Lend Lease hit by slowdown Investors took the knife to diversified property group Lend Lease after it warned that the global construction sector had deteriorated in the past six months, leading to reduced earnings. Its shares slumped as much as 8 per cent and closed 70¢ lower at $8.65 amid fears of job cuts in the construction business, which accounts for about 42 per cent of Lend Lease's profits. Chief executive Steve McCann said the 2013 year profit mix had changed, "with the Asian development, Australian infrastructure development and Australian property businesses performing better than the prior year." He said: "The underlying construction markets in Australia and Europe and the Middle East have softened in the second half of the current 2013 year, contributing to reduced earnings from the construction businesses in those regions." The group was on track to deliver earnings that "meet market expectations," Mr McCann said. The earnings would be boosted by the sale of a 25 per cent stake in the Singapore Jem Partners retail development fund for $S227 million ($189 million). At its half-year results in February, the group said profits from the Australian construction business fell to $94 million from $105.4 million a year earlier, due to timing issues. Lend Lease has a market capitalisation of about $5.3 billion and develops, constructs and invests in projects such as the $6 billion Barangaroo South office and residential development in Sydney. In the past year it has won about $6 billion worth of projects in Australia and has a global construction pipeline of about $17 billion. But the earnings are lumpy and will not flow through to the bottom line for at least two years. According to Mr McCann, the commercial office development sector was also flat. This was endorsed in a new report from ANZ, which says the broad-based recovery in commercial property appears to have stalled. "Property market conditions have deteriorated in the past 12 months: tenant demand has weakened, vacancies and incentives have risen and rental growth has slowed, particularly for secondary properties," the bank said. Mr McCann also unveiled a broad-brush restructure of the business that would consolidate the Abigroup, Baulderstone, Project Management, and Construction and Infrastructure Services businesses. These were acquired through the Valemus takeover in 2011 from the German constructor Bilfinger Berger for $960 million. They will now be consolidated into building, engineering and infrastructure services sectors. The flat construction sector has led to brokers cutting back their full-year forecasts. In a research note to clients last week, UBS property analysts retained a "buy" on Lend Lease but they have reduced their price target by about 6 per cent "to reflect lower forecasts in the Australian construction business resulting in a lower valuation." "Whilst we continue to expect negative sentiment in the construction space, driven by mining services, our Buy rating is premised on Lend Lease's minimal exposure to mining services- related work (about 8 per cent) and the embedded value in the development business," UBS analysts said.