Earnings and target price revision. No change. Price catalyst. Action and recommendation

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1 AUSTRALIA LLC AU Price 26 Oct 11 Outperform A$7.48 Volatility index Low/Medium 12-month target A$ month TSR % Valuation - Sum of Parts A$ GICS sector Real Estate Market cap A$m 4, day avg turnover A$m 10.8 Number shares on issue m Investment fundamentals Year end 30 Jun 2011A 2012E 2013E 2014E Revenue m 8,945 12,241 14,049 15,126 EBIT m Reported profit m Adjusted profit m Gross cashflow m CFPS CFPS growth % PGCFPS x PGCFPS rel x EPS adj EPS adj growth % PER adj x PER rel x Total DPS Total div yield % Franking % ROA % ROE % EV/EBITDA x Net debt/equity % P/BV x LLC AU vs ASX 100, & 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, October 2011 (all figures in AUD unless noted) 26 October 2011 Macquarie Securities (Australia) Limited Spotlight on Barangaroo Event We have analysed the likely contenders and financial implications of lease-up at Barangaroo. With an announcement anticipated before Christmas we estimate the development, construction, sale and management of the three office towers equates to ~6% of our EBITDA forecasts for the FY12-17 period. Impact Westpac likely to sign for an entire tower, would provide a confidence boost for the overall project. We estimate Westpac currently occupies ~104,000 sqm of space at seven locations in the Sydney CBD excluding its head office at 275 Kent St (owned by Mirvac). We believe it is likely to sign for an entire tower (~90,000 sqm) to consolidate this fragmented space at Barangaroo. Despite the positive of securing a blue-chip tenant we believe the proposal involves LLC acquiring 182 George St and Pitt (owned by St George) for ~$180m. Despite potentially going above and beyond to secure Westpac, we believe the signing of a key blue chip tenant pre-christmas would increase confidence in the overall project. KPMG likely to sign, PwC in protracted negotiations. We believe KPMG is another likely tenant, currently lacking growth space in its ~28,000sqm tower at 10 Shelley St (owned by Brookfield Multiplex and CPA). PwC is also in negotiations and we believe service providers are likely to comprise the bulk of the tenancy profile. Deloitte recently re-signed at 225 George St until 2023 which removes it as a potential candidate. One tower announced pre-christmas likely. We believe the announcement of lease-up for one tower (Westpac) is likely pre-christmas. We believe KPMG and Lend Lease could occupy a second tower and PwC could anchor a third but that this will take longer to finalise should it eventuate. Office component represents ~6% of FY12-17 EBITDA. We estimate the development, construction, sale and management of the three towers equates to ~6% of our EBITDA forecasts for the FY12-17 period, a material earnings contributor in our view. In addition, the towers only represent ~60% of the total ~$6bn overall project end value. The final financial outcome is dependent on arrangements agreed with capital partners. Earnings and target price revision No change. Price catalyst 12-month price target: A$10.20 based on a Sum of Parts methodology. Catalyst: Announcement of lease-up at Barangaroo expected pre-christmas. Action and recommendation Despite a weakening economic backdrop LLC is trading on 9.2x FY12E earnings. With ~$1.6bn of work in hand secured in the last eight weeks and a lease pre-commitment deal expected to be announced before Christmas, we maintain our Outperform recommendation. Please refer to the important disclosures and analyst certification on inside back cover of this document, or on our website

2 The who, what, when and where of Barangaroo We have analysed the likely tenants and financial implications of lease-up at Barangaroo. With an announcement anticipated before Christmas, we estimate the development, construction, sale and management of the three office towers equates to ~6% of our EBITDA forecasts for the FY12-17 period. We believe the signing of a key tenant pre-christmas would increase confidence in the overall project. Barangaroo project overview Barangaroo is an urban development project being carried out by Lend Lease on the western side of the Sydney CBD. The project has a development period of years and will create a gross floor area of ~490,000 sqm. Retail will comprise 