PRIMED FOR GROWTH
Charter Hall Group Annual Report 2006
“Since the Initial Public Offer,
Charter Hall Group has raised
$787 million of equity and
equity commitments*”
Contents
1 Key Achievements
2 Chairman’s Letter
3 CEOs’ Report
4 Charter Hall Group: Structure
5 Fund Update
Charter Hall Property Trust
Investment Funds
Opportunity Funds
6 Board of Directors
Financial Report
7 Director’s Report
8 Auditor’s Independence Declaration
9 Corporate Governance Statement
10 Financial Report
11 Directors’ Declaration
12 Independent Audit Report
13 Security Holder Information
14 Corporate Directory
*Current as at 22nd August 2006
2
6
8
12
16
24
30
36
43
63
64
68
124
125
127
128
1
KEY ACHIEVEMENTS
2006 Performance Activity
Outperformed:
FY 06 Distribution
Per Security 7.10 vs
6.56c forecast at IPO
8.2% increase
CHARTER HALL GROUP 2006 ANNUAL REPORT
3
funds launched
successfully
$787m
of equity & equity
commitments raised*
10
investment
assets acquired*
4
development
projects secured*
3
development projects
crystallised profits*
35+
leases comprising
over 70,000sqm
signed, renewed
or under Heads of
Agreement across
CHPT and all funds*
* Current as at 22 August 2006
CHARTER HALL GROUP 2006 ANNUAL REPORT
1
KEY ACHIEVEMENTS
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(This page includes page 4 and page 5)
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2
CHAIRMAN’S LETTER
“The Group is primed for
growth, with increased
resources, access to
wholesale, retail and
listed equity and
significant debt and
balance sheet capacity.”
6 CHARTER HALL GROUP 2006 ANNUAL REPORT
Dear Investor,
On behalf of the Board of the Charter Hall Group,
I am pleased to present the Annual Report for
our first year as a listed Group. Our Initial Public
Offering (IPO) in June last year provided a
platform for strong growth in assets under
management and a financial performance that
exceeded the forecasts contained in our May
005 offering document. The business model
adopted by Charter Hall facilitated the off-market
acquisition of a number of high quality properties
and raised over $8 million of equity and equity
commitments this year.
Charter Hall passed a number of significant
milestones in 005/6, including:
• Net Profit after tax of $18.0 million and gross
revenue of $.8 million
• Increased assets under management to $1.5
billion
• The establishment of three new unlisted funds
namely the Core Plus Office fund (CPOF); the
Charter Hall Opportunity Fund No. (CHOF)
and the Diversified Property Fund (DPF)
• Off-market acquisition of 0 properties with a
total value of $650 million
• Aggregate wholesale and retail capital raised
of $8 million
• Completion of the Charter Hall (CHC) accelerated
non-renounceable entitlement offer and placement
of 8. million new securities at an issue price
of $1. to raise a further $100 million*
• A total return to 0 June 006 for IPO investors
of 5%**
The full year distribution to CHC Security Holders
of .10 cps exceeding the IPO forecast of 6.56
cps, by 8.%. I am pleased to confirm the
forecast distribution for 006/ of 9.5 cps
contained in our recent offer document for the
entitlement issue and placement. This forecast
represents a solid 8.9% increase over the 005/6
distribution, on a fully paid adjusted basis.
just 1% after the novation of Atrium debt to the
Core Plus Office Fund.
The Board is pleased with the progress of Charter
Hall’s business in 005/6. We look forward to the
new financial year, confident that the Group will
realise its plans for further unlisted investment
product, in which Charter Hall Property Trust
(CHPT) will co-invest.
Charter Hall’s strategy of co-investment by the
listed CHPT in the appropriate unlisted wholesale
funds, is a strong catalyst for additional capital
inflow and new property investment. This along
with the substantial equity and debt capacity of
the Group supported the creation in 005/6 of the
CPOF, CHOF and DPF, each providing annuity
fee income streams and co-investment returns to
CHC security holders.
Our Joint Chief Executives David Harrison and
David Southon along with our Executive Directors,
our senior executives and our staff combine to
offer an outstanding mix of competent property
professionals. They have great access to the
capital markets and their ability to source quality
properties, off market are essential for the
production of solid returns to investors and
to CHC Security Holders. Charter Hall has an
effective business model, that we expect will
continue to perform well.
On behalf of CHC Security Holders and investors,
I express the Board’s thanks and appreciation to
Charter Hall’s management team. I also recognise
and thank my fellow Charter Hall Board members
for their significant contribution and support.
Without these two key elements, this year’s result
would not have been possible.
Yours sincerely,
The company utilised debt capacity to acquire
properties to seed new unlisted investment funds
such as CPOF and the May 006 entitlement
issue and placement raising $100 million and
refreshing its debt capacity. Net debt stood at
Kerry Roxburgh
* As part of $8 million
* * On 1st instalment only
CHARTER HALL GROUP 2006 ANNUAL REPORT
3
CEOS’ REPORT
8 CHARTER HALL GROUP 2006 ANNUAL REPORT
Charter Hall Group has performed above
expectations across all areas of the business
and has proven its ability to deliver, particularly
when it comes to shareholder returns. The
implementation of our business strategies
and co-investment model have ensured that the
Group is primed for growth and we are confident
that the coming year will continue this momentum.
HIGHLIGHTS
We are pleased to report that the performance
and growth strategies developed at the time of
the Group’s listing on the ASX have been extremely
effective. Throughout its first year as a listed entity
Charter Hall exceeded the IPO FY06 distribution
forecasts, resulting in an 8.% upgrade to .10
cps from 6.56 cps.
The use of our considerable debt capacity at the
time of listing, with gearing of only 15.5%, has
enabled the acquisition of strategic properties
to seed new unlisted fund products. It has
also allowed us to develop our funds under
management and enhance returns on Security
Holders’ capital.
The Group has further consolidated and extended
its presence Australia-wide through increased
interstate activity in Queensland and Western
Australia. The expansion of equity sources has
also strengthened the Group’s risk/return profile
by establishing three new managed funds. The
combination of the Group’s strong deal sourcing
capabilities, debt capacity and access to diverse
equity resources has both expanded and propelled
the launch of new wholesale and retail investor
products including the Core Plus Office Fund
(CPOF), Charter Hall Opportunity Fund No.
(CHOF) and the Diversified Property Fund (DPF).
“The year’s achievements
are inspiring. We’re in
a position to further
product growth to
enhance returns on
shareholder capital.”
FINANCIAL CAPACITY
DEAL FLOW
The Placement, non renounceable Entitlement
and Public Offer in June this year created a further
$100 million of listed capital for the Group. This
led to two new acquisitions in the Listed Property
Trust and reinforced the Group’s commitment to
a co-investment model through the actively
managed unlisted funds, CPOF and DPF. At the
same time we have maintained the capacity to
develop new products, further driving the future
growth of both funds under management and
increasing investor returns.
The Group has demonstrated its ability to utilise
its debt capacity to drive growth and improve
return on equity. The recent capital raising
effectively refreshed the Group’s capacity to over
$100 million. In addition to stimulating future growth
by securing assets to seed future investment
products and co-investing in new unlisted funds,
we may now use the Group’s balance sheet more
extensively for accretive transactions.
A key differentiator for Charter Hall is its access
to diverse equity sources. In addition to the listed
capital markets, the Group enjoys considerable
access to wholesale equity, as evidenced by its
$500 million of equity commitments for CPOF and
$165 million of equity commitments for CHOF,
both being the largest wholesale funds of their type
in Australia at the date of their respective financial
closes. In extending its existing “high net worth”
investor base, the Group is significantly expanding
its access to retail equity through DPF, which has
recently been placed on both the BT Financial
and Macquarie “Wrap accounts” (retail platforms).
The endorsement of this product by a number
of advisers and financial planners is rapidly
expanding the Group’s access to retail equity.
Charter Hall has achieved consistent deal flow,
which has been demonstrated by securing
$650 million of “off market” property transactions
since and including the IPO. The Group’s success
in this area is clear evidence of the strength of our
market relationships and our professional and
timely performance.
The Group’s in-house funds management
development, property management and
property investment banking skills create
attractive opportunities. The Group has
continually performed across the full risk and
return spectrum for its investors over its 15 year
history and the results achieved in FY06 set a
platform for continued growth and success.
The consistent out-performance of its opportunity
funds demonstrates the Group’s in-house
development selection and management skills,
as performance fees were generated out of
projects harvested from the currently active
opportunity funds in the series: Property
Development Portfolios and and CHOF. Our
delivery credentials and professionalism enabled
us to secure significant leases during FY06,
including American Express for approximately
1,000sqm and the Commonwealth Bank for
approximately ,500sqm. Lease contracts
such as these, across both the investment and
development portfolio, will continue to drive value
and strong profits for the Group.
Charter Hall has established high standards of
corporate governance across its various managed
funds to ensure the necessary protocols are in
place. This has enabled the Group to successfully
execute related party transactions, such as Home
CHARTER HALL GROUP 2006 ANNUAL REPORT 9
3
CEOS’ REPORT
HQ, Nunawading, and Atrium, Pyrmont, which
were developed in two of the Group’s opportunity
funds and on-sold to the Listed Property Trust
and CPOF respectively. This demonstrated the
Group’s ability to produce and retain its own
investment grade product, where appropriate.
OUTLOOK
“We have proven
our ability to deliver,
particularly when it
comes to shareholder
returns.”
Charter Hall is pleased to confirm its FY0
forecast of 9.5 cps, representing an 8.9% increase
over FY06 IPO forecast. The Group is primed for
significant growth over FY0 and beyond, and
will continue to focus on its co-investment strategy
into establishing and actively managing new
unlisted funds.
