Fitch Ratings: Bolstered Balance Sheet Cushions Lendlease's Impact from Coronavirus

(The following statement was released by the rating agency) Fitch Ratings-Sydney-01 July 2020: Lendlease Corporation Limited's (BBB-/Stable) announcement that it expects to report an unaudited statutory loss as a result of coronavirus-related measures taken globally and the crystallisation of costs to exit the engineering business will weaken its credit metrics albeit temporarily, says Fitch Ratings. However, we expect the Australian multinational to be able to manage the impact due to its healthy financial flexibility and good access to capital, including credit markets, capital partners and its own measures to preserve cash. Lendlease announced on 1 July 2020 that it expects to report unaudited profit after tax of between AUD50 million and AUD150 million from its core operations for the financial year ended 30 June 2020 (FY20), including AUD130 million to AUD160 million in reductions in investment valuations after tax. The company also disclosed that it expects pretax costs of AUD550 million to be incurred to exit its engineering business, of which AUD525 million will be recognised in FY20 - although the cash outflows are expected to be realised over the next three to four years. As a result, the company expects to report a statutory loss of between AUD230 million and AUD340 million for the financial year after an AUD467 million profit a year earlier. The company also reported that it has increased its cash and undrawn committed facilities to over AUD5 billion by FYE20, aided by its equity raising of AUD1.2 billion, additional bank facilities of around AUD500 million and net proceeds from its PLLACeS transaction on One Sydney Harbour of over AUD500 million. Lendlease announced that it does not expect to pay a final dividend from Lendlease Corporation Limited due to the expected FY20 result and broader operating environment, but this has the benefit of further reducing cash outflows. The reported delay in revenue recognition in FY20 was greater than Fitch had anticipated. Both the development and construction segments experienced delays in converting and delivering opportunities due to the lockdown measures globally, and there were delays in apartment settlements and higher cancellations in the communities business as households adjusted to the impact of lower economic activity. Lendlease made valuation writedowns of around 5% in the investment segment, but these will have no impact on its cash flow in FY20, although they may indicate lower revenue and cash flow generation from these assets in the future. Fitch believes that the measures the company has taken to strengthen its financial flexibility and its ability to absorb the ongoing effects of the pandemic globally support its rating and show its commitment to maintaining a strong balance sheet, particularly as uncertainty remains. We also expect this will provide Lendlease with the flexibility to take advantage of any opportunities that may arise over the period, as it has done in previous economic downturns. Fitch now estimates Lendlease's leverage (total adjusted net debt/operating EBITDAR) rose to around 3.5x by FYE20, lower than 4.0x, the level at which we may consider taking negative rating action. We believe Lendlease will be able to recoup some of the delayed revenue - in particular, delayed apartment settlements and construction projects - in FY21 and beyond, and the company's leverage will improve to below 2.0x as it adapts to the new operating environment. The company continues to make progress in its core business, including formalising new capital partnerships and joint ventures on its Milano Santa Guilia and One Sydney Harbour projects, obtaining planning approvals on its urbanisation pipeline and resuming construction operations on most projects, albeit with some continuing impact on productivity due to ongoing social distancing requirements. In addition, enquiries in the Australian communities business have returned to pre-lockdown levels, helped by the government's stimulus measures. Contact: Kelly Amato, CFA Director +61 2 8256 0348 Fitch Australia Pty Ltd Level 15, 77 King Street, Sydney NSW 2000 Media Relations: Peter Hoflich, Singapore, Tel: +65 6796 7229, Email: peter.hoflich@thefitchgroup.com Leslie Tan, Singapore, Tel: +65 6796 7234, Email: leslie.tan@thefitchgroup.com Additional information is available on www.fitchratings.com ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE AT HTTPS://WWW.FITCHRATINGS.COM/SITE/REGULATORY. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2020 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001 Fitch Ratings, Inc. is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (the "NRSRO"). While certain of the NRSRO's credit rating subsidiaries are listed on Item 3 of Form NRSRO and as such are authorized to issue credit ratings on behalf of the NRSRO (see https://www.fitchratings.com/site/regulatory), other credit rating subsidiaries are not listed on Form NRSRO (the "non-NRSROs") and therefore credit ratings issued by those subsidiaries are not issued on behalf of the NRSRO. However, non-NRSRO personnel may participate in determining credit ratings issued by or on behalf of the NRSRO.