U.S. Markets closed

Edited Transcript of LLC.AX earnings conference call or presentation 24-Feb-19 11:00pm GMT

Half Year 2019 LendLease Group Earnings Presentation

Millers Point, New South Wales Jun 25, 2019 (Thomson StreetEvents) -- Edited Transcript of LendLease Group earnings conference call or presentation Sunday, February 24, 2019 at 11:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Stephen B. McCann

LendLease Group - Group CEO, MD & Director

* Tarun D. Gupta

LendLease Group - Group CFO

================================================================================

Conference Call Participants

================================================================================

* Augusto Medeiros

Deutsche Bank AG, Research Division - Head of the Australian Credit Research & Strategy and Strategist

* Benjamin J. Brayshaw

JP Morgan Chase & Co, Research Division - Analyst

* David Lloyd

Citigroup Inc, Research Division - Director & Analyst

* Grant McCasker

UBS Investment Bank, Research Division - Head of Australian Real Estate Research Team, Executive Director & Equities Analyst of Real Estate

* Paul Butler

Crédit Suisse AG, Research Division - Director

* Rob Freeman

Macquarie Research - Analyst

* Sholto Maconochie

CLSA Limited, Research Division - Head of Australia Real Estate

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Welcome to the Lendlease 2019 Half Year Results Briefing by Steve McCann, Group Chief Executive Officer and Managing Director; and Tarun Gupta, Group Chief Financial Officer.

Please note that this call is being recorded.

I'd now like to hand over to Mr. Steve McCann.

--------------------------------------------------------------------------------

Stephen B. McCann, LendLease Group - Group CEO, MD & Director [2]

--------------------------------------------------------------------------------

Good morning, everybody, and welcome to the Lendlease 2019 Half Year Results Presentation.

My name is Steve McCann, Group Chief Executive Officer and Managing Director of Lendlease. Sitting here at Barangaroo in Sydney, I'd like to acknowledge that we're on the land of the Gadigal people; and extend my respects to their elders past, present and future.

Joining me in the room is Tarun Gupta, Group Chief Financial Officer. Today, I'll provide an overview of Lendlease's results for the period ended 31 December 2018. I'll then hand over to Tarun, who will talk through the financial results before I provide an update on our operations and outlook. We'll then be available to take questions.

Lendlease's long-term value is driven by 5 distinct pillars. These value pillars drive our approach to create economic, safe and sustainable outcomes for our customers, partners, securityholders and people. As today's briefing will focus primarily on the financial pillar, I'll first touch on the other pillars that drive performance.

As always, health and safety comes first. Our commitment to the health and safety of all who interact with a Lendlease place holds the highest priority in our organization. During the first half of financial year 2019, the frequency rate for lost-time injuries was 1.9, while the percentage of operations without critical incidents was 93%. Demonstrating that our culture of care extends beyond keeping people physically safe, we recently won multinational employer of the year at the 2018 Global Healthy Workplace Awards.

An inclusive and diverse work environment inspires employees and drives innovation and business growth. It, therefore, gives me great pleasure to announce today that, for the fourth consecutive year, Lendlease has been named an employer of choice for gender equality by the Workplace Gender Equality Agency. From a customer perspective, we continue to implement strategies to measure and improve interactions and satisfaction. In response to customer research and feedback, additional contract options are now being offered across the majority of our Retirement Living portfolio.

Our approach to sustainability is focused on the 2 principal areas of environment and community. During the period, our flagship office fund APPF Commercial was again ranked first globally in the 2018 GRESB survey, the fourth time in 5 years the fund has achieved this ranking. We recently launched Lendlease FutureSteps, a fund that supports established charities in a bid to reduce housing stress and homelessness in Australia. In addition to seed funding from Lendlease Foundation, Lendlease will contribute 0.1% of future sales revenue from all new residential dwellings and land lots in Australia.

Turning to Slide 5.

It's been a difficult 12 to 18 months for the group with issues on a number of engineering projects materially impacting the group's overall performance. We are very disappointed with our performance, and we acknowledge this is unacceptable. The management team and I are committed to working to restore securityholder value and confidence in Lendlease. Today's announcement is part of that process. A comprehensive review has determined that the Engineering and Services business is noncore and is no longer a required part of Lendlease's strategy. The review concluded that it is in the best interest of clients, employees and securityholders to consider alternatives that will allow both the Engineering and Services business and Lendlease Group to focus on their core competitive advantages. The decision enables the group to focus on our proven integrated capabilities across Development, Construction and Investments, with the aim of maximizing securityholder value over the long term.

The review concluded that the contribution of Engineering and Services to the integrated model is limited and the risk-return profile for major engineering projects is not compatible with the rest of the group. The transport engineering sector is forecast to grow at approximately 5% per annum during the next 5 years. Lendlease is implementing a business strategy with a lower-risk profile to allow Engineering to continue to participate in this sector while alternatives are considered. The Services business will continue to focus on operations and maintenance programs across various sectors.

As we work through the implications of this decision, we have made a preliminary estimate of future restructuring costs that may be incurred in the range of $450 million to $550 million pretax. These restructuring costs may include implementation costs such as technology and systems, employee and advisory costs; and costs to conclude customer contracts as a result of the group's decision. This estimate excludes any anticipated revenue from ongoing operations or proceeds received for the business. Post separation, the remainder of the group strategy will be unchanged. The portfolio management framework has been revised to reflect Engineering and Services as noncore. We'll address the implications of that later in the presentation.

This brings me to Slide 6. Lendlease's core strategy is to pursue our integrated model whereby 2 or more of our 3 segments of Development, Construction and Investments engage in the same project. The group currently has 20 major urbanization projects underway in gateway cities across Australia, Europe, Asia and the U.S. In combination, our business model, financial strength and strong track record provide a point of difference, we believe, very few can match. We take a disciplined approach in implementing our strategy, with a focus on opportunities in targeted gateway cities that are underpinned by the 6 identified trends of urbanization, infrastructure, funds growth, the aging demographic, sustainability and technology.

Turning now to Slide 7. It was a challenging half year for the group given the adverse impact of engineering projects. Profit after tax was $15.7 million, with earnings per stapled security of $0.028. The distribution of $0.12 per stapled security is comprised of earnings derived from Lendlease Trust, which consistent with our policy are required to be distributed from FY '19 earnings. $352 million of the approved $500 million on-market buyback has been completed since it was announced at the 2018 half-year results.

Urbanization projects in Asia and the Americas underpin the result with the completion of the office component at Paya Lebar Quarter and the acquisition of 3 apartment buildings for a U.S. residential investment partnership. As expected, residential apartment settlements in the first half were modest, although more than 2,000 units across our residential for-sale and rent portfolios are expected to settle in the second half of the financial year. Origination was strong, with 2 new major urbanization projects secured: Victoria Cross in Sydney and Lakeshore East in Chicago.