It is envisaged that the rollout of new funds
throughout FY0 is likely to include “Core Plus
Funds” in both the industrial and retail sectors
and the next Opportunity Fund further diversifying
the Group’s access to equity and product offering.
The Group will also capitalise on its strength
in accretive on-balance sheet transactions over
FY0 and fund access to new markets. This may
include exploring some strategic off-shore
opportunities which are likely to accelerate the
growth and earnings potential of the Group.
Charter Hall is genuinely primed for growth and
we are excited by its future prospects as a leading
property funds management and development
group. We are committed to a strategy that will
deliver strong funds under management growth,
while maximising Security Holders’ returns and
maintaining close relationships with both
wholesale and retail investors.
10 CHARTER HALL GROUP 2006 ANNUAL REPORT
David Harrison
Joint Chief Executive Officer
David Southon
Joint Chief Executive Officer
151 Pirie, Adelaide
CHARTER HALL GROUP 2006 ANNUAL REPORT 11
4
CHARTER HALL GROUP: STRUCTURE
“The Group currently
boasts $1.35 billion
of assets under
management across
its investment funds
and the listed
property trust.”
AbouT THe GrouP
The Charter Hall Group is a property funds
management and development group. Listed on
the Australian Stock Exchange (ASX) as a stapled
security in June 005, the Charter Hall Group
combines Charter Hall Limited with the Charter
Hall Property Trust. Since its establishment in
1991, Charter Hall has achieved solid results
in property funds management and property
development. The company’s success has been
underpinned by an experienced management
team with a skill-set diversified across property
sectors and risk/return profiles.
Charter Hall has earned a reputation for innovation
and high performance in property investment,
and in managing external equity. The Group
currently boasts $1.5 billion of assets under
management across its funds and the listed
property trust.
The Charter Hall Property Trust comprises
interests in properties categorised across the
retail, bulky goods, commercial and industrial
sectors throughout Australia.
Charter Hall investment funds include nine
separate investment vehicles holding passive
properties that provide stable income and the
potential for capital growth. The most recent
fund, CPOF has raised $500 million of equity
commitments from wholesale investors. Charter
Hall is also a pioneer in the Australian wholesale
property opportunity fund sector and has raised
$ million of wholesale equity commitments to
date used for opportunities along the higher risk/
return end of the property investment spectrum.
1 CHARTER HALL GROUP 2006 ANNUAL REPORT
CHARTER HALL GROUP STRUCTURE
Board of Directors
CHARTER HALL
LIMITED
Stapled & Managed via Responsible Entity
Charter Hall Funds Management Limited
CHARTER HALL
PROPERTY
TRUST
Joint CEO
David Harrison
Joint CEO
David Southon
Property
Management
FUNDS
MANAGEMENT
PROPERTY
DEVELOPMENT
Property
Investment
Banking
CFO
Nathan Francis
Corporate Services:
Finance, Company Secretarial, Compliance, Administration,
Investor Relations, Leasing, Marketing, Acquisitions
CHARTER HALL GROUP 2006 ANNUAL REPORT 1
4
CHARTER HALL GROUP
INVESTMENT PRODUCT SPECTRUM
ENHANCED
CORE PLUS
TARGET
RETURN
18%+
15–17%
12–14%
9–11%
CORE
Low
OPPORTUNITY
RISK
High
CHG
PRODUCTS
CHPT, DPF
CHIF 1–6
CPOF
CHOF 4
PDP 2, 3
Investment
Criteria
Passive
Investments
0% passive investments,
0% enhanced
Development
opportunities
Investors
Institutional,
High net worth, retail
Wholesale
Wholesale
1 CHARTER HALL GROUP 2006 ANNUAL REPORT
GEOGRAPHIC DIVERSITY OF ASSETS
1
Townsville
3 1
Brisbane
Perth
1
2
1
Adelaide
2 11
Sydney
Number of investment assets
Number of development assets
11
Melbourne
GROWTH IN ASSETS UNDER MANAGEMENT
$2104m (Once CPOF
fully invested)
$1350m
$1022m
$815m
$665m
$421m
$349m
$301m
Total
$95m
$205m
$81m
$1m
1998
$1m
$8m
$m
$8m
$88m
$61m
$m
$88m
$568m
$9m
$18m
$9m
$6m
$95m
1999
000
001
00
00
00
005
006
$55m
$608m
$1m
Opportunity Fund assets (completion value)
Investment assets
CPOF remaining asset capacity
CHARTER HALL GROUP 2006 ANNUAL REPORT 15
5
FUND UPDATE
CHARTER HALL PROPERTY TRUST
400 Kent St, Sydney
16 CHARTER HALL GROUP 2006 ANNUAL REPORT
“The Group has strong
deal sourcing capabilities
and access to diverse
equity sources.”
CHARTER HALL GROUP 2006 ANNUAL REPORT 1
5
FUND UPDATE
CHARTER HALL PROPERTY TRUST
Charter Hall Property Trust’s $ million property
portfolio consists of interests in properties
diversified across the office, retail, bulky goods
retail and industrial sectors. The Responsible
Entity’s strategy is to invest in a diversified
portfolio of properties and Charter Hall Group
managed funds. Assets and investments are
selected for the Trust on the basis that they are
forecast to provide stable and growing investment
income and capital growth. The opportunity to
add value through active asset management,
and therefore increase returns, is also sought.
Geographically, the preference is to acquire
properties in the major markets of Australia.
However, emerging sectors within that market
may also be considered for investment purposes.
The Trust comprises eight investment grade
properties located in New South Wales and
Victoria. In the first twelve months to June 0,
006, the Trust delivered a total net property
income of $1.06 million.
ACQUISITIONS
Over the past financial year the Trust successfully
completed the acquisition of all properties
outlined at IPO. Furthermore, two additional
properties were acquired using the proceeds of
the Entitlement Offer and Placement during the
year. These properties include Melbourne Airport
Business Park, Tullamarine VIC and 5 Nepean
Highway, Mentone VIC.
In addition, the Core Plus Office Fund (CPOF)
acquired Atrium, a property located in Pyrmont,
NSW in December 005 from Charter Hall’s second
opportunity fund, Property Development Portfolio
. CHPT will hold a long-term investment of $115
million of CPOF’s equity contributions.
CHPT has also committed to a 0% investment
in the Diversified Property Fund (DPF), which it
intends to maintain.
The Trust will invest in other Charter Hall managed
funds on the basis that this will be accretive to the
Trust’s earnings as a total return.
Home HQ, Nunawading VIC
An early settlement was negotiated for Home HQ,
Nunawading, having originally been scheduled
upon completion of development works in
October 006. A variance in the development
agreement was arranged in order to utilise the
equity from the final call for the stapled securities
issued at IPO.
Melbourne Airport Business Park,
Tullamarine VIC
These two Melbourne Airport Business Park
industrial properties are located in Tullamarine,
adjacent to the International Airport in Melbourne’s
north-west. The properties have been acquired
on a leasehold basis comprising two separate
leasehold titles and three tenancies with a total
combined area of 0,000sqm.
A development agreement has been entered into
with Australand and CIP to secure the land lease
and deliver the sub-leases pre-committed to
Kathmandu (10,000sqm) and Caterpillar (10,000
sqm), together with a five year income guarantee
for the remaining 10,000sqm vacancy to be built
on a speculative basis adjacent the Caterpillar
facility. During construction of the 0,000sqm
of office and warehouse facilities, CHPT will earn
an interest coupon on all progress payments.
Construction of the properties has commenced,
and on completion these will deliver an average
initial property yield of .85%. Completion of both
facilities is expected by November 006.
18 CHARTER HALL GROUP 2006 ANNUAL REPORT
1
1. Home HQ, Nunawading . 5 Nepean Hwy, Mentone . Melbourne Airport Business Park, Tullamarine
CHARTER HALL GROUP 2006 ANNUAL REPORT 19
5
FUND UPDATE
CHARTER HALL PROPERTY TRUST
25 Nepean Highway, Mentone VIC
This bulky retail showroom property located in
the south-eastern Melbourne suburb of Mentone
adjoins the Trust’s co-owned Nylex property.
The Nylex property has been granted ministerial
consent for a 0,000sqm bulky retail development,
anchored by a 16,500sqm, 1 year lease
commitment to Harvey Norman.
The trust exchanged contracts in June for the
property which was acquired for $1.9 million,
reflecting an initial property yield of .%.
The complex comprises six tenancies and a
19 metre frontage to the Nepean Highway with
a site area of 15,80sqm and a lettable area of
approximately 8,900sqm.
Tenants include Super Cheap Auto, A-Mart All
Sports, Ray’s Outdoors and Subaru.
LEASING ACTIVITY
In the period to June 0, 006 a total of ,990sqm
of space was leased, renewed or is subject to
Heads of Agreement. As a result total occupancy
of the Trust’s portfolio is 99% (100% including
income support arrangements). Similarly the
weighted average lease expiry (by income)
has increased from 5. years to 6.1 years.
Leasing performance for the period includes:
Home HQ, Nunawading VIC
Lease documents for anchor tenants Bev Marks,
Casual Living and Nick Scali were finalised,
while Heads of Agreement were reached with
The Good Guys, JB Hi Fi, Howard’s Storage
and another national furniture retailer. These
commitments to date represent % of total
available floor space in the project, with further
specialty tenancy commitments also progressing.
Project completion is scheduled for the end of
October 006.
0 CHARTER HALL GROUP 2006 ANNUAL REPORT
570 Bourke Street, Melbourne VIC
The 11% vacancy rate for this property at the
time of the IPO has since been eliminated thanks
to some new leases, lease renewals and lease
extensions. These negotiations have included
a new seven year lease to Willis Australia
over levels , and 5, a lease extension until
1 December 009 for ANZ’s premises on
Level 1 and increased income from the Wilson
Parking management agreement.