30,000 sqm of the development as well as a 775 apartment precinct. A ~250 room hotel is also planned for construction. It has an estimated end value of ~$6bn, comprising office, retail and residential accommodation. Some low rise commercial accommodation will also be provided at the rear of the site at Hickson Road. We focus on the commercial office tower development (three towers) which is the crucial element for project commencement in our view. The three towers are named C3, C4, and C5 and have an estimated total NLA of ~90,000 sqm each. C4 has received final development approval and can start construction immediately. This tower comprises 98,514 sqm GLA, with 88,582 sqm attributable to commercial space, 7,010 sqm retail floor space and a 2,006 sqm child-care centre. C3 and C5 have been approved under the master plan but do not have approved planning applications. This is not impacting lease-up negotiations. We understand there are currently approximately seven parties in negotiation for space at Barangaroo (including Lend Lease). We do not anticipate difficulty in attracting capital partners given Lend Lease s strong reputation for urban development on a large scale but note it is in many respects contingent on successful lease-up. We present the potential tenants for the three office towers below. Westpac We estimate Westpac (and affiliated businesses) currently occupies ~104,000 sqm of space at seven locations in the Sydney CBD excluding its head office at 275 Kent St (owned by Mirvac Group (MGR AU, A$1.25, Outperform, TP: A$1.39)) as indicated in the table below. We believe it is likely to sign for an entire tower (~90,000 sqm) to consolidate this fragmented space at Barangaroo and to allow for growth (~10,000 sqm). St George also has significant office space at Kogarah in Sydney (call centre). We do not believe this will form part of the space at Barangaroo. We also believe BT Financial Group (part owned by Westpac) is likely to retain its location at Chifley. Fig 1 Westpac and St George current Sydney CBD office space 60 Martin Place 27,414 n/p Nov-12 to Nov-13 Investa / private 2 Chifley Square (BT) 20,000 n/p n/p Reco Bathurst (GIC) 55 Market St 13,577 n/p 23% Apr-13, 77% Jun-16 Investa 255 Elizabeth St 6,300 n/p May-13 Investa 151 Clarence St 10,571 n/p Jul-13 IOF 182 George St (St George) 13,250 n/p Building owner St George Pitt St (St George) 13,000 n/p Building owner St George 275 Kent St 77, Oct-18 Mirvac Total 181,237 Total ex-275 Kent St 104,112 Growth space 10,000 n/a n/a n/a Total space requirement 114,112 Despite the positive of securing a blue-chip tenant we understand from industry contacts that the proposal involves LLC taking 182 George St and Pitt (owned by St George) for ~$180m. We believe LLC will develop these assets and on-sell them to capital partners. We do not believe Investa Office Fund (IOF AU, A$0.62, Outperform, TP: A$0.69) will have difficulty re-leasing the backfill space with several assets likely to be refurbished and re-leased at improved rates. 26 October

3 KPMG KPMG currently occupies ~28,000 sqm of Sydney office space as indicated in the table below. Given a need for increased space we believe it is a likely candidate for Barangaroo. We anticipate this lease could be done at a gross rent of ~$885 per sqm which would be a good outcome for Lend Lease. Fig 2 KPMG current Sydney CBD office space 10 Shelley St 27, Jan-16 Brookfield Multiplex / CPA Growth space 10,000 n/p n/a n/a Total 37,964 In terms of re-leasing backfill space we have assumed six months of down time for Commonwealth Property Office (CPA AU, A$0.94, Neutral, TP: A$0.99), with the building currently accounting for ~5% of total portfolio NPI. Lend Lease Lend Lease currently occupies ~17,600 sqm of Sydney office space as indicated in the table below. We believe it could anchor the second tower with KPMG. Fig 3 Lend Lease current Sydney CBD office space The Bond, Hickson Rd 17,559 n/p 2014 Dexus Total 17,559 Lend Lease have a five year extension option after its 2014 expiry at The Bond. We anticipate it will utilise two years of this as the first Barangaroo tower is not due for completion until 2015 and we estimate this tower will be occupied by Westpac. The Bond represents ~2% of NPI for Dexus. PwC PwC currently occupies ~39,000 sqm of Sydney office space as indicated in the table below. We