ASX Release 16 November 2007 BABCOCK & BROWN COMMUNITIES (BBC) CHAIRMAN S ADDRESS Please see attached the Chairman s address and presentation being made today at the Annual General Meeting of Babcock & Brown Communities Group. ENDS Further information Gregor Dixon Investor Relations Babcock & Brown Communities +61 3 8699 3300
About Babcock & Brown Communities Babcock & Brown Communities Group (BBC) is an integrated owner, operator and developer of senior living communities listed on ASX. BBC owns and manages a portfolio of 56 retirement villages and 17 aged care facilities across Australia and New Zealand comprising c. 10,000 retirement units and c. 1,000 residential aged care beds. Within the retirement portfolio, BBC has full exposure to the deferred management fees of c. 7,000 units and receives management fees in relation to the remaining units. BBC s growth is supported by its development pipeline of approximately 2,200 retirement units and 171 aged care beds which is expected to be delivered over the next 6 years. BBC will also pursue accretive acquisitions in the highly fragmented senior living market. For further information please see our website: www.bbcommunities.com
CHAIRMAN S ADDRESS Babcock & Brown Communities 2007 Annual General Meeting 2.00pm, 16 November 2007 Museum of Sydney - Auditorium, 37 Phillip Street Chairman s Address On behalf of my fellow Directors, I am pleased to report on the many changes that have taken place over the last 12 months. On 30 May this year, Primelife Corporate Limited and Babcock & Brown limited announced a proposal to create a specialised investment vehicle in the senior living sector. The proposal involved the consolidation of Primelife and the PrimeLiving Trust into a stapled structure. This stapled structure comprises Primelife, which on 30 July changed its name to Babcock & Brown Communities Limited and a newly created Babcock & Brown Communities Trust. Together these entities are known as the Babcock & Brown Communities Group which is the largest pure play owner, operator and developer of senior living communities listed on the ASX. Following strong institutional and retail demand, Babcock & Brown Communities Limited was successful in raising $475m, the proceeds of which have been used to repay debt within Primelife and PrimeLiving Trust and purchase the Fini portfolio and other acquisitions. The BBC Group has entered into a Management Agreement with Babcock & Brown Communities Management Pty Ltd and an agreement with Babcock & Brown Australia for it to provide BBC with financial advisory and investment banking services on a preferred basis.
Babcock & Brown is a cornerstone investor in the Group and holds approximately 10% of BBC. This investment is held in voluntary escrow for 12 months and, together with the performance based nature of the Management Agreements, represents a strong alignment of interest between securityholders and the manager of BBC. Following on from the completion of the Restructure of the Group, BBC has announced a number of acquisitions including the Fini portfolio of retirement villages in Western Australia for $188m, The Lakes Retirement Village in Bundaberg, Queensland for $27.1m and the Homestay Village in Perth, Western Australia for $7.6m. Also on 5 September, BBC announced the exercise of the option to acquire village management rights for approximately 3,600 retirement living units across 12 retirement villages in Queensland and New South Wales. The retirement villages are owned by Prime Retirement and Aged Care Property Trust. BBC s relationship with Babcock & Brown proved fruitful with the proprietary originated acquisition of Conform Health Group. On 1 November 2007, BBC announced the acquisition of the Conform Health Group for $160m. The after-tax profit of $2.1m for the 12 months to 30 June2007 relates to Primelife standalone and compares favourably to the forecast net profit of $0.85m contained in the Explanatory Memorandum issued by Primelife on 15 June 2007. The highlights include: an increase of $3.2m in development EBITDA in the previous corresponding period; total sales were up 40%, first time sales were up 47% and resales were up 34%; and Aged care operating profit per bed increased to $4,956 with an occupancy rate of 94% compared to 88% at 30 June 2006. The landscape for development and investment is changing with attractive investment returns now a reality and rapid growth and consolidation at the forefront of the market. BBC is well positioned for growth, both organically through its fully owned development pipeline of 2,200 retirement village units and 171 Aged Care beds and targeted accretive acquisitions. This strong reservation pipeline that is currently carrying into the 2008 financial year has provided a solid base from which first time sales forecast can be met. The sales activity 16/11/2007 1:21:40 PM 2
