LENDLEASE GROUP — Capital/Financing Update 2008

Sep 30, 2008

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ASX Release

1 October 2008

BBC ANNOUNCES PROPOSAL FOR LEND LEASE TO BECOME A STRATEGIC INVESTOR AND NEW MANAGER

Babcock & Brown Communities Group (“BBC”) today announced that it has entered into an Implementation Agreement with Lend Lease Corporation Limited (“Lend Lease”) in relation to a proposed recapitalisation of BBC. As a result of the proposal Lend Lease will become BBC’s strategic securityholder with an approximate interest of 41%. Lend Lease has separately entered into agreements with Babcock & Brown (“B&B”) to acquire the BBC management rights and B&B’s interest in BBC.

Summary of the Lend Lease Proposal (“The Proposal”)

1. Capital raising : Cash injection of $170m through the issue of 250m new stapled securities at $0.68 per stapled security to Lend Lease.

2. Agreement with Babcock & Brown : Lend Lease has agreed to purchase the BBC management rights from B&B for $17.5m and to acquire the 12.5% interest in BBC held by B&B.

3. Acquisition of villages : BBC has agreed in principle to acquire seven retirement villages and an aged care facility from Lend Lease for circa $133.4m to be funded through the issue of $120.0m 5-year redeemable convertible notes and $13.4m cash.

The combined effect of the above new issue of stapled securities and acquisition will result in Lend Lease holding approximately 41% of the issued securities of BBC.

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Full details will be provided to BBC securityholders in the form of an Explanatory Memorandum prior to a general meeting which is expected to be held no later than 12 December 2008.

Transaction rationale

On 19 June 2008, BBC commenced a strategic review designed to reduce the value gap between the underlying assets of BBC and its securities’ trading price. The outcomes of the review identified the need to reduce debt and implement capital management initiatives. The Proposal achieves these outcomes and positions BBC for future growth in the medium to long term.

The capital injection of $170m will be partially used to reduce the debt of BBC and the acquisition of the villages will allow BBC to strengthen its retirement living portfolio and reduce overall gearing levels. The Proposal will also enhance BBC’s ability to execute its development pipeline by having a financially strong and proven development manager in Lend Lease.

The Proposal provides BBC securityholders with the opportunity to maintain an investment in a listed vehicle which is well capitalised, able to recognise value from its development pipeline and well positioned for further industry consolidation and growth.

The Proposal

Key elements:

1. Capital Raising

BBC will issue $170m of new equity at $0.68 per security which represents a 66% premium to the 3 month VWAP. BBC will also issue $13.4m in convertible loan notes to Lend Lease.

The funding will be provided in two tranches, the first tranche of $37.8m is expected to be completed by 10 October 2008. The second tranche consisting of the remaining funds of $145.6m will be completed following the satisfaction of several conditions detailed below.

Following the issue of new equity and Lend Lease acquiring B&B's 12.5% stake, it will hold an approximate interest of 41% in BBC.

2. Agreement with Babcock & Brown

Lend Lease will acquire the management rights of BBC for $17.5m and replace B&B as the manager of BBC. Lend Lease will be responsible for investing and managing the portfolio of assets owned by BBC going forward.

Lend Lease has also agreed to purchase B&B’s 12.5% stake in BBC at an average price of $0.58 cents per stapled security. B&B’s stake will be acquired by Lend Lease in two equal tranches at $0.61 cents per stapled security and $0.55 cents per stapled security respectively.

As part of the Proposal, BBC will change its name to reflect that B&B will no longer be involved in the management of BBC.

3. Acquisition of villages

BBC has agreed in principle with Lend Lease to expand its existing retirement portfolio through the potential acquisition of seven existing Lend Lease villages across metropolitan Sydney and Melbourne representing 1,154 retirement units and 43 aged care beds.

Total consideration payable to Lend Lease of circa $133.4m will be funded through the issue of $120.0m 5-year redeemable convertible notes and $13.4m in cash. The convertible notes will have a conversion price of $0.68 per security (if not redeemed for cash).

This acquisition is subject to BBC securityholder approval after due diligence by BBC and receipt of an Independent Expert’s Report.

