Lead Manager

BABCOCK & BROWN PROSPECTUS
Management discussion and analysis
Historicals
2003 compared with 2002
Net Revenue increased 149.7% from $25.7 million to $64.2 million primarily due to significant growth in the
Australian business driven by:
• Continued expansion and turnover of the BBRE portfolio
• Refinancing fees and investment gains on investments which Babcock & Brown managed and in which it
held equity interests
• Exit and performance fees derived from private investment syndicates managed by Babcock & Brown
The Japanese business achieved Net Revenue levels above its previous record 2001 performance as it expanded its
investment management portfolio with major property acquisitions, including a portfolio of properties in the
Tokyo and Yokohama areas. Unlike 2001 this level of Net Revenue was achieved from a much wider spread of
transactions and included advisory fees, asset management fees, trading profits and performance fees.
The UK real estate business was still in development mode and was not a significant contributor to Net Revenue
with substantial focus being directed towards the creation of a retail syndication business.The first fund
(Foundation Property Fund) achieved a successful close in early 2004.
2002 compared with 2001
Net Revenue decreased 16.5% from $30.8 million to $25.7 million as substantial Net Revenue growth in the
Australian business, which approximately doubled its Net Revenue, was exceeded by a temporary decline in Net
Revenue from the Japanese business (see below).
2002 was the first full year of operation of the BBRE fund which facilitated the profitable expansion of the
Australian business’ investment and lending activities. Fees from sale and lease-back activities and profits from the
syndication of the Group’s investments were other important revenue drivers for the Australian business.
The UK real estate business grew revenues off a low base in 2001 in its first full year of operation as an
independent Business Unit.
In Japan, the focus on transitioning the business model to one less dependent on the Group’s capital (given the
constraints on the Group’s capital at the time), and the decision to delay a large scheduled portfolio acquisition
until 2003, resulted in a significant decline in transaction closings which had a temporary adverse impact on
revenue in 2002.
Forecasts
In Australia, the BBRE investment portfolio has continued to grow, reaching more than $120 million as of
30 June 2004.The Group has seen increased demand for mezzanine loans and equity financing from property
developers and other sponsors seeking structured financings due to the tightening of credit parameters by
first-mortgage lenders, particularly in the residential sector.The existing BBRE investment portfolio continues to
perform to expectations despite generally more challenging market conditions reflecting the quality of the assets
and the high levels of pre-sales at most residential developments in the portfolio.The gains from investments
realised thus far in 2004 support this trend.
Revenue associated with BBRE is the principal driver of growth for Australian Real Estate over the Forecast
Period. Specific assumptions relating to the forecasts for BBRE are listed below:
• Loans and equity investments outstanding are assumed to grow to $150 million
• As existing investments are realised, they are assumed to be replaced with new investments, such that the
portfolio stays constant at $150 million for the remainder of the Forecast Period
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