understand from industry sources it is currently in protracted negotiations with Lend Lease. Given expectations of KPMG signing we believe PwC is more likely to anchor the third tower if it proceeds. Fig 4 PwC current Sydney CBD office space (per sqm) Lease expiry Landlord Darling Park Towers 1 & 2 39,366 n/p Dec-15 GPT (wholesale fund) 50% / Brookfield Multiplex / AMP Capital Total 39,366 In terms of back-fill space for GPT Group (GPT AU, A$3.18, Outperform, TP: A$3.43) we believe CBA may consider re-locating from its 31,772 sqm office at Sydney Olympic Park in Homebush. Darling Park is in close proximity to CBA s new head quarters at Darling Quarter which increases the likelihood of this move. The space held by PwC at Darling Park represents less than 1% of NPI for GPT. Ernst & Young Ernst & Young currently occupies ~37,000 sqm of Sydney office space as indicated in the table below. Despite our belief it would rather be closer to the CBD core, given significant relocation costs we believe the deal would have to be very attractive to prompt a move from 680 George St. 26 October

4 Fig 5 Ernst & Young current Sydney CBD office space Ernst & Young Centre, 680 George St 1 37,000 n/p Dec-16 Brookfield Multiplex Total 37,000 Notes: 1. MRE estimate Macquarie Group Macquarie Group currently occupies ~81,000 sqm of Sydney office space as indicated in the table below. Fig 6 Macquarie current Sydney CBD office space 1 Martin Place 36,405 n/p 2014 & 2016 Charter Hall Office Fund / Martin Place Trust 1 Shelley St 36,000 n/p Dec-21 Brookfield Multiplex Other 9,000 n/p n/p Various Total 81,405 The financial metrics of lease-up, office towers represent ~6% of our FY12-17 EBITDA We present in the table below the output from three scenarios for Barangaroo lease-up. The first assumes all three towers are under construction in successive years beginning 2H12 and a selldown occurs in each tower from FY15 onwards as they are completed. The second scenario assumes two towers under construction with a delay in the third, and the third scenario assumes one tower under construction with a delay in the second and third. Fig 7 Barangaroo project scenarios and impact on EBITDA forecasts FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 S1: Barangaroo, 3 towers under construction and sold in succession PM&C + Development EBITDA A$m Funds Management EBITDA A$m Profit on land transfer A$m Profit on asset sales A$m Project total A$m Current EBITDA forecast , , , , , ,412.4 Difference (%) 8.0% 8.9% 7.6% 4.8% 4.9% 4.8% 0.5% 0.5% 0.5% S2: Barangaroo, 2 towers under construction delay in third PM&C + Development EBITDA A$m Funds Management EBITDA A$m Profit on land transfer A$m Profit on asset sales A$m Project total A$m Current EBITDA forecast , , , , , ,412.4 Difference (%) 7.1% 8.3% 3.4% 9.5% 4.9% 0.4% 4.4% 0.5% 0.5% S3: Barangaroo, 1 tower under construction delay in remaining two PM&C + Development EBITDA A$m Funds Management EBITDA A$m Profit on land transfer A$m Profit on asset sales A$m Project total A$m Current EBITDA forecast , , , , , ,412.4 Difference (%) 6.2% 3.0% 7.9% 10.5% 0.2% 4.5% 4.3% 0.5% 0.5% 26 October

5 We assume Lend Lease takes a 25% stake in each of the towers and sells this down upon completion. We note that the sell down may occur during or some time after the asset is completed depending on capital requirements for the broader business. The three towers could generate a cumulative EBITDA of ~$367m which represents ~6% of our FY12-17 EBITDA forecasts. The final financial outcome is heavily contingent on arrangements agreed with the capital partners. Considering the office towers only comprise ~60% of the estimated ~$6bn total project end value it is a material contributor of earnings for the group. We have assumed a profit on sale for each office tower of ~$49m (25% share). The capital partner will recognise the other 75% of the valuation uplift. The gain is derived by assuming an 8.0% yield on cost and 6.75% yield on completion. We believe the yield on completion is reasonable considering cap rates of office buildings located near the Barangaroo site presented in the table below. Fig 8 Metrics for comparable buildings to the Barangaroo office towers Valuation ($m) Cap rate Year built NABERS energy rating GLA (sqm) Asset comments The Bond, Hickson Rd % , car spaces, chilled beam air-conditioning 