The final lease completed within the period was
for the Victorian Government on Level 0, resulting
in full building occupancy and eliminating short
term leasing risk. Rental and incentive levels were
achieved within forecast and ahead of schedule.
400 Kent Street, Sydney NSW
Occupying 91% of Net Lettable Area, major
tenant Central Queensland University (CQU)
has completed its fitout and the University is
operating as a fully integrated campus. CQU
provides year-round classes across a broad
range of postgraduate studies and contributes
approximately 6.5% of the total portfolio income,
which will increase annually by .5% until
April 01.
Menai Central, Carter Road, Menai NSW
Small tenancies on level one of Building B have
been successfully leased, while the leasing of
approximately 00sqm within Building C is still
underway; vendor rental guarantees were utilised
six months ahead of schedule.
570 Bourke St, Melbourne
CHARTER HALL GROUP 2006 ANNUAL REPORT 1
5
FUND UPDATE
CHARTER HALL PROPERTY TRUST
1. –9 & 61 Nepean Hwy, Mentone . 56 Anzac Street, Chullora
1
PROJECT ACTIVITY
REVALUATIONS
570 Bourke Street, Melbourne VIC
During the period this asset was revalued, revealing
a strong 6% value increase from $61 million to
$65 million (50% of total asset value). This increase
is primarily the result of the successful filling of
vacancies and the subsequent firming of the
capitalisation rate from 8.00% to .5%.
56 Anzac Street, Chullora NSW
This property was valued at $1.65 million as
of June 0, 006 — an increase of $.65 million
on the acquisition price of $1 million. However,
following the successful objection to the Valuer
General’s land value by the vendor, the Trust
received a net income benefit of $61,000 per
annum which required that a further payment of
$.61 million be made to the vendor, which was
paid in March 006. Thus the new valuation
supports the increased sale price, as envisaged
at the time of acquisition.
27–29 & 61 Nepean Highway, Mentone VIC
Following the submission of a Development
Application for this property, rezoning was
secured in April 006 to enable the proposed
developments identified in the IPO PDS/
Prospectus. Kingston City Council issued
development consent for the preferred scheme
with conditions. Negotiations are currently
underway with Nylex for their relocation following
the appropriate renovation of the site. It is
expected that vacant possession of the site will
be secured by December 006 or early 00.
Following the remediation and relocation of Nylex,
construction will commence with developers Pivot
Group, who are expected to complete the project
between late 00 and early 008. The Trust
receives an interest coupon of .5% applied to all
progress payments including the land purchase
costs upon termination of the Nylex lease.
Summary of Charter Hall Property Trust’s
Other Interests
Charter Hall Property Trust has, since IPO,
contributed funding to other Charter Hall Group
managed funds including CPOF (%) and DPF
(0%). It is envisaged that CHPT will also hold
stakes in other Core Plus products launched
by the Group.
CHARTER HALL GROUP 2006 ANNUAL REPORT
9
1
8
6
5
ASSET DIVERSIFICATION
BY ACQUISITION PRICE
1 Nunawading
Bourke
Mentone
Menai
5 Kent
6 Melbourne Airport
1.0%
19.1%
16.%
11.9%
.%
Business Park, Tullamarine .%
5 Nepean Highway,
Mentone
8 CPOF
9 Chullora
10 DPF
6.8%
.5%
.%
1.%
TOP 10 TENANTS
Harvey Norman
CQU
Minister for Finance
AMEX
Domayne
K&S
Wilson Parking
Volvo
Kathmandu
Bev Marks
6.%
5.%
5.1%
.6%
.0%
.%
.%
.6%
.%
.1%
CHARTER HALL PROPERTY TRUST
1
1
SECTOR WEIGHTING
BY NET INCOME
1 Retail/
Bulky Goods Retail 58.9%
8.%
Commercial
1.%
Industrial
SECTOR WEIGHTING WITH CPOF
FULLY INVESTED BY NET INCOME
1 Commercial
Retail/
Bulky Goods Retail
Industrial
.5%
.8%
9.%
WEIGHTED AVERAGE LEASE EXPIRES
Years
DPF
CPOF
Tullamarine
5 Nepean Hwy
Mentone
Nunawading
Menai
Chullora
Bourke
Kent
WALE
5.
1.9
.0
.
6.5
6.0
.5
.5
.5
10.
6.1
LEASE EXPIRY PROFILE BY NET INCOME
006
00
008
009
010
011
01
01
01
015
016
01
018
019
00
01
0%
10%
0%
Wilson Parking
Nunawading and Mentone represent uncommitted tenancies
CHARTER HALL GROUP 2006 ANNUAL REPORT
CHARTER HALL GROUP 2006 ANNUAL REPORT
5
FUND UPDATE
INVESTMENT FUNDS
Atrium, Pyrmont
CHARTER HALL GROUP 2006 ANNUAL REPORT
“The Core Plus Office
Fund has an asset
acquisition capacity
of $1 billion.”
CHARTER HALL GROUP 2006 ANNUAL REPORT 5
5
FUND UPDATE
INVESTMENT FUNDS
CORE PLUS OFFICE FUND (CPOF)
ACQUISITIONS
333 George Street, Sydney*
Secured in an exclusive off-market deal in June
006, this Sydney CBD property is located in
the core financial precinct opposite Martin Place.
Comprising 8,61sqm of B Grade office and
1,1sqm of high quality retail space, the
15 level, $69 million asset was substantially
refurbished in 00/0. This building provides
strong growth opportunities and portfolio
diversification benefits for CPOF.
126–144 Stirling Street, Perth*
Located on the northern fringe of Perth’s CBD,
this A Grade office building was secured at a
sale price of $6.5 million. Tenants include Hatch
Associates, HPA Limited and Broad Construction
Services. A Development Application has been
secured to develop a further 11,581sqm (approx)
of A Grade commercial office space and 9 car
spaces on the existing site adjoining the Hatch
building. The property offers strong fixed and
market growth prospects with surplus land
providing the capacity to secure pre-commitments
and higher investment returns.
* Current as at nd August 006
The Core Plus Office Fund was launched in
December 005 and is expected to become the
primary platform for the Charter Hall Property
Trust’s investment in office property assets.
The Fund has achieved its target of $500 million
of equity commitments, which includes a $115
million investment by Charter Hall Property Trust.
This investment will occur when the Fund draws
equity from investors, as acquisition opportunities
are secured and approved by the CPOF Investment
Committee. With a gearing of around 50% of
its assets, the Fund will initially have an asset
acquisition capacity of approximately $1.0 billion
on a fully invested basis, resulting in significant
additional annuity fund management fees for
the Charter Hall Group.
The seed asset for the fund was the Charter Hall
managed Sydney commercial property, ‘Atrium’,
located at 60 Union Street, Pyrmont. Atrium has
long-term lease commitments to American
Express International Inc and Coles Supermarkets
for 1 and 0 years respectively. CPOF targets
the office property sector in major capital city
markets by incorporating a mix of core and
enhanced investment grade assets, and holding
those assets in the medium to long term.
Investments will be sourced from CBD, CBD
fringe and metropolitan office markets. Once the
fund is fully invested the portfolio is expected to
hold approximately 0% in stabilised passive
assets and 0% in enhanced property assets.
6 CHARTER HALL GROUP 2006 ANNUAL REPORT
“CPOF has achieved its
target of $500 million of
equity commitments.”
1
1. Atrium, Pyrmont . George St, Sydney . 16–1 Stirling St, Perth
CHARTER HALL GROUP 2006 ANNUAL REPORT
5
FUND UPDATE
INVESTMENT FUNDS
DIVERSIFIED PROPERTY FUND (DPF)
Diversified Property Fund is an unlisted open-
ended fund. The fund’s mandate is to acquire
and actively manage quality investment properties
across the office, retail and industrial sectors.
385 St Pauls Terrace, Brisbane QLD
Located in Fortitude Valley on the Brisbane CBD
fringe, this low rise commercial office building
was acquired for $. million in December 005.
The building underwent extensive refurbishment
in 1995 and houses tenants Growcom and the
State of Queensland Department of Transport.
The State of Queensland Department of Transport
occupies a % tenancy in the above building
and has opted to extend its lease by a further
four years.
CHARTER HALL INVESTMENT FUND 6
(CHIF6)
The LG Electronics Distribution Centre, a 6,00sqm
industrial facility in Townsville, was acquired by
CHIF6 to provide an initial property yield for
investors of 8.5%. The $. million property is
pre-leased to international group LG Electronics
and was re-valued to $8.5 million on completion
in February 006. The $6 million diversified
portfolio is performing above CHIF6 investor
expectations. All assets were secured within
eight months of the capital raising, well ahead
of schedule and predominantly via off-market
transactions.
Since its launch in September 005, DPF has
acquired five properties across four states with
a total value of $8 million.
DPF met the initial forecast of .85% distribution
yield (8.15% for wholesale investors) and is
forecast to provide a distribution yield of 8%
(8.5% for wholesale investors) over the next
financial year. The Charter Hall Property Trust
(CHPT) has also committed to co-investing
0% of the fund’s equity, with equity draw
downs occurring as appropriate acquisition
opportunities arise.
In addition to the listing of DPF on the retail
investment Wrap platforms offered by Macquarie
and BT Financial, the fund has also received an
upper recommended product rating by Lonsec.
ACQUISITIONS
181 St Georges Terrace, Perth WA
Acquired in February 006 for $1. million, this
seven level ,580sqm office building is located
in Perth’s CBD. Tenants include Cape Bouvard,
Elders, IAG and Emirates.
