Lendlease Group Only one

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1 AUSTRALIA LLC AU Price (at 05:10, 27 Feb 2017 GMT) Outperform A$14.82 Valuation A$ Sum of Parts month target A$ month TSR % Volatility Index Low GICS sector Real Estate Market cap A$m 8, day avg turnover A$m 24.8 Number shares on issue m Investment fundamentals Year end 30 Jun 2016A 2017E 2018E 2019E Revenue m 15,087 14,070 15,483 15,246 EBIT m 973 1,099 1,143 1,086 Reported profit m Adjusted profit m Gross cashflow m CFPS CFPS growth % PGCFPS x EPS adj EPS adj growth % PER adj x Total DPS Total DPS growth % Total div yield % Franking % ROA % ROE % EV/EBITDA x Net debt/equity % P/BV x LLC AU vs ASX 200 Prop, & rec history Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period. Source: FactSet, Macquarie Research, February 2017 (all figures in AUD unless noted) 27 February 2017 Macquarie Securities (Australia) Limited Only one Event We retain our Outperform recommendation on LLC post its 1H17 result. Impact Still positive on the outlook enhanced visibility in earnings remains. LLC indicated "The established operating platform provides the Group with strong earnings visibility". Whilst no comment was provided on FY17 consensus (only offered previously when there were material asset sales impacting numbers e.g. Bluewater), we currently forecast FY17 NPAT of ~$761m, up ~9% on FY16. The near-term outlook remains solid, factoring a high proportion of pre-sold product and an Australian construction business improving off a low base. Still talking about the next decade... the building blocks are there. We still can t think of too many stocks under coverage that are talking about the next decade; however, with a pipeline end value of $49.0bn comprising ~51,065 land lots, ~25,945 apartments in addition to 20+ commercial buildings and $20.5bn in construction WIH, LLC has plenty to work on. As indicated overleaf, the building blocks for FY17+ do come together pretty quickly, factoring what is already under control and known. We highlight ~2/3 of LLC s EBIT (~$775m) should comprise communities (~$100m), apartments (~$285m), retirement (~$150m), investment (~$118m) and Australian construction (~$122m). This does not assume any new work is secured etc, which should present upside here and also excludes key divisions such as USA/Asia etc. Settlements are coming through only one default in Aus, one in UK. We remain very focussed on the cash collection of apartment settlements. LLC indicated it only had one default in Australia and one in the UK in the period. We note however that 14% of 1H17 settlements were yet to be collected at 24 February. Similar to MGR, we note delays are more prevalent in the market; however, increased cash settlements and alternate funding is avoiding a materially negative outcome here. As a reminder, ~20% defaults (currently <1%) would take ~4% from group EPS. The market remains too cautious here. Upcoming infra tenders are the next catalyst. Two large projects ($4-5bn each) will be awarded in Victoria in coming months, comprising the Western Distributor and Melbourne Metro. The former (LLC is a 50% partner) is more advanced, with an announcement expected next month. This is D&C only (not a PPP), but could represent ~$113m of EBITDA spread over several years (~8% of group earnings). Whilst LLC would only be a 1/3 partner in Melbourne Metro (bids due shortly), this project is higher margin for LLC group as Capella would enjoy a structuring fee for putting the PPP together (~$89m EBITDA, ~6% of group earnings). Earnings and target price revision EPS: FY17-19E <1%. <1% change in PT. Price catalyst 12-month price target: A$16.28 based on a Sum of Parts methodology. Catalyst: Announcement of preferred bidders for Western Distributor. Action and recommendation Whilst enjoying a better re-rating of late (15% in last quarter vs market at 4%), the LLC share price has lagged slightly in the last 12 months, reflecting fears of significant apartment defaults, which will derail an otherwise very strong earnings and cash flow profile, in our view. Whilst elevated capital recycling has supported 1H17, today's result highlights the strong backlog to underpin FY17+ and still trading on ~11x earnings we reiterate our Outperform recommendation. Please refer to page 20 for important disclosures and analyst certification, or on our website