275 Kent St % car spaces 1 Shelley St % ,000 Chilled beam air-conditioning Value weighted average cap rate 6.86% Notes: 1. MRE estimate We also provide our estimate of the likely rent achievable on the towers in the table below. We estimate gross rent of $1,000 per sqm in FY15 (likely completion date for first tower) which represents a ~15% discount to average premium Sydney CBD gross rents payable in towers including Governor Phillip Tower, Aurora Place and 1 Bligh St for example. Applying a 3% pa increment, this equates to gross rent of ~$885 per sqm in today s terms. We anticipate outgoings to be 15% of gross rent, with efficiency gains in the building placing it below the Sydney CBD prime average of 18%. We estimate a net face rent of $850 per sqm. Fig 9 Estimated rent at Barangaroo ($ per sqm) in FY15 $ per sqm 1000 Outgoings (15%) -150 Net face rent 850 Incentives (25%) -213 Net effective rent 638 Gross effective rent 788 We provide a sensitivity of the profit on sale for each office tower (Lend Lease s share) to the assumed yield on cost and yield on completion in the table below. Fig 10 Profit on sale of each office tower ($m), yield on cost vs. yield on completion Yield on completion (LHS)/ yield on cost (top) 7.50% 7.75% 8.00% 8.25% 8.50% 6.25% % % % % October

6 Fig 11 Lend Lease earnings summary FY11 FY12E FY13E FY14E Retail Asia Pacific Europe Americas Total Retail Development (formerly Communities) Asia Pacific Europe Americas Total Development Infrastructure Development (formerly PPPs) Asia Pacific Europe Americas Total Infrastructure Development (formerly PPPs) Investment Management Asia Pacific Europe Americas Total Investment Management Construction (formerly PM&C) Asia Pacific Europe Americas Total Construction (formerly PM&C) Valemus Abigroup Baulderstone Conneq Corporate Total Valemus TOTAL OPERATING EBITDA Corporate TOTAL EBITDA Earnings Per Share Distributions Per Share October

7 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 First South - 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 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 30 September 2011 AU/NZ Asia RSA USA CA EUR Outperform 57.35% 65.88% 56.94% 46.54% 74.68% 47.85% (for US coverage by MCUSA, 11.63% of stocks covered are investment banking clients) Neutral 31.99% 20.68% 31.94% 50.00% 23.42% 34.66% (for US coverage by MCUSA, 9.30% of stocks covered are investment banking clients) Underperform 10.66% 13.45% 11.11% 3.46% 1.90% 17.49% (for US coverage by MCUSA, 0.47% of stocks covered are investment banking clients) Company Specific Disclosures: Macquarie and its affiliates collectively and beneficially own or control 1% or more of any class of Lend Lease Corporation Limited's equity securities. Macquarie Bank Limited makes a market in the securities in respect of Lend Lease Corporation Limited. The Macquarie Group acted as financial adviser to Mirvac Group in respect of its proposed merger with Mirvac Real Estate Investment Trust as announced 12 October Within the last 12 months, Macquarie Group has received compensation for investment advisory services from Mirvac Group. Macquarie and its affiliates collectively and beneficially own or control 1% or more of any class of Mirvac Group's equity securities. Macquarie Bank Limited makes a market in the securities in respect of Mirvac Group. Macquarie Group provided investment advisory services to Investa Property Group in relation to its arrangement with ING Office Fund as announced on 28 March Macquarie and its affiliates collectively and beneficially own or control 1% or more of any class of ING Office Fund's equity securities. Macquarie Bank Limited makes a market in the securities in respect of Commonwealth Property Office Fund. Macquarie and its affiliates collectively and beneficially own or control 1% or more of any class of Commonwealth Property Office Fund's equity securities. The Macquarie Group is acting as Joint Bookrunner and Joint Underwriter to Commonwealth Property Office Fund in respect of the capital raising as announced on 11 November Within the last 12 months, Macquarie Group has received compensation for investment advisory services from Commonwealth Property Office Fund. Macquarie Bank Limited makes a market in the securities in respect of GPT Group. Macquarie and its affiliates collectively and beneficially own or control 