The Investments segment performed well, recording growth in funds under management of 20% to $34.1 billion. While the Engineering and Services business was a disappointment, the performance of our building businesses in each region was solid. Notwithstanding a difficult period, the group has maintained its strong financial position.

Turning to Slide 8. During the period, we continued to execute on our origination strategy in targeted gateway cities. Victoria Cross in Sydney is an over-station development anchored by a 58,000-square-meter office tower, with an estimated end value of $1.1 billion. Lakeshore East in Chicago is a $2.1 billion residential-led project of approximately 1,200 units that will offer a mix of rental and for-sale apartments. Also in Chicago we commenced delivery of 586 residential for-rent units at 845 West Madison, with an end value of approximately $500 million.

Post balance date, we were delighted to be selected as preferred partner for 2 additional projects in the U.K. The $14.5 billion Thamesmead Waterfront development will see the creation of more than 11,000 homes and the rejuvenation of the existing town center. The $2.7 billion Birmingham Smithfield project will generate more than 2,000 homes; and is in close proximity to the proposed High Speed Two city center terminus station, which is set to open in 2026. These projects add to Euston Station, Silvertown Quays, High Road West and Milano Santa Giulia, all recently secured in Europe. Each are held through capital-efficient arrangements, providing flexibility around delivery and timing.

Cities outside of Australia now account for just on 3/4 of the urbanization pipeline and provide substantial visibility on expected future earnings.

A number of capital partnership initiatives were progressed. We made strong inroads into our residential for-rent strategy teaming up with one of our key long-standing investors, First State Super, to launch a residential investment partnership in the U.S. with an equity commitment of USD 1 billion. The 50-50 partnership acquired 3 buildings that are currently in delivery, with an end value of approximately USD 400 million. The balance of USD 600 million has been earmarked for future investment opportunities, including the first phase of the Lakeshore East project in Chicago.

In Sydney, an existing capital partner purchased a 10% interest in our holding in Tower One at Barangaroo. Our investment now stands at 2.5% and includes the continuation of management rights. Practical completion of the 83,000-square-meter office component of Paya Lebar Quarter in Singapore took funds under management for the office towers to more than $2 billion. The project is in partnership with ADIA, who hold a 70% interest.

These partnerships continue to highlight the strength and attractiveness of our integrated model, which enables us to source, deliver and manage a broad range of projects.

I will now hand over to Tarun.

--------------------------------------------------------------------------------

Tarun D. Gupta, LendLease Group - Group CFO [3]

--------------------------------------------------------------------------------

Thanks, Steve. And good morning, everyone.

In the next few slides, I will provide more detail on our financial results.

Turning first to our financial performance for half 1 FY '19 on Slide 10.

As Steve noted, the strategic review has determined the Engineering and Services business is no longer a required part of the group's strategy. Accordingly, the results are presented on that basis, with EBITDA excluding Engineering and Services, to reflect that it will be noncore to the group going forward.

Operating EBITDA excluding Engineering and Services was down 34%.

All 3 segments had strong results in the prior corresponding period, resulting in the first half of FY '18 accounting for 56% of full year earnings. In contrast, operating EBITDA in FY '19 is expected to be skewed to the second half. Development EBITDA declined by 41% from a very strong first half FY '18. The current suit of urbanization projects in Asia and the Americas made their first substantive contributions to earnings. We have been deploying capital into these regions for a few years and are now starting to generate solid returns on that capital. We expect to see more of this over coming years as the capital shifts towards our international gateway cities.

Asia delivered EBITDA of $107 million and the Americas generated $57.7 million compared to a combined break-even result in the prior corresponding period. The residential investment partnership with First State Super in the U.S. acquired 3 residential for-rent buildings from the development pipeline. The 736 units have an end value of approximately $600 million. While these apartments don't complete until the second half, profit was recognized on acquisition by the partnership. In Asia, the practical completion of the 3 office towers at Paya Lebar Quarter was a -- the key contributor. The residential component of the project also contributed now that apartment profit in Asia is recognized on a percentage completion basis. This follows the adoption in the current financial year of the new AASB 15 accounting standard.

Outside of Asia, the new standard results in a shift in revenue recognition on residential development properties from practical completion to settlement. There were a few settlements in the first half, with the bulk of these at West Grove, Elephant Park, London, which had 129 settlements across 2 buildings. The second half remains on track for significant apartment settlements. We have almost 1,500 presold apartments due to complete, with approximately 1,000 of these at our Darling Square project in Sydney. The first year settlements at our urbanization projects will occur in the second half. While the apartments at 277 Fifth Avenue in New York are high value, a minority equity contribution means the profit generation for Lendlease will be modest. Given the significant amount of apartments due to complete in the second half, apartment settlements and completions for FY '19 are anticipated to be above our 1,000 to 2,000 target range. The profit from 25 King, part of our Brisbane Showgrounds project, was recognized on completion.

A number of the retail assets that sit on balance sheet at Barangaroo were transferred to the Investments segment following stabilization. The retail precinct is performing strongly. There were 908 landlord settlements across the Australian master planned communities portfolio. While subdued market conditions have impacted both sales and settlements, there were production timing issues in the period that should result in a stronger second half. We anticipate settlements in FY '19 to be around 2,500, which is below our target range.

The Construction segment, excluding Engineering and Services, delivered EBITDA of $111.4 million at a margin of 2.1%. Each of the businesses are performing in line with expectations, although there will always be some margin variability on a half year basis. The EBITDA loss from our Engineering and Services operations was $473.7 million, including the $500 million pretax impact from expected losses on previously identified projects.

Investments EBITDA of $273.2 million was strong, delivering an above-target return on invested capital of 13.6%. However, EBITDA was down 29% compared to a very strong prior corresponding period. Half year '18 included the boost from the Retirement Living transaction and almost a full period of 100% ownership versus the current 75% ownership. There was also an uplift in the value of the equity investment in the US Military Housing operations in the prior corresponding period. Co-investment revaluations were 11% of the group operating EBITDA, excluding the impact of the underperforming engineering projects. Almost all of the asset value appreciation was derived from income growth driven largely by leasing success.

Group services costs were up 8% on the prior corresponding period as a result of investment in productivity and efficiency initiatives. Higher depreciation and amortization expense reflects investment in technology and systems in recent years.

Net finance costs were up 14% on the prior corresponding period primarily due to higher average net debt. The tax benefit in the period is a function of the pretax loss for the group and the benefit from trust earnings. Steve has noted that the group currently estimates that it may incur future restructuring costs of between $450 million and $550 million before tax as a result of the strategic review into the Engineering and Services business. At the full year results announcement in August, we will provide an update on the status of the restructuring cost estimate and relevant expenses incurred during the period.

Moving on to cash flow on Slide 11.