2 Fig 1 1H17 result in line with expectations visibility of earnings remains The good The not-so-good The interesting Lend Lease reported a 1H17 operating profit after tax of $394.8m, largely in line with our $386.6m estimate. 1H17 DPS of 33.0cps was also in line with our 32.9cps forecast. Apartment settlements mainly at 888 Collins default rate <1%. LLC settled A$406m or 628 apartments in the half. Pleasingly, the default rate for apartments was <1% (long term average: 3%) with only 1 default in Australia and 1 in UK. Consistent with our outlook report in January 2017, Australian settlements were mainly at Victoria Harbour (888 Collins), which represented 440 of the 452 (~97%) of Australian settlements. The average price per apartment was ~$645,000. Settlement risk appears OK alternate sources of funding and cash settlements more prevalent. The group indicated increased use of alternative nonbank sources of finance and a higher portion of cash settlements. New debt sources from local and offshore capital were also said to be available with LLC making introductions to this capital where appropriate. This was said to be from a range of super funds as well as hedge funds. The cost of debt on this product was said to be in the low to mid 7% range. Solid progress at Barangaroo. The group indicated that it still has ~23,000 sqm or ~25% to lease at T1 after ~27,000 sqm of leasing completed in 1H17. We understand the final price paid by the investors at Barangaroo is a combination of an occupied and unoccupied cap rate with LLC generally having 12 months post practical completion to lease the space. Indeed, the group indicated that it will recognise further development profits when the current leases in HoA are signed. The final cap rate used to calculate the development profit will be in November Conversely, should LLC not progress with more leasing, this will impact the development return for LLC. Still positive on the outlook enhanced visibility in earnings remains. LLC indicated "The established operating platform provides the Group with strong earnings visibility". Whilst no comment was provided on FY17 consensus (only offered previously when there were material asset sales impacting numbers e.g. Bluewater), we currently forecast FY17 NPAT of ~$761m, up ~9% on FY16. The near-term outlook remains solid factoring a high proportion of pre-sold product and an Australian construction business improving off a low base. Winning in 2H17. Post balance date LLC has been awarded projects across the group, including the Javis Convention Centre, New York (JV, US$1.5bn for 100%), Haringey regeneration project, London ( 2bn end value) and two other projects worth $450m in aggregate Investment ROIC ahead of target. ROIC of 13.4% for the division (annualised) was a 180bps improvement on the FY16 ROIC of 11.6% and is above the 8-11% target range. The increase in ROIC was due to an improved performance in Australia and Asia and was driven by the returns on LendLease International Towers Sydney Trust and LendLease One International Towers Sydney Trust. AUM continues to rise. The group increased its AUM to $24.7bn, up ~5% on FY16 and up 12% on the pcp. LLC raised ~$800m of new equity in the period, mainly due to the sell-down of its interest in the Circular Quay Tower development. LLC s FUM levels will continue to be positively impacted by its development business. LLC is currently developing 13 commercial buildings, with an end value of ~$7bn, which will benefit the funds management platform by ~$3bn. Still talking about the next decade...the building blocks are there. We still can t think of too many stocks under coverage that are talking about the next decade however with a pipeline end value of $49.0bn comprising ~51,065 land lots, ~25,945 apartments in addition to 20+ commercial buildings and $20.5bn in construction WIH, LLC has plenty to work on. P&L settlements don t match CF settlements. The group indicated that it had received 86% cash from 1H17 settlements. This equates to cash received of $349m or 540 units. We continue to highlight that LLC s definition of settlements is as at practical completion (i.e. P&L only) not cash settlement. Apartment sales volumes slowing. While there is an element of seasonality, we note a moderation in apartment pre-sales volumes with 227 units sold in this half (144 Australia, 83 Europe). Annualising this results in 454 units which remains below the FY16 number of 1,661 units. We note the average sale price in Australia was ~$729,000 while the average price in Europe was ~A$1.1m. Communities settlements slightly lower due to timing. LLC settled 1,338 or A$292m of community lots during the period (mainly land development and a minor contribution from retirement). The number of lots represents a 9% decline on the pcp due to the timing of projects coming into production. Legal issues were cited to hold up development/council approvals which delayed the completion time of communities product in NSW. Communities sales volumes slowing. While there is an element of seasonality, we note a moderation in communities pre-sales volumes with 1,895 units sold in this half. Annualising this results in 3,790 lots which remains below the FY16 number of 4,058 units. Pleasingly, this is at the upper end of the group s newly stated target range of 3,000-4,000 lots. Elevated one-offs continue to underpin 1H17. Consistent with our January report, contributors to the commercial profits included: i) forward sale of three commercial office buildings in the period (RNA Showgrounds, Brisbane; Melbourne Quarter; and Victoria Harbour); ii) sell-down of the group s majority interest in Circular Quay Tower project; iii) release of a development profit at Tower One (Barangaroo). Potential defaults at 888 Collins? As per our 2017 outlook report, apartment settlements in 1H17 were low compared to prior periods and driven mainly by Victoria Harbour. 888 Collins saw 440 settlements in the period. Combined with the 132 pre-sold in 2H16 (West tower, 131 collected, 1 defaulted), this represents 573 settlements or ~99% of the building. The remaining 3 units represent unsold apartments which provides some indication of demand in Docklands. Australian construction margin disappoints. The Australian construction margin declined by ~60bps to 3.0%, which is below the target range of 4-5%. The Australian margin in 1H17 was said to be impacted by several less profitable building projects winding down in the period. This margin is expected to improve as the group anticipates a higher level of engineering and D&C work to begin, which carries a higher margin. Construction new work won in Australia disappoints. LLC won just $335.1m of engineering work in Australia during 1H17 (which is below expectations given the broader Australian infrastructure pipeline). The performance of the construction business unit was below internal LLC expectations. This was said to be driven by: i) impact of some negative margin projects; ii) period of irrational bidding over the past two years resulting in a low win rate; iii) elevated bid costs; and iv) time to rebuild the engineering business post a reshuffle in US healthcare opportunity is now limited. Whilst LLC completed a number of >20% IRR projects in this space, the strategy here was centred on Obama Care. Given the new President is repealing this, these transactions were said to have been put on hold in the US. Another PLLACes transaction in London. The group has completed its first PLLACes transaction at Elephant & Castle (West Grove) for 140m spot). The cost of debt was said to attract LLC s wholesale cost of debt in the UK which is ~4%. LLC will be exposed to the first 15% of defaults (prior transactions were 20%). We understand the rationale for entering into the transaction was to mitigate against future regulatory risk. This transaction is not included in the 176 or A$108m of settlements in Europe. Provisions to account for 3% defaults in Melbourne. The group indicated that it has created a provision for defaults although the amount raised as at 1H17 was immaterial. The amount would be reassessed again before the FY17 results. The provision relates mainly to upcoming Melbourne settlements in the half and uses a default rate consistent with the group s long run average (~3%). The estimate is a contra-receivable and we estimate it is ~$16m or <0.1% of total group assets given 889 Collins St ($360m, 100% 2H17) and Toorak Park are due to settle. Waiting for contracts to be awarded significant upside to Australian construction EBITDA. There are a number of projects expected to be awarded in 2H17/1H18 including the mega projects of the Western Distributor (~$4-5bn project) and Melbourne Metro (~$4-5bn project). LLC also indicated it bid on ~$1bn worth of work in the lead up to Christmas, typically small ~$50-100m jobs relating to the Pacific Highway upgrade. Tax rate above expectations expected to fall over 2H17. Whilst there was elevated capital recycling underpinning 1H17 as expected, the group effective tax rate of 27.2% was ahead of our 24% expectation, pointing towards a better EBITDA performance. The tax rate for FY17 is still expected to be in the 15-25% guidance range. Entering into multi-family in the US. The group is currently developing ~700 multi-family apartments in the US, which will be a build to rent model, providing a further investment option for both LLC and its capital partners. LLC also believes that there may be a similar opportunity in the UK. #2 market share behind ProLogis for equity raisings since the crisis. LLC indicated it believes it has raised 10% of global equity in core real estate since the crisis. The platform has 150 investors. The problem was said to be access to product as opposed to access to capital for the market. Focussing on telecommunications towers. LLC has worked closely with SoftBank in Japan to rollout telecommunications towers. SoftBank recently acquired telecommunications company sprint and LLC is also assisting to rollout these towers in the US. During the period, LLC spent $100m to acquire a portfolio of 200 telecommunications towers with development rights for another 200. The group is also working with Verizon, as two tenants per telco tower was said to be most profitable. Circular Quay construction will commence with just a 15-20% tenant recommitment due to high risk tolerance of capital partners (50% interest sold to Ping An, 30% to Mitsubishi. Project end value ~$1.5bn). The City of Sydney has recently announced that they will lease some of the lower floors. 27 February