Since the purchase of this property in early 006,
two new leases of five years each have been
secured, totalling sqm which accounts for
1.5% of the building. New lease agreements
have been concluded with Geo-Subsea (formerly
known as Covus corporation) and Peak Group
Asia Pacific.
8 CHARTER HALL GROUP 2006 ANNUAL REPORT
“The aggregate value of the
DPF portfolio has more than
doubled inside 12 months.”
1
1. LG Electronics Distribution Centre, Townsville . 181 St Georges Tce, Perth . 85 St Paul’s Tce, Brisbane
CHARTER HALL GROUP 2006 ANNUAL REPORT 9
5
FUND UPDATE
OPPORTUNITY FUNDS
“Charter Hall’s opportunity funds
have raised $434 million of
wholesale equity for investment.”
Charter Hall established Australia’s first
wholesale property opportunity fund in 199 and
has achieved an average internal rate of return
on equity for its investors on realised projects
of approximately 5% over 9 years. Charter Hall
Property Trust has a $5 million co-investment in
CHOF. This allows the Group to capitalise on its
experience with these funds and achieve higher
returns. Charter Hall earns fund management
fees, development management fees and
performance fees by managing these funds.
Charter Hall manages a series of opportunity
funds and has raised a total of $ million of
wholesale equity for investment into property
development, including Property Development
Portfolios 1- (PDP1, PDP and PDP) and
Charter Hall Opportunity Fund (CHOF).
The most recently launched fund, CHOF, raised
$165 million in July 005 after receiving significant
oversubscriptions. 5% of its equity has been
allocated to date and the remainder is expected
to be allocated within the next 1 months. At the
time of raising, this fund was the largest of its kind
in Australia, further enhancing Charter Hall’s
position as a market leader.
0 CHARTER HALL GROUP 2006 ANNUAL REPORT
Sydney Wharf, Pyrmont Bay
CHARTER HALL GROUP 2006 ANNUAL REPORT 1
5
FUND UPDATE
OPPORTUNITY FUNDS
CHARTER HALL OPPORTUNITY FUND 4
420 George Street, Brisbane QLD
CHOF purchased this 6,00sqm, 1 level
commercial office building in an off-market
transaction in November 005 for $1. million
and on-sold it ten months later for $1. million.
The property, located on the corner of George
and Tank Streets, was originally intended for
refurbishing, re-positioning, re-leasing and
divesting. Development Consent to undertake
the refurbishment was obtained through Brisbane
City Council. However, an excellent opportunity
to sell this property, prior to undertaking the
refurbishment, arose and crystallised an
early result.
Northbank Plaza, Brisbane QLD
This joint venture with a Brisbane based
developer involves the refurbishment of the
6,000sqm Brisbane CBD office building to an
A-grade standard. Building works on the -level
tower are proposed to commence in first quarter
00, pending the move of the current owner
and tenant, Brisbane City Council. Marketing for
the project has commenced and a number of
prospective tenants have expressed strong
interest. The refurbishment is expected to take
approximately 1 months, with the first new
tenants moving in during the third quarter 00.
Contracts were exchanged with the option
exercised in June 006, and will settle upon
the Council’s vacation.
54–58 Mounts Bay Road, Perth WA
Located in the heart of Perth’s CBD, CHOF’s
third asset is a 50/50 joint venture with a local
property development group. A Development
Application has been lodged for a 1,000sqm
A-grade office building for the site, which fronts
onto Mounts Bay Road and has access through
to St Georges Terrace. Our joint venture partner
will undertake the project management component
of the project, while CHOF will oversee the
development process and manage the finance,
project accounting, leasing co-ordination
and marketing.
275 George Street, Brisbane QLD
A Development Application has been lodged with
Brisbane City Council for a storey, A-grade
office tower as a joint venture with a local Brisbane
based developer. Located on the corner of
Adelaide and George Streets, the 1,600sqm
(approx) building will comprise approximately
0,000sqm of office space and 1,600sqm of
retail space, with parking for more than 5 cars.
Award-winning architect, Crone Partners, has
designed the building to meet a .5 star Australian
Building Greenhouse Rating (ABGR) and Green
Building Council of Australia (GBCA) Star Green
Star rating. Marketing has commenced and
interest has been expressed by a number of
high-profile tenants. Development consent will
be sought by early 00 and building completion
is scheduled for mid 009.
CHARTER HALL GROUP 2006 ANNUAL REPORT
“CHOF4 was the largest
fund of its kind in Australia
at financial close; further
establishing Charter Hall
as a market leader.”
1
1. Northbank Plaza, Brisbane . 5 George St, Brisbane . Zone at Sydney Olympic Park
CHARTER HALL GROUP 2006 ANNUAL REPORT
5
FUND UPDATE
OPPORTUNITY FUNDS
PROPERTY DEVELOPMENT PORTFOLIO 3
151 Pirie, Adelaide SA
151 Pirie reached practical completion in March
006 and was launched in June 006 with KPMG
as the major tenant. The eight level A-grade
development was designed to achieve a .5 star
Australian Building Greenhouse Rating (ABGR)
and has been awarded Australia’s first Star
Green Star rating for Office Design by the Green
Building Council of Australia (GBCA). Additional
leases have been finalised with Macquarie Bank,
BankWest and Aussie Home Loans. The South
Australian Government has also received cabinet
approval to proceed with a leasing commitment
in this building. An open market sales campaign
has commenced for this building and a sale is
expected by September/October 006.
Home HQ, Nunawading VIC
This project was on-sold to CHPT at the time of
IPO and is expected to reach practical completion
in October 006.
Zone at Sydney Olympic Park NSW
Zone at Sydney Olympic Park comprises three
A-grade commercial office buildings totalling
approximately ,500sqm of commercial office
space, 6,100sqm of retail space and parking
for approximately 900 cars. Construction is well
underway on the first building, which is being
developed by PDP on Site 5. This building was
sold for $98m in July 005, and the Commonwealth
Bank has pre-committed to leasing 100% of the
office and part of the retail area. In July of this
year, the leasehold interests in Sites 6 and
were also sold, paving the way for the development
of two A-grade commercial office buildings with a
total expanded Net Lettable Area of approximately
,000sqm (subject to Authority approval). The
sale of the sites generated a forecast IRR in
excess of the Fund’s target of 5%.
CHARTER HALL GROUP 2006 ANNUAL REPORT
Sydney Wharf, Pyrmont Bay NSW
Construction has commenced for Sydney
Wharf, a Sydney Harbour waterfront residential
development comprising 10 luxury apartments
and 5 marina berths. Following a successful
marketing campaign, approximately 65% of this
project has been pre-sold. Sydney Wharf is a
50-50 joint venture, with completion anticipated
mid 008.
PROPERTY DEVELOPMENT PORTFOLIO 2
Atrium, Pyrmont NSW
Construction is nearing completion on this
0,000sqm commercial office and retail building,
which is scheduled for handover in October 006.
American Express has committed to lease 100%
of the commercial office space for an initial
1 year term, while the retail component was
pre-leased to Coles on a 0 year term for a full
range ,500sqm supermarket, due to open in
September 006. The American Express fitout
has been integrated with the base building works
and the initial data centre handover is scheduled
for mid-August, before the final stage is completed
in November 006. This development was on-sold
to CPOF in December 005 on a land sale and
forward funded, development agreement basis.
Parc, Bellevue Hill NSW
These 6 luxury apartments and five retail suites
are complete with approximately 80% sold.
This project is part of PDP, which has achieved
strong returns for its investors.
1
1. 151 Pirie, Adelaide . Sydney Wharf, Pyrmont Bay
CHARTER HALL GROUP 2006 ANNUAL REPORT 5
6
BOARD OF DIRECTORS
Kerry Roxburgh
Non Executive Independent Chairman
Roy Woodhouse
Non Executive Deputy Chairman
Kerry is an SDIA Practitioner Member and holds
positions on the boards of several listed and
unlisted companies. He is the Chairman of
E*TRADE Australia, Babcock & Brown Capital
and Asian Express Airlines. Kerry is also a current
director of Ramsay Health Care, Everest Babcock
& Brown, PNG Sustainable Energy, the LawCover
Group, the Medical Indemnity Protection Society
Group and Professional Insurance Australia.
A former Chairman of James Capel Australia
and former director of J.Boag & Son and Climax
Mining, Kerry was the CEO of E*TRADE Australia
until July 000. Prior to this he spent 10 years as
an Executive Director of the Hong Kong Bank
of Australia Group, five years of which he
was Managing Director of their corporate
finance subsidiary.
Roy has been the Deputy Chairman of Charter
Hall since July 00 and is a member of Transfield
Holdings Advisory Committee. He worked for
the Baillieu family for 0 years in various senior
executive capacities commencing in 195,
including Director L.J. Hooker, Managing Director
Knight Frank Australia and Chairman Knight Frank
Australia. Roy was a co-founder of KFPW, a joint
venture with PricewaterhouseCoopers specialising
in outsourcing. As a qualified valuer, he was also
a Fellow of the Australian Institute of Valuers and
a Fellow of the Institute of Company Directors.
6 CHARTER HALL GROUP 2006 ANNUAL REPORT
André Biet
Executive Director
Cedric Fuchs
Executive Director
Andre was a co-founder of Charter Hall with over
5 years of property industry experience. He was
the Group’s Managing Director from inception in
1991 until 005 and is currently a Board Director
of the Charter Hall Group. Andre serves as the
Chairman of the Group’s Investment Committees.
He is a Fellow of the Australian Property Institute,
a Member of the Australian Institute of Company
Directors and holds a degree in Economics
and an MBA.
Cedric was a co-founder of Charter Hall and
has over 0 years of experience in the fields
of property investment banking and financial
services. He is involved in the Group’s funds
management business and is a member
of the Investment Committees for the CPOF,
CHOF and PDP funds. Prior to co-founding
Charter Hall in 1991, Cedric worked with the
Heine Group’s property arm (now part of ING)
and Leighton Properties where he was involved
in the development and investment activities of
those companies.
