement and development services jointly with the internet search giant for 15 million square feet of residential, retail, hospitality and other projects in the San Francisco Bay Area. Google will develop its office space, which is not included in the $15 billion.The partnership is part of the tech company's commitment to build 20,000 new homes in Silicon Valley. The units will be built with all income levels in mind and are intended to help ease the persistent shortage of housing in the area. McCann said the first phase of the project will be complete in fiscal year 2021 with the other two phases coming shortly after that.
Development of the Milan Innovation District for science, knowledge and innovation on the former World Expo site in Italy. The multi-phased, mixed-use redevelopment project is expected to include commercial, residential, retail and public features and has an end value of AU$3.6 billion, McCann said.
- Development of the AU$2.1 billion Cirrus, a 47-story, 363-unit luxury condominium tower along Chicago’s lakefront, with co-developer Magellan Development Group. Pre-sales are underway, McCann said, with first deliveries expected in fall 2021.
- The Sydney Metro Victoria Cross integrated station development in Australia, which includes a 40-story retail and office space above the station’s southern entrance. The project is worth AU$1.1 billion, McCann said.
Lendlease also has launched a partnership to invest U.S. $1 billion in the data center sector across the Asia Pacific region, targeting cities where it has a presence in the sector, the group CEO said. In the U.S., the company recently completed its first ever for-rent apartment building, the Cooper at Southbank, a 29-story, 452-unit luxury high-rise in Chicago’s South Loop.
McCann said company leaders look forward to seeing more returns on their projects in the U.S., adding that the Development pipeline in the Americas is almost on par with the company’s pipeline in Australia.
"We have been deploying capital into our offshore regions for a few years and we are now starting to generate solid returns on that capital," he said. "Our international diversification is starting to pay off."