Lendlease Annual Report 2021

Management EBITDA 102 165 Ownership EBITDA 111 198 165 Investments outlook The Investments segment delivered EBITDA of $276 million, down 8 per cent on the prior year as performance continued to be impacted by COVID. The segment generated a Return on Invested Capital of 5.9 per cent, just below the target of 6-9 per cent. Management EBITDA, derived from funds and asset management activities across the Group’s Investments platform, was $165 million, down from $198 million.1 Funds management revenue of $145 million was down from $212 million due primarily to the significant performance fee generated from the completion of Paya Lebar Quarter in the prior year. Asset management revenue of $139 million was up from $105 million. $1.3 billion of redevelopment activity was secured across the US residential portfolio underpinning the overall increase in asset management fees. Performance was impacted by lower retail asset management fees, with COVID impacting activity across the sector. Residential asset management fees now represent the largest component of the asset management revenue base. Ownership EBITDA was $111 million, up from $102 million, reflecting a recovery in underlying investment income, which more than offset lower asset sale profits during the year. The challenging retail environment also resulted in lower returns across the Group’s retail investments. Ownership earnings exclude the impact of property revaluations across the investment portfolio. The trading performance of the Retirement Living business, while still subdued, recovered during the year, reflecting the strength of the established housing market. There was a modest rise in resales coupled with strong price growth and an uplift in the sale of new units. The Group’s investments closed the year at $3.5 billion, down from $4.0 billion, reflecting the sale of the US Telecommunications Infrastructure business and the divestment of a 25 per cent interest in the Retirement Living business. The Investment portfolio is well diversified, with the predominant exposure across the retirement, office, retail and residential sectors. Investments performance 1. Comparative period the year ended 30 June 2020. 2. Earnings primarily derived from the Investment management platform and the management of US residential housing operations. 3. Returns excluding non-cash backed property related revaluation movements of Investment Property, Other Financial Assets, and Equity Accounted Investments in the Investments segment. 4. Securityholder equity plus gross debt less cash on balance sheet. 5. The Group’s assessment of market value of ownership interests. 6. Represents the Group's ownership interest. Total invested capital in the segment of $3.6 billion in FY21. 1. Comparative period the year ended 30 June 2020. 2. The Group's assessment of market value. 3. Assets Under Management excludes US residential housing for FY17 and FY18. Funds under management, assets under management and the investment portfolio are the key operating metrics that drive performance. Funds under management commenced the new financial year at $39.6 billion, up ten per cent.1 The growth was underpinned by a new $2 billion multisector investment mandate secured in Australia, additional residential for rent product in both the US and Europe, and acquisitions across the Australian Funds Management platform. This more than offset the negative foreign exchange translation impact due to the appreciation of the Australian dollar. In addition to the current funds under management, there is approximately $2.7 billion of future secured FUM based on development projects currently in delivery via managed funds or mandates. The Group’s urbanisation development pipeline is expected to continue to provide a key source of future growth for the Investments platform. The existing urbanisation development pipeline includes more than $50 billion of institutional investment grade product across commercial and residential for rent assets. Assets under management declined slightly to $28.5 billion, reflecting the foreign exchange translation impact on the US residential portfolio and modest valuation declines across retail assets. The Group’s investments of $3.5 billion includes $0.9 billion in each of retirement, retail and office assets, respectively, and $0.7 billion in residential, with the remainder in industrial. The Group made further progress in realigning its exposure to the retirement sector with an investment partner acquiring 25 per cent of the Retirement Living business. This reduced the Group’s interest to 50 per cent. The Group continues to assess redeployment opportunities within the Investments segment. The Group’s strategy is to significantly grow its investment portfolio over time, delivering the Group a solid base of recurring earnings. Growth is expected to include retaining a larger proportion of completed assets from the development pipeline and investing alongside investment partners through the launch of new products. Key initiatives progressed during the year include securing the first data centre development in Japan under the Lendlease Data Centre Partners, and the establishment of a new life sciences investment partnership in the US. EBITDA ($m)  1H   2H  FY20   FY21 Key Financials and Operational metrics FY20 FY21 Funds Under Management fees ($m) 212 145 Assets Under Management fees ($m) 105 139 Management EBITDA2 ($m) 198 165 Ownership EBITDA3 ($m) 102 111 Operating EBITDA ($m) 300 276 Operating Profit after Tax ($m) 214 213 Invested Capital4 ($b) 3.7 3.6 Investments EBITDA by Activity ($m) Investments5 ($b) Return on Invested Capital FY17 FY19 FY18 FY20 FY21 300 276 369 433 278 Investments 5,6 by Sector ($b) 19% 3% 1% 26% 26% 25% $3.5b  Retail  Retirement  Office  Residential  Industrial  Other FY17 FY19 FY18 FY20 FY21 4.0 3.4 3.3 3.5 3.7 5.9% TARGET 6-9% 5.8% FY20 FY21 6.9% 5 year average Funds Under Management2 ($b) 55% 32% 4% 3% 6% $40b  Office  Retail  Residential  Industrial  Other Assets Under Management 2,3 ($b) Assets Under Management2 roll forward ($b) Funds Under Management2 roll forward ($b) 29.3 0.6 (0.2) Divest- ments Additions Revalua- tions FX and Other FY20 FY21 (0.6) (0.6) 28.5 Assets Under Management2 by Sector ($b)  Residential  Retail  Office Funds Under Management2 by Sector ($b) 48% 41% 11% $29b FY17 FY19 FY18 FY20 FY21 36.0 39.6 30.1 26.1 35.2 FY17 FY19 FY18 FY20 FY21 29.3 28.5 12.7 12.2 28.7 36.0 4.8 (0.4) Divest- ments Additions Revalua- tions FX and Other FY20 FY21 0.2 (1.0) 39.6 65 A sense of place 64 Lendlease Annual Report 2021 Performance and Outlook