Lend Lease profits up 50%, but it warns of tough times ahead

Property developer Lend Lease has warned of a weaker residential outlook as it revealed a 50% increase in annual profits. 

Lend Lease delivered an operating profit after tax for the year ended 30 June 2011 of $485.3 million.

Profit growth was achieved across all regions, even though challenging economic conditions continued in offshore markets.

Chief executive officer Steve McCann says it remains cautious about the residential market though noting that risk of interest rate increases has receding.

“Continued strong employment levels should improve consumer sentiment over time,” McCann says.

The outlook for Australia, Lend Lease’s biggest market, is relatively unstable, compared with greater uncertainty in the other international markets it operates in including the US and Europe.

Overall though, the developer believes property fundamentals remain sound and that there is a strong “equity appetite for Australian property and infrastructure”.

The financial results reveal that Lend Lease exchanged contracts on 2,299 residential land lots over the financial year with a gross value of $497 million a decrease of 14% from the previous year.

However, residential pre-sales are up 29% and the decline in residential land settlements has been offset by an increase in average lot prices. 

On the commercial front, the results note the completion of the 58,000 square metre Darling Quarter mixed-use development, tenanted by the Commonwealth Bank, and approval of the $6 billion Barangaroo development. 

Construction of the basement at Barangaroo, which will service the three office towers to be built on the site, will commence in the coming weeks with the construction of the first tower due to start before the end of the year. 

McCann says Lend Lease is in discussion with major Barangaroo tenants with further details to be released over the coming months. 

In Victoria Harbour the Convesso and Serrata residential towers are under construction with pre-sales levels “strong”.

Construction of the 60 metre high C7 commercial office has commenced and will be anchor tenanted by engineering firm Aurecon. Construction of the 30-storey Concavo, another residential tower in the harbour, will be launched in October. 

Currency fluctuations led to Lend Lease’s property investment portfolio declining by $258 million over the financial year to be currently valued at $2 billion. Two thirds of its assets are held in the US and Europe.

The portfolio generated just over $100 million in income compared to $137 million in the previous financial year.