Lend Lease Group, Australia’s biggest developer, fell by the most in four months after forecasting new provisions and saying profit growth this year will be driven by one-time proceeds from the sale of a U.K. shopping center.
Lend Lease expects impairments of A$85 million ($80 million) on three projects in the U.K. and Australia, the company said in a statement today. The Sydney-based developer also made a profit of A$480 million from the sale of its 30 percent interest in the Bluewater Shopping Center in Kent to London-based Land Securities Group Plc (LAND), which will boost net income by 45 percent in the year to June 30, it said.
“This sale will be reported in the one-off items category so it is a fairly disingenuous, albeit legitimate, way to report a 45 percent rise in earnings,” Ben Le Brun, Sydney-based market analyst at OptionsXpress, a unit of San Francisco-based financial services firm Charles Schwab Corp., said by e-mail. “The company has not flagged an increase in 2014 dividend payout ratio and there are some provisions in relation to U.K. and Australian projects announced as well.”
Lend Lease, whose A$38 billion of planned developments include the A$6 billion Barangaroo redevelopment in Sydney and the Elephant & Castle regeneration in London, reported a 16 percent decline in profit in the six months ended Dec. 31 on challenging construction markets in Australia and the U.K. The U.K. building sector is 10.3 percent below its peak in the first quarter of 2008, and Australia’s construction industry has been in contraction mode this year.
The Australian developer sold its stake in Bluewater for 656 million pounds ($1.1 billion), and its management rights and land interests for 40 million pounds, it said. That will help increase net income to as much as A$830 million in the year ending June 30, it said.
“The cash proceeds of the sale will initially be used to pay down debt and subsequently support investment in our significant global development pipeline,” Lend Lease Chief Executive Officer Steve McCann said in the statement.
The company held the Bluewater stake at its inventory value of A$507 million as of Dec. 31, it said. The market value of Lend Lease’s stake was A$1.02 billion, according to a regulatory filing by the company in February.
Lend Lease is also accounting for a higher tax rate this fiscal year, it said today. Some profits from its development and investment businesses are no longer expected to occur during the period, it said.
“When you take off the A$480 million profit from this transaction, you’ve really only got about A$340 million of profit for the business for the year,” said Tony Sherlock, Sydney-based head of property research at Morningstar Australasia Pty. “With that, the higher tax rate and the adjustments, you start questioning how predictable these earnings are.”
Lend Lease shares have gained 18 percent this year compared with a 0.9 percent rise in the benchmark.
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