Land Lease profit falls 47% on UK writedown

August 5, 2008
Land Lease profit falls 47% on UK writedown

(SYDNEY) Lend Lease Corp, the Australian developer that is building
London's Olympic Village, said net income fell 47 per cent as the
company wrote down its UK assets for a third straight year, driving
its shares to the lowest since 2000.

Net income tumbled to A$265.4 million (S$339.7 million) in the 12
months to June 30, from A$497.5 million a year earlier, Sydney-based
Lend Lease said yesterday in a statement to the Australian stock
exchange. Operating profit may decline as much as 15 per cent this
fiscal year from A$447.1 million.

UK house prices declined the most in almost two decades last month as
the economy edged closer to a recession. Lend Lease, which took a
A$121.5 million charge on concerns that it will have to slash prices
to sell apartments in Great Britain, joins Mirvac Group and GPT Group
in the past month as Australian property trusts slashed earnings in
the wake of the US sub-prime collapse.

'The UK property market is in seriously dire straits,' said Chris
Hall, who helps oversee the equivalent of US$3.7 billion at Adelaide-
based Argo Investments, including Lend Lease stock. 'The property
trust sector has priced in an awful lot of bad news. We're going to
start seeing those fears crystallise.'

The average value of a home in the UK fell 8.1 per cent from a year
earlier, the biggest decline since at least 1991, Nationwide Building
Society, Britain's fourth-biggest mortgage lender, said last
Thursday.

Lend Lease shares dropped A$1.34, or 13 per cent, to A$8.66 by the
end of trade yesterday, its biggest one-day slide since Dec 21, 2000.
The stock has slumped by half this year, cutting the company's market
value to A$3.5 billion.

Lend Lease is committed to more than A$80 billion of construction
projects worldwide.

About a third of its orders are in the UK, including the £pounds;4
billion (S$10.8 billion) athletes village for the 2012 Olympic Games
in London, the £pounds;1.5 billion redevelopment of London's
Elephant & Castle district and the Stratford City Project.

The company has set aside almost A$200 million this year, mostly tied
to the weak British property market, including a A$121.5 million
pretax charge on real estate held by the UK Communities unit and
A$60.2 million on property values worldwide, mostly on declines in
British shopping malls.

The writedowns were carried out 'in light of continuing difficult
market conditions, which could see further pressure on residential
sales prices and volumes', Lend Lease said.

The UK Communities charge is based on discounts Lend Lease estimates
are needed to sell all the stock of British homebuilder Crosby Group
plc, which it bought in July 2005 for A$612 million, the company's
biggest acquisition since Greg Clarke became chief executive in
December 2002.

It took charges on UK construction projects of A$37 million and A$120
million in the 2006 and 2007 fiscal years, respectively.

Mr Clarke said yesterday he was not confident of meeting the
company's target of 10 per cent average annual earnings growth over
every five-year period because of current market conditions. He had
expanded in the UK, investing about A$850 million to A$900 million
since May 2004 as Australia's residential market sagged.

The UK property market is not expected to recover before the end of
next year, he said yesterday on a tele- conference call.

'This is a very hostile market,' he said. 'If the slump extends to
2012, that would make it unprecedented.'

Lend Lease is struggling to raise financing for its Olympic Village
project and may need more government cash to avoid falling behind
schedule, David Ross, an adviser to London City mayor Boris Johnson,
said in a report on June 18.

The developer is building 3,300 apartments that will house 15,000
athletes and coaches during the Games. The company, which expects to
have a financing deal in place by the end of the year, reiterated
that it will meet the construction target yesterday.

There is still growth potential in the UK and Lend Lease needs to be
a 'big player' in the market, Mr Clarke said. 'Downturns often create
great opportunities.'

The company will pay a dividend of 34 Australian cents a share for
the second half of fiscal 2008, down from 42 cents in the year-
earlier period.

The company had A$800 million in cash on hand at the end of June.
Lend Lease said that it has identified assets to be sold in the
current fiscal year in yesterday's statement.