Lend Lease shares fell sharply yesterday as it joined the downgrade club’s upper echelons.
The property group’s exposure to the plunging UK market hurt it and the shares staged an ANZ, Suncorp or NAB-like performance in dropping more than 13% to close at $8.66 and close to its 52 week low.
The shares dropped around 9-11% in morning trade, and then more as investors digested the news, which included a cut in final dividend payout.
The earnings fall came after the company wrote down the value of assets it has in the UK (where it is trying to raise funds to develop the athletes’ village for the 2012 games with partners).
Net profit will drop to $265.4 million in the 12 months to June 30, from the $497.5 million earned the previous year, the company said.
Great Britain’s housing slump prompted a $121.5 million pretax charge on real estate held by the company’s UK Communities business, Crosby Lend Lease.Lend Lease paid $612 million for Crosby three years ago.
Analysts cut their estimates to match Lend Lease’s new figures and warned there be more cuts in their forecasts for 2009-10.
Goldman Sachs JBWere said the market was expecting profit to be up 5% to 10% this year, but no more.
Lend Lease joins a growing list of companies including ANZ, Suncorp and the NAB, plus Mirvac Group and GPT, in having profits hit by the downturn in global financial and property markets.
The write-down was carried out "in light of continuing difficult market conditions, which could see further pressure on residential sales prices and volumes,” Lend Lease said in its statement to the ASX.
The company’s shares fell $1.13 to $8.87 just before 11.30 am.
Lend lease said property investments for Lend Lease dropped $60.2 million in the year as retail real estate values declined and the earnings slump has seen the company cut final dividend to 34 cents a share from 42 cents.
"In light of continuing difficult market conditions, which could see further pressure on residential sales prices and volumes, Lend Lease has taken the prudent step of writing down the carrying value of Inventory in its UK Communities business, Crosby Lend Lease by A$121.5 million pre-tax.
"This will not be tax effected in our financial statements. This will reduce the Group’s Statutory Profit After Tax, but is excluded from the expected Net Operating Profit After Tax of A$447.1 million.
"In addition, given continued expansion in retail capitalisation rates, Lend Lease’s profit and loss statement will include a reduction in Property Investment Revaluations of A$60.2 million after tax for the year."
"Given continuing volatility in global credit and property markets, it is difficult to give earnings guidance for FY09 with a high degree of confidence. At this stage Lend Lease expects Net Operating Profit After Tax for FY09 to be approximately 10-15% below expected 2008 Net Operating Profit After Tax of A$447.1 million.
The company said it had $800 million in cash on hand at the end of June, and it indicated it might sell some assets in the current year.
The company’s decision to write-down values on UK property holdings will; put pressure on other Australian groups with investments in UK property, such as Valad and Westfield to follow suit and cut their values.
And there was a clue for Westfield
In a note lend Lease made the following point about its remaining interest in perhaps its most valuable asset, the Bluewater Shopping Complex in Britain
"Lend Lease’s 30% interest in the Bluewater shopping centre in the UK is held as Inventory at its original cost of £250.0 million.
"Since completion in 1999, Lend Lease’s interest in Bluewater increased in value to £647.4 million as at 30 June 2007 as included in the Portfolio Report within the Lend Lease Consolidated Financial Report.
"The June 2008 valuation has decreased to £570.6 million but this does not impact Lend Lease’s profit and loss account or balance sheet."
It won’t have an impact because the value hasn’t fallen below the value in Lend Lease’s books because the company hasn’t revalued it the stake and used the upvaluations to bolster earnings, as do property trusts.