across the portfolio is in line with the Product Disclosure Statement forecasts for the year to date. The current development pipeline will allow us to achieve the stated objectives of building and selling 300 units per annum. This will add to our existing book of c 7,000 deferred management fees across 56 retirement villages. In closing, on behalf of the Board I would like to thank the staff and management for their hard work and dedication during the past 12 months and the formation of the Babcock & Brown Communities Group. We look forward to your continuing support in the coming year and a solid performance in 2008. 16/11/2007 1:21:40 PM 3
Managing Director s Presentation John Martin
Highlights Raised $475m equity Successfully completed restructure and recapitalisation to create BBC Strong acquisition activity Operational initiatives driving improved performance PLF stand alone FY07 results better than forecast On track to achieve FY08 forecasts Leading platform for growth 1
Primelife Standalone Operational Highlights FY07 Retirement Living 34% in resales to 141 units Approximately 6.6% turnover of the portfolio 2
Primelife Standalone Operational Highlights FY07 Development 47% in first time sales to 131 units across 11 different sites 103 new units delivered for PLF Completed stage 2 of 6 brownfield projects 38 new units delivered for PLT 3
Primelife Standalone Operational Highlights FY07 Aged Care Operating profit per bed of c.$5k Occupancy 6% to 94% Operational efficiencies achieved Improved documentation and audit of resident RCS Improved rostering and labour cost management (S&W as a % of revenue down from 79% to 68%) 4
Corporate Investment in ICT infrastructure and systems Final winding up of 10 schemes acquisition of 2 RV s and 2 AC s Successful defence of wrongful dismissal claims Successful in securing Catalina Waters (Point Cook) development site 5
Primelife Standalone FY07 Results Analysis EBITDA Forecast result (1) Actual result Variance Retirement Living 28,458 28,465 7 Development & Construction 12,053 10,702 1,351 Aged Care 5,172 5,243 71 Corporate Costs (19,314) (19,354) (40) Lease Payments (13,204) (13,326) (122) Total EBITDA 13,165 11,730 Depreciation & Amortisation (2,918) (2,067) 851 due to delayed completion of forecast land sale. Expected to proceed in FY2008. Excluding land sales, development margins have increased for first time sales in depreciation expense as useful life of aged care facilities extended from 20 to 40 years in line with industry EBIT 10,247 9,663 Finance costs (12,083) (12,421) 338 Income Tax (Expense)/Benefit 2,686 4,831 2,145 Net Profit/(Loss) after income tax 850 2,073 (1) as per p66 of Primelife Explanatory Memorandum dated 15 June 2007 in income tax benefit from unwinding of a temporary tax difference on accommodation bonds and a doubtful debt provision that had not previously been identified 6
Reconciliation of Adjusted FY08 Forecast vs EM $ 000 Forecast as per EM PLT adjustment Fini adjustment Homestay adjustment Other Adjusted FY08 EBITDA Retirement Living 66,895-2,349-1,885-348 562 62,875 Development & Construction 34,939-685 -658 0-861 32,735 Aged Care 4,396 0 0 0-820 3,576 Reallocation of overheads Corporate Costs -11,442 0 0 0 896-10,546 Lease Payments -13,554 0 0 0 0-13,554 TOTAL EBITDA 81,234-3,034-2,543-348 -223 75,086 Depreciation & Amortisation -2,752 0 0 0 6-2,746 EBIT 78,482-3,034-2,543-348 -217 72,340 Interest Expense -16,398 0 0 0-3,693-20,091 Taxation Expense -17,784 0 0 0 0-17,784 Cash received August to repay debt NET PROFIT AFTER TAX 44,300-3,034-2,543-348 -3,910 34,466 7
Babcock & Brown Communities Group Update YTD sales activity across the portfolio in line with EM forecasts Operational performance of underlying business in line with EM forecasts Delivery of greenfield sites progressing well 3 DAs issued - Gibraltar Park, Wodonga and Catalina Waters 2 remaining MIS likely to be finalised in FY08 Completion of 5 acquisitions since 30 June 07 8
Acquisitions Overview since 30 June 07 Asset Details Rationale Portfolio Purchase Price Funding Prime Living Trust (74.7%) Acquisition of balance of units in Trust mature portfolio of 12 RVs and a development site (completed 30 Jul 07) Increased portfolio diversification into NSW/NZ and long term cash flow stability 2,449 ILUs and SAs, 424 development units and a development site $66m Equity Fini Portfolio WA Acquisition of mature portfolio of 7 RVs and a development site (completed 14 Aug 07) Increased portfolio diversification into WA and long-term cash flow stability 1,266 ILUs and SAs and 160 development units $180m Equity Homestay RV Acquisition of mature standalone RV (completed 28 Sept 07) Increased exposure to WA at marginal cost 80 ILUs $8.2m Debt Prime Trust (QLD & NSW) Acquisition of management rights of RVs owned by Prime Trust (management income of $520 per unit pa & 12% of DMF on resale) (completed 11 Sept 07) Expanding footprint into high growth corridors of coastal Qld and NSW at marginal cost 3,610 ILUs across 12 RVs $60.0m Debt The Lakes RV Acquisition of standalone RV with development upside & aged care colocation opportunity (completed 14 Sept 07) Full exposure to Bundaberg region at marginal cost 259 ILUs, 78 development units and DA for AC facility $27.1m Debt Conform Health Group Acquisition of established high quality Aged Care business (to complete Nov 07) Exposure to NSW, QLD & high care beds 1,126 beds predominantly high care $160m Debt 9