CHARTER HALL GROUP 2006 ANNUAL REPORT
6
BOARD OF DIRECTORS
Glenn Fraser
Non Executive Director
Patrice Derrington
Non Executive Independent Director
An executive of Transfield Holdings and a member
of its Advisory Board, Glenn was instrumental
in Transfield Holdings’ acquisition of its interest
in Charter Hall and has substantial experience in
the project finance industry. He specialises in
infrastructure and property projects and joined
Transfield Holdings in 1996. Before his appointment
as Transfield’s CFO, Glenn was General Manager
— Finance, Project Development, where he was
responsible for the financial elements of Transfield
Holdings’ infrastructure and property projects.
Preceding his time with Transfield Holdings,
Glenn was a principal of a project finance advisory
business, Perry Development Finance Pty Limited,
which was sold to Hambros Corporate Finance
Limited in 1995. Glenn holds a Bachelor of
Commerce, is a member of the Institute of
Chartered Accountants and the Australian
Institute of Company Directors.
Patrice is a property investment consultant to
private industry and government authorities.
She was previously the executive responsible for
the economics and funding of the revitalisation
effort led by the Lower Manhattan Development
Corporation (a Governor-appointed state agency)
following the September 11, 001 terrorist attacks
on New York City. Previous positions have included
Managing Director at the US asset management
firm Spears, Benzak, Salomon and Farrell, and
Vice President of the Real Estate Finance Group
at Chemical Bank (now JPMorgan Chase) and
in 199 she founded the Victory Real Estate
Investment Fund. Patrice is a recipient of the
prestigious Harkness Fellowship, studying at the
University of California, Berkeley for her Ph.D. in
architecture/civil engineering, and holds an MBA
from Harvard University.
8 CHARTER HALL GROUP 2006 ANNUAL REPORT
Colin McGowan
Non Executive Independent Director
Peter McMahon
Non Executive Independent Director
Colin is a consultant to the property industry.
He was formerly CEO of the listed AMP Diversified
Property Trust, Executive Vice President of Bankers
Trust (Australia), founding Fund Manager of the
BT Property Trust and founding Fund Manager
of Advance Property Fund. Colin is a qualified
valuer, Fellow of the Australian Property Institute
and Fellow of the Securities Institute of Australia.
He was the SIA National Principal Lecturer and
Task Force Chairman for the Graduate Diploma’s
Property Investment Analysis course — a position
he held for 10 years until 00.
With extensive experience within the property,
construction, financial services and mining
industries, Peter holds a number of non-executive
positions on the boards of Australian companies.
Peter has been the Chairman of Federation
Square Management since July 1999, and was a
Non-Executive Director of ING Australia. Currently
a consultant to the property division of Grant
Samuel, Peter’s previous positions include Global
Head of Property of ANZ Banking Group Limited,
CEO of ANZ Asset Finance and Managing
Director of Esanda Finance Corporation. Peter
has qualifications in accounting and is a Fellow
of the Australian Society of Accountants.
CHARTER HALL GROUP 2006 ANNUAL REPORT 9
Financial Report
7
DiRectoRs’ RepoRt
Your directors present their report on the consolidated entity (referred to hereafter as the Group or Charter
Hall Group) consisting of Charter Hall Limited (the Company) and the entities it controlled at the end of, or
during, the period ended 30 June 2006.
The Group includes Charter Hall Funds Management Limited as the Responsible Entity of Charter Hall
Property Trust (the Trust). Charter Hall Limited and Charter Hall Funds Management Limited have identical
Boards of Directors. The term Board hereafter should be read as references to both these Boards.
Directors
The following persons were directors of Charter Hall Limited during the whole of the period and up to the date
of this report:
K Roxburgh – Chairman
R Woodhouse – Deputy Chairman
A Biet
P Derrington
G Fraser
C Fuchs
C McGowan
P McMahon
All directors were appointed on 6 April 2005 except for K Roxburgh who was appointed 12 April 2005.
PrinciPal activities
During the period the principal continuing activities of the Group consisted of:
Property investment
(a)
(b)
Funds management
(c) Development management
(d) Property investment banking and property management
No significant changes in the nature of the activities of the Group occurred during the period.
DiviDenDs / Distributions – charter hall GrouP
Dividends / distributions paid / declared to members during the period were as follows:
Interim ordinary distribution for the period ended 31 December 2005
of 3.73 cents per security paid on 28 February 2006
Final ordinary distribution for the 6 months ended 30 June 2006 of
3.82 cents per security expected to be paid on 30 August 2006
Final ordinary distribution for the period ended 30 June 2004 of
48.8 cents per security paid on 2 July 2004 (on 2,690,000 securities)
Interim ordinary distribution for the period ended 30 June 2005 of 5.9 cents
per security paid on 14 April 2005 (on 26,900,000 securities)
Final ordinary distribution for the period ended 30 June 2005 of 5.7 cents
per security paid on 2 June 2005 (on 26,900,000 securities)
2006
$’000
9,849
10,182
20,031
2005
$’000
1,314
1,600
1,530
4,444
CHARTER HALL GROUP 2006 ANNUAL REPORT 43
7
DiRectoRs’ RepoRt
results
The Group has reported a solid financial result for the period to 30 June 2006. DPS of 7.10c for the 12 months
to 30 June 2006 is in line with the recent forecast provided in the PDS/Prospectus and 8.2% above the IPO
PDS/Prospectus forecast DPS of 6.56c. The results have been reported under Australian equivalents to
International Financial Reporting Standards (AIFRS).
The financial report includes separate financial statements for Charter Hall Limited (CHL) as an individual
entity and the consolidated entity consisting of CHL and its subsidiaries and controlled entities including
Charter Hall Funds Management Limited as Responsible Entity for Charter Hall Property Trust (CHPT).
CHL was incorporated on 24 March 2005 therefore the financial year of the parent company in this financial
report is from 24 March 2005 to 30 June 2006.
On 6 June 2005 CHL acquired Charter Hall Holdings Pty Ltd (CHH). Under the terms of AASB 3 Business
Combinations CHH was deemed to be the accounting acquirer in this business combination. This transaction
has therefore been accounted for as a reverse acquisition under AASB 3. Accordingly the consolidated
financial statements of CHG have been prepared as a continuation of the consolidated financial statements
of CHH. The comparative information presented in the consolidated financial statements is that of CHH for
the year 1 July 2004 to 30 June 2005.
As widely reported the introduction of AIFRS has created significant volatility to reported results. The most
significant impacts to the Group, during the period, and expected in future periods, under AIFRS are as
follows:
•
Under AASB140 Investment Property, investment properties that are measured at fair market value
record valuation increments/decrements through the income statement. Previously increments/
decrements were recorded through an asset revaluation reserve and hence revaluations did not impact
the income statement. As investment properties are measured at fair value, initial property acquisition
costs such as stamp duty are now expensed through the income statement as a fair value adjustment,
rather than capitalised which was the previous treatment under AGAAP.
Under AASB2 Share Based Payment the accounting treatment of the Group’s LTI Plan results in the
reclassification of LTI Plan loans from receivables to equity. A remuneration expense has been
recognised for the fair value of the benefit to employees.
•
Despite AIFRS resulting in volatility to reported profit results it is important to note that the application of
AIFRS does not impact the Group’s net cash flows and its ability to pay distributions.
DISTRIBUTION
The distribution for the period is 7.55 cents per security. This comprises a distribution of 0.45 cents per
security for the period 6 June 2005 to 30 June 2005 and 7.10 cents per security for the period 1 July 2005 to
30 June 2006.
44 CHARTER HALL GROUP 2006 ANNUAL REPORT
PERFORMANCE – 6 JUNE 2005 TO 30 JUNE 2006
The Group recorded a net profit after tax for the trading period 6 June 2005 (allotment) to 30 June 2006 of
$18.0m (before fair value adjustments). Under AIFRS the Group is required to revalue properties and write off
property acquisition costs through the income statement. After adjusting for revaluations and acquisition
costs totalling a net $5.6m the AIFRS reported Group result is a profit after tax for the period of $12.4m.
Two properties have been independently externally revalued as at 30 June 2006, 570 Bourke Street,
Melbourne and 56 Anzac Street, Chullora. This resulted in upward revaluations of $3.5m and $3.65m,
respectively. However in relation to 56 Anzac Street, CHPT paid an additional sum of $3.61m to the vendor
based upon the increased net income as a result of a reduction in land rent payable. Hence the valuation
uplift was predominantly already reflected in the book value and there is only a minimal fair value adjustment.
The remaining properties have been internally valued with no fair value adjustments required as there were no
significant movements from book value.
PERFORMANCE – 1 JULY 2005 TO 30 JUNE 2006
The latest PDS/Prospectus included an income statement forecast for the period 1 July 2005 to 30 June 2006
(that is, it excluded an income forecast for the period 6 June to 30 June 2005).
For the 12 months to 30 June 2006 net profit after tax was $17.5m (before fair value adjustments) which was
in line with the PDS/Prospectus forecast.
RECONCILIATION OF FINANCIAL RESULTS
The table below reconciles profit after tax for the period 1 July 2005 to 30 June 2006 to the actual reported
result per the statutory accounts being the period 6 June 2005 to 30 June 2006.
$m
notes actual
net profit after tax – 1 July 2005 to 30 June 2006
(i),(ii)
Add: NPAT 6 June to 30 June 2005
net profit after tax – 6 June 2005 to 30 June 2006
less: AIFRS fair value adjustments (property revaluations and acquisition costs)
(ii)
reported net profit after tax (per statutory accounts) – 6 June 2005 to 30 June 2006
17.5
0.5
18.0
5.6
12.4
(i) – The PDS/Prospectus did not contain an income statement forecast for the period 6 June 2005 to 30 June 2005.
