Lead Manager

SECTION 3
BUSINESS OVERVIEW
Background
Babcock & Brown began its involvement in the real estate sector as an advisor on structured finance transactions.
Babcock & Brown’s first principal investment transactions took place in Australia in the early 1990s and focused
on sale-and-leaseback transactions to investment grade tenants where Babcock & Brown could add value through
efficient, highly leveraged financings.
In 1992, Babcock & Brown expanded this model to include pre-committed developments to creditworthy
tenants, for example the Australian Taxation Office. In 1994, Babcock & Brown listed Prime Credit Property
Trust, an ASX listed property trust that held a number of the assets that had been acquired or developed by
Babcock & Brown in conjunction with its clients.
In 1997, the Real Estate Group in Australia increased its focus on development transactions; in particular, entering
into partnerships with construction companies and smaller development groups that would benefit from Babcock
& Brown’s structuring skills and capacity to procure development equity and subordinated debt.
Babcock & Brown’s Japanese real estate operations were established in 1998, concentrating on the leveraged
acquisition of income-producing properties and building assets under management. In 2001, Babcock & Brown
established a UK-based real estate operation and in 2003 commenced its expansion into other European venues.
Babcock & Brown is also pursuing a measured expansion into niche markets in the US.
Business activities
Australian Real Estate
BBRE
In 2001, Babcock & Brown established Babcock & Brown Real Estate (BBRE), a segregated fund of
approximately $120 million that provides equity and subordinated debt (often with equity participation features)
to a wide range of real estate investors, builders and developers and takes mezzanine debt and equity positions in
various real estate assets and vehicles. Approximately 50% of the capital in BBRE is provided by a third-party
senior debt lender, with the balance provided by Babcock & Brown. Since its inception, BBRE has been the
principal vehicle for Babcock & Brown’s real estate investment activities in Australia.
Babcock & Brown is seeking to replicate the BBRE model in Europe, where Babcock & Brown sees significant
potential in its real estate business.
Development partnerships
Since the mid 1990s Babcock & Brown’s property investment activities have extended to real estate development
in partnership with construction firms and developers with access to opportunities in specialist areas. Babcock &
Brown has typically contributed finance in the form of either mezzanine debt or equity (or a combination) to
individual development projects with a significant portion of this funding coming from the BBRE fund.
Babcock & Brown currently has interests in a number of development projects which it anticipates will
contribute substantial profits to the Group post the Forecast Period.These embedded profits should contribute to
the predictability and consistency of the Group’s long-term earnings profile.
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