3 Elevated visibility remains Outlook commentary remains positive... again referencing strong visibility. LLC indicated "The established operating platform provides the Group with strong earnings visibility. The strength of its balance sheet and access to third-party capital provides the Group with flexibility to continue to explore new pipeline opportunities in line with strategy". Whilst no comment was provided on FY17 consensus (only offered previously when there were material asset sales impacting numbers e.g. Bluewater), we currently forecast FY17 NPAT of ~$761m, up ~9% on FY16. The near-term earnings and cashflow outlook for the business remains solid, factoring a high proportion of pre-sold product and an Australian construction business improving from a low base. There is enough going on in the business to have confidence in the E. While we continue to question the merits of current integrated disclosure, we believe there is enough going on in the business to sustain an attractive earnings profile for the next few years. Using the provided backlogs and pipelines across the business we have outlined below potential assumptions that enable us to have a level of confidence in earnings. Through this process, we have calculated ~$775m of EBIT (see table below), which excludes US construction, Asia development and construction and capital recycling. The $775m outlined below is ~2/3 of our average EBITDA forecast across FY17-FY19. Fig 2 We estimate ~$775m of EBIT on a go-forward basis excluding US construction, Asia development and construction and capital recycling EBIT ($m) Communities 100 MRE estimate Lots Avg price ($) Margin EBIT ($m) Macquarie assumption for avg price. Lots assumption Apartments ,000,000 19% 285 at midpoint of estimated turnover. We note the average price is lower in FY17 due to Docklands EBIT ($m) Retirement 150 AUM ($m) Fee Margin EBIT ($m) Investment 23,600 1% 50% 118 Macquarie assumption. Was recently re-classified from development into investment Backlog ($m) Years to complete Margin EBIT ($m) Macquarie assumption. Assumed 1/3 burn rate and no AUS construction 10, % 123 new project wins which is very conservative. Total ($m) 775 Notes: 1. The above is for illustrative purposes and not perfectly consistent with our earnings forecasts. ROIC targets are another way to get some comfort. As another level of comfort, we have considered the ROIC targets provided by LLC at the recent investor day. As indicated below, the targets imply $849m of NPAT at the mid-point, ~12% ahead of our current FY17 forecast. Indeed, at the high end, this would imply the stock is currently trading on ~8.9x EPS. While the composition of profits obviously impacts the view on the multiple, we nonetheless remain comfortable with the nearterm earnings profile for LLC. Fig 3 ROIC targets imply NPAT for LLC ~12% ahead of current FY17 forecast Division Capital employed ($m) ROIC / margin target (low) ROIC / margin target (high) OPAT (low) ($m) OPAT (high) ($m) OPAT (mid) ($m) Development 2,900 9% 12% Investments 3,200 8% 11% Construction 400 3% 4% Corporate (MRE FY17) Group NPAT target 6, , Macquarie FY17e NPAT Variance -8% 32% 12% Implied EPS Implied PE multiple (x) Notes: 1. The ROIC targets arrive at a post interest, post-tax, pre-corporate cost line. 2. Capital employed as at October 2017 Investor Day. Source: Macquarie Research, February February

4 Fewer settlements this half than the last six months As per our 2017 outlook report, apartment settlements in 1H17 were low compared to prior periods and driven mainly by Victoria Harbour. 888 Collins saw 440 settlements in the period. Combined with the 132 pre-sold in 2H16 (West tower, 131 collected, 1 defaulted), this represents 573 settlements or ~99% of the building. The remaining 3 units represent unsold apartments, which provides some indication of demand in Docklands. Fig 4 LLC settled 628 apartments in 1H17 mainly driven by 888 Collins Street Region Project Total units (30-Jun-16) Settled in 1H17 Implied remaining Remaining (units) Australia Victoria Harbour Collins Other Europe IQL - Glasshouse Gardens E&C - South Gardens Other Total - Australia Total - Europe Total - Group Notes: 1. The above is a mix of MRE estimate and from the accounts. Pre-sold apartment revenue now $4.3bn following settlements at Victoria Harbour The pre-sold apartment pipeline declined by 8.5% or $400m to $4.3bn from $4.7bn (MRE derived) mainly due to the settlements at Victoria Harbour (888 Collins), International Quarter London, and Elephant & Castle. In terms of changes to the pipeline: North Yard and South Yard at Brisbane Showgrounds were brought forward to 2H17 (previously FY17-18). South Gardens at Elephant & Castle was brought forward to 2H17 (previously FY17-18). Fig 5 Settlement timeframes were brought forward at RNA Showgrounds and Elephant & Castle Units Pre-sold (%) Pre-sold ($m) Delivery Project Building FY16 1H17 Chg FY16 1H17 Chg FY16 1H17 Chg FY16 1H17 Chg Darling Square Wirth House, St Leon and Darling One % 100.0% FY17/FY18 2H17-FY18 Darling North, Harbour Place, Trinity House % 100.0% FY19 FY19 Darling Rise, Barker House and Arena % 100.0% FY19 FY19 Victoria Harbour 888 Collins 578 (578) 99.0% (99.0%) 280 (280) FY Collins % 98.0% FY17 2H Collins % 96.0% FY18 FY18 Brisbane Showgrounds Collins Wharf % 83.0% 6.0% FY18 FY19 North Yard and South Yard % 98.0% FY17/FY18 2H17 Yes Park, East, North and Terrace Homes % 87.0% FY17/FY18 2H17-FY18 Toorak Park Elephant & Castle South Gardens (61) 86.0% 85.0% (1.0%) (50) FY18 2H17-FY18 Yes West Grove (Buildings 1 and 2) % 76.0% 7.0% (15) FY19 FY19 International Quarter London Glasshouse Gardens (Buildings 1 and 2) (114) 100.0% 100.0% (136) FY17 2H17 Wandsworth Victoria Drive % 34.0% FY th Avenue 281 5th Avenue % 0 FY19 Clippership Buildings 1 and % 0 FY19 Building % 0 FY19 Riverline Building D % 0 FY18 Group total 5,625 5, % 77% 4,710 4,294 (416) Notes: 1. Data excludes settlements already completed. 2. Totals/averages are not inclusive of projects completed in FY16 and 1H17. Detailed look at the settlement profile LLC has ~6,000 apartments that it expects to settle between FY17 and FY19, with ~3,750 of these apartments in Australia, ~1,200 apartments in London and ~950 apartments in the America s. Of the pipeline, ~30% are expected to settle in 2H17 (~28% to settle in FY18 and 41% in FY19). 27 February

5 Fig 6 LLC to settle at least ~6,000 apartments by the end of FY19 Development State Stage Apartments Pre-sold 2H17 FY18 FY19 Brisbane Showgrounds QLD North Yard and South yards % 401 Victoria Harbour VIC 889 Collins % 536 Darling Square NSW Phase A % Toorak Park VIC All stages % Victoria Harbour VIC 883 Collins % 528 Darling Square NSW Phase B % 577 Darling Square NSW Phase C % 391 Victoria Harbour VIC Collins Wharf % 321 Total 1,441 1,032 1,289 Total Australia 3,761 Development State Stage Apartments Pre-sold 2H17 FY18 FY19 International Quarter London Glasshouse Gardens % 219 Elephant & Castle London South Gardens % Wandsworth London Victoria Driver % Elephant & Castle London West Grove % 593 Total Total UK 1,221 Development State Stage Apartments Pre-sold 2H17 FY18 FY19 Riverline Chicago Building D th Avenue New York 281 5th Avenue Clippership Boston All buildings Total Total Americas 946 Note: 1. The above is a mix of MRE estimate and from the accounts. 2. Where settlements occur across periods, we have assumed a straight line settlement profile. Group total 5,928 Fig 7 Across the six projects due to settle in 2H17, we estimate that LLC has pre-sold ~$1,300m of product. The two projects in Melbourne (Toorak Park and 889 Collins St) account for 41% of FY17 pre-sold revenue, Darling Square in Sydney accounts for 22% of revenue, the UK projects account for 21% of revenue and The Yards (in Brisbane) accounts for 16% of pre-sold revenue. We note that this analysis does not take into account further pre-sales (ie. the grossed up value of pre-sales is likely to be higher come settlement than is currently stated as projects may not be 100% pre-sold, such as Toorak Park). ~$1.3bn of pre-sold revenue in 2H17 Project Total units Total pre-sold revenue Estimated 2H17 settlements Estimated 2H17 revenue Brisbane Showgrounds Victoria Harbour Collins St Darling Square Toorak Park International Quarter - Glasshouse Gardens Elephant & Castle - South Gardens Total 2,462 1,940 1,809 1,343 Note: 1. Where settlements occur across periods, we have assumed a straight line settlement profile Elevated one-offs supported 1H17 earnings Similar to prior periods, we have aggregated identifiable one-offs in the LLC 1H17 result. Whilst subject to uncertainty, in aggregate this represented nearly half of 1H17 earnings. Whilst LLC is targeting to repeat these profits given the commercial building pipeline, currently underway, we note these profits are more difficult to forecast and should warrant a lower multiple. 27 February