The group has introduced measures of underlying cash flows that more accurately reflect the cash flows generated through operating and investing activities and the business model of the group. The measures are derived by adjusting the reported cash flow statement, as set out in the slide. There are 3 buckets of adjustments to operating cash flow. The first is interest and tax paid. The second is capital expenditure and development as measured through the net investment into development inventory. An example during the period is the capital expenditure in the Darling Square apartments. The third is the reallocation of cash flows that are often operating in nature, measured through the proceeds from divestment of development entities and the realized gains on asset sales. Examples in the period include the proceeds from the establishment of the U.S. residential investment partnership and the realized profit from one of our capital partners acquiring 10% of our interest in Tower One at Barangaroo.

The adjustments enabled cash flow coverage to be presented as a meaningful metric for Lendlease. Cash flow coverage, that is underlying operating cash flow to EBITDA, has averaged 92% since FY '14, with the balance largely being revaluations, DMF accruals in Retirement Living and working capital movements in Construction. Over that time frame, the group has reported EBITDA of $5.7 billion and generated $5.3 billion of underlying operating cash flow. Approximately $1.1 billion has been paid in interest and tax. $2.4 billion has been reinvested into development inventory, and $862 million has reported through investing cash flow but was operating in nature. That reconciles to a reporting operating cash flow of $903 million. Slides 11 and 12 in the appendix provide a reconciliation of the adjustments we've made.

Moving now to Slide 12. The chart provides an overview of the major movements in net cash flows on an underlying basis during the half year.

We commenced the year with $1.2 billion in cash. The major contributors to operating cash inflows were apartment settlements across urbanization projects. Underlying operating cash flow was negative $164 million. Underlying investing cash flow was negative $406 million, as the group continued to invest in its development pipeline. Net financing inflows of $600 million reflect net borrowings of $900 million, more than offsetting the distribution payment and the buyback during the period. We closed the period with a cash balance of $1.1 billion.

Looking now at the group's financial position on Slide 13. In addition to the cash reserves just noted, we have $1 billion of undrawn facilities, taking total liquidity to $2.1 billion. Net debt rose to $2.3 billion as we continued to invest into the development pipeline, reflected in Development capital combining -- climbing from $4.3 billion to $5.1 billion. That took gearing up to 15.2%. We expect the Development capital to decline in the second half as we receive revenue and cash from our pipeline of apartment settlements. The interest coverage ratio was 8.1x, excluding the impact of the underperforming engineering projects. We have $3.6 billion in investments across co-investments, Retirement Living and infrastructure and retail assets. We remain in a strong financial position with a resilient balance sheet and anticipate gearing to remain within the 10% to 20% range at 30th June 2019.

The buyback announced in February 2018 has now been completed, with $352 million of securities purchased.

Turning now to our performance in the period against the portfolio management framework on Slide 14.

The objective is to maximize sustainable securityholder value by optimizing risk-adjusted returns. Capital deployment is driven by fundamental research and our current geographic presence and capability. In terms of EBITDA mix and excluding Engineering and Services, the Development and Investments segments were towards the top end of the ranges, with Construction margining below the target range. In line with our stated strategy to pivot to international markets, our capital weighting to Australia is now towards the bottom end of the range, with the other regions receiving the incremental capital during the period. Capital is being increasingly deployed in our international projects where we believe there is strong embedded margin.

While Development generated a return on invested capital that was below target, we expect a strong second half for the Development segment. As noted earlier, Investments delivered above-target returns. The losses in Engineering and Services meant the Construction target was not met.

Moving to Slide 15. The portfolio management framework has been revised to reflect the decision to make Engineering and Services noncore as well as the change in our approach to reporting Construction margin on integrated projects. Going forward, Construction earnings derived from integrated projects will be reported under the Development segment. This approach better reflects the returns we generate from our urbanization projects under our integrated model and is consistent with peers in the market.

Over the last 3 financial years, Construction backlog revenue from major integrated projects has averaged 15% of total Construction backlog. The revised group target ranges on key metrics driven by these changes are set out in the slide, alongside the previous targets. 2 of the 5 components of the PMF are impacted by the revisions: first, target earnings mix. Construction EBITDA as a proportion of total operating EBITDA has been reduced by 10 percentage points, 10% to 20%, with a corresponding rise in Development and Investments. Second, return targets. The Construction EBITDA margin target has been lowered to account for the lower-risk nature of Construction, excluding Engineering and Services; and reporting of margin on internal projects to Development. The Development ROIC target range has been raised by 1 percentage point to 10% to 13% to reflect that returns should be higher given Construction margin will be booked in Development on integrated projects.

The capital structure of the group is being reviewed to reflect the decision of Engineering and Services becoming noncore and the resulting lower-risk business profile going forward.

I will now hand back to Steve for an operational update.

--------------------------------------------------------------------------------

Stephen B. McCann, LendLease Group - Group CEO, MD & Director [4]

--------------------------------------------------------------------------------

Thanks, Tarun.

Turning to Development on Slide 17.

In only a few years, we've gone from a residential portfolio focused on 4 cities to 11 cities. The pivot towards international urbanization projects is starting to produce tangible results as these projects move into delivery and some near completion. That geographic diversification has been important given we have been anticipating a slowdown in the Australian apartment market for some time. We're in the midst of that slowdown, and our portfolio is well prepared for the next cycle. The pivot has also provided diversity by product with our entry into the residential for-rent sector.

In FY '19, we'll have the first settlements across our urbanization projects in the U.S. with apartments for-sale product in Boston and New York and rental product in Boston and Chicago. Profit on the bulk of our residential for-rent apartment pipeline is likely to be booked when buildings are put into delivery rather than at completion or settlement. This will occur when product is forward sold similar to a commercial forward sale as we saw in the half with the U.S. residential investment partnership. We have more than 2,500 apartments for rent across 6 urbanization projects that are expected to enter delivery over coming financial years and will, therefore, contribute to earnings. The broader apartment pipeline is extensive with more than 30,000 units, 26,000 of which are yet to be put into delivery. That's 15 years of supply, at the top end of our annual target, providing significant earnings visibility over an extended period of time.

The Australian communities business is experiencing a cyclical downturn that will make it more challenging for us to meet our 3,000 to 4,000 annual lot target in the near term. The 51,000-lot pipeline has been secured on capital-efficient terms, with the portfolio well placed when the cycle turns.

Moving to commercial development on Slide 18. Paya Lebar Quarter is taking shape as one of the largest business and lifestyle precincts in Singapore. The 3 office towers, which account for more than half of the project's end value, reached practical completion in the period. Leasing is progressing well across the precinct, with 69% of the office towers committed and 78% of the retail mall due to complete in FY '20 committed. The retail precinct at Barangaroo is performing very strongly, with annual specialty sales above $20,000 per square meter or 40% higher than the CBD center average across Australia.

