Lendlease expects the deal to realise a 20% premium to book value (pre-tax) and contribute $130m to $160m to its FY 2024 core operating profit after tax, while also reweighing capital to investments, reducing its gearing and realising the value it created in these projects.

Cash proceeds are expected to be paid equally across FY 2024 and FY 2025 – with the final instalment due in early Q3 FY 2025 – and lead to a 5% reduction in group gearing.

Lendlease, CEO Tony Lombardo advised the market that recycling capital to accelerate the company’s investments-led strategy remains an ongoing focus, as does maintaining balance sheet flexibility to pursue future opportunities.

Meanwhile, four communities that Lendlease currently retains on its books include Kings Central, Jordan Springs and The New Rouse Hill in NSW, and Elliot Springs in Qld.

Despite the uptick in value, Lendlease’s market guidance for FY24 is unchanged.

Core operating return on equity (ROE) is at the lower end of its 8-10% range while gearing is at the midpoint of the 10-20% target range.

Step-change for Stockland

For Stockland, the acquisition represents a step-change in the reshaping of the company’s portfolio and increasing capital allocation towards residential sectors.

In addition to scaling the company capital partnership platform, CEO Tarun Gupta also expects the acquisition to generate new sources of recurring income.

Stockland is paying an initial $1.063bn for 12 master-planned communities across NSW, Qld, Victoria, and WA with a total 27,600 housing lots and up to $239m more for additional parcels of land.

A state-by-state break includes:

  • Qld: 16,620 lots across Springfield Rise (1160 lots), Yarrabilba (10,400), Shoreline (2760) and Kinma Valley (2300).
  • Victoria: 5910 lots across Atherstone (1710), Aurora (1110), Harpley (1720) and Averley (1370).
  • NSW: 4100 lots across Figtree Hill (1320) and Calderwood Valley (2780).
  • WA: 1010 at Alkimos Beach (760) and Alkimos Vista (250).

The deal effectively lifts Stockland’s land bank to around 95,600 lots and allows it to settle up to 2500 more lots annually, hence taking this year’s settlement target to between 5200 and 5600 homes.

Stockland, which is only acquiring the land and not the management platform, will have a 50.1% stake in the newly established Stockland Residential Communities Partnership, while Bangkok-listed Supalai Australia Holdings will take a 49.9% stake.

Earnings accretive

The deal is expected to initially lift its gearing by half a percentage point, rising more than 1.9 percentage points after all payments are completed, with gearing levels to be in the upper half of Stockland’s 20-30% target range at 31 December 2023.

Overall, Stockland expects the deal to be earnings-accretive to funds from operations (an industry measure of profit) from FY25.

Development returns are expected to be toward the upper end of Stockland’s development ROIC target range of 14-18%.

Image: Lendlease’s 1160 lot Springfield Rise, 35 kilometres from Brisbane’s CBD, is one of a dozen Stockland is acquiring.