Lendlease Annual Report 2022

36 Lendlease Annual Report 2022 Financial The Portfolio Management Framework provides structure and financial discipline across the operating segments of Investments, Development and Construction. Financial strategy The Portfolio Management Framework (the Framework) is the core of our financial strategy, setting target guidelines designed to: • Maximise long term securityholder value through a diversified, risk adjusted portfolio • Leverage the competitive advantage of our integrated model • Optimise our business performance relative to the outlook for our markets on a long term basis • Provide financial strength to execute our strategy, maintain an investment grade credit rating and sustain capacity to both absorb and respond to market volatility. This year, the Group announced a five year plan to deliver long term sustainable performance. The initial cost of implementing this plan included a restructuring charge and a development impairment. For more detailed information, refer to Performance and Outlook on page 56. Sustainable financing Lendlease is one of the leaders in sustainable financing in Australia. Of the Group’s total facilities, 60 per cent, or $3.1b are green or sustainability linked. This includes four sustainability linked loans and three green bonds to help realise our global pipeline of sustainable projects. This highlights a continuing shift in our funding of the thriving places we create. These financings have allowed us to extend the weighted average maturity of our funding and enter into facilities in the regions in which we operate, providing us with a natural hedge and access to finance in these regions. Accessing green and sustainability linked borrowings has allowed us to facilitate the following outcomes: • Lengthen the maturity profile • Diversify funding • Support the execution of the Group’s sustainability strategy • Improve lender engagement • Provide good access to markets whilst achieving competitive funding costs. Measuring financial performance When measuring financial performance, we focus on Return on Equity and Earnings per Security on our core operations to measure the returns we generate for securityholders. The Framework outlines target returns at a segment level. These returns, combined with an allowance for corporate costs, interest expense and tax, are used to derive a Group Core Operating Return on Equity target within the 8-11 per cent range. Core Operating Earnings per Security forms the basis for securityholder distributions within the payout ratio of 40-60 per cent. The elements of the Framework are based on the Group’s measure of Core operating profit with both the target EBITDA mix and the target distribution payout ratio assessed accordingly. See Note 1 ‘Segment Reporting’ in the Financial Statements for more details on Operating profit. Portfolio Management Framework 1. Invested capital mix Investments 40-60% (<50%) 1 Development 40-60% (>50%) 1 Australia 40-60% International regions 2 10-25% 2. Core business EBITDA mix 3 Investments 35-45% Development 40-50% Construction 10-20% 3. Target returns Core Operating ROE 8-11% Investments ROIC 4 6-9% Development ROIC 4 10-13% Construction EBITDA margin 2-3% 4. Capital structure Gearing 5 10-20% Investment grade credit rating 5. Distribution policy 3 Distribution payout ratio 40-60% 1. Reflects strategic direction. 2. Per region. 3. Core operating profit based measure. 4. Through cycle target based on rolling three to five year timelines. 5. Net debt to total tangible assets, less cash. Opposite: Chicago: Lakeshore East Detailed financial performance and outlook For detailed information on our FY22 financial performance, as measured under the Portfolio Management Framework, refer to the Performance and Outlook section and the Financial Statements.