Lendlease Annual Report 2021

Development performance 1. Comparative period the year ended 30 June 2020. 2. Represents the end value of buildings in delivery. 3. Securityholder equity plus gross debt less cash on balance sheet. 4. Project end value on product completed during a financial period (representing 100 per cent of project value). Invested Capital3 ($b) FY17 FY19 FY18 FY20 FY21 4.8 4.8 3.0 4.3 4.4 Return on Invested Capital Production4 ($b) FY17 FY19 FY18 FY20 FY21 5.6 5.0 4.6 4.0 3.8 Production4 by product ($b) Key Financials and Operational metrics EBITDA ($m)  1H   2H FY20 FY21 Operating EBITDA ($m) 322 469 Operating Profit after Tax ($m) 233 342 Invested Capital3 ($b) 4.8 4.4 Production4 ($b) 5.0 3.8 Work in Progress2 ($b) 12.3 14.5 Pipeline ($b) 113.0 113.6 Development outlook 1. Total estimated project revenue of all development work secured (representing 100 per cent of project value). 2. End value of Development Pipeline in delivery as at period end (representing 100 per cent of project value). 3. Subject to changes in delivery program. Pipeline¹ roll forward ($b) Pipeline¹ ($b) The estimated end value of the development pipeline was steady on the prior year at $114 billion. While origination activity was strong with new projects of $8 billion secured, it was offset by completions and foreign exchange rate movements. The pipeline comprises $101 billion of urbanisation projects, including 23 major urbanisation projects across ten gateway cities, and $13 billion of communities projects. The size of the development pipeline, as well as its diversity by gateway city and product type, provides scope for a material acceleration in development activity. Our target is to produce greater than $8 billion of product per annum. While this will not be achievable in the near term, we expect the target to be reached by FY24. COVID has had a widespread impact on many of the gateway cities in which we operate. The enforced lockdowns and isolation caused by the pandemic have had significant ramifications for real estate markets across these cities. Gateway cities across our platform have been selected based on their resilience and prospects for long term outperformance. While we expect these cities to rebound strongly over time, near term challenges are likely to persist. This will have implications for both activity and profitability of the Development segment over the next two years. In addition, profit recognition on projects we commence with investment partners is expected to be more closely aligned with the achievement of key delivery milestones and project cash flow outcomes in future periods. This will result in a transition phase in the short term. Notwithstanding the impact of the pandemic, there is $14.5 billion of work in progress, and the Group expects to commence more than $16 billion of work in FY22-FY23. Important planning milestones have progressed across numerous urbanisation projects that have been secured in recent years. We expect many of these to move into the delivery phase over the next two financial years, although weighted towards FY23. These include the San Francisco Bay Area project, High Road West in London and La Cienega Boulevarde in Los Angeles. The Australian Communities business has not been positioned to take full advantage of the favourable market environment over the last year. We expect sales to accelerate in FY22, boosted by the commencement of new projects. However, with the typical lag between sales and subsequent settlements, volumes are expected to remain below the annual settlement target of 3,000-4,000 lots. The Development segment delivered EBITDA of $469 million, up 46 per cent.1 While the performance of the business improved from the worst of the COVID impacts, the operating environment remained challenging. Return on Invested Capital of 7.2 per cent was below the bottom end of the target range of 10-13 per cent. Invested capital decreased from $4.8 billion to $4.4 billion with a greater proportion of development activity occurring with investment partners and some delays in production activity. Progress continues to be made on converting the development pipeline. This included creating new investment partnerships, the launch of residential product, achieving planning milestones and securing additional urbanisation projects. Two residential towers at One Sydney Harbour, Barangaroo, contributed $325 million to EBITDA. The forward sale of Melbourne Quarter Tower and a new joint venture partnership at Milan Innovation District were other key contributors to the result. The largest contributors to apartments for sale settlements were Melbourne Quarter and Clippership Wharf, Boston. While settlements across the Australian Communities portfolio were up 17 per cent to 2,228 lots, they were well below both target levels and broader performance across the industry. Delivery commenced on residential product at Residences Two, One Sydney Harbour, TRX in Kuala Lumpur, Ardor Gardens in Shanghai, and 100 Claremont Avenue in NewYork. Apartments for sale were launched on the next stages at Southbank in Chicago and Elephant Park in London. Production of $3.8 billion included the completion of both commercial and residential buildings at Melbourne Quarter and residential for rent at Elephant Park in London and 845 West Madison in Chicago. Work in progress,2 the lead indicator for future production, ended the period at $14.5 billion. This includes $6.9 billion of commercial buildings in Melbourne, Milan, Sydney and Kuala Lumpur; $5.9 billion of apartments for sale in Sydney, Kuala Lumpur, London, Chicago and New York; and $1.3 billion of apartments for rent in London, Chicago and Shanghai. Six urbanisation projects were added to the pipeline. In the UK, the c.$3.5 billion Smithfield project will provide more than 3,000 new homes. In Boston, 60 Guest Street should become a state of the art life sciences building with an estimated end value of $0.8 billion. In New York, 1 Java Street is planned to transform a city block into apartments for rent with an estimated end value of $1.0 billion. The Group also secured its first urbanisation project in Los Angeles at La Cienega Boulevard with an estimated end value of $0.8 billion, which is planned to include apartments for rent and office space. FY17 FY19 FY18 FY20 FY21 322 469 673 552 793 7.2% TARGET 10-13% 4.7% FY20 FY21 9.6% 5 year average 18% 34% 19% $3.8b 29%  Apartments for sale  Apartments for rent  Commercial  Communities FY17 FY19 FY18 FY20 FY21 113.0 113.6 71.1 49.3 76.1 8.4 (4.0) 113.0 113.6 (3.8) FY20 New work secured FX and other Production FY21 Work in Progress2 roll forward ($b) Work in Progress by Product2 ($b) Pipeline1 by product ($b) Indicative commencements ($b)3 FY20 Prod- uction Commence- ments FX and Other FY21 0.4 14.5 5.6 12.3 (3.8) 40% 9% 48% 3% $14.5b  Apartments for sale  Apartments for rent  Commercial  Communities 30% 22% 12% 36% $114b  Apartments for sale  Apartments for rent  Commercial  Communities Jan-21 to Jun-23 >$20b 33% 11% 29% 17% 10%  Apartments for sale  Apartments for rent   Commercial  Communities $3.6b 2H 2021 commencements 61 A sense of place 60 Lendlease Annual Report 2021 Performance and Outlook