1% or more of any class of GPT Group's equity securities. Important disclosure information regarding the subject companies covered in this report is available at General Disclaimers: This research has been issued and distributed in Australia by Macquarie Equities Limited ABN ("MEL"). MEL holds Australian Financial Services Licence No and is a Participant of the Australian Securities Exchange Group. MEL is not an authorised deposit-taking institution for the purposes of the Banking Act (Cth) 1959 and MEL's obligations do not represent deposits or other liabilities of Macquarie Bank Limited ABN Macquarie Bank Limited does not guarantee or otherwise provide assurance in respect of the obligations of MEL. This research has been prepared for the use of the clients of Macquarie Group Limited and its related entities (the "Macquarie Group") and must not be copied, either in whole or in part, or distributed to any other person. If you are not the intended recipient, you must not use or disclose the information in this research in any way. Nothing in this research shall be construed as a solicitation to buy or sell any security or product, or to engage in or refrain from engaging in any transaction. This research is general advice and does not take account of your objectives, financial situation or needs. Before acting on this general advice you should therefore consider the appropriateness of the advice having regard to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision. There are risks involved in securities trading. The price of securities can and does fluctuate and an individual security may even become valueless. International investors are reminded of the additional risks inherent in international investments, such as currency fluctuations and international stock market or economic conditions, which may adversely affect the value of the investment. This research is based on information obtained from sources believed to be reliable but we do not make any representation or warranty that it is accurate, complete or up to date. We accept no obligation to correct or update the information or opinions in it. Opinions expressed are subject to change without notice. No member of the Macquarie Group accepts any liability whatsoever for any direct, indirect, consequential or other loss arising from any use of this research and/or further communication in relation to this research. The Macquarie Group or its associates (including MEL), officers or employees may have interests in the financial products referred to in this report by acting in various roles including as investment banker, underwriter or dealer, holder of principal positions, broker, lender, director or adviser. Further, they may act as market maker or buy or sell those securities as principal or agent and, as such, may effect transactions which are not consistent with the recommendations (if any) in this research. The Macquarie Group or its associates (including MEL) may receive fees, brokerage or commissions for acting in those capacities and the reader should assume that this is the case. The analyst(s) principally responsible for the preparation of this research receives compensation based on overall revenues, including investment banking revenues of Macquarie Group Limited and its related entities. This research has been issued and distributed in New Zealand by Macquarie Equities New Zealand Limited ( MENZ ) an NZX Firm. Macquarie Private Wealth's (MPW) services in New Zealand are provided by MENZ. Macquarie Bank Limited ABN ("MBL") is a company incorporated in Australia and authorised under the Banking Act 1959 (Australia) to conduct banking business in Australia. Neither MBL nor any member of the Macquarie Group, including MENZ are registered as a bank in New Zealand by the Reserve Bank of New Zealand under the Reserve Bank of New Zealand Act Any Macquarie subsidiary noted in this document is not an authorised deposit-taking institution for the purposes of the Banking Act 1959 (Australia). That subsidiary s obligations do not represent deposits or other liabilities of MBL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of that subsidiary, unless noted otherwise. Disclosures with respect to issuers, if any, mentioned in this research are available at or can be obtained from your Macquarie representative. Macquarie Group 26 October