In the U.S. our rollout plans in telco infrastructure have been tempered by likely industry consolidation. We continue to pursue opportunities in the sector through the master lease agreements we have with major carriers. On the commercial pipeline more broadly, we currently have 8 buildings in delivery with a total end value of $6 billion. The largest of these are Circular Quay Tower in Sydney and the Lifestyle Quarter in Kuala Lumpur. Looking further out, we have good line of sight on another 16 commercial buildings, over 54 -- 546,000 square meters, that are in various stages of planning. They form part of more than 1.6 million square meters of space with an estimated development value of approximately $20 billion yet to be put into delivery.

Moving on to our Construction segment excluding Engineering and Services on Slide 19.

The Australian building business continues to perform well, delivering EBITDA of $64.7 million; new work secured of $2.2 billion, including the Sydney Metro Martin Place and Victoria Cross over-station developments and a number of defense contracts, reflecting diversification across both sector and client type. In the Americas, new work secured of $1.8 billion was up 20% on the prior corresponding period, driven by several new commercial and residential contracts. The EBITDA margin of 1% is anticipated to recover for the full year following higher one-off costs in the first half.

Europe delivered an improved performance, with both revenue and margin up on the prior corresponding period. The team remains focused on delivering the growing internal pipeline and winning selected external work. Asia continues to focus on the delivery of the internal development pipeline. The improved margin outcome was supported by ongoing construction across the group's 2 major urbanization projects in Singapore and Kuala Lumpur.

The backlog revenue of $14.8 billion includes $2.4 billion of backlog relating to major integrated projects. The $10 billion of work which we are preferred across both external and integrated projects provides diversity by geography and sector.

Moving now to the Engineering and Services business on Slide 20.

The $500 million pretax impact from expected losses primarily relates to 3 engineering projects: NorthConnex in Sydney; and Gateway Upgrade North and Kingsford Smith Drive, both in Brisbane. This amount reflects the full estimated cost of completing the projects, which are now well advanced and are expected to be complete by the end of calendar year 2020. There has been no additional provision taken at 31 December 2018.

As I mentioned earlier, a new, lower-risk business strategy is being implemented to facilitate ongoing participation in the growing transport infrastructure sector while alternative options are being considered for the Engineering and Services business. Several initiatives are being implemented across the 4 broad categories of origination, people and culture, governance and project execution. The Engineering and Services business has a backlog of $6.6 billion, with new work secured including WestConnex 3a M4-M5 Link.

Our product creation capability remains a key differentiator from our investment management platform, providing quality investment opportunities for both our capital partners and ourselves. We believe that capital partner initiatives in the period are a strong endorsement of the platform. In addition to the current $34.1 billion in funds under management, there is approximately $2.9 billion of future secured funds under management based on development projects currently in delivery. The conversion of the circa $49 billion secured urbanization pipeline with our capital partners should provide future opportunities to grow funds under management.

Ownership earnings are derived from our $3.6 billion of investments. Earnings were down in the period primarily due to the strong prior corresponding period. Higher investment income and asset value appreciation was derived from co-investment positions, particularly in the Australian office portfolio. Resales in the Retirement Living business were up 24%, as the portfolio recovered from a subdued period associated with industry concerns. The introduction of additional contract types has been well received.

Operating earnings are derived from our funds and asset management platforms, with earnings up 8%. Higher fund management fees were generated from the 20% growth in funds under management. For the first time, this includes $700 million of residential for-rent assets. Meanwhile, the asset management businesses continue to provide a steady base of recurring earnings.

Moving to the outlook slide on Slide 23.

Today's decision has not been taken lightly. However, we believe it will be in the best interests of clients, employees and Lendlease securityholders in the long term. Our focus going forward will be to allow both the Engineering and Services business and Lendlease to focus on their core competitive advantages.

Despite a challenging half, our achievements demonstrate the benefit of a disciplined approach to implementing our strategy. The geographic and sector diversity, with the support of our capital partners, is showing tangible results. Our development pipeline at almost $75 billion has never been stronger. Our origination and place-making capabilities are unrivaled. Urbanization projects now account for approximately 80% of the pipeline, following our success at securing international projects that have taken the global portfolio to 20 major urbanization projects across 10 gateway cities.

The Construction backlog excluding Engineering and Services is a healthy $14.8 billion, which is well diversified by client, sector and geography. Our demonstrated ability to partner with third-party capital continues to underpin our business model. The funds management platform has a trajectory for future growth well beyond the current $34.1 billion.

I'd like to conclude by reiterating that our business model and approach is unique. It provides what we believe is a competitive advantage that will endure. The experience of the last year has highlighted the need to stay focused on our core strategy of leveraging our integrated model on urbanization projects.

With that, I'll open it up for questions. The webcast is not two-way, so we'll only be able to take questions over the phone.

Thank you.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Our first question comes from Rob Freeman from Macquarie.

--------------------------------------------------------------------------------

Rob Freeman, Macquarie Research - Analyst [2]

--------------------------------------------------------------------------------

Just on the $450 million to $550 million, can you please confirm none of that will be incurred absent a business sale or a demerger? And then secondly, how much of the cost do you think is attributable to these customer contracts being concluded?

--------------------------------------------------------------------------------

Stephen B. McCann, LendLease Group - Group CEO, MD & Director [3]

--------------------------------------------------------------------------------

Yes, thanks, Rob. So as we've stated, the restructuring cost is a preliminary estimate. What we've done is we've had regard to what we think the likely implementation costs would be across various forms of cost, technology and system costs, employee costs, advisory fees, et cetera; and costs to conclude customer contracts that emerge as a result of our decision. It's very early days in terms of considering the best alternatives. And our first priority will be to sit down with our employees and with our clients and our joint venture partners to look at the range of alternatives available and ensure that there can be successful completion of current projects and continuity of employment for people as well. So we want to create a certain future for our people and for our clients and for our partners, so that's something that we've got to now move ahead with as quickly as possible but in a manner which has regard to all of those issues. So very hard to be any more specific than that at this point. It's a whole portfolio analysis, so we've looked across the entire business and we've made an estimate of what we think the total cost of exiting the Engineering and Services business might be, which would include potentially someone stepping into one or more of our contracts and providing whatever assurances that we need to in that process.

--------------------------------------------------------------------------------

Rob Freeman, Macquarie Research - Analyst [4]

--------------------------------------------------------------------------------

And so the costs to conclude contracts, should we think of that as being synonymous with some form of indemnity?

--------------------------------------------------------------------------------

Stephen B. McCann, LendLease Group - Group CEO, MD & Director [5]

--------------------------------------------------------------------------------

Yes, potentially, Rob, depending of course on what the process ends up being, but you could envisage a scenario where somebody comes into one of our contracts and seeks an indemnity for future performance. So that'll be clearly one of the things that we need to turn our minds to. And we've attempted to -- we've taken advice externally. We've had a look at various precincts. We've had a look at the size and nature of our own business and the nature of the contracts that we have. What we haven't done is included any estimate for future revenue or proceeds from a potential sale.

