Lendlease Targets $2B Capital Recycling Amid $400M TRX Asset Deal

Lendlease's Strategic Capital Recycling Push

Lendlease Corporation Limited has announced a significant milestone in its FY26 capital recycling program with a binding agreement to sell a 40% interest in The Exchange TRX retail mall and its full 60% interest in the adjacent office tower in Malaysia. The deal, valued at approximately $400 million, involves the Valiram Family Office as the buyer and is targeted for completion in the second half of FY26, subject to customary conditions including financing and third-party consents.

This transaction forms part of Lendlease’s broader Capital Release Unit (CRU) strategy, which aims to recycle $2 billion in capital during FY26. The company retains a 20% interest in the retail mall, which will be reclassified into its Investments segment, alongside a 60% stake in the adjacent residential land plots and hotel. Notably, Lendlease has appointed advisers to facilitate the sale of the hotel and continues to explore options for the land holdings, signaling ongoing asset optimisation efforts in the Malaysian market.

Financial Implications and Gearing Outlook

While the capital recycling initiatives are well underway, Lendlease has experienced delays in transaction timing, pushing anticipated cash inflows from the first half to the second half of FY26. This shift has impacted the CRU segment’s earnings, which is expected to report a loss in 1H FY26 due to limited transactional activity and elevated financing and overhead costs. The company has refrained from providing earnings guidance for CRU in FY26, reflecting the uncertainty around transaction timing.

On the gearing front, Lendlease continues to target a 15% gearing ratio by the end of FY26, excluding hybrid securities. This target is supported by the $2 billion CRU recycling initiatives, a $300 million settlement from its joint venture with The Crown Estate, and $1 billion of active asset recycling across its Development and Investments segments. However, due to the delays, gearing is forecasted to be in the mid to high 30% range at the half-year mark, before expected reductions later in the year.

Broader Capital Recycling Progress and Growth Prospects

Since May 2024, Lendlease has announced or completed approximately $2.9 billion in capital recycling transactions, generating net premiums over book value. This track record underscores management’s focus on balancing execution speed with value preservation. Meanwhile, the company continues to invest in growth projects such as One Circular Quay and Victoria Harbour, which are expected to deliver over $1 billion in gross proceeds upon settlement in FY27, indicating a pipeline of value creation beyond the current fiscal year.

Group CEO Tony Lombardo highlighted the company’s active approach, stating, “We continue to be highly active on capital recycling, with more than $3 billion of transactions underway for the second half of the financial year. This includes $2 billion of announced or advanced stage capital recycling initiatives across our segments.”