(ii) – In the PDS/Prospectus all acquisition costs were assumed to be written off during the month of June 2005. Of the total
acquisition costs, $5.7m were incurred in June 2005 and $3.4m post 30 June 2005. These have been offset by property revaluations
of $3.5m.
CHARTER HALL GROUP 2006 ANNUAL REPORT 45
7
DiRectoRs’ RepoRt
The 30 June 2006 financial results can be summarised as follows:
Gross revenue ($m)
Net profit after tax ($m)
Distribution ($m)
Earnings per stapled security excluding fair value adjustments (cents)
Distribution per stapled security (cents)
Total Assets ($m)
Total Liabilities ($m)
Net Assets ($m)
NTA per security ($)
Gearing – borrowings to total assets
Assets under Management ($bn)
(i)
(i)
(i), (ii)
(ii), (iii)
(iii)
(iv)
38
18
20
6.67
7.55
505
226
279
0.85
27.7%
1.2
(i) – Period 6 June 2005 to 30 June 2006. Excludes AIFRS fair value adjustment.
(ii) – DPU reflects distribution of CHPT (the trust) profit only and nil dividends from CHL (the company). CHL recorded a loss for the
period (in line with PDS/Prospectus) and hence reduces Group EPU.
(iii) – excludes stapled securities issued under LTI Plan in accordance with AASB 2.
(iv) – the group temporarily increased its facility to acquire the seed asset of the Core Plus Office Fund, Atrium. As a result additional
assets of $170.8m and borrowings of $93.3m are included in the gearing calculation. Without these additions the level of gearing of
the group is 14%. The group’s stated gearing target is 30-40% however additional equity raising has resulted in a lower level of gearing.
DISTRIBUTION RE-INvESTMENT PLAN (DRP)
The Group activated its DRP for the first time for the 31 December 2005 distribution. The participation rate
was 71.7%. This equated to an equity raising of $7.2m, which has been used to fund further growth for the
Group. The securities issued under the DRP were issued at $0.8936 which represented a 2% discount to the
average of the 10 day volume Weighted Average Price following the ex-distribution date. The DRP was
deactivated for the 30 June 2006 distribution.
REvIEW OF OPERATIONS
During the period the Group launched 3 new property funds comprising Charter Hall Opportunity Fund No.4
(“CHOF4”) and two additional investment funds, known as Charter Hall Diversified Property Fund (“DPF”) and
Charter Hall Core Plus Office Fund (“CPOF”). The Group has further expanded its diverse sources of equity,
providing institutional, wholesale, retail and high net worth clients with these new products. The Group raised
$100m in June 2006 via an entitlement offer, placement and public offer, the proceeds of which have provided
funding for two new properties within CHPT and additional co-investment in CPOF and DPF.
The Group has been very active over the past 12 months and in addition to the establishment of these new
funds, has acquired 17 assets totalling $554m, 100% of which have been secured as off market transactions.
The $165m oversubscribed raising for CHOF4 reinforced Charter Hall’s position as the pre eminent
opportunity fund manager in Australia and demonstrated the Group’s access to wholesale equity. Since
closing on 28th July 2005, approximately $35m of these funds have been committed to new projects.
46 CHARTER HALL GROUP 2006 ANNUAL REPORT
Total funds under management as at 30 June 2006 have grown to $1.21 billion. As foreshadowed in the PDS/
Prospectus, Charter Hall has utilised its balance sheet capacity to secure and warehouse a number of quality
assets for new investment funds, such as DPF and CPOF. This has underpinned the success of these new
funds and will accelerate the growth in the Group’s funds under management, with a continued focus on
security holder returns.
environmental reGulation
There were no environmental breaches during the period.
siGnificant chanGes in the state of affairs
Significant changes in the state of affairs of the Group during the period were as follows:
•
•
The Group issued a further 8,089,980 securities on 28 February 2006 under the 31 December 2005 DRP.
The Group raised $100m in June 2006 via an entitlement offer, placement and public offer. The securities
were issued in two stages, 57,017,151 securities were issued on 15 June 2006 and 21,722,580
securities were issued on 3 July 2006.
matters subsequent to the enD of the PerioD
Since 30 June 2006 CHPT has completed the purchase of the following properties:
•
372 Whitehorse Road Nunawading on 4 July 2006 (as foreshadowed in the PDS/Prospectus dated
11 May 2005);
25 Nepean Highway, Mentone on 21 July 2006 (as foreshadowed in the PDS/Prospectus dated
19 May 2006).
•
The Group issued an additional 21,722,580 securities on 3 July 2006 under the entitlement, placement and
public offer.
The Charter Hall Core Plus Office Fund was a wholly owned sub-trust of CHPT as at 30 June 2006. As at
1 July 2006 CHPT had an interest of 24% in CPOF as $87m has been raised from external investors.
Except for the matters discussed above, no other matter or circumstance has arisen since 30 June 2006 that
has significantly affected, or may significantly affect:
(a)
(b)
(c)
the Group’s operations in future financial years, or
the results of those operations in future financial years, or
the Group’s state of affairs in future financial years.
likely DeveloPments anD exPecteD results of oPerations
Further information on likely developments in the operations of the Group and the expected results of
operations have not been included in this annual financial report because the directors believe it would be
likely to result in unreasonable prejudice to the Group.
CHARTER HALL GROUP 2006 ANNUAL REPORT 47
7
DiRectoRs’ RepoRt
information on Directors
K ROxBURGH
Chairman – non-executive. Age 64.
experience and expertise
Independent non-executive director and Chairman appointed 12 April 2005. Mr Roxburgh has extensive
experience on the boards of listed and unlisted companies. SDIA Practitioner Member.
other current listed company directorships
Non-executive Chairman of E*TRADE Australia (since 1996) and of Babcock and Brown Capital Limited
(since February 2006).
Non-executive director of Ramsay Health Care Ltd (since 1997) and Non-executive director of Everest
Babcock and Brown Group (since 2005).
former listed company directorships in last 3 years
Nil
special responsibilities
Chairman of the Board.
Chairman of remuneration committee.
interests in securities
50,000 securities in Charter Hall Group.
R WOODHOUSE
Deputy Chairman – non-executive. Age 59.
exerience and expertise
Appointed non-executive director and deputy Chairman of the Group on 6 April 2005. Worked for the Ballieu
family for 30 years in senior executive capacities from 1975 including Director L.J. Hooker, Managing Director
Knight Frank Australia and Chairman Knight Frank Australia. Fellow of the Institute of Company Directors.
other current listed company directorships
Nil
former listed company directorships in last 3 years
Nil
special responsibilities
Deputy Chairman of the Board
Member of remuneration committee
interests in securities
366,666 securities in Charter Hall Group.
48 CHARTER HALL GROUP 2006 ANNUAL REPORT
C MCGOWAN
Independent non-executive director. Age 60.
experience and expertise
Independent non-executive director since 6 April 2005. Formerly CEO of the listed AMP Diversified Property
Trust, Executive vice President of Bankers Trust (Australia), founding Fund Manager of the BT Property Trust
and founding Fund Manager of the Advance Property Fund. Fellow of the Australian Property Institute and
Senior Fellow of the Financial Services Institute of Australasia.
other current listed company directorships
Nil
former listed company directorships in last 3 years
Nil
special responsibilities
Member of remuneration committee.
interests in securities
Nil securities in Charter Hall Group.
A BIET
Executive director. Age 57.
experience and expertise
Co-founder of Charter Hall and managing director of the Group from 1991 to 2005. A member of the
Investment Committee for all Charter Hall Funds. He is a Member of the Australian Institute of Company
Directors, a fellow of the Australian Property Institute and holds a Bachelors degree in Economics and
an MBA.
other current listed company directorships
Nil
former listed company directorships in last 3 years
Nil
special responsibilities
Nil
interests in securities
5,729,724 securities in Charter Hall Group via direct and indirect interests and an interest in 1,050,000
securities in the Charter Hall Executive Loan Security Plan which vest after the satisfaction of performance
and service criteria.
CHARTER HALL GROUP 2006 ANNUAL REPORT 49
7
DiRectoRs’ RepoRt
P DERRINGTON
Independent non-executive director. Age 50.
experience and expertise
Independent non-executive director since 6 April 2005. Currently a property investment consultant. Formerly
Managing Director of the US asset management firm Spears, Benzak, Salomon and Farrell, formerly vice
President in the Real Estate Finance Group at Chemical Bank (now J.P. Morgan Chase) and in 1997 founded
the victory Real Estate Investment Fund. Holds an MBA from Harvard University and a Ph. D from U.C.
Berkeley.
other current listed company directorships
Non-executive Director of Amerivest Properties based in Denver, Colorado. Commenced in 2003
former listed company directorships in last 3 years
Nil
special responsibilities
Member of audit, risk and compliance committee
interests in securities
Nil securities in Charter Hall Group.
G FRASER
Non-executive director. Age 49.
experience and expertise
Non-executive director of the Group since 6 April 2005. Joined Transfield Holdings in 1996 where he was
formerly the CFO and General Manager – Finance, Property Development. Currently an executive of Transfield
Holdings and a member of its Advisory Board. Previously was the principal of a finance advisory business
Perry Development Finance Pty Limited. Member of the Institute of Chartered Accountants in Australia and
the Institute of Company Directors.
other current listed company directorships
Nil
former listed company directorships in last 3 years
Nil
special responsibilities
Member of audit, risk and compliance committee.
interests in securities
190,986 securities in Charter Hall Group.