--------------------------------------------------------------------------------

Rob Freeman, Macquarie Research - Analyst [6]

--------------------------------------------------------------------------------

And just to be 100% clear: None of that will be taken until there is some form of action on sale or demerger.

--------------------------------------------------------------------------------

Stephen B. McCann, LendLease Group - Group CEO, MD & Director [7]

--------------------------------------------------------------------------------

Well, again, it's hard to be -- to preempt the processes that we now follow. First thing that we've got to do is sit down with our clients and customers and employees and look at what those options are. So how that proceeds is a bit early to talk through.

--------------------------------------------------------------------------------

Rob Freeman, Macquarie Research - Analyst [8]

--------------------------------------------------------------------------------

And just on the current provision...

--------------------------------------------------------------------------------

Stephen B. McCann, LendLease Group - Group CEO, MD & Director [9]

--------------------------------------------------------------------------------

And -- sorry, Rob. We will provide an update at our full year results on what we've incurred to date.

--------------------------------------------------------------------------------

Rob Freeman, Macquarie Research - Analyst [10]

--------------------------------------------------------------------------------

So you'll start paying advisers and things like that. That's sitting in that number.

--------------------------------------------------------------------------------

Stephen B. McCann, LendLease Group - Group CEO, MD & Director [11]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Rob Freeman, Macquarie Research - Analyst [12]

--------------------------------------------------------------------------------

Just on Slide 47. So it says Kingsford Smith Drive disclosure is at 30 June '18, and then sort of latest details are commercial in confidence. Does that mean there's been another change at Kingsford Smith Drive? Or is this merely reflecting the fact that your current view on that project, which hopefully is consistent with the client, is just not published in this presentation?

--------------------------------------------------------------------------------

Tarun D. Gupta, LendLease Group - Group CFO [13]

--------------------------------------------------------------------------------

Yes. Rob, it's Tarun here. Yes, that's the case. It's just not published given client confidentiality requirements, but our view on the project hasn't changed to what we reported when we took the provision in November.

--------------------------------------------------------------------------------

Rob Freeman, Macquarie Research - Analyst [14]

--------------------------------------------------------------------------------

Okay. And just on the balance sheet, Tarun: So you had $148 million to go on the buyback. You kind of held off there, but you had committed to a divi this half which -- just around $66 million. The dividend is not miles different to the quantum of the buyback. I'm just wondering why you've held the buyback. And should we expect a dividend to be paid in the second half?

--------------------------------------------------------------------------------

Tarun D. Gupta, LendLease Group - Group CFO [15]

--------------------------------------------------------------------------------

Okay. So firstly, the dividend relates to the earnings from Lendlease Trust as -- and I think, as Steve said, in FY '19, we do have to distribute that to -- for the best interest of our securityholders. So that's what it relates to. In terms of the buyback, if you recall, the buyback the board announced was for 12 months to March this year. Given our trading windows and restricted trading windows, there's virtually hardly any time left between now and March when we could have undertaken further buybacks, so we have accordingly completed that. And in terms of your question on forward distribution, obviously we will continue to pay out in line with the distribution policy which the board has stated previously.

--------------------------------------------------------------------------------

Rob Freeman, Macquarie Research - Analyst [16]

--------------------------------------------------------------------------------

The comment that a potentially lower-risk business post engineering going. So are you kind of calling out now that, once you've completed your capital management review, the platform can take more leverage?

--------------------------------------------------------------------------------

Tarun D. Gupta, LendLease Group - Group CFO [17]

--------------------------------------------------------------------------------

No. Today, nothing's changed. I think our capital structure remains as communicated. What we're just highlighting is that the business mix is going to change once the alternatives are progressed and completed. And we're just flagging that, that may require us to look at the capital mix. And we'll come back and report on that. We plan to have a portfolio management update for the market over the coming months.

--------------------------------------------------------------------------------

Rob Freeman, Macquarie Research - Analyst [18]

--------------------------------------------------------------------------------

Okay. And then just finally: You sold 10% stake in Barangaroo. Are there any other kind of investment sales we should think about at this half? And then have you started calling settlements at Darling Harbour? And just wondering how that's going, please.

--------------------------------------------------------------------------------

Tarun D. Gupta, LendLease Group - Group CFO [19]

--------------------------------------------------------------------------------

Yes, sure. In terms of we completed a sell-down of our stake in 1 Barangaroo, the first tower. Again, our interest in the other 2 towers is something that we will be reviewing at this time. Again, we look at a -- we're an active investment manager of investment positions. When we believe we've maximized the return, then we do recycle capital into other opportunities. In terms of Darling Square, we have -- the buildings are just starting to complete and reach practical completion. They haven't yet, but we have been working with our customers in terms of getting them ready for valuations and settlements, and so far, it is all tracking on program. Construction is on program, and our customer engagement is going well. As you know and I think we flagged previously, the building is progressively over April and May. And we've just got to now bring in the settlements, but overall, valuations are holding up very well for that precinct.

--------------------------------------------------------------------------------

Operator [20]

--------------------------------------------------------------------------------

The next question comes from Ben Brayshaw from JPMorgan.

--------------------------------------------------------------------------------

Benjamin J. Brayshaw, JP Morgan Chase & Co, Research Division - Analyst [21]

--------------------------------------------------------------------------------

Just interested to get your thoughts on the capital position for the next 6 months. Are you able to talk about your expectations, please, for net debt and gearing or an FY '19 year-end position?

--------------------------------------------------------------------------------

Tarun D. Gupta, LendLease Group - Group CFO [22]

--------------------------------------------------------------------------------

Yes. Ben, it's Tarun here. Yes, we have flagged what we anticipate the gearing to be at 30th June. We believe we will be within our stated target of 10% to 20% gearing. I guess the key things to think about are we've got $2 billion of revenue forecast to come in on apartment settlements which is currently on track, which is a significant inflow of revenue and cash. We do have places transaction that we did with our investors to pay out of those proceeds on Darling Square. It's circa $350 million, but the balance is coming in. Our peak production which has been there at 31 December clearly starts to abate as buildings at Darling Square and Collins Wharf and in London start to complete. So we anticipate gearing to be within our 10% to 20% target range.

--------------------------------------------------------------------------------

Benjamin J. Brayshaw, JP Morgan Chase & Co, Research Division - Analyst [23]

--------------------------------------------------------------------------------

I'm just wondering now. Do you expect the balance sheet to be able to materially delever with all that revenue coming in, or does the impairments -- does the impairment offset that?

--------------------------------------------------------------------------------

Tarun D. Gupta, LendLease Group - Group CFO [24]

--------------------------------------------------------------------------------

Yes, again I think I don't want to give specific forecast on where things will end up. Obviously we've got lots of moving parts to our business, but as I said, we anticipate to be within our target gearing range.