Superior Platform for Growth in Senior Living BBC (August 2007) 6,262 units; 2,110 in development 941 beds; 171 in development BBC (November 2007) 9,880 units*; 2,180 in development 2,067 beds; 344 in development PORTFOLIO MIX PORTFOLIO MIX 13% 16% 13% 7% ILUs Sas AC 74% ILUs SAs AC 77% 10 *includes c.3100 ILUs managed for Prime Trust
Retirement Living Nov 07 Retirement Living portfolio statistics No of villages 56 No of units 9,880* Portfolio occupancy (%) 94 Average age of current residents (yrs) 79 Key Retirement village assumptions FY08 NZ Fini Portfolio All Other ILU Turnover (yrs) 8yrs 11yrs 11yrs SA Turnover (yrs) 5yrs N/A 5yrs ILU Capital Growth (pa) 4.50% 6.25% - 8.50% 5.0% SA Capital Growth (pa) 4.50% N/A 4.0% Maturity Ownership structure Geographic diversification 23% 7% 18% 14% 3% 23% 12% 5% 47% 9% 25% 1 to 2 years 2 to 5 years 5 to 10 years 10 to 20 years over 20 years 27% 36% Fully Owned Prime Trust Leased Profit Share NSW VIC NZ 16% SA WA QLD 35% 11 *includes c.3100 ILUs managed for Prime Trust
Development - Nov 07 Development pipeline portfolio statistics Total number of units 2,180-5 x completed projects 102-10 x brownfield developments 1,565-3 x greenfield developments 513 Average sales price $390k Gross sales value $850.2m Development Pipeline Brownfields Greenfields 5% 13% 24% 23% 54% 10% 12 Completed Brow nfields Greenfields 72% New South Wales South Australia Victoria 7% 5% Western Australia Queensland 87% New South Wales Victoria
Aged Care - Nov 07 Aged Care portfolio statistics No of facilities 29 No of beds 2,067 Beds under development 344 Portfolio occupancy (%) 90 Average age of current residents (yrs) c.87 Portfolio level of care Ownership structure Geographic diversification 5% 7% 40% 26% 42% 51% 56% 67% 13 Low Care High Care Extra Service Fully owned Leased Profit Share 4% 3% New South Wales South Australia Queensland Victoria
Looking forward It s all about Execution Integration of acquisitions Extract value from scaleable platform Achieve price growth from re-sales activity with refurbishment and buy back program Roll out of development pipeline 300 units built and sold p.a. Improved business performance through roll out of BBC clinical care management systems Look at future consolidation opportunities 14
Disclaimer 1. This presentation has been prepared by Babcock & Brown Communities Limited ACN 010 622 901 (BBCL) to provide an overview of the retirement living industry. Each Recipient of this presentation is deemed to have agreed to accept the qualifications, limitations and disclaimers set out below. 2. None of BBCL, Babcock & Brown Limited ACN 108 614 955 and its subsidiaries or their respective directors, officers, employees, advisers or representatives (Beneficiaries) make any representation or warranty, express or implied, as to the accuracy, reliability or completeness of the information contained in this presentation, including any forecast or prospective information. The forward looking statements included in this presentation involve subjective judgment and analysis and are subject to significant uncertainties, risks and contingencies, many of which are outside the control of, and are unknown to, the Beneficiaries. Actual future events may vary materially from the forward looking statements and the assumptions on which those statements are based. Given these uncertainties, you are cautioned to not place undue reliance on such forward looking statements. 3. This presentation is a general overview only and does not purport to contain all the information that may be required to evaluate an investment in Babcock & Brown Communities Group (BBCG). The information in this presentation is provided personally to the Recipient as a matter of interest only. It does not amount to an express or implied recommendation with respect to any investment in BBCG nor does it constitute financial product advice. The Recipient, intending investors and respective advisers, should: a) conduct their own independent review, investigations and analysis of BBCG and of the information contained or referred to in this presentation; and/or b) seek professional advice as to whether an investment in BBCG stapled securities is appropriate for them, having regard to their personal objectives, risk profile, financial situation and needs. 4. Nothing in this presentation is or is to be taken to be an offer, invitation or other proposal to subscribe for BBCG stapled securities. 5. Except insofar as liability under any law cannot be excluded, none of the Beneficiaries shall have any responsibility for the information contained in this presentation or in any other way for errors or omissions (including responsibility to any persons by reason of negligence). 15