Lendlease's Simplification Bet Finally Clears Its Biggest Milestone

Fund managers remain split on whether completing the Keyton sale and a new CEO can trigger the re-rate long promised by the core development business

30 Jun 2026 · 7 min read

Pendal Group's June 2026 newsletter marked what may be the final piece of a capital recycling programme that has defined Lendlease's story for more than a year. The manager reported that Lendlease had sold its remaining 25 per cent stake in Keyton Retirement Living for $525 million at book value to existing co-investor Aware Super, taking total proceeds from the group's recycling initiative to $3.4 billion against a medium-term target of $4.5 billion. The sale proceeds are earmarked to pay down debt, with gearing expected to fall to the mid-30s, easing near-term balance sheet pressure.

That milestone comes after a punishing few months for the share price. HMC Capital, one of the most consistent bulls on the stock, said in its May 2026 monthly report that shares fell 18.8 per cent during the month, reflecting ongoing market focus on the balance sheet and the timing of Capital Release Unit asset sales, despite management publicly refuting press speculation around an equity raise. The manager maintained that the underlying Investments, Development and Construction platform, referred to throughout its updates as IDC, remained well supported by improving construction performance and a pipeline of major Australian development projects, including upcoming settlements at One Sydney Harbour and Victoria Harbour.

A simplification thesis under pressure

HMC Capital's core argument, repeated across its reporting since 2025, is that Lendlease is worth meaningfully more than its trading price once the drag from its non-core Capital Release Unit is removed. In its April 2026 monthly report, the manager said it continued to believe the IDC business was worth significantly more than the current trading price, pointing to two major project wins in the first half of FY26 with a combined end value of $4.7 billion and around $4 billion of apartment settlements at One Sydney Harbour and Victoria Harbour underpinning a recovery in development earnings into FY27.

We continue to believe the IDC business to be worth significantly more than the current trading price.

— HMC Capital, Monthly Report, April 2026

That thesis was tested hard in the March 2026 quarter, when HMC Capital reported Lendlease shares fell 36.7 per cent, the key drag on the fund's performance for the period, leaving the stock trading at more than a 40 per cent discount to net tangible assets. The manager said market attention had become focused almost entirely on the exit of the non-core CRU segment, despite what it described as continued momentum and an improving outlook in the core IDC businesses, with construction recovering from cyclical lows and core guidance of 28 to 34 cents per share for FY26 reaffirmed. The resignation of both the CEO and CFO during the same quarter added to the pressure on the share price, a disruption HMC Capital said it continued to monitor closely while maintaining engagement with the board on ways to unlock value.

Not everyone is convinced the recycling story still has legs

Oracle Advisory Group took the opposite view, exiting its position in the March 2026 quarter. The manager said its original thesis, formed roughly two years earlier and predicated on Lendlease selling down development assets and reducing the capital intensity of its business model, had largely played out with little reaction from the sharemarket, leaving it unable to identify a catalyst to rerate the stock.

Allan Gray reached a similarly more cautious conclusion in May 2026, after trimming its stake in the company from 8.3 per cent to 7.2 per cent. The manager's Suhas Nayak said the degrading net tangible asset backing and lack of profitability meant the risk-reward on offer looked different to what it did two years earlier, a shift he said warranted the adjustment to the fund's position.

The degrading NTA and lack of profitability means the risk reward looks different to what it did two years ago.

— Suhas Nayak, Allan Gray, Article, May 2026

Where the bulls still see value

HMC Capital's most recent monthly commentary, covering May 2026, argued the sell-off overstated the fundamental picture. It pointed to the divestment of Milano Santa Giulia, which removed a long-dated international property exposure, as reinforcing momentum toward balance sheet simplification, and said with around $700 million of contracted but unsettled transactions and a further $1.5 billion targeted for recycling, there remained a clear pathway to continued progress. The manager also welcomed the appointment of Nick O'Neil as the new external CEO, saying it looked forward to engaging with him to help unlock value for shareholders, a sentiment echoed in its earlier updates that consistently flagged a credible external CEO appointment as a key catalyst the market was watching for.

Other managers have been more circumspect about near-term earnings. Solaris Investment Management has twice flagged Lendlease as an example of a company it expects to become a future dividend trap, citing an anticipated dividend cut, while Tamim Funds Management simply noted weaker monthly performance as the company works through its strategic simplification programme.

What's being watched next

With the Keyton sale now completed and gearing set to ease into the mid-30s, the immediate questions for managers are whether the remaining CRU capital recycling, targeted at a further $1.5 billion, can be executed without further surprises, and whether new CEO Nick O'Neil can translate HMC Capital's long-held IDC thesis into a market re-rating that has so far proven elusive.