--------------------------------------------------------------------------------

Benjamin J. Brayshaw, JP Morgan Chase & Co, Research Division - Analyst [25]

--------------------------------------------------------------------------------

Okay. And just finally, Steve has previously laid out 3 options for Engineering, being to retain and reduce risk, sell or demerge. Are they still the 3 options? Or [you could only] wind down something that you would consider if circumstances were to evolve in that direction?

--------------------------------------------------------------------------------

Stephen B. McCann, LendLease Group - Group CEO, MD & Director [26]

--------------------------------------------------------------------------------

The -- so what we haven't done is we haven't reached a view as to what options are open to us at this point in time other than to say that we've made the decision that it's noncore and we'll now come into those discussions. Where we go from here will be significantly influenced by our conversations with our employees and our conversations with our government clients and with our joint venture partners. So I think that our employees, by and large, will be keen to have a clear future: We will be continuing to operate the business. We will be continuing to run the business with -- albeit with a different risk profile going forward. And we're not clear as to how long it will take for us to execute a separation from the business, but we'll work through all that with our key stakeholders now. I think the other thing that I should emphasize is it's important to acknowledge that the engineering sector in Australia is a growing sector, strongly growing sector, which is attractive to a number of participants. And obviously there's a very significant pipeline of projects very well funded at the federal and state government level, and all of those projects need to be executed. So we've been talking a lot recently about capacity constraints, as opposed to concerns about jobs, so I want to make sure that that's a key message that the people that we have in our business that are experts in engineering and have -- they're highly skilled workers. There is a very attractive future ahead for them, and we'll be working with them to try and make sure the transition works as well as possible for them and for our customers.

--------------------------------------------------------------------------------

Operator [27]

--------------------------------------------------------------------------------

Our next question comes from Sholto Maconochie from CLSA.

--------------------------------------------------------------------------------

Sholto Maconochie, CLSA Limited, Research Division - Head of Australia Real Estate [28]

--------------------------------------------------------------------------------

Just to follow up on the buyback. Obviously, about 70% complete, average price going to [17.50]. You're trading at big discount to that now. There's not much left to go. I would have thought it's not that hard to extend it. Is that just because you've got some short-term liquidity issues around the timing of settlements and cash flow that you'd prefer to temporary not renew it rather than just to roll it over for next year?

--------------------------------------------------------------------------------

Tarun D. Gupta, LendLease Group - Group CFO [29]

--------------------------------------------------------------------------------

Sholto, it's Tarun here. No. As I said, I think, if you recall, when we commenced the buyback, it was for 12 months. And a key reason that we articulated at the time was that we wanted to be within our target capital structure. We were under levered at that time. We are now within our target gearing range; and the time, the 12 months, has elapsed. So it's just simply that. And we are now concluding the buyback, and now our capital structure is within our targeted ranges.

--------------------------------------------------------------------------------

Sholto Maconochie, CLSA Limited, Research Division - Head of Australia Real Estate [30]

--------------------------------------------------------------------------------

I just sort of (inaudible) I get it. And then on the Engineering business. So I think in the press release you talked about implementing a lower-risk business strategy in the interim while you work through the scenarios. What does that mean for the business, bidding on new work? Or is it different kind of work? Just can you elaborate on that, please?

--------------------------------------------------------------------------------

Stephen B. McCann, LendLease Group - Group CEO, MD & Director [31]

--------------------------------------------------------------------------------

Yes. We will be continuing to bid on work. There are a range of contract forms out there, and there are a range of projects in terms of scale and complexity as well. So we'll have a stronger focus on alliance-style partnerships where we see a more appropriate sharing of risk with project partners. The Services business will obviously continue to participate in projects that it has been actively pursuing over the years, so that won't materially change. The other thing that I think is important to acknowledge is operational improvements. So we have already made a number of changes and boosted our -- strength of our teams and made some changes in the way that we approach our projects. So there's a lot that we have focused on to try and make sure that the business going forward can be successful. And I think there is a consistent message coming from state governments too around risk sharing. You've seen the 10-point plan in New South Wales, for example, that the government has announced. So we see that as an opportunity for us to reposition the risk profile of the business while we work through our alternatives.

--------------------------------------------------------------------------------

Sholto Maconochie, CLSA Limited, Research Division - Head of Australia Real Estate [32]

--------------------------------------------------------------------------------

And you talk about that the big wave of infrastructure is still quite as strong (inaudible) companies making money out of it. It seems that the risk being formed by the private (inaudible) but it just seems that no one is making money out of all this big pipeline. What do you think will have to change? Or does the government share some of that risk or...

--------------------------------------------------------------------------------

Stephen B. McCann, LendLease Group - Group CEO, MD & Director [33]

--------------------------------------------------------------------------------

Yes, look, it is a complex industry. There are some pretty big projects out there, which when challengers emerge, they're difficult to absorb unless you have a balanced approach to risk. And I think the key message from us is it does need to be a balanced approach between the private sector and the public sector in terms of taking responsibility and accountability for those risks. We've reached the position we have today, unfortunately, because we haven't got that right, so -- but the fact is there's a lot of work out there. And for a businesses that are well resourced with good capabilities, it's a very fertile market.

--------------------------------------------------------------------------------

Sholto Maconochie, CLSA Limited, Research Division - Head of Australia Real Estate [34]

--------------------------------------------------------------------------------

And then are you in -- can you confirm if you're in -- anyone has approached you on business or in with any discussions, I know it's early days, with the Engineering business at the moment?

--------------------------------------------------------------------------------

Stephen B. McCann, LendLease Group - Group CEO, MD & Director [35]

--------------------------------------------------------------------------------

Look, it is early days. There's obviously been a lot of inbound inquiry from industry participants who are partners and who are competitors and some foreign players who are looking at this market keenly, but we haven't really engaged with anybody at this point in time.

--------------------------------------------------------------------------------

Sholto Maconochie, CLSA Limited, Research Division - Head of Australia Real Estate [36]

--------------------------------------------------------------------------------

And then just finally, on the profits. So if we look at consensus, around [4 77] on Bloomberg that -- obviously 97% skew and based on the first half. Are you comfortable with where consensus sits? I know you don't give guidance but given the result today and the big settlements in second half.

--------------------------------------------------------------------------------

Stephen B. McCann, LendLease Group - Group CEO, MD & Director [37]

--------------------------------------------------------------------------------

Yes, well, I think you answered the question yourself when you said we don't give guidance. So I can't give guidance. Obviously, as I've said before, if we felt that there was -- if the market wasn't properly informed, we would come out and make that clear.

--------------------------------------------------------------------------------

Sholto Maconochie, CLSA Limited, Research Division - Head of Australia Real Estate [38]

--------------------------------------------------------------------------------

Okay, I just had one last one. Sorry. On APPF Retail, can you open any redemptions or liquidity? And would Lendlease step in to buy any invested units in that fund?