50 CHARTER HALL GROUP 2006 ANNUAL REPORT
C FUCHS
Executive director. Age 62.
experience and expertise
Co-founder of Charter Hall in 1991. Executive director of the Group since 6 April 2005. Has over 40 years
experience in property investment and financial services. Responsible for the Group’s funds management
business and is a member of the Investment Committee for the Charter Hall opportunity funds. Previously
worked at the Heine Group’s property arm and Leighton Properties.
other current listed company directorships
Nil
former listed company directorships in last 3 years
Nil
special responsibilities
Nil
interests in securities
5,656,595 securities in Charter Hall Group via direct and indirect interests and an interest in 1,443,700
securities in the Charter Hall Executive Loan Security Plan which vest after the satisfaction of performance
and service criteria. The issue of 393,700 securities is subject to security holder approval at the Annual
General Meeting.
P MCMAHON
non-executive director
Independent non-executive director
director. Age 64.
experience and expertise
Independent non-executive director since 6 April 2005. Holds a number of non-executive positions on boards
of Australian companies. Chairman of Federation Square Management since July 1999 and former non-
executive director of ING Australia. Previously Global Head of Property of ANZ Banking Group Limited, CEO
of ANZ Asset Finance and Managing Director of Esanda Finance Corporation. Fellow of the Australian Society
of Accountants.
other current listed company directorships
Nil
former listed company directorships in last 3 years
Nil
special responsibilities
Chairman of audit, risk and compliance committee.
interests in securities
55,073 securities in Charter Hall Group.
CHARTER HALL GROUP 2006 ANNUAL REPORT 51
7
DiRectoRs’ RepoRt
comPany secretary
The company secretary is Mr N Francis, a member of the Institute of Chartered Accountants in Australia who
was appointed to the position of Company Secretary of the Group on 6 April 2005. Before joining Charter Hall
Group he was the Finance and Asset Manager at Quantum Property Group and prior to that gained seven
years experience with PricewaterhouseCoopers in audit and transactions services.
meetinGs of Directors
The numbers of meetings of the Group’s board of directors and of each board committee held during the
period ended 30 June 2006, and the numbers of meetings attended by each director were:
full meetings of directors
K Roxburgh
R Woodhouse
A Biet
P Derrington
G Fraser
C Fuchs
C McGowan
P McMahon
a
10
8
11
9
9
9
9
9
b
11
11
11
11
11
11
11
11
investment
b
8
8
8
8
8
8
8
8
a
6
8
7
2
6
7
8
2
meetings of committees
audit
remuneration
a
*
*
*
3
4
*
*
4
b
*
*
*
4
4
*
*
4
a
2
2
*
*
*
*
2
*
b
2
2
*
*
*
*
2
*
A = Number of meetings attended
B = Number of meetings held during the time the director held office or was a member of the committee
during the year
* = Not a member of the relevant committee
2 of the 11 “full” meetings of directors were procedural meetings in relation to the signing of a Charter Hall
Opportunity No 4 undertaking and a subsidiary accounts for the year ended 30 June 2005. The attendees at
the first procedural meeting were A Biet & K Roxburgh and at the second meeting A Biet and C Fuchs.
The investment committee is made up of A Biet, K Roxburgh, C McGowan and R Woodhouse together with (if
required) any 2 of P Derrington, G Fraser, C Fuchs & P McMahon.
remuneration rePort
The remuneration report is set out under the following main headings:
A
B
C
D
E
Principles used to determine the nature and amount of remuneration
Details of remuneration
Service agreements
Security-based compensation
Additional information.
52 CHARTER HALL GROUP 2006 ANNUAL REPORT
The information provided under headings A-D includes remuneration disclosures that are required under
Accounting Standard AASB 124 Related Party Disclosures. These disclosures have been transferred from the
financial report and have been audited. The disclosures in Section E are additional disclosures required by
the Corporations Act 2001 and the Corporations Regulations 2001 which have not been audited.
A PRINCIPLES USED TO DETERMINE THE NATURE AND AMOUNT OF REMUNERATION (AUDITED)
The objective of the Group’s executive reward framework is to ensure reward for performance is competitive
and appropriate for the results delivered. The framework aligns executive reward with achievement of
strategic objectives and the creation of value for securityholders, and conforms with market best practice for
delivery of reward. The Board ensures that executive reward satisfies the following key criteria for good
reward governance practices:
•
•
•
•
•
competitiveness and reasonableness
acceptability to security holders
performance linkage / alignment of executive compensation
transparency
capital management.
In consultation with external remuneration consultants, the Group has structured an executive remuneration
framework that is market competitive and complimentary to the reward strategy of the organisation.
Alignment to securityholders’ interests:
•
•
has economic profit as a core component of plan design
focuses on sustained growth in securityholder wealth, consisting of distributions and dividends and
growth in security price, and delivering constant return on assets as well as focusing the executive on
key non-financial drivers of value
attracts and retains high calibre executives.
•
Alignment to program participants’ interests:
rewards capability and experience
•
reflects competitive reward for contribution to growth in securityholder wealth
•
provides a clear structure for earning rewards
•
provides recognition for contribution.
•
The framework provides a mix of fixed and variable pay, and a blend of short and long term incentives.
As executives gain seniority with the Group, the balance of this mix shifts to a higher proportion of
“at risk” rewards.
CHARTER HALL GROUP 2006 ANNUAL REPORT 53
7
DiRectoRs’ RepoRt
non-executive directors
Fees and payments to non-executive directors reflect the demands which are made on, and the
responsibilities of, the directors. Non-executive directors’ fees and payments will be reviewed annually by the
Board. The Board has also reviewed independent remuneration research to ensure non-executive directors’
fees and payments are appropriate and in line with the market. The Chairman’s fees are determined
independently to the fees of non-executive directors based on comparative roles in the external market. The
Chairman is not present at any discussions relating to determination of his own remuneration. Non-executive
directors are not a part of the Charter Hall Limited Loan Security Plan.
Directors’ fees
The current base remuneration was last reviewed with effect from 1 July 2006. Non-executive directors who
are part of a committee receive additional yearly fees.
retirement allowances for directors
There are no retirement allowances for non-executive directors.
executive pay
The executive pay and reward framework has four components:
•
•
•
base pay and other benefits
short term performance incentives (STI)
long term incentives (LTI) through participation in the Charter Hall Limited Executive Loan Security Plan,
and
other remuneration such as superannuation.
•
The combination of these comprises the executive’s total remuneration. The Group intends to revisit its long
term equity-linked performance incentives specifically for executives during the year ending 30 June 2007.
base pay
Executives are offered a competitive base pay where reference is made to latest salary trends and salary
surveys to ensure base pay is set to reflect the market for a comparable role. Other benefits include provision
of car parking spaces at the office location.
There are no guaranteed base pay increases included in any senior executives’ contracts.
short-term incentives
Cash incentives (bonuses) are payable in July depending on Group and individual performance for the year
to 30 June. Executives have a target STI opportunity depending on the accountabilities of the role and impact
on the organisation.
Each year, the remuneration committee and CEO’s will consider the appropriate targets and key performance
indicators (KPI’s) to link the STI plan and the level of payout if targets are met. This includes setting any
maximum payout under the STI plan, and minimum levels of performance to trigger payment of STI.
54 CHARTER HALL GROUP 2006 ANNUAL REPORT
For the period ended 30 June 2006, the KPI’s linked to STI plans were based on group and personal
objectives. The KPI’s required performance in achieving specific targets.
The CEO’s and remuneration committee are responsible for assessing whether the KPI’s are met. To help
make this assessment, the committee receives detailed reports on performance from management.
The short-term bonus payments may be adjusted up or down in line with under or over achievement against
the target performance levels. This is at the discretion of the remuneration committee.
The STI target annual payment is reviewed annually.
sti – ceo’s and executive Directors
The Joint CEO’s and Executive Directors (Andre Biet and Cedric Fuchs) short term incentive is linked to a
percentage of distribution growth above the PDS/Prospectus forecast. For the year to 30 June 2006 the Joint
CEO’s and Executive Directors are entitled to a bonus of 20% (to be shared evenly) of the amount that the
distribution for the 12 months to 30 June 2006 exceeds the distribution forecast in the IPO PDS/Prospectus
dated 27 May 2005.
The Remuneration Committee has approved an FY07 bonus for the Joint CEO’s and Cedric Fuchs of 15%
(6% David Harrison, 6% David Southon, 3% Cedric Fuchs) of the amount that the distribution for the
12 months to 30 June 2007 exceeds the distribution forecast in the most recent PDS/Prospectus dated
19 May 2006.
charter hall limited executive loan security Plan
Information on the Charter Hall Limited Executive Loan Security Plan is set out in note 39 to the financial
statements.
B DETAILS OF REMUNERATION (AUDITED)
amounts of remuneration
Details of the remuneration of the directors and the key management personnel (as defined in AASB 124
Related Party Disclosures) of Charter Hall Group are set out in the following tables.
The key management personnel of Charter Hall Group includes the directors as per pages 48–51 and
the following executive officers, who with the executive directors are also the 5 highest paid executives
of the Group:
•
•
•
The cash bonuses are dependent on the satisfaction of performance conditions as set out in the section
headed Short-term incentives (page 56). All other elements of remuneration are not directly related to
performance.
