Highlights

• An agreement to sell Lendlease's interest in Milano Santa Giulia was terminated, announced on 9 November 2026.

• If no replacement deal is completed by 31 December 2026, Lendlease faces funding obligations of about $160 million in the first half of FY27.

• Net Debt stood at $3.7 billion at 30 June 2026, with underlying gearing of 37.7 per cent.

• Lendlease has contracted $1.2 billion of CRU sales in FY26 and $3.4 billion to date.

How does a company whose recovery plan depends on selling Assets cope when a sale falls through? Lendlease Group (ASX:LLC) is finding out. On 9 November 2026 it told the market that an agreement to sell its interest in Milano Santa Giulia, a mixed-use development in Milan, had been terminated, removing an expected Cash Receipt and creating a possible new funding obligation just as new chief executive Nick O'Neil settles in.

The setback is modest relative to the group, but it hits the part of the Business investors watch most closely: shrinking debt by selling non-core and overseas assets.

The Milan deal and what it changes

Lendlease had expected roughly $90 million in cash in the first half of FY27 (the six months to 31 December 2026) from selling its units in the Heartbeat Fund, the vehicle holding the project's development rights. The deal had already been struck at a steep discount.

With the agreement gone, Lendlease has said it is pursuing alternative transactions. If no replacement deal is completed by 31 December 2026, it faces funding obligations of about $160 million in the first half of FY27. Reports gave no reason for the termination.

A business in two halves

Lendlease now reports in two parts. Investments, Development and Construction (IDC) is the business it intends to keep, centred on Australia. Capital Release Unit (CRU) holds the assets and overseas operations it is winding down or selling, Milan among them.

IDC earns fees on funds under management, delivers urban regeneration projects and builds for government and private clients. CRU is meant to turn into cash earmarked for repaying debt.

What the FY26 accounts showed

The full-year result, released on 17 August 2026 for the year to 30 June 2026, made plain how far apart the two halves sit. Lendlease reported a statutory loss after tax of $749 million. On an operating basis IDC contributed a profit of $233 million, while CRU lost $800 million after impairments of $340 million and provisions of $92 million.

IDC operating Earnings came to 33.7 cents per security, down from 50.1 cents in FY25. The distribution was 15.7 cents per security. Management has guided to IDC earnings of 37 to 41 cents per security in FY27, but offered no specific earnings guidance for CRU, which is the main source of uncertainty.

Within IDC, the construction business was the brightest spot. Backlog Revenue rose 42% to $8.4 billion after $6.4 billion of new work was secured, and the earnings Margin of 4.3% sat above management's 3% to 4% target range. The Australian development pipeline grew to $13.2 billion, helped by $4.7 billion of new projects including 175 Liverpool Street and Hunter Street West in Sydney.

Investments was weaker. Funds under management fell to $43.9 billion from $48.9 billion, as $7.2 billion of divestments outweighed $2.0 billion of additions, and the management margin narrowed to 35.9% from 40.6%.

Debt is the central issue

Net debt stood at $3.7 billion at 30 June 2026, up $0.4 billion from the half-year. Statutory gearing was 30.3%, flattered by about 7.4 percentage points from hybrid securities; underlying gearing was 37.7%. Lendlease said pro forma gearing would fall to 30.2% once $1.3 billion of contracted transactions settle, and its stated long-term target is underlying gearing of 15%.

The company said it had contracted $1.2 billion of CRU sales in FY26 and $3.4 billion to date, leaving about $2.5 billion of invested capital still to release. Liquidity was $4.0 billion and net overheads fell 22% to $363 million. A divestment process for its 25.1% stake in retirement operator Keyton has been running since 2023, and Lendlease has listed it among sales it is progressing.

Credit markets are watching the pace.

Leadership and governance

Nick O'Neil, formerly of AustralianSuper, became Group CEO on 24 August 2026, taking over from an interim arrangement. At the results, joint interim CEO and Group CFO Andrew Nieland said strengthening the Balance Sheet "remains our priority, alongside delivering growth across our IDC businesses."

Shareholders will get their first chance to question the new chief executive at the Annual General Meeting on Wednesday 25 November 2026.

Sector backdrop

Lendlease's Australian businesses operate in markets with structural support: housing undersupply, government infrastructure and urban renewal spending, and steady Demand from Superannuation funds for property assets. Competition is intense, however, from listed developers, global contractors and fund managers, and industry construction margins have historically been thin.

Earnings multiples are not meaningful for FY26, and book values for CRU assets have repeatedly been written down, the Milan transaction being a recent example.

Risks and what to watch

The near-term test is whether Lendlease finds a replacement buyer in Milan before 31 December, or instead funds the roughly $160 million obligation itself. More broadly, any further CRU sales at discounts to Book Value would mean more impairments, while slower settlements would keep gearing above the levels management has signalled.

Other risks include cost overruns or disputes in construction, softer fund flows into its Investment platform and residual liabilities from retained international construction work, already partly provisioned. On the upside, settlement of the $1.3 billion of contracted transactions would cut debt materially.

Key dates are the AGM on 25 November 2026 and the first-half FY27 result, expected in February 2027, which will show how much capital has been released and whether IDC is tracking its guidance.