Lendlease Group · ASX:LLC
Lendlease — Merger or Acquisition (May 2004)
41 slides from Lendlease's merger presentation, May 25, 2004
Slide 1: Lend Lease proposes merger with GPT to create property powerhouse
25 May 2004 The Manager The Manager Companies Section Companies Section Australian Stock Exchange Limited New Zealand Exchange Limited Pages: forty one (41) pages Dear Sir STOCK EXCHANGE ANNOUNCEMENT LEND LEASE PROPOSES MERGER WITH GPT TO CREATE PROPERTY POWERHOUSE With reference to the announcement
Slide 2: Welcome and overview of the merger proposal
Welcome everyone. | am David Crawford, Chairman of Lend Lease Corporation. With me are Greg Clarke, CEO, and Jo Curin, Finance Director, Ross Taylor, our CEO Asia Pacific, and Rod Fehring, CEO of Delfin Lend Lease. Today we are outlining a proposal to merge Lend Lease and GPT which represents, in ou
Slide 3: Scale, earnings base and benefits of merging with GPT
Bringing together GPT’s A$7.7 billion, high quality property portfolio ... with Lend Lease, will give this Company the scale required to exploit some exciting growth opportunities ... particularly in retail and urban community development internationally. It will also provide a highly stable earning
Slide 4: Leveraging Lend Lease and GPT strengths for growth
Merging Lend Lease and GPT will allow us to leverage both the strength of Lend Lease and GPT to build a much stronger Australian business ... with the additional growth from a focused international real estate business. The business will generate the great majority of its earnings in Australia from
Slide 5: The major terms of the proposal
The major terms of the proposal are: Lend Lease shares and GPT units would be stapled in the ratio of 3.8 GPT units for every one Lend Lease share. This is based on the A$10.75 closing price of Lend Lease shares prior to our trading halt. A 47 cents per unit special distribution would be paid to GPT
Slide 6: Unparalleled opportunity to enhance the Trust's growth outlook
We firmly believe that Lend Lease’s proposal delivers an unparalleled opportunity to enhance the Trust’s outlook for growth here in Australia. The proposed merger will give GPT unithoiders access to international investment through an established and focused vehicle ... and the opportunity to share
Slide 7: Thank you, David: Lend Lease turnaround
* Thank you, David. « I|joined Lend Lease as CEO in Dec 2002 ~ Mandate to turn Lend Lease around. * Initial focus: — Exit from US REl ~ A$88 million (pre-tax) p.a. reduction in costs — Rebuild management team. + Operational focus and return to earnings growth. + Astrategy for the Group was committed
Slide 8: Three strategic options considered
+ Worked with new management team and Board over the last 6 months. * Three options: ~— Break-up ~— Status quo with in-fill acquisitions ~ Major restructuring.
Slide 9: Criteria for assessing options
Best shareholder value Appropriate level of business risk Builds on existing skills and market positions Harvests synergies Focus Capable of implementation Competitive advantage
Slide 10: Assessing options and international potential
So we assessed each of the options against those criteria. Before | go through our chosen course, I'd like to give you a personal perspective on the decisions we’ve made. Firstly, | recognise that we are standing here today, talking about building an international company ... albeit in a very differ
Slide 11: Break-up, status quo and major restructuring options
The base case is the value we can achieve in a break-up of the business into its component parts. The second option, which can deliver higher value than the base case ... is to maintain the status quo and make in-fill acquisitions to grow our businesses here and/or overseas. | am not going to canvas
Slide 12: Creating Australia's leading diversified property group
The choice was very clear. There is far more upside in creating Australia’s leading diversified property group ... for both GPT’s unithoiders and Lend Lease shareholders ... than there is pursuing development and construction alone. Because when you look at Lend Lease’s greatest strengths, opportuni
Slide 13: UK and US urban community and retail opportunities
None of our peers in Australia has established urban community businesses in the UK and the US. ... These businesses provide substantial growth opportunities for us ... but we need greater scale to fully exploit them than we have today. Lend Lease’s other big opportunity — particularly here and in t
Slide 14: Benefits for GPT unitholders
+ We believe the benefits for GPT unitholders are both significant and numerous. + They include: ~ 8.2% implied premium to GPT’s closing price on 20 May 2004 which had already traded up in relative terms since the Westfield announcement. ~ 21% premium to net tangible asset backing at 31 December 200
Slide 15: Continuity of portfolio management and international access
~— Thirdly, the merger would also ensure continuity of the portfolio management team and resources which have built GPT’s premium quality diversified portfolio. So GPT’s existing portfolio management and performance record would be protected and enhanced. As part of a stapled Lend Lease Group, it co
Slide 16: Benefits for Lend Lease shareholders
Now fet’s look at benefits for Lend Lease sharehoiders ... Strategically, the merger gives Lend Lease the right corporate and capital structure to secure a much stronger earnings outlook. It will enable us to fully exploit the major growth opportunities we have in the retail and urban community deve
Slide 17: Funds management leadership and cost synergies
The merged Group will also be well placed to consolidate its leadership in wholesale property funds management. There are immediate cost savings and synergies in the order of A$60 million after tax ... as well as strong future synergies with Bovis Lend Lease ... which | will come to later. In short,
Slide 18: The merged Group earnings profile
So let’s have a look at what the merged Group would look like. 71% of earnings would be from asset ownership, providing the large and stable earings base we want to underpin our earnings profile ... and positioning the Group within the Listed Property Trust Index. The first point 1 want to make is t
Slide 19: Stable asset base of investment grade assets
Our asset base would be very stable ... 88% in investment grade assets ... primarily shopping centres and office buildings ... as well as a smaller exposure to hotels and industrial assets. GPT already has the best diversified portfolio in Australia. The remaining assets relate to our operating busi
Slide 20: Retail centre management and development in Australia
ee [os os | atr ote| _—o In Australia, Lend Lease is a leader in retail centre management and development On behalf of GPT and APPF, we manage 20% of the regional and metropolitan shopping centre space in Australia. Of the 18 centres managed, 4 sit within the top 10 performing centres in the country
Slide 21: Urban community development leadership
. In urban community development, Lend Lease’s position relative to its peers is a stand-out. From a GPT investor's point of view ... this slide demonstrates the earnings strength that Lend Lease can deliver to GPT, in this sector. Delfin Lend Lease has been a specialist residential developer for mo
Slide 22: Diversified portfolio: office, industrial and hotels
| have said that our focus for growth is retail and urban community development. The diversified nature of GPT’s portfolio would also give the merged Group another advantage over other stapled entities. GPT’s office, industrial and hotel portfolios are all high quality and each has a well defined st
Slide 23: Offshore retail growth in the UK
Now Jet’s talk about offshore. In retail, the focus for growth is in the UK, where Lend Lease is well positioned with about 5% market share. We've already got a good skill base and highly regarded brand in the UK. This market is characterised by fragmented ownership ... which we believe provides opp
Slide 24: UK retail investment opportunities for GPT
Lend Lease is well placed to open up retail investment opportunities for GPT’s portfolio. As an example ... we are very close to securing another A$300 million retail project in the UK. Lend Lease will redevelop the asset to double its size through a joint venture agreement. In the merged vehicle, G
Slide 25: Urban community development in the UK and USA
In urban community development, we see opportunities in both the UK and USA. There is a high barrier to entry in this sector in the UK. The planning process is very complex, yet there is the need for major urban regeneration programs. Our masterpianning and mixed use development skills have given us
Slide 26: Greenwich Peninsula and US military housing
In the UK, Greenwich Peninsuia is our first large scale project. It is well advanced in the planning approvals process... and will deliver a ten to fifteen years earnings stream as the base for building our business there. Greenwich has put Lend Lease on the map and the skills and experience we have
Slide 27: Wholesale funds management expansion
We also have a significant opportunity over the next 2-5 years for the merged entity to expand its wholesale funds management operations ... through APPF, APIC and new funds. There is undoubtedly continuing consolidation of the Australian LPT sector ... and growing convergence of the LPT and Contrac
Slide 28: Bovis Lend Lease risk profile
Lower risk and high margin construction management & consulting: ~ Long term contracts ~ Fee basis ~ PFis There is clearly a lot of interest in how Bovis Lend Lease fits into the merged Group, given its perceived risk profile. Let me share with you my view of Bovis’ risk profile in its own right. Fo
Slide 29: Bovis Lend Lease competitive advantage and value
Beyond those comments, | also want to make these points about Bovis Lend Lease. Internationally, Bovis Lend Lease is a high quality brand with a strong reputation for project delivery. In terms of competitive advantage, Bovis Lend Lease is a very good fit with retail and community development. Put s
Slide 30: Bovis Lend Lease as natural fit for merged Group
First, there is an established and growing earnings stream in place as we build the focused retail and urban community growth strategy: — Inthe UK for retail; and ~ Inthe UK and US for urban communities. Secondly, it provides the Group with the opportunity to exploit the increasing trend for governm
Slide 31: Merger ratio and pro forma distributions
The merged entity would be expected to have an annualised pro forma distribution of 25.5 cents per GPT unit and 82.9 cents per Lend Lease share for the 2005 financial year. The merger ratio is 3.8 GPT units for every one Lend Lease share. GPT unitholders would also receive a special distribution of
Slide 32: Pro forma headline benefits for investors
+ Let’s look at the pro forma headline benefits that investors in both entities will receive post merger: ~— These are pro forma numbers. ~ For the purpose of illustration, we have used market consensus earnings for both GPT and Lend Lease, and assumed the merger would be implemented on 1 July this
Slide 33: Cost savings and synergies
We have estimated that there are around A$60 million p.a. in post tax cost savings and synergies to be delivered. This is a point | want to focus on because those savings are not achieved by simply stapling the two entities. The merger enables us to dramatically simplify and focus the business. We'v
Slide 34: Pro forma earnings of the merged Group
Thanks, Greg. The pro forma earnings for the merged Group which you can see on the slide illustrate the scale of the combined businesses ... with earnings around A$700 million p.a. after tax for FY2005. The pro forma has been prepared on the basis of market consensus estimates for both companies ...
Slide 35: Payout ratio and tax deferred status
The merged Group will not impact the payout ratio or tax deferred status of the Trust units. However, as a result of the merger, we would expect to lift the payout ratio on the Company shares to around 100% ... which we are confident is sustainable. We also expect to return to some franking on the L
Slide 36: Investment grade balance sheet and buyback
The merged Group would have a very strong, investment grade balance sheet. It would have an appropriate capital structure with debt to total tangible assets of approximately 27% ... that is in line with GPT’s current gearing level. This provides substantial debt capacity to support the future growth
Slide 37: Merged entity from an investor's point of view
This is a snapshot of what the merged entity would look like from an investor's point of view. The merged Group would have a market capitalisation of approximately A$10 billion and would be a top 20 entity on the ASX today. In terms of register and index weighting, the much larger scale entity has a
Slide 38: Comparison with stapled peers and re-rating case
Westies Grsapit} AOSD We believe there is a very strong case for the merged Lend Lease Group ... to be re-rated to trade at a sharper yield ... than GPT’s current 7.3%. You can see at the bottom left of this slide the superior asset profile of GPT versus its peers ... based on the capitalisation rat
Slide 39: Approvals and procedural matters
There are one or two other procedural comments | will add before handing back to Greg. The proposal requires the approval of Lend Lease shareholders, the GPT Board and its unitholders. The merger is also subject to Court and other regulatory approval ... and the usual processes and conditions for a
Slide 40: Concluding remarks
Thank you, Jo. We have put before the GPT Board and unitholders and Lend Lease shareholders ... a proposal for secure, enhanced growth ... that we believe is compelling and difficult — if not impossible — to match. It creates a group with far greater scale and competitive strength ... than either GP
Slide 41: Important information