D Harrison – Joint CEO
D Southon – Joint CEO
M Winnem – Development Director
CHARTER HALL GROUP 2006 ANNUAL REPORT 55
7
DiRectoRs’ RepoRt
KEY MANAGEMENT PERSONNEL OF THE GROUP
2006*
Name
Non-executive directors
K Roxburgh Chairman
**R Woodhouse
Deputy Chairman
P Derrington
**G Fraser
C McGowan
P McMahon
sub-total non-executive
directors
Executive directors
A Biet
C Fuchs
Other key management
personnel
D Harrison
D Southon
M Winnem
Short-term benefits
Post-
employment
benefits
Security-
based
payment
Cash salary
and fees
$
Cash
bonus
$
Super-
annuation
$
Securities
Total
$
$
77,895
-
58,046
-
60,550
59,046
-
-
-
-
-
-
7,011
-
5,224
-
5,450
5,314
-
-
-
-
-
-
84,906
-
63,270
-
66,000
64,360
255,537
22,999
278,536
181,510
168,182
337,861
337,861
210,000
53,059
53,059
53,059
53,059
40,000
35,968
81,818
12,139
12,139
12,139
28,031
28,031
298,568
331,090
39,378
39,378
-
442,437
442,437
262,139
totals
1,490,951
252,236
177,202
134,818
2,055,207
* Remuneration period is 1 July 2005 to 30 June 2006. Short-term benefits to Non-Executive Directors include
Director and committee fees
** Roy Woodhouse and Glenn Fraser have agreed to waive Director and Committee Fees for a period of
2 years from the date they were appointed as Directors of the Board (6 April 2005).
56 CHARTER HALL GROUP 2006 ANNUAL REPORT
KEY MANAGEMENT PERSONNEL OF THE GROUP
2005*
Name
Non-executive directors
K Roxburgh Chairman
**R Woodhouse
Deputy Chairman
P Derrington
**G Fraser
C McGowan
P McMahon
sub total non-executive
directors
Executive directors
A Biet
C Fuchs
Other key management
personnel
***D Harrison
D Southon
M Winnem
totals
Short term benefits
Post-
employment
benefits
Security-
based
payment
Cash salary
and fees
$
Cash
bonus
$
Super-
annuation
$
Securities
Total
$
$
6,116
-
4,587
-
4,587
4,587
19,877
234,641
250,000
-
-
-
-
-
-
-
-
-
236,909
300,620
189,000
1,231,047
-
-
30,000
30,000
550
-
413
-
413
413
1,789
15,359
-
10,312
16,047
13,845
57,352
-
-
-
-
-
-
-
-
-
-
-
-
-
6,666
-
5,000
-
5,000
5,000
21,666
250,000
250,000
247,221
316,667
232,845
1,318,399
* Period 1 July 2004 to 30 June 2005.
** Roy Woodhouse and Glenn Fraser have agreed to waive Director and Committee Fees for a period of
2 years from the date they were appointed as Directors of the Board (6 April 2005)
*** Commenced 18 October 2004
The remuneration for Charter Hall Limited is identical to that shown above as Charter Hall Limited does not
have employees.
CHARTER HALL GROUP 2006 ANNUAL REPORT 57
7
DiRectoRs’ RepoRt
C SERvICE AGREEMENTS
D harrison
•
•
Term of agreement – 3 years commencing 18 October 2004
Base salary, inclusive of superannuation, for the year ended 30 June 2006 of $350,000, to be reviewed
annually by the remuneration committee.
D southon
•
•
Term of agreement – 3 years commencing 1 July 2004
Base salary, inclusive of superannuation, for the year ended 30 June 2006 of $350,000, to be reviewed
annually by the remuneration committee.
Under both agreements Charter Hall Limited needs to give 3 months notice to terminate the contract or
3 months in lieu to terminate immediately.
D EMPLOYEE SECURITY SCHEME
The Charter Hall Limited Loan Security Plan (LSP) is designed to develop a clear line of sight between
business objectives and reward. It is an incentive plan aimed at creating a stronger link between executive
performance and reward and increasing securityholder value by enabling plan participants to have a greater
involvement with, and share in the future growth and profitability of the Group.
Participants are offered limited recourse loans to acquire securities under the plan with interest charged at the
distribution yield. If the performance and vesting conditions are satisfied, the securities become available to
the plan participants after repayment of any loan obligations outstanding.
Non-executive directors do not participate in the LSP.
The executive directors of Charter Hall Group and other key management personnel of the Group did not
receive any vested securities during the period from the company’s employee security scheme.
Details of Charter Hall Group securities issued under the LSP are set out below:
2005 offers: issued 5,900,000 securities on 6 June 2005 at $1.00 per security, issued 300,000 securities on
11 November at $1.0731 per security.
Performance conditions: for the period ended 30 June 2006 exceed the forecast distribution per security per
the PDS/Prospectus dated 11 May 2005 and at least 5% growth in like for like distributions per security for
each of the years ended 30 June 2007 and 30 June 2008.
Vesting conditions: securities may vest in three tranches. Subject to the satisfaction of the performance
conditions above, one-third of the securities provided under the plan may vest after the end of the forecast
period and one-third will vest after 30 June 2007 and one-third after 30 June 2008.
2006 offer: issued 6,299,212 securities on 3 July 2006 at $1.27 per security.
58 CHARTER HALL GROUP 2006 ANNUAL REPORT
Performance conditions: for the period ended 30 June 2007 exceed the forecast distribution per security per
the PDS/Prospectus dated 19 May 2006 and at least 5% growth in like for like distributions per security for
each of the years ended 30 June 2008 and 30 June 2009.
Vesting conditions: securities will vest in three tranches. Subject to the satisfaction of the performance
conditions above, one-third of the securities provided under the plan will vest after the end of the forecast
period and one-third will vest after 30 June 2008 and one-third after 30 June 2009.
Loans totalling $6,200,000 and $8,000,000 under the 2005 and 2006 offer, respectively were provided by
Charter Hall Limited to participants.
name
Directors
Andre Biet
Cedric Fuchs
Key management personnel
David Harrison
David Southon
Michael Winnem
lsP securities
issued in 2005
lsP securities
lsP securities
issued for 2006
1,050,000
1,050,000
1,450,000
1,450,000
Nil
Nil
* 393,700
1,161,417
1,141,732
236,220
total
total
securities
1,050,000
1,443,700
2,611,417
2,591,732
236,220
* Subject to securityholder approval at AGM
E ADDITIONAL INFORMATION – UNAUDITED
loans to directors and executives
Information on loans to directors and executives, including amounts, interest rates and repayment terms are
set out in note 29 to the financial statements.
insurance of officers
During the period, Charter Hall Group paid a premium of $65,425 to insure the director and secretaries of the
company and its Australian based controlled entities.
The liabilities insured are legal costs that may be incurred in defending civil or criminal proceedings that may
be brought against the officers in their capacity as officers of entities in the Group, and any other payments
arising from liabilities incurred by the officers in connection with such proceedings. This does not include
such liabilities that arise from conduct involving a wilful breach of duty by the officers or the improper use by
the officers of their position or of information to gain advantage for themselves or someone else or to cause
detriment to the company. It is not possible to apportion the premium between amounts relating to the
insurance against legal costs and those relating to other liabilities.
CHARTER HALL GROUP 2006 ANNUAL REPORT 59
7
DiRectoRs’ RepoRt
Proceedings on behalf of the company
No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring
proceedings on behalf of the company, or to intervene in any proceedings to which the company is a party,
for the purpose of taking responsibility on behalf of the company for all or part of those proceedings.
No proceedings have been brought or intervened in on behalf of the company with leave of the Court under
section 237 of the Corporations Act 2001.
non-audit services
The company may decide to employ the auditor on assignments additional to their statutory audit duties
where the auditor’s expertise and experience with the company and/or the Group are important.
Details of the amounts paid or payable to the auditor (PricewaterhouseCoopers) for audit and non-audit
services provided during the period are set out below.
The board of directors has considered the position and, in accordance with the advice received from the
audit, risk and compliance committee, is satisfied that the provision of the non-audit services is compatible
with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors
are satisfied that the provision of non-audit services by the auditor, as set out below, did not compromise the
auditor independence requirements of the Corporations Act 2001 for the following reasons:
•
all non-audit services have been reviewed by the audit, risk and compliance committee to ensure they
do not impact the impartiality and objectivity of the auditor.
none of the services undermine the general principles relating to auditor independence as set out in
Professional Statement F1, including reviewing or auditing the auditor’s own work, acting in a
management or a decision making capacity for the company, acting as advocate for the company or
jointly sharing economic risk and rewards.
•
60 CHARTER HALL GROUP 2006 ANNUAL REPORT
During the period the following fees were paid or payable for services provided by the auditor of the parent
entity, its related practices and non-related audit firms:
consolidated
2005
2006
$
$
Parent entity
2006
$
2005
$
(a) assurance services
Audit services
PricewaterhouseCoopers Australian firm
other
Audit and review of financial reports and other
audit work under the Corporations Act 2001
Non-PricewaterhouseCoopers audit firms for the audit
or review of financial reports of any entity in the Group
Total remuneration for audit services
Other assurance services
PricewaterhouseCoopers Australian firm
Investigating Accountants Reports –
IPO / equity raising
Total remuneration for other assurance services
157,500
-
29,000
186,500
3,000
3,000
446,577
446,577
-
-
Total remuneration for assurance services
633,077
3,000
-
-
-
-
-
-
(b) taxation services
PricewaterhouseCoopers Australian firm
Tax compliance services, including review
of company income tax returns
company income tax returns
Tax advice on IPO / equity raising
Total remuneration for taxation services
(c) advisory services
PricewaterhouseCoopers Australian firm
Legal advice
Total remuneration for advisory services
52,700
200,622
253,322
42,123
42,123
-
-
-
-
-
10,000
-
10,000
-
-
-
-
-
-
-
-
-
-
-
-
-
CHARTER HALL GROUP 2006 ANNUAL REPORT 61
7
DiRectoRs’ RepoRt
auDitors’ inDePenDence Declaration
A copy of the auditors’ independence declaration as required under section 307C of the Corporations
Act 2001 is set out on the following page.
rounDinG of amounts
The company is of a kