Lendlease (ASX.LLC) sold the development rights in a mixed-use project in Milan, Italy, for cash proceeds of $90 million. Management expects the below-book sale to result in an aftertax operating loss of $175 million in fiscal 2026.

Why it matters: The discount to book value is worse than we had anticipated, and we now think further painful write-offs are likely. We assume a discount of 70% for the rest of the assets yet to be divested, up from 30% previously, as they appear to be taking longer to sell.

  • These assets sit within the capital release unit, or CRU, and have net tangible assets, or NTA, of $2.50 per security as of Dec. 31, 2025, including the Milan project sold.

The bottom line: We cut our fair value estimate by 38% to $4 for no-moat Lendlease, mostly driven by a higher discount to book for the assets to be sold. The cut also includes some chance of a value-dilutive equity raise to strengthen the balance sheet.

  • We downgrade our Capital Allocation Rating to Poor from Standard, reflecting a stretched balance sheet, blunders in management’s investment strategy, and a slow capital recycling program.

Between the lines: Lendlease can be roughly divided into three parts—the remaining “good” investment portfolio and domestic development business, the “bad” CRU to be axed, and the funds management platform that has faced “ugly” standoffs with superannuation fund clients in 2025.

  • The “good” businesses account for two-thirds of our fair value estimate, or $2.25 per security. This implies a 33% discount to the NTA of $3.35 per security as of Dec. 31, 2025. We value the “bad” book at $0.75, roughly 30 cents on the dollar of its $2.50 NTA.
  • We also incorporate the intangible value of its funds platform at a forward EBIT multiple of five times, or $1.00 per security, which is lower than peer property fund managers, given it has faced a flood of redemption requests in recent times.

Lendlease’s fair value estimate cut to $4, downgrade capital allocation rating to poor

Lendlease is simplifying, with plans to exit the development and construction businesses overseas to focus on the Australian market. Its offshore interests will be mainly limited to owning and managing mature assets, not development or construction. The strategy shift frees up substantial capital. Cutting debt, which grew substantially in the last two years, is the top priority.

Since the May 2024 strategy reset, the firm has announced or completed AUD 2.9 billion in asset sales, out of the AUD 4.5 billion originally planned. Remaining for-sale assets include various finished apartments and developable residential and mixed-use lands across San Francisco, Chicago, London and Milan, Australia’s Keyton Retirement Living, and a senior living community in Shanghai, China. These assets sit within the capital release unit, or CRU, and have net tangible assets, or NTA, of AUD 2.50 per security as of Dec. 31, 2025.

The recent sale of a mixed-use project in Milan, Italy results in a discount to book value worse than we had anticipated. We now think further painful write-offs are likely, as unwinding of the international development portfolio is taking longer than we thought.

Investment management is becoming Lendlease’s core business, as it is capital-light and high-margin. We forecast the investments segment to contribute over half of group midcycle EBITDA, up from a historical average of 38% between fiscal 2020 and 2024. On the other hand, once a more prominent part of the company, development is expected to contribute just one third of group earnings in the future.

We expect funds under management to grow at a CAGR of roughly 2.4% to almost AUD 55 billion over the next five years. While the development pipeline will shrink as the company exits overseas projects, Lendlease still has a sizable development work-in-process of AUD 9 billion in Australia as of December 2025. This is a growth driver of the investment management platform. Lendlease typically sells stakes in projects to one of its investment vehicles throughout property development lifecycle.

Bulls say

  • Lendlease is set to be leaner in the future. The shift to focus more on the capital-light, higher-margin investment management business should improve the company’s return on invested capital.
  • Significant capital is due to be released from offshore asset sales. The balance sheet should improve and provide more capacity to scale Lendlease’s Australian development pipeline in the longer run.
  • Lendlease has demonstrated its capability to deliver large-scale social infrastructure projects over decades. Its reputation as a trusted developer and constructor is well-established in Australia.

Bears say

  • Lendlease’s construction division generates huge revenue but wafer-thin margins. Unexpected cost blowouts can destroy returns.
  • Nearly all major REITs have established or are trying to establish funds management businesses. Investment management fees are likely to be squeezed as competition intensifies.
  • With large exposure to property development and construction, Lendlease is sensitive to changes in interest rates, property prices and demand, and economic activity.

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