LENDLEASE GROUP — Capital/Financing Update 2008

Nov 26, 2008

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ASX Release

27 November 2008

REVISED LEND LEASE PROPOSAL AND PRIME OFFER

Please find attached a letter to Securityholders of Babcock & Brown Communities Group (ASX: BBC) regarding the revised Lend Lease Proposal and Prime Offer. The letter is being dispatched to Securityholders.

ENDS

Further Information: Gregor Dixon Investor Relations Babcock & Brown Communities +61 3 8699 3300

About Babcock & Brown Communities Group

Babcock & Brown Communities Group ( BBC ) is an integrated owner, operator and developer of senior living communities listed on ASX. BBC owns and manages a portfolio of 56 retirement villages and 29 aged care facilities across Australia and New Zealand comprising approximately 10,000 retirement units and 2,200 residential aged care beds. Within the retirement portfolio, BBC has full exposure to the deferred management fees of approximately 6,800 units and receives management fees in relation to the remaining units.

BBC’s growth is supported by its development pipeline of approximately 2,200 retirement units and 344 aged care beds which is expected to be delivered over the next 6 years.

For further information please see our website: www.bbcommunities.com

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Babcock & Brown Communities Group comprising Babcock & Brown Communities Limited ABN 16 010 622 901 and Babcock & Brown Communities Investor Services Limited ACN 080 737 042 as responsible entity of the Babcock & Brown Communities Trust ARSN 124 896 733 Registered Office: Level 23 The Chifley Tower · 2 Chifley Square · Sydney NSW 2000 Australia · T +61 2 9229 1800 · F +61 2 9216 1753 · www.bbcommunities.com

Samantha Sample 1 Sample Street Sampleville NSW 0000

27 November 2008

Dear BBC Security holder

Revised Lend Lease Proposal and Prime Offer

I am writing to provide you with details of the revised Lend Lease recapitalisation proposal ( Revised Lend Lease Proposal ) that was announced to the market on 24 November 2008. In particular, I am also writing to explain how the Revised Lend Lease Proposal affects your Board's recommendation in relation to the Prime Offer. As you would already be aware, the Prime Offer closes at 7.00pm (Melbourne time) this Friday, 28 November 2008.

Your directors have concluded after taking independent advice that the Revised Lend Lease Proposal is a superior proposal to the Prime Offer. In light of this conclusion, the BBC Board continues to recommend that BBC security holders REJECT the Prime Offer and further recommend that BBC security holders IGNORE any documents from Prime they have received.

All Directors who hold BBC Securities intend to REJECT Prime’s Offer with respect to their own holdings in BBC.

The reasons why your Directors are continuing to recommend you REJECT Prime's Offer are detailed further below.

Key Features of the Revised Lend Lease Proposal

The key changes to the original Lend Lease Proposal that are reflected in the Revised Lend Lease Proposal are as follows:

1. Capital raising: The amount of cash to be injected into BBC through the issue of BBC Securities to Lend Lease remains the same at $170m. This cash will now be raised by issuing 283.3m BBC Securities to Lend Lease at $0.60 per security instead of 250m securities at $0.68 per security as was proposed under the original Lend Lease Proposal.

The new $0.60 issue price represents a 70% premium to the VWAP of BBC Securities for the 3 months ended 26 November 2008.

2. Injection of further capital: Lend Lease will inject a further $25m of cash into BBC by being issued 100m convertible notes at 25 cents each ( Second Notes ). The issue of the Second Notes is subject to BBC Security holder approval at the AGM. This further injection of cash was not contemplated in the original Lend Lease proposal.

3. Purchase of management rights and BNB's stake in BBC: Lend Lease will still acquire the management rights to BBC from BNB for a price of $17.5m, however, the payment arrangements have been changed so that $5m will be paid to BNB on transfer of the management rights and the remaining $12.5m will be deferred until after the BBC AGM and will only be payable if the relevant approvals are obtained. Even if the approvals are not obtained, the remaining amount is still payable if other conditions are met after the AGM. BNB’s 12.5% stake in BBC will now be acquired by Lend Lease at a price of $0.29 per BBC Security.

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4. Issue price of notes: The issue and conversion price of the First Notes and RBD Notes which will be issued to Lend Lease now have a face value of $0.60 each instead of $0.68 each as was proposed under the original Lend Lease Proposal. There is no change to the total amount of funds under the First Notes and RBD Notes.

The overall effect of the Revised Lend Lease Proposal from BBC's perspective is that:

• the amount of the capital injected into BBC will increase from $170m to $195m; and

• Lend Lease will acquire a 43.2% stake in BBC (rather than a 41.2% stake).

Comparison of the original and Revised Lend Lease Proposal

The table below sets out a summary of the key components of the Revised Lend Lease Proposal and the key points of difference between it and the original Lend Lease Proposal:

Component of Proposal	Original Lend Lease Proposal	Revised Lend Lease Proposal
Price Lend Lease pays BNB for BBC management rights	$17.5m	$17.5m (however payment will now be effected in two stages)
Price Lend Lease pays to BNB for BBC Securities it owns	$0.58 per BBC Security (averageprice)	$0.29 per BBC Security
Issue price of BBC Securities issued to Lend Lease	$0.68 per BBC Security	$0.60 per BBC Security
Number of BBC Securities issued to Lend Lease	250m	283.3m
Cash injected into BBC from issuing BBC Securities	$170m	$170m
Additional cash injection	-	$25m from the issue of 100m convertible notes at 25 cents each
Total cash injected into BBC	$170m	$195m
Issue and conversion price of First Notes and RBD Notes	$0.68 each	$0.60 each (but number of First Notes and RBD Notes increased)
Lend Lease stake in BBC	41.2%	43.2%
Acquisition of Retirement by Design assets	Yes - 7 retirement villages and 1 aged care facility	Yes - 7 retirement villages and 1 aged care facility

Finance party consents obtained

Lend Lease has advised BBC that the necessary consents required under BBC’s finance arrangements to the Revised Lend Lease Proposal have been obtained on terms which are acceptable to Lend Lease.