Independent Directors’ Recommendation

The Board of BBC established a committee consisting of the Independent Directors, Judith Sloan, Andrew Love and Graeme Martin, (“the Committee”) to consider the various proposals received by BBC through the price discovery process.

The Committee:

• considers the Proposal is in the best interests of BBC securityholders;

• recommends that BBC securityholders approve the Proposal, subject to not receiving a superior proposal and an Independent Expert confirming that the relevant transactions are fair and reasonable to BBC securityholders; and

• intends to vote any BBC securities they control in favour of the Proposal, subject to not receiving a superior proposal and an Independent Expert confirming that the relevant transactions are fair and reasonable to BBC securityholders.

Chairman of the Committee, Andrew Love said, “We are delighted to welcome Lend Lease as BBC’s new manager and strategic investor. Lend Lease has an excellent track record in property management and development including their senior living business, Retirement by Design. We look forward to working with the team at Lend Lease to expand and strengthen our high-quality portfolio and position in the senior living sector.

In terms of the Proposal, he said, “The Committee’s primary concern has always been to act in the best interests of all BBC securityholders, with a view to maximising value. The Committee has ensured that the price discovery process managed by ABN AMRO was conducted with integrity at all times and that strict governance protocols were applied. Given current market conditions, the Committee believes that the Proposal is the most effective way of achieving our primary objective, that is to reduce the value gap between the underlying assets of BBC and its recent security price. The Board is in full support of the Proposal.”

In addition Mr Love said “We would also like to thank Babcock & Brown for their co-operation and support in achieving this outcome.”

BBC Board

Subject to BBC securityholders approving the relevant transactions, it is the intention to have a Board comprising two Lend Lease nominees and three independent directors.

Consents and approvals

Securityholder approval will be sought to the Proposal at a general meeting to be convened no later than 12 December 2008. Securityholders will be asked to approve the various resolutions in connection with the issuance and acquisition of stapled securities and the acquisition of the villages from Lend Lease.

There are various steps to completion of the Proposal including:

• obtaining necessary consents required under BBC’s finance arrangements;

• B&B transferring its management rights to Lend Lease for $17.5m;

• Lend Lease acquiring 42.5m BBC stapled securities from B&B at $0.61 per stapled security (50% of B&B's stake in BBC);

• termination of the previously announced arrangements for the internalisation of BBC's management;

• BBC securityholder approval for:

• Lend Lease acquiring 42.5m BBC stapled securities from B&B at $0.55 per stapled security (which represents the remainder of B&B's stake in BBC);

• the issue of the second tranche of new stapled securities to Lend Lease; and

• the acquisition of the villages from Lend Lease

• no material acquisitions, disposal or expenditure and no material adverse change to BBC's business occurring prior to completion; and

• Lend Lease obtaining any necessary NZ Overseas Investment Office approvals.

The acquisition by BBC of the villages from Lend Lease is for a purchase price of circa $133.4m (which will be satisfied by a cash payment of $13.4m and the issue of 5-year redeemable convertible notes with a total value of $120.0m) is subject to:

• satisfactory due diligence conducted by BBC;

• an Independent Expert report confirming that the acquisition is fair and reasonable to BBC securityholders;

• BBC securityholders approving the issue of the convertible notes to fund the acquisition; and

• finalising formal documentation recording the acquisition and the convertible note terms.

BBC has engaged Deloitte as Independent Expert in relation to assessing the acquisition of the villages from Lend Lease and the issue of new stapled securities to Lend Lease.

Prime Trust Proportional Bid

In light of the Proposal announced today, the Committee recommends that securityholders REJECT the conditional 40% proportional scrip offer from Prime Trust announced on 4 September 2008. BBC will shortly distribute a Target Statement in response to Prime Trust’s offer detailing the basis of this recommendation.

ENDS

Further information:

Gregor Dixon Babcock & Brown Communities + 61 (0) 3 8699 3300

David Lindsay Ian Brown CHANNEL Financial Communication + 61 (0) 2 9221 0008

Daniel Janes ABN AMRO - Investment Banking Group +61 (0) 2 8259 6722

Morgan Hill ABN AMRO - Investment Banking Group +61 (0) 2 8259 5109

About Babcock & Brown Communities Limited

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