--------------------------------------------------------------------------------

Stephen B. McCann, LendLease Group - Group CEO, MD & Director [39]

--------------------------------------------------------------------------------

Yes, look, on the redemptions, obviously with the retail sector in Australia and internationally being a sector where sentiments change a bit, there have been redemptions which we expected. Our process there is there's a liquidity window that occurs once every 7 years, and that's a pretty common feature of these funds. We've got a number of options to deal with those redemption requests, and we will work through those options over time with our investors. So we -- again, we haven't made any decisions on that to date, but we are looking at a whole range of options with them.

--------------------------------------------------------------------------------

Operator [40]

--------------------------------------------------------------------------------

The next question comes from Paul Butler from Crédit Suisse.

--------------------------------------------------------------------------------

Paul Butler, Crédit Suisse AG, Research Division - Director [41]

--------------------------------------------------------------------------------

Look, I just want to try and understand a little bit more of the assumptions behind the additional $450 million to $550 million provision. Is that consistent with a sort of a wind-down of the business? Or is that more consistent with the separation of that Engineering Construction business?

--------------------------------------------------------------------------------

Stephen B. McCann, LendLease Group - Group CEO, MD & Director [42]

--------------------------------------------------------------------------------

Yes, so the decision that the business is noncore itself will trigger costs. So that is going to mean we now will need to incur costs of separating our IT, platforms; and working with external advisers and, most importantly, working with our employees to make sure that they have certainties. So those costs will start to emerge immediately, having now made that decision. So what we're saying is the decision itself triggers a range of costs. We expect part of that will be concluding customer contracts, but in terms of what process we go down and which of our options becomes the preferred option, that will play out over the next several months. And as I said, we've -- what we've done is we've looked at the portfolio holistically, and we've tried to estimate a range that captures a series of alternative outcomes rather than predicting any one of those outcomes. So it's not a provision. It's an estimate of the future costs that are likely to emerge. So Tarun?

--------------------------------------------------------------------------------

Tarun D. Gupta, LendLease Group - Group CFO [43]

--------------------------------------------------------------------------------

Yes. And Paul, the way to think about it is at the full year results, as we stated before, we will be providing -- well, there'll be a couple of things that will happen. Firstly, Engineering and Services, given the decision today, will be reported as a noncore operation. And in the financial statements, we'll be breaking that out, the core operations and the noncore operations. And essentially, in the Construction division Engineering and Services will be reported as a separate segment. And within that, we will then report, on the full year, to what actual costs were incurred as we progressed the alternates. And we'll also provide an update to the estimate going forward beyond that, so you'll be able to, I guess, track that within that segment reported, called Engineering and Services as noncore operations.

--------------------------------------------------------------------------------

Paul Butler, Crédit Suisse AG, Research Division - Director [44]

--------------------------------------------------------------------------------

Okay. And where does the existing provision stand for Engineering Construction? What's the amount there as at the end of December?

--------------------------------------------------------------------------------

Tarun D. Gupta, LendLease Group - Group CFO [45]

--------------------------------------------------------------------------------

Yes, that's the $500 million we previously reported in November. That's been booked in 31 December.

--------------------------------------------------------------------------------

Paul Butler, Crédit Suisse AG, Research Division - Director [46]

--------------------------------------------------------------------------------

But is there provision remaining from before that, that is over and above that $500 million level?

--------------------------------------------------------------------------------

Tarun D. Gupta, LendLease Group - Group CFO [47]

--------------------------------------------------------------------------------

No. That $500 million is covering the projects we mentioned, the 3 projects. Substantially, it's for those 3 projects, for them to be completed over calendar 2020.

--------------------------------------------------------------------------------

Stephen B. McCann, LendLease Group - Group CEO, MD & Director [48]

--------------------------------------------------------------------------------

There's been no additional provision taken for those projects, and they remain within the $500 million pretax anticipated provision we announced.

--------------------------------------------------------------------------------

Paul Butler, Crédit Suisse AG, Research Division - Director [49]

--------------------------------------------------------------------------------

Okay, and the provision prior to that has already been consumed.

--------------------------------------------------------------------------------

Tarun D. Gupta, LendLease Group - Group CFO [50]

--------------------------------------------------------------------------------

Yes, that's right. In FY '18, what was announced has already been consumed. That's right.

--------------------------------------------------------------------------------

Paul Butler, Crédit Suisse AG, Research Division - Director [51]

--------------------------------------------------------------------------------

Okay. Now in the Development business, obviously as you've highlighted, the settlements are heavily skewed to the second half. Can you just give us how you're expecting that split to work out between the third and the fourth quarter?

--------------------------------------------------------------------------------

Tarun D. Gupta, LendLease Group - Group CFO [52]

--------------------------------------------------------------------------------

Yes. Paul, I think really it -- the settlements will start from next month, and they really start to peak in the month of May and June. That's when all the buildings are finishing. And our -- and it will really depend on how quickly our customers can then settle. As I've said before, the valuations on the precinct, particularly at Darling Square because that's where the majority of the revenue is, are holding up very well ahead of what we sold the buildings at.

--------------------------------------------------------------------------------

Paul Butler, Crédit Suisse AG, Research Division - Director [53]

--------------------------------------------------------------------------------

Okay. And in terms of timing, would it be fair to say there's less timing risk around the settlements for the resi for-rent, as opposed to resi for sale?

--------------------------------------------------------------------------------

Tarun D. Gupta, LendLease Group - Group CFO [54]

--------------------------------------------------------------------------------

Yes, that's really a practical completion-based recognition, but the -- as we said, a lot of the profit on the resi for-rent is booked upfront because they're fund-through agreements. There will be some development management fees and any residual true-up when they finish but not a lot of profit in the second half from resi for-rent.

--------------------------------------------------------------------------------

Paul Butler, Crédit Suisse AG, Research Division - Director [55]

--------------------------------------------------------------------------------

Okay. And generally is resi for-rent's lower margin than resi for-sale?

--------------------------------------------------------------------------------

Tarun D. Gupta, LendLease Group - Group CFO [56]

--------------------------------------------------------------------------------

We are achieving very attractive markets -- margins in our resi for-rent product.

--------------------------------------------------------------------------------

Operator [57]

--------------------------------------------------------------------------------

Our next question comes from David Lloyd from Citi.

--------------------------------------------------------------------------------

David Lloyd, Citigroup Inc, Research Division - Director & Analyst [58]

--------------------------------------------------------------------------------

Just a couple from me. Firstly, just on urban regen pipeline, I understand that you guys might have been shortlisted for a relatively large project in the West Coast in the U.S. Just perhaps you can give an update on that.

--------------------------------------------------------------------------------

Stephen B. McCann, LendLease Group - Group CEO, MD & Director [59]

--------------------------------------------------------------------------------

We can't really comment on projects that we haven't publicly discussed. And obviously, there's confidentiality agreements around everything that we bid on, so I can't help you on that one at the moment.