No superior proposal

In the opinion of the independent directors of BBC, the Prime Offer is NOT a superior proposal to the Revised Lend Lease Proposal. No other proposal or offer for BBC has emerged, notwithstanding the price discovery process that was put in place to bring forward offers for BBC and the 14 day period (commencing 3 November 2008) during which BBC, Lend Lease and Babcock & Brown International ( BNBI ) provided undertakings to the Takeovers Panel not to implement the first stage of the original Lend Lease Proposal.

Implementation of the Revised Lend Lease Proposal

As announced to the market today, as no superior proposal was received before 5.00pm on 25 November 2008, BBC, Lend Lease and BNBI have proceeded to implement the following first stage transactions, namely:

• BBC and BNBI have terminated the Internalisation Agreement;

• BBC has consented to the novation of the Management Agreements to Lend Lease; and

• the Management Agreements have been novated to Lend Lease.

BBC has also agreed to issue the First Notes and the BBC Notes and Lend Lease has agreed to acquire 42.5m BBC Securities (the Initial BNB Parcel ) from BNB. Issue of the First Notes and BBC Notes and acquisition of the Initial BNB Parcel is conditional on BBC security holder approval of the second stage transactions at the BBC AGM. Lend Lease may waive this condition in which case the First Notes and BBC Notes may be issued to Lend Lease and the Initial BNB Parcel may be acquired by Lend Lease prior to the AGM or after the AGM notwithstanding that security holder approval is not obtained to the second stage transactions.

A full explanation of the implementation of the Revised Lend Lease Proposal, including an Independent Expert's Report in relation to certain aspects of the Revised Lend Lease Proposal, will be contained in the Explanatory Memorandum accompanying the Notice of Meeting for the BBC AGM which we expect to be in a position to dispatch to BBC Security holders shortly.

Directors recommendation

Your Directors continue to unanimously recommend that you REJECT Prime’s Offer and do nothing in response to the documents you have received from Prime.

All Directors who hold BBC Securities intend to REJECT Prime’s Offer with respect to their own holdings in BBC.

The reasons why your Directors recommend you REJECT Prime's Offer include the following:

• (a) The Prime Offer substantially undervalues your BBC Securities. Despite the price of Prime Trust Units recently trading above the BBC Security price, the price at which Lend Lease has agreed to subscribe for BBC Securities at $0.60 as part of the Revised Lend Lease proposal is 216% more than the current Implied Offer Value of the Prime Offer of $0.19.1

• (b) The Prime Offer does not position BBC for future growth . Because Prime's Offer is proportional, even if you accept Prime's Offer you will continue to hold 60% of your BBC Securities. BBC requires capital to maintain its current operations and position itself for future growth. BBC is currently constrained in its operations by its limited financial flexibility as it has limited capacity under its debt facilities.

The Prime Offer will not result in any cash being injected into BBC, whereas under the Revised Lend Lease Proposal, BBC will have $195m of cash injected into the business, have a manager with a proven track record and will increase its scale through the acquisition the Retirement by Design Business from Lend Lease. The Prime Offer does not deliver any of these benefits to BBC.

• (c) No development expertise to drive future earnings growth for BBC. Prime’s Offer provides no support for BBC’s development pipeline, whereas Lend Lease has the financial and operational capacity to ensure future earnings growth of BBC can be derived from the development pipeline.

1 Implied Offer Value is the 5 day VWAP of Prime Trust Units ending on 26 November 2008.

Prime's Bidder’s Statement states that Prime is a passive trust, and therefore Prime cannot control an active business such as BBC because the tax status of Prime Trust would change.

• (d) Prime Trust Units are less liquid than BBC Securities . If you accept Prime's Offer you will hold Prime Trust Units. In the 12 months prior to the date of this letter, only 12% of the total number of Prime Trust Units on issue have been traded. By comparison, 70% of the total number of BBC Securities on issue have been traded in the same period. Low levels of buying and selling have a significant impact on security pricing for illiquid stocks.

• (e) Management fees payable by the Prime Trust are materially higher than BBC's. If you accept Prime's Offer you will become a Prime Trust Unit holder. Prime Trust Unit holders pay 4.0% per annum of gross income and 0.25% per annum of gross assets to the responsible entity of the Prime Trust in management fees and a custodian fee of 0.15% per annum of gross assets. In the financial year ended 30 June 2008, Prime made distributions of $47m despite the operating cash flow only being $31m.

Status of Prime Offer

Despite Prime declaring its offer unconditional on 31 October 2008, only 0.436% (less than half of 1%) of BBC Security holders have accepted Prime's Offer and Prime only has voting power of 0.87% (less than 1%) in BBC.

Conclusion

Your Directors continue to unanimously recommend that you REJECT Prime’s Offer and do nothing in response to the documents you have received from Prime.

All Directors who hold BBC Securities intend to REJECT Prime’s Offer with respect to their own holdings in BBC.

If you have any questions, please call the BBC Security holder Information Line on 1800 645 237 (toll free within Australia) or +61 2 8280 7585 (for international callers and some Australian mobile phone users) Monday to Friday between 9.00am and 5.00pm (AEDT).

Yours sincerely

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Judith Sloan Chairman Babcock & Brown Communities Group