Lend Lease shares drifted lower at the close yesterday after an early spurt of 34 cents off the back of the news that it was going to change from being a company to a "stapled entity", like so many other of its property rivals (Mirvac, Stockland, Westfield, etc).
The shares rose to a day’s high of $10.85 before fading with the rest of the market in the afternoon to close at $10.50, down a cent from last Friday.
The move to change its corporate status was revealed in a statement to the ASX and in the notice of meeting for the AGM, where shareholders will have a chance to vote.
The company said in the notice of meeting that the change to a stapled entity will be achieved by distributing units in a newly created trust, Lend Lease Trust ("LLT") to shareholders on a 1:1 basis and "stapling" each unit and share together so that they trade on ASX as a stapled security.
"This proposal does not signal a departure from the Group’s current strategy, nor does the Group intend to become part of the listed property trust sector.
"The stapling simply provides greater flexibility for the optimum holding of assets should opportunities arise.
"The Stapling Proposal requires an amendment to the Lend Lease constitution to allow stapling of Lend Lease shares to units in LLT.
"Shareholder approval will be sought at Lend Lease’s Annual General Meeting to be held on 12 November 2009.
"If approved, shareholders of Lend Lease will receive by way of dividend one unit in LLT for each Lend Lease share."
CEO, Steve McCann said in a statement that "If approved, the new stapled structure will provide the Lend Lease Group with a more efficient capital structure for the ownership of investment assets.
"The new stapled structure positions Lend Lease for growth using a more efficient vehicle should assets be added to the portfolio at a later date."
And chairman David Crawford said in a letter to shareholders in the Notice for the AGM that Lend Lease traditionally "targets to earn circa 20% of its EBITDA from recurring earning streams, including from the ownership of passive assets.
"If approved, the stapled structure should provide flexibility for Lend Lease to hold such assets in a more efficient manner, providing opportunities to improve shareholder returns.
"Please note that tax restrictions prevent the transfer of existing Lend Lease assets to LLT and therefore LLT would only acquire assets in the future.
"There are currently no specific assets identified to be acquired by LLT.
"LLT will initially have only minimal capital.
"Options for further capitalising LLT will be considered in light of any acquisition opportunities which may emerge over time, and put to shareholders if necessary at that time," Mr Crawford said.
The company said the key benefits of the Stapling Proposal for Lend Lease shareholders would be:
- More predictable distributions on income generated from passive assets;
- Yield enhancement from income streams on passive assets;
- Enhanced cash position of investors through capital returns which are treated as tax deferred; and
- Improved liquidity.
- But no joy in the annual report for shareholders on the outlook for dividends. In fact the payouts could be lower for the next year or so, in keeping with a new lower, payout ratio outlined in the annual results in August.
Mr Crawford said in the annual report that "Given the ongoing uncertain conditions, Lend Lease is not providing specific short-term earnings guidance .
"Directors and management continue to be positive about the Group’s operating outlook and remain focused on optimising total shareholder returns from all the Group’s activities.
"Long-term shareholder returns will not be sacrificed to meet short-term earnings targets through sub-optimal asset sales or other capital measures.
"At this point in the cycle, you should expect to see Lend Lease taking advantage of its very low leverage and investing capital to secure the best positions and develop the most appropriate projects in the pipeline as conditions improve.
"With effect from the interim dividend 2010, Lend Lease is changing its dividend policy.
"Lend Lease will change its dividend payout ratio from the range 60% to 80% of operating profit after tax to 40% to 60% of operating profit after tax.
"Lend Lease will frank the dividend to the maximum extent possible on a sustainable basis.
"He said that the company is well placed to deliver improving value for shareholders as we work towards that objective and conditions improve.
"The Company has significant headroom under its banking covenants and its capital position was enhanced by the $302.5 million of equity issued earlier in the year.
"As a result, Lend Lease has the capacity today to fund all of its committed development pipeline over the next three years, with cash and cash equivalents of over $1 billion and strong underlying cash flows.
"That capacity is enhanced by the Group’s partnership model and reputation as a leading property investment manager, providing access to third party capital.
"This enables Lend Lease to pursue the best opportuniti
