LENDLEASE – LLCAU 3.7 31/03/2031
Lendlease is a global property and development conglomerate with operations in Australia, Asia, Europe, and the Americas. The company specialises in various aspects of the property industry, including infrastructure, investment management, construction, and asset management.
Lendlease has a diversified business across high-profile projects, including urban regeneration developments, residential and commercial properties, infrastructure projects, and community initiatives. They also have a diversified portfolio that encompasses a range of sectors, including residential, retail, commercial, healthcare, education, and entertainment. Their projects include mixed-use developments, shopping centres, office buildings, apartments, and infrastructure projects like roads, bridges, and railways. The company places a strong emphasis on sustainability and has implemented green building practices across its projects.
The senior unsecured bond issued by Lendlease has a coupon of 3.7% and a December 2031 final maturity date. We believe the bond represents attractive risk adjusted returns due to the following reasons:
- Lendlease has been conservative in managing its balance sheet, and subsequently reduced its dividend payout ratio to the bottom of its 30-50% range, a positive for creditors.
- Lendlease has a strong commitment in maintaining an investment grade rating and has various levers to pull if needed to protect their rating.
- The large movement in bond yields since mid-2022 means it has allowed investors to invest at a significant discount to par. Currently, the clean price was last marked at 81, implying a yield to maturity over 7%.
The senior unsecured bond was issued with funds going towards Lendlease’s commitment to a greener future and qualifies as a sustainability asset. Credit metrics remain very strong for its rating with proforma gearing likely to be 6% post the full sale of its communities’ unit. As Lendlease continues to diversify the business towards a more recurring, less volatile earnings stream as part of its five-year strategy the credit profile will improve further.
These senior unsecured bonds are investment grade rated. We have high conviction in the ability of the issuer to maintain an investment-grade rating and not fall to sub-investment grade. In terms of comparable bonds in this sector, Lendlease’s senior unsecured bond looks to be attractively priced compared to other bonds in the same rating sector and pays a significant discount given the following risks factored in.
Key Risks:
- Asset impairments across property developments coupled with wide-scale property devaluations
- Inability to be sell-down developments in an appropriate manner
- A change in conservative management of its balance sheet
Relative Value (against rating sector)