6 Fig 8 one-off profits were ~46% of the LLC 1H17 result Item $m Circular Quay Tower land profit 46 Circular Quay Tower (reval on 20%) 17 Commercial revaluations 35 Melbourne Quarter, ANZ tower, K5 60 Other 25 Total 183 1H17 profit after tax 395 Proportion of earnings 46% Notes: 1. The profits above are presented on an after tax basis. Source: Macquarie Research, February 2017 The bulk of profits in the above table were realised in the Australian development business ($291m EBITDA). There is therefore good synergy in this analysis to determine the Australian apartment margin in 1H17.Whilst again subject to uncertainty, as indicated in the table below, we estimate this to be ~18% in the period. We note LLC referenced the 1H17 apartment margin in Australia as being in line with the 19% margin on cost target (~16% margin on revenue). Given the high amount of Australian development EBITDA ($291m), we note we have had to assume additional recycling/other earnings to arrive at this margin given the $298m in revenue is known. We note that retirement development in the period was likely not significant enough to greatly alter the calculations below. Fig 9 Australian apartment margin implied in the half at ~18% Item $ m Australian development EBITDA 291 Less: estimated detached EBITDA -50 Less: Circular Quay adjustments -66 Melbourne Quarter, ANZ tower, K5-86 Other -36 Implied Australian apartment EBITDA 53 Australian apartment revenue 298 Implied EBITDA margin 18% Notes: 1. The adjustments in the above table are on a pre-tax basis at the EBITDA line. Source: Macquarie Research, February February

7 1H17 largely in-line with expectations outlook positive Lend Lease reported a 1H17 operating profit after tax of $394.8m, largely in line with our $386.6m estimate. 1H17 DPS of 33.0cps was also in line with our 32.9cps forecast. Whilst there was elevated capital recycling underpinning 1H17 as expected, the group effective tax rate of 27.2% was ahead of our 24% expectation, pointing towards a better EBITDA performance. Fig 10 1H17 NPAT up 12% and benefited from an elevated level of capital recycling in the half Units 1H16 2H16 FY16 1H17 1H17 vs 1H16% Australia $m % Asia $m (31.6) 21.2 (10.4) 8.3 (126%) Europe $m (86%) Americas $m % Total operating EBITDA $m , % Total corporate $m (84.5) (106.6) (191.1) (79.2) (6%) Group EBITDA $m , % Depreciation & amortisation $m (40.8) (41.9) (82.7) (47.8) 17% Group EBIT $m % Net interest expense $m (45.7) (63.7) (109.4) (49.6) 9% Tax $m (71.9) (92.8) (164.7) (147.7) 105% Other $m 0.2 (0.1) % NPAT $m % EFPOWA m % Operating EPS cps % DPS cps % Payout ratio % 49% 51% 50% 49% (55bps) Notes: 1. EFPOWA represents number of shares on issue excluding Treasury shares. LLC reported EBITDA of $640m was ahead of our $593m forecast. Although the group now reports by business division, by geography Australia was ahead of expectations (includes material recycling, as previously discussed), Europe was below expectations and the Americas was ahead. This overall EBITDA beat (vs MRE expectations) was partially offset by a 27.2% effective tax rate (MRE: 24%), which represented a $26m headwind in isolation vs our forecast. Consistent with our January report, we had expected a higher effective tax rate given the large amount of capital recycling in 1H17 taxable in Australia at 30%. Net interest costs of $49m were up ~9% on the pcp, which was despite a steady WACD of 4.8% (vs the pcp) and a lower average net debt balance of $843.7m vs $1,052.4m in the pcp. The increase in net debt was therefore driven by a reduction of interest income compared to the pcp (related to the cycling of an unwind in the groups military housing business to the value of ~+$10m in the pcp). We do note that in FY16 the WACD of was 4.6%, and therefore if the WACD remains at 4.8% through 2H17, this will be an incremental headwind to earnings albeit minor given the low level of leverage in the business. Corporate costs declined 6% compared to the pcp to $79.2m (1H16: $84.5m). This is consistent with the group s guidance of achieving corporate costs in FY17 to be similar levels to FY15 ($175.9m), given the group will be cycling one-off costs from FY16 (such costs relating to office relocation and outlay for a technology project). Annualising 1H17 corporate costs implies $169m, which is 4% below FY15 corporate costs. 27 February

8 Fig 11 Cost of debt tailwind is moderating Fig 12 Tax rate expected to decline in 2H17 Average cost of debt (%) Effective tax rate (%) % 25.0% 20.0% 15.0% 10.0% 14.9% 18.7% 14.3% 24.2% 16.9% 21.2% 27.2% 25% 15% % 4.2 -% Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 1H14 2H14 1H15 2H15 1H16 2H16 1H17 FY17F Development 36% EBITDA contribution (target: 35-45%) Development EBITDA of $260.2m was up ~10% on the pcp driven by strength in the Australian property development business and partially offset by softer performances from Asia, Europe and Americas. Australia Development EBITDA of $290.1m was up ~51% on the pcp driven by commercial profits given limited apartment settlements in the half. Consistent with our January report, contributors to the commercial profits included: i) forward sale of three commercial office buildings in the period (RNA Showgrounds, Brisbane; Melbourne Quarter; and Victoria Harbour); ii) sell-down of the group s majority interest in Circular Quay Tower project; iii) release of a development profit at Tower One (Barangaroo); and iv) resi settlements. Fig 13 Development profits supported by bringing forward commercial settlements Development 1H16 2H16 FY16 1H17 Change (%) Revenues Australia $m 1, , , , % Asia $m % Europe $m (35.9%) Americas $m (93.8%) Total $m 1, , , , % EBITDA Australia $m % Asia $m (13.3) (5.8) (19.1) (7.2) (45.9%) Europe $m (90.4%) Americas $m (7.6) (4.1) (11.7) (29.0) 281.6% Total $m % EBITDA margin Australia $m 18.7% 19.8% 19.2% 22.7% 399 Asia $m n.m. n.m. n.m. n.m. n.m. Europe $m 93.3% 20.5% 32.3% 14.0% (7,925) Americas $m n.m. n.m. n.m. n.m. n.m. Notes: 1. All amounts in A$m. 2. Capital recycling profits taken in this division limited the usefulness of margin analysis between periods. Residential Apartments Settlements at Victoria Harbour. LLC settled A$406m or 628 apartments in the half. Pleasingly, the default rate for apartments was <1% (long term average: 3%) with only 1 default in Australia and 1 in the UK. Consistent with our outlook report in January 2017, Australian settlements were mainly at Victoria Harbour (888 Collins) which represented 440 of the 452 (~97%) of Australian settlements. The average price per apartment was ~$645, /889 Collins St was said to have similar offshore mixes to 888 Collins St. 27 February