--------------------------------------------------------------------------------

David Lloyd, Citigroup Inc, Research Division - Director & Analyst [60]

--------------------------------------------------------------------------------

Okay, maybe put it one -- another way: Can you confirm that you -- could you confirm that you're not out of the running?

--------------------------------------------------------------------------------

Stephen B. McCann, LendLease Group - Group CEO, MD & Director [61]

--------------------------------------------------------------------------------

There's a number of projects that we're bidding on in the U.S. at the moment, and we've -- think we're pretty well placed on a couple.

--------------------------------------------------------------------------------

David Lloyd, Citigroup Inc, Research Division - Director & Analyst [62]

--------------------------------------------------------------------------------

Okay, cool. And secondly, just on Brexit, just wondering if it's having any impact to your business planning or business plans over the next 2 to 3 years.

--------------------------------------------------------------------------------

Stephen B. McCann, LendLease Group - Group CEO, MD & Director [63]

--------------------------------------------------------------------------------

Yes, Brexit is obviously something that we're very focused on. And obviously as always for business, certainty is the best thing we can hope for. There's not a lot of certainty coming out of the U.K. at the moment on Brexit, and there is obviously a lot of speculation as to the various potential impacts of whatever the ultimate decision is. From our perspective, we have always considered London to be a strong and resilient market, and we remain confident about that. There is clearly not a lot of activity, transacting at the moment because of that uncertainty. The projects that we have been extremely successful in winning over the last 2 years are all very long-dated projects where the amount of capital invested while we work through entitlements and planning and master planning processes is not very material. And that's been a deliberate strategy. So we have pursued the projects which are largely land management deals. We haven't been outlaying substantial capital to buy assets at prices that may or may not hold up. Our position is taking a long-term view on the strength of London and the overwhelming demand for homes. There's a significant shortage of homes in London. So all of these things play to a long-term strategy which we think will be very rewarding. So we're certainly cautious today in decisions that would incur immediate commitments, but vast majority of what we do over there is not incurring that.

--------------------------------------------------------------------------------

David Lloyd, Citigroup Inc, Research Division - Director & Analyst [64]

--------------------------------------------------------------------------------

Well, I suppose just your ability at the moment to -- at the moment, for example, to pursue a fund-through arrangement with commercial tower at the moment, I imagine. At what point do you need sort of Brexit to be resolved for those plans to progress? As this is currently slated to, say, '20, '21, '22.

--------------------------------------------------------------------------------

Stephen B. McCann, LendLease Group - Group CEO, MD & Director [65]

--------------------------------------------------------------------------------

Yes, look, I think that we still do have some fund-through targets on some of our commercial projects. We don't have an urgency to execute on those targets. We will make sure that, if we do head down that path, we do it if it's economically sensible. The sort of cap rates that we were achieving 12 to 18 months ago on those projects were outstanding. I think it was a very hot market at the time and that we got our timing pretty right. I don't think you could achieve those cap rates today. So the question is at what point do we reenter the market and test the demand? So a quick Brexit resolution will be better for everybody, no doubt. A slower one, we'll have to probably be a little bit more patient.

--------------------------------------------------------------------------------

David Lloyd, Citigroup Inc, Research Division - Director & Analyst [66]

--------------------------------------------------------------------------------

Okay. And just one last question from me. I think it might have been at the full year's result last year. I think we might have been talking about a $40 billion AUM sort of trajectory. And given you had pretty strong growth in the last period, now $34 million, how are you tracking relative to your expectations?

--------------------------------------------------------------------------------

Stephen B. McCann, LendLease Group - Group CEO, MD & Director [67]

--------------------------------------------------------------------------------

Yes, very well. The -- obviously, as I think I did say a little bit about in the last result, when you look at our backlog of urban regeneration projects and you add the projects that we've now been announced as preferred post balance date with -- which themselves add another $17-plus billion, when we look at those projects, we look at them from a perspective of bringing in investors alongside us. And the timing of when they come in depends a lot on how quickly we get through approval processes and whether we can get an adequate return on our position upfront or whether we need to bring them in more gradually, but in each case there will be a significant amount of third-party capital invested in those projects. So when we look at our funds under management and we project forward, there's a fairly strong embedded growth. Just in what we're working on today there is about another $3 billion of development and $2 billion of resi for-rent partnerships which are already progressed, so we will hit that $40 billion pretty quickly. And then you have the urbanization pipeline to add to that over time.

--------------------------------------------------------------------------------

Operator [68]

--------------------------------------------------------------------------------

The next question comes from Grant McCasker from UBS.

--------------------------------------------------------------------------------

Grant McCasker, UBS Investment Bank, Research Division - Head of Australian Real Estate Research Team, Executive Director & Equities Analyst of Real Estate [69]

--------------------------------------------------------------------------------

Just one more question. And sorry to come back on to the Engineering business. Are you able to just provide some comments to say what have you done to actually provide some continuity for each of the projects from an employee perspective?

--------------------------------------------------------------------------------

Stephen B. McCann, LendLease Group - Group CEO, MD & Director [70]

--------------------------------------------------------------------------------

Yes. So we are -- in most of the major projects, it's worth noting we're in joint venture partnership on those projects, so obviously we are in discussions with our joint venture partners. We have had discussions this morning with a number of other stakeholders post our ASX release, and we will continue to have those discussions in the next several days. The primary thing here, we're very, very conscious of our employees. And no doubt what we need to do is to try and help them through an unstable period as quickly as we can. The major -- it helps that we're in an industry here where it's booming and there's a lot of opportunity. And they're highly sought-after people. We will be putting in place retentions for our key people, have done that already for a number of people. And we'll continue to revisit that as information emerges, but our -- we're very conscious of our obligation to our people and our obligation to our clients.

--------------------------------------------------------------------------------

Operator [71]

--------------------------------------------------------------------------------

The next question comes from Gus Medeiros from Deutsche Bank.

--------------------------------------------------------------------------------

Augusto Medeiros, Deutsche Bank AG, Research Division - Head of the Australian Credit Research & Strategy and Strategist [72]

--------------------------------------------------------------------------------

Could you just comment on your capital structure going forward, on whether investment-grade rating would still be part of it?

--------------------------------------------------------------------------------

Tarun D. Gupta, LendLease Group - Group CFO [73]

--------------------------------------------------------------------------------

Yes, absolutely, Gus. We are very much committed to our investment-grade credit rating. And we have regular dialogue with our credit agencies; and that's continuing, including today. So we remain very committed to our investment-grade credit rating.

--------------------------------------------------------------------------------

Operator [74]

--------------------------------------------------------------------------------

We have no further questions in queue.

--------------------------------------------------------------------------------

Stephen B. McCann, LendLease Group - Group CEO, MD & Director [75]

--------------------------------------------------------------------------------

Okay, thank you, everybody, for joining us today. And obviously, we'll see a lot of you in the context of our road show over the next couple of weeks.

Thanks very much.