BABCOCK & BROWN

4.2.1 Real Estate
The Real Estate group is predominantly focused on principal
investment transactions and investment management activities
in real estate. The group also undertakes advisory assignments
where these involve large-scale assets, complex financings or are
relationship driven.
Babcock & Brown’s activities in this area encompass:
• Advisory — acquisition and financial advisory, debt/equity
arrangement, structuring and tenant advisory;
• Investment Management — private investment syndication
and management and the creation of listed and unlisted
funds; and
• Principal Investment — participation in development
projects and standing investments by way of joint ventures,
mezzanine debt provision, equity investment and as an
underwriter of projects and securities.
In early 2005, Babcock & Brown listed the Babcock & Brown
Japan Property Trust (BJT) providing investors access to the
Japanese property market. In mid-2005 Babcock & Brown
entered into a joint venture with General Property Trust with
a mandate to invest over $5 billion by 31 December 2006.
Babcock & Brown is currently undertaking real estate operations
in Australia, Japan, New Zealand, the United Kingdom, Germany,
Spain, Italy, France, Czech Republic and the United States.
4.2.2 Operating Leasing
Babcock & Brown’s Operating Leasing group manages a
portfolio of assets (valued at 30 June 2005) of more than
$6.1 billion within four business units:
• Babcock & Brown Aircraft Management (BBAM) — aircraft;
• Babcock & Brown Rail Management (BBRM) — railcars;
• Eurorail — locomotives and railcars; and
• Babcock & Brown Electronics Management (BBEM)
— semiconductor manufacturing equipment.
Within each of its operating leasing businesses, Babcock &
Brown seeks to acquire portfolios of assets that can be placed
with appropriate long term investors, while maintaining
an ongoing management role. The assets are typically held
under investment structures designed by Babcock & Brown
to optimise financial returns which are shared between all
investors. This approach enables Babcock & Brown to utilise
its investment selection and structuring expertise to build and
optimise its operating leasing portfolios, while minimising
reliance on its financial resources. As a result, Babcock &
Brown is able to effectively compete with better capitalised
competitors.
The net revenues of the Operating Leasing group are generated
by a large number of relatively low-value transactions. The group
earns revenue from asset acquisition and syndication fees,
ongoing management fees, equipment trading, performance
based remarketing, and exit fees. Management, remarketing
and exit fees have grown together with the size of the leased
asset portfolios and, due to the long term nature of most
management contracts, provide an element of highly reliable
ongoing revenue.
4.2.3 Corporate Finance
The Corporate Finance group originates, structures and
participates in equity or debt investments in both publicly
listed and private enterprises primarily in areas not covered
by Babcock & Brown’s other business groups. The group
seeks to take an active role in working with management and
other key stakeholders to realise value in these transactions.
The current focus of the group is to secure investments
for Babcock & Brown Capital Limited (Babcock & Brown
Capital), Babcock & Brown Direct Investment Fund Limited
(BBDIF) and Babcock & Brown Global Partners (BBGP).
The Corporate Finance group is actively seeking to expand
its mergers and acquisitions and equity advisory business. The
primary objective of the mergers and acquisitions and equity
advisory business will be to service Babcock & Brown and its
related entities, but it will take on third party mandates, usually
only in conjunction with an investment transaction, or for the
purposes of building or cementing a relationship with a
valued partner.
While the Corporate Finance group has historically been
characterised by opportunistic activity, the management of
Babcock & Brown Capital ($501 million equity) and BBDIF
will underpin the revenues of the group with annuity
style income from management, advisory and transaction
fees. On 12 July 2005, Babcock & Brown announced the
successful closing of a further co-investment fund, BBGP.
This fund raised €371 million (approximately $587 million).
Under BBGP’s management agreement, Babcock & Brown is
identified as the fund’s preferred corporate finance advisor.
BABCOCK & BROWN SUBORDINATED NOTES 35