9 Interestingly, the group indicated that it has created a provision for defaults although the amount raised as at 1H17 was immaterial. The amount would be reassessed again before the FY17 results. The provision relates mainly to upcoming Melbourne settlements in the half and uses a default rate consistent with the group s long run average (~3%). The estimate is a contra-receivable and we estimate it is ~$16m or <0.1% of total group assets given 889 Collins St ($360m, 100% 2H17) and Toorak Park are due to settle. Fig 14 Provision recognised represents <1% of total group assets Project Building Pre-sales ($m) % Exposure Victoria Harbour 889 Collins St % 367 Toorak Park Park, East, North and Terrace Homes % 224 Total exposure 591 Default rate 3% Price movement since sale (10%) Provision recognised 16 Notes: 1. We have assumed 50% of Toorak Park settles in 2H We have assumed all projects reach 100% sale rate at PC (i.e. at completion date). 3. We have conservatively assumed 10% price decline since initial pre-sale although note that the movement is likely to be positive. Settlements in London. The remainder of the apartment settlements were in Europe at International Quarter (114 units / $84m) and Elephant and Castle (61 units / $23m). Over 30% of the settlements in London were affordable homes which impacted the average price and margin contribution. LLC indicated settlements in London were easier given limited changes in capital availability compared to Australia. Interestingly, the group has completed its first UK PLLACes transaction at Elephant & Castle (West Grove) for 140m spot). The cost of debt was said to attract LLC s wholesale cost of debt in the UK which is ~4%. LLC will be exposed to the first 15% of defaults (prior transactions were 20%). We understand the rationale for entering into the transaction was to mitigate against future regulatory risk. This transaction is not included in the 176 or A$108m of settlements in Europe. Fig 15 Settlements mainly at Victoria Harbour...defaults <1% Settlement risk appears OK more 100% cash settlements. The group indicated increased use of alternative non-bank sources of finance and a higher portion of cash settlements. New debt sources from local and offshore capital were also said to be available with LLC making introductions to this capital where appropriate. This was said to be from a range of super funds as well as hedge funds. The cost of debt on this product was said to be in the low to mid 7% range. The process of passing a settlement to another party (i.e. a nomination) was said to have increased slightly. The form of nomination between family members was also said to have changed more to independent parties now. Whilst the settlement stats were quite favourable in the period, LLC indicated it remains conservative given the potential for more changes from APRA or the Chinese Government. 27 February

10 Settling at practical completion. The group indicated that it had received 86% cash from the settlements. This equates to cash received of $349m or 540 units. We continue to highlight that LLC s definition of settlements is as at practical completion (i.e. P&L only) not cash settlement. Less competition is good. Consistent with our recent research, LLC noted some smaller private and fringe developers were now cancelling project launches due to less capital availability etc. This is good for LLC as the group will have less competing product over time. LLC indicated it believes there will again be a shortage of apartments in 2020 which will again support demand for LLC product. Fig 16 This cycle has been apartment driven '000s, Annual Enhanced FHOG 0 Jun-84 Jun-89 Jun-94 Jun-99 Jun-04 Jun-09 Jun-14 Houses (private) Units (private) Public Fig 17 but not all approvals are beginning construction due to limited financing Units approved not yet commenced (#) 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Jun-03 Jun-06 Jun-09 Jun-12 Jun-15 Sydney Melbourne Brisbane Perth Source: ABS, Macquarie Research, February 2017 Source: ABS, Macquarie Research, February 2017 Supply pipeline in residential markets remains at risk of being reduced which would be a positive for the demand/supply balance. Fig 18 Sydney apartment supply can adjust with demand Fig 19 with developers able to scale back projects schedule for completion in FY18 and beyond Source: JLL Research, Cordells, NSW Dept of Planning, February 2017 Source: JLL Research, Cordells, NSW Dept of Planning, February February

11 Fig 20 Melbourne has a large development pipeline Fig 21 but it is less flexible than Sydney Source: JLL research, February 2017 Source: JLL research, February 2017 Fig 22 Brisbane supply is set to peak during FY17/FY18 Fig 23 with ~8,000 apartments pa committed to being completed in these years Source: JLL research, Cordells, February 2017 Source: JLL research, Cordells, February 2017 Sales volumes slowing. While there is an element of seasonality, we note a moderation in apartment pre-sales volumes with 227 units sold in this half (144 Australia, 83 Europe). Annualising this results in 454 units which remains below the FY16 number of 1,661 units. We note the average sale price in Australia was ~$729,000 while the average price in Europe was ~A$1.1m. In the UK, the government may consider reducing transaction costs to stimulate demand post Brexit. A recent fall in the in the GBP relative to global currencies was also said to have led to increased demand in this market. Fig 24 Geographical exposure of pre-sold book largely unchanged Fig 25 GBP down ~9% vs USD since Brexit Pre-sold revenue (%) Pre-sold book largelyunchanged Local Mainland China Other offshore Oct-15 Jun-16 Dec-16 GBP/USD Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Source: IRESS, Macquarie Research, February February

12 Greater contribution from Americas coming. The group highlighted that it has 946 units in delivery across Clippership Wharf (Boston), Riverline (Chicago) and 5 th Avenue (New York). This represents LLC s entry into residential in the US including rental apartments (Multi-family) which will provide a new asset class for the Investments business. Willingness to settle In our assessment of how in or out of the money each of the FY17 settlements are, we have collected four sets of data: 1) suburb level price data; 2) new development pre-sales data for comparable projects (mainly from Domain.com.au); 3) secondary stock sales data for comparable products; and 4) comparable new developments by LLC. While the pricing data is obviously heavily dependent on sales activity in each suburb at a point in time and new product that may be better quality (more amenity etc) clearly warrants a premium, we believe this is a useful lens for assessing willingness to settle risk. Victoria Harbour and The Yards at Brisbane Showgrounds (LLC) screen as having the highest level of willingness to settle risk in our review of the data points that we have collated across all of LLC s projects. The price movements of the FY17 settlements for LLC since pre-sale are shown below. Fig Collins was the key risk Toorak and Darling Square are OK Development Average sale price ($/sqm) Weighted average price movement Implied price Price change ($/sqm) (%) Comparable development Price ($/sqm) Implied price change (%) Secondary market Price ($/sqm) Implied price change (%) Comparable LLC development Price Implied price ($/sqm) change (%) Darling Square Release 1 16,500 21, % 20, % 19, % Victoria Harbour 10,750 10,219 (4.9%) 10,030 (6.7%) 8,926 (17.0%) 10,500 (2.3%) The Yards 7,500 7,295 (2.7%) 8, % 8, % Toorak Park 10,500 10, % 12, % Note: 1. Comparable LLC development for Darling Square is the third release of the project. 2. Comparable LLC development for 888 Collins St is 1 Collins Wharf. 3. Sale price at 888 Collins St is average sale price across the 88 Series. 4. Pricing is as at May Source: Domain, CoreLogic RP Data, Company data, Macquarie Research, February 2017 Given the asset value appreciation in Darling Square, and to a lesser extent Toorak Park, we believe that these two projects face a more limited level of settlement risk compared to Victoria Harbour and The Yards. The latter also recently underwent a PLLACes transaction to limit settlement risk. Residential Communities Settlements slightly lower due to timing. LLC settled 1,338 or A$292m of community lots during the period (mainly land development and a minor contribution from retirement). The number of lots represents a 9% decline on the pcp due to the timing of projects coming out of production. Legal issues were cited to hold up development/council approvals which delayed the completion time of communities product. Sales volumes slowing. While there is an element of seasonality, we note a moderation in communities pre-sales volumes with 1,895 units sold in this half. Annualising this results in 3,790 lots which remains below the FY16 number of 4,058 units. Pleasingly, this is at the upper end of the group s newly stated target range of 3,000-4,000 lots. Fig 27 Communities sales of ~1,900 on track for annual target of 3,000-4, February

13 Commercial While a large focus for the stock is towards its residential development business, we note that the majority of LLC s capital deployed remains in its commercial development pipeline. Indeed, as a percentage of total capital deployed in development, commercial has increased from 57% in FY12 to 71%, although down from as at 30 June 2016 (76%) which likely reflects the completion of Barangaroo. LLC reiterated that it continues to seek capital partners for its developments. LLC s commercial development pipeline is shown below. While the quantum of profits is not shown, the expected completion times provides some indication as to when the bulk of the profit should be booked in the upcoming years. In terms of changes over the last six months: Barangaroo Towers One and Three have now completed with profit recognised in the period. Melbourne Quarter, Victoria Harbour, Circular Quay Tower and Brisbane Showgrounds have been added to the disclosure. We note these are not new projects. Fig 28 Commercial development pipeline Notes: 1. Not indicative of cash or profit recognition. Based on expected completion date of underlying buildings, subject to change in delivery program. 3. A funding model structure through a forward sale to a capital partner resulting in staged payments prior to building completion. Solid progress at Barangaroo. The group indicated that it still has ~23,000 sqm or ~25% to lease at T1 after ~27,000 sqm of leasing completed in 1H17. We understand the final price paid by the investors at Barangaroo is a combination of an occupied and unoccupied cap rate with LLC generally having 12 months post practical completion to lease the space. Indeed, the group indicated that it will recognise further development profits when the current leases in HoA are signed. The final cap rate used to calculate the development profit will be in November Conversely, should LLC not progress with more leasing, this will impact the development return for LLC. While a materially smaller asset, LLC highlighted the smaller commercial office in front of the three towers (International House Sydney, 7,000 sqm) was also fully pre-let. Fig 29 ~63,000 sqm of space still to be leased at Barangaroo ~78% leased to date Tower name T2 T3 T1 Commercial NLA 88,000 78, ,000 Tenants Westpac 60,000 KPMG 37,964 LLC 17,599 Gilbert & Tobin 9,500 PwC 26,500 HSBC 8,000 Marsh & McLennan 10,400 Servcorp 2,300 Swiss Re 1,000 Other 1,000 4,000 25,553 Currently committed space 81% 76% 75% Space available 16,500 18,437 28,247 Total space available 63, February

14 Reasonable leasing progress at other commercial projects. LLC indicated that it has secured anchor tenants for its other upcoming projects. In Melbourne, ANZ will anchor to 39,000 sqm office development at 839 Collins St in Victoria Harbour. ANZ will be vacating 100 Queen Street in 2019 (recently acquired by GWOF). This building is ~97% pre-let. Separately, One Melbourne Quarter was said to be ~50% pre-let. In Brisbane Aurecon will anchor a 15,000 sqm office development. We understand no profit was recognised at this asset in 1H17 with the development profit to be recognised at practical completion. In terms of broader updates regarding development projects The TRX project in Malaysia has seen attractive commercial deals in the precinct which is driving an uplift in underlying land value. The group also highlighted strong fundamentals in retail which will flow into leasing. There is currently ~$70m deployed in this project. Construction 24% of EBITDA (target: 20-30%) Construction EBITDA increased 45% on the pcp to $170.2m, driven by an increased contribution from the Americas (margin of ~3.2%, although this is expected to normalise to ~2%), whilst declining margins in Australia was a headwind to EBITDA growth. Going forward, LLC anticipate that a higher level of construction earnings in Australia will come from engineering and D&C projects (from work won in FY16), which generally carry a higher margin than commercial construction. The global construction margin increased ~70bps to 2.7% vs the pcp, albeit this is still slightly below the target range of 3-4%. This was despite a moderation in the Australian construction margin declined by ~60bps to 3.0%, which is below the target range of 4-5%. The Australian margin in 1H17 was said to be impacted by several building projects winding down in the period. LLC were disappointed with the construction performance in the half. This was said to be due to: Working out some less profitable projects in the period. LLC said a couple of these projects were slightly negative margin, with the general issue being final trade costs vs feasibility. The group is building in larger contingencies now to avoid this in the future. It took longer to rebuild the engineering business post the management reshuffle completed in late 2012 on the back of an accounting discrepancy. There was a period of irrational bidding for work over the last two years which resulted in LLC having less work (i.e. carrying more fixed costs for limited revenue). LLC indicated that anecdotally some of these projects were not going well for peers. Some of the more recent large projects have elevated bid costs, some of which are being expensed above the line. Fig 30 Australia construction margins declined ~60bps vs the pcp Construction 1H16 2H16 FY16 1H17 Change (%) Revenues Australia $m 2, , , , % Asia $m % Europe $m , (11.2%) Americas $m 2, , , ,156.7 (2.8%) Total $m 5, , , , % EBITDA Australia $m (7.1%) Asia $m 0.2 (5.8) (5.6) (1.4) (800.0%) Europe $m (2.8) (239.3%) Americas $m % Total $m % EBITDA margin Australia $m 3.6% 3.8% 3.7% 3.0% (62) Asia $m 0.1% n.m. n.m. n.m. n.m. Europe $m n.m. 1.3% 0.4% 0.6% n.m. Americas $m 0.7% 2.2% 1.4% 3.2% February

15 New work secured in the half increased by 3% vs the pcp, to $6.3bn, driven by the conversion of Paya Lebar Quarter in Singapore to construction backlog. Although the group won just $335.1m of engineering work in Australia during 1H17 (which is disappointing given the broader Australian infrastructure pipeline, see below charts), there are a number of projects expected to be awarded in 2H17/1H18 including the mega projects of the Western Distributor (~$4-6bn project, ½ JV with Bouygues) and Melbourne Metro (~$4-6bn project, 1/3 JV with John Holland and Bouygues). LLC also indicated it bid on ~$1bn worth of work in the lead up to Christmas, typically small ~$50-100m jobs relating to the Pacific Highway upgrade. Fig 31 Road construction outlook in Australia Fig 32 Rail construction outlook in Australia Source: CIM presentation, Macromonitor, Feb 2017 Source: CIM presentation, Macromonitor, Feb 2017 Post balance date LLC has been awarded projects across the group, including the Javis Convention Centre, New York (JV, US$1.5bn for 100%), Haringey regeneration project, London ( 2bn end value), and two other projects worth $450m in aggregate LLC has a construction backlog revenue of $20.5bn (+10% on the pcp, -<1% vs FY16) and is in a preferred position on $7bn of work globally, which is expected to convert over the next 12 months. Fig 33 Construction backlog revenue and new work secured by discipline Australia Dec-16 Jun-16 Dec-16 Change vs Jun-16 Total Dec-16 Jun-16 Dec-16 Change vs Jun-16 New work secured revenue Building 3,895 4,519 2,331 16% 9,091 10,802 5,889 19% Engineering 1,735 2, % 1,792 2, % Services 921 1, % 921 1, % Total new work secured revenue 6,551 8,290 2,766 27% 11,804 14,595 6,346 24% Backlog revenue Building 6,270 6,331 6,844 1% 13,633 15,107 15,729 11% Engineering 2,343 3,846 3,274 64% 2,364 3,849 3,278 63% Services 1,259 1,714 1,524 36% 1,259 1,714 1,524 36% Total backlog revenue 9,871 11,890 11,641 20% 17,256 20,670 20,531 20% Scale still required in the US. In commenting on scale across the construction business, LLC indicated the US is at scale, London is close to scale and Australia is at scale. LLC believes the sweet spot is $4bn of backlog engineering revenue and $4-4.5bn of building revenue in the Australian construction business. Circular Quay construction will commence with just a 15-20% tenant recommitment due to high risk tolerance of capital partners (50% interest sold to Ping An, 30% to Mitsubishi. Project end value ~$1.5bn). The City of Sydney has recently announced that they will lease some of the lower floors. Given the floor plates, the building is also expected to suit smaller tenants. The next major Sydney CBD expiries were said to be 2019/2020 and LLC will target these tenants. It is expected to be a three year build with completion not until February

16 US healthcare opportunity is now limited. Whilst LLC completed a number of >20% IRR projects in this space, the strategy here was centred on Obama Care. Given Trump is repealing this, these transactions were said to have been put on hold in the US. Focussing on telecommunications towers. LLC has worked closely with SoftBank in Japan to rollout telecommunications towers. SoftBank recently acquired telecommunications company sprint and LLC is also assisting to rollout these towers in the US. During the period, LLC spent $100m to acquire a portfolio of 200 telecommunications towers with development rights for another 200. The group is also working with Verizon, as two tenants per telco tower was said to be most profitable. Investments 40% of EBITDA (target 30-40%) Investment EBITDA increased 19% on the pcp to $288.4m. The key drivers of the increase EBITDA were: i) higher base fees in the FM business; ii) higher asset management fees from the America s military housing operation; and iii) the Australian Investment Management business. ROIC of 13.4% for the division (annualised) was a 180bps improvement on the FY16 ROIC of 11.6% and is above the 8-11% target range. The increase in ROIC was due to an improved performance in Australia and Asia and was driven by the returns on LendLease International Towers Sydney Trust and LendLease One International Towers Sydney Trust. The group increased its AUM to $24.7bn, up ~5% on FY16 and up 12% on the pcp. LLC raised ~$800m of new equity in the period, mainly due to the sell-down of its interest in the Circular Quay Tower development. In the retirement portfolio, the group recorded an average uplift in unit pricing resales of 8.6%. The group has also lowered the weighted average discount rate by 30bps to 13.0% over the past six months, with the weighted average future growth rate also declining ~10bps to 3.7%. LLC continues to explore the potential for capital partners in this business unit. The group is currently developing ~700 multi-family apartments in the US, which will be a build to rent model, which will provide a further investment option for both LLC and its capital partners. LLC also believes that there may be a similar opportunity in the UK. Fig 34 Investments EBITDA driven by higher base fees and Australian Investment Management business Development 1H16 2H16 FY16 1H17 Change (%) Revenues Australia $m % Asia $m % Europe $m (77.1%) Americas $m (9.9%) Total $m % EBITDA Australia $m % Asia $m (18.5) (191.4%) Europe $m (93.5%) Americas $m % Total $m % EBITDA margin Australia $m 110.3% 80.0% 96.9% 99.1% (1,112) Asia $m n.m. 97.0% 26.0% 71.9% n.m. Europe $m 132.9% 148.6% 139.8% 37.5% (9,536) Americas $m 61.2% 107.6% 84.5% 82.1% 2,089 Notes: 1. Capital recycling profits taken in this division limited the usefulness of margin analysis between periods. LLC s FUM levels will continue to be positively impacted by its development business. LLC is currently developing 13 commercial buildings, with an end value of ~$7bn, which will benefit the funds management platform by ~$3bn. 27 February

17 Operating cash flow Operating cash flow outflow of $70.4m compares to the $200.7m in 1H16 which is a negative outcome but likely reflects limited settlements in the period. As a comparison, the presentation indicates operating cash flows of $1.8bn and operating cash outflows of $1.9bn, resulting in a net operating cash outflow of ~$0.1bn. While difficult to disaggregate, we are cognisant that cash flows from commercial sell downs may also be allocated in investing cash flows (eg. Circular Quay Tower). Indeed, adding operating cash flow and investing cash flows results in a net cash inflow of $243m (1H16: $169m outflow). Balance sheet The balance sheet remained healthy over 1H17, with the group now 100% hedged. Gearing of 5.1% was down from 6.5% and interest cover is 10.8x. NTA rose 58cps or 8.1% from $7.16ps to $7.74ps. Fig 35 Debt is 100% fixed Jun-15 Dec-15 Jun-16 Dec-16 Debt / (Debt + equity) % Net debt / (Tangible assets - cash) % Interest cover x Average cost of debt % Average debt duration years Hedging % February

18 Fig 36 Lend Lease financials $m FY16 FY17E FY18E FY19E Development (formerly Communities) Asia Pacific Europe Americas Total Development Investment Management Asia Pacific Europe Americas Total Investment Management Construction (formerly PM&C) Asia Pacific Europe Americas Total Construction (formerly PM&C) Total operating EBITDA Corporate Group Services Group Treasury Group Amortisation Corporate Total EBITDA (ex profitable recycling of capital) Profitable recycling of capital Total EBITDA Depreciation Interest Revenue Interest Expense Tax Expense Operating Profit after Tax Less Minorities Attributable to Lend Lease Earnings per share EPS growth (% change y-y) 12.4% 8.7% 2.2% -4.9% Distributions Per Share DPS growth (% change y-y) 11.1% 8.6% 2.0% -4.9% 27 February

19 Macquarie Quant View The quant model currently holds a reasonably positive view on Lendlease Group. The strongest style exposure is Quality, indicating this stock is likely to have a superior and more stable underlying earnings stream. The weakest style exposure is Growth, indicating this stock has weak historic and/or forecast growth. Growth metrics focus on both top and bottom line items. 69/1032 Global rank in Real Estate % of BUY recommendations 86% (6/7) Number of Price Target downgrades 0 Number of Price Target upgrades 0 Fundamentals Attractive Quant Local market rank Global sector rank Displays where the company s ranked based on the fundamental consensus Price Target and Macquarie s Quantitative Alpha model. Two rankings: Local market (Australia & NZ) and Global sector (Real Estate) Macquarie Alpha Model ranking A list of comparable companies and their Macquarie Alpha model score (higher is better). Factors driving the Alpha Model For the comparable firms this chart shows the key underlying styles and their contribution to the current overall Alpha score. Downer EDI 1.6 Downer EDI CIMIC Group 1.3 CIMIC Group 1.0 Stockland 0.2 Stockland Mirvac Group -0.2 Mirvac Group % -80% -60% -40% -20% 0% 20% 40% 60% 80% 100% Valuations Growth Profitability Earnings Momentum Price Momentum Quality Macquarie Earnings Sentiment Indicator The Macquarie Sentiment Indicator is an enhanced earnings revisions signal that favours analysts who have more timely and higher conviction revisions. Current score shown below. Drivers of Stock Return Breakdown of 1 year total return (local currency) into returns from dividends, changes in forward earnings estimates and the resulting change in earnings multiple. Downer EDI 0.3 Downer EDI CIMIC Group 0.3 CIMIC Group 0.5 Stockland 0.6 Stockland Mirvac Group 0.3 Mirvac Group % -50% 0% 50% 100% Dividend Return Multiple Return Earnings Outlook 1Yr Total Return What drove this Company in the last 5 years Which factor score has had the greatest correlation with the company s returns over the last 5 years. Dividend Yield LTM Price to Earnings LTM Price to Book NTM Price to Book LTM Net Income Margin NTM Net Income Margin FY0 Turnover (USD) 250 Day Operating Margin FY0-25% -25% -30% Negatives Positives -22% 33% 30% 30% 36% -40% -20% 0% 20% 40% How it looks on the Alpha model A more granular view of the underlying style scores that drive the alpha (higher is better) and the percentile rank relative to the sector and market. Alpha Model Score Valuation Growth Profitability Earnings Momentum Price Momentum Quality Capital & Funding Liquidity Risk Technicals & Trading Normalized Score Percentile relative to sector(/1032) Percentile relative to market(/423) Source (all charts): FactSet, Thomson Reuters, and Macquarie Research. For more details on the Macquarie Alpha model or for more customised analysis and screens, please contact the Macquarie Global Quantitative/Custom Products Group (cpg@macquarie.com) 27 February

20 Important disclosures: Recommendation definitions Macquarie - Australia/New Zealand Outperform return >3% in excess of benchmark return Neutral return within 3% of benchmark return Underperform return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield Macquarie Asia/Europe Outperform expected return >+10% Neutral expected return from -10% to +10% Underperform expected return <-10% Macquarie South Africa Outperform expected return >+10% Neutral expected return from -10% to +10% Underperform expected return <-10% Macquarie - Canada Outperform return >5% in excess of benchmark return Neutral return within 5% of benchmark return Underperform return >5% below benchmark return Macquarie - USA Outperform (Buy) return >5% in excess of Russell 3000 index return Neutral (Hold) return within 5% of Russell 3000 index return Underperform (Sell) return >5% below Russell 3000 index return Volatility index definition* This is calculated from the volatility of historical price movements. Very high highest risk Stock should be expected to move up or down % in a year investors should be aware this stock is highly speculative. High stock should be expected to move up or down at least 40 60% in a year investors should be aware this stock could be speculative. Medium stock should be expected to move up or down at least 30 40% in a year. Low medium stock should be expected to move up or down at least 25 30% in a year. Low stock should be expected to move up or down at least 15 25% in a year. * Applicable to Asia/Australian/NZ/Canada stocks only Recommendations 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations Financial definitions All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards). Recommendation proportions For quarter ending 31 December 2016 AU/NZ Asia RSA USA CA EUR Outperform 57.53% 50.72% 45.57% 42.28% 60.58% 52.79% (for global coverage by Macquarie, 8.71% of stocks followed are investment banking clients) Neutral 33.90% 33.97% 43.04% 50.11% 37.23% 35.62% (for global coverage by Macquarie, 8.05% of stocks followed are investment banking clients) Underperform 8.56% 15.30% 11.39% 7.61% 2.19% 11.59% (for global coverage by Macquarie, 4.63% of stocks followed are investment banking clients) LLC AU vs ASX 200 Prop, & rec history (all figures in AUD currency unless noted) Note: Recommendation timeline if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period. Source: FactSet, Macquarie Research, February month target price methodology LLC AU: A$16.28 based on a Sum of Parts methodology Company-specific disclosures: LLC AU: Macquarie and its affiliates collectively and beneficially own or control 1% or more of any class of Lend Lease Corporation Limited's equity securities. Important disclosure information regarding the subject companies covered in this report is available at Date Stock Code (BBG code) Recommendation Target Price 19-Aug-2016 LLC AU Outperform A$ Jul-2016 LLC AU Outperform A$ Jun-2016 LLC AU Outperform A$ Feb-2016 LLC AU Outperform A$ Jan-2016 LLC AU Outperform A$ Aug-2015 LLC AU Outperform A$ Jun-2015 LLC AU Outperform A$ Jun-2015 LLC AU Outperform A$ Apr-2015 LLC AU Outperform A$ Mar-2015 LLC AU Outperform A$ Feb-2015 LLC AU Outperform A$ Jan-2015 LLC AU Outperform A$ Oct-2014 LLC AU Outperform A$ Oct-2014 LLC AU Outperform A$ Aug-2014 LLC AU Outperform A$ Jun-2014 LLC AU Outperform A$ May-2014 LLC AU Outperform A$ Apr-2014 LLC AU Outperform A$ Feb-2014 LLC AU Outperform A$11.58 Target price risk disclosures: LLC AU: Any inability to compete successfully in their markets may harm the business. This could be a result of many factors which may include geographic mix and introduction of improved products or service offerings by competitors. The results of operations may be materially affected by global economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates, 27 February