Lend Lease Group (ASX: LLC), the international residential and commercial property developer, handed in strong half-year results, partly due to a vibrant Australian real estate market and further progress in its UK business.
Record low Australian interest rates and a revitalised UK housing market have led to a 156% increase in pre-sold revenue of Australian and UK residential apartments and communities to about $3.6 billion, compared to the prior corresponding period.
Lend Lease's Australian market was the biggest earnings generator, with segment profit after tax of $298 million, up a remarkable 33%. Europe came in second with segment earnings up several times on the previous corresponding half-year results, due to land sales and the close-out of final parts for the Bluewater shopping centre transaction in the UK.
The Americas and Asia didn't fare as well. Increased investments and less construction profits from reduced military housing revenue in the US resulted in a 22.7% decrease in operating business profit. For Asia, telecommunications infrastructure work was down in Japan and the company's property development pipeline had less projects in delivery and higher investments. These led to a big 72% drop in segment operating business profit.
Here are the half-year results highlights:
– Revenue $5.89 billion, down 9.4% from $6.51 billion
– Total operating businesses profit before tax $526.4 million, up 17.1% from $449.6 million
– Net profit after tax (NPAT) $315.6 million, up 25.4% from $251.6 million
– Earnings per share earnings per stapled security 54.5 cents, up 25% from 43.7 cps
– Distribution per security interim distribution of 27.0 cents per security, up from 22.0 cps
Currently, Lend Lease is developing three office and residential towers at the $6 billion Barangaroo South development site in Sydney. Apartments will be progressively completed between financial years 2015 and 2018. The site's proposed six-star Crown Sydney Hotel, which Crown Resorts Ltd (ASX: CWN) will operate, is to be completed by 2019 to coincide with the opening of a planned VIP gaming venue.
Lend Lease has more than doubled in share price since July 2013 as the Australian property market took off. Further anticipated interest rate cuts could keep housing strong in the short term. However, analysts forecast the property developer's earnings to decrease over the next several years.
Investors who bought Lend Lease shares earlier caught the stock near a low point in the property market cycle. New investors will need a long-term view on Lend Lease to get through the development growth over the next several years and potentially see better returns. The stock pays a 3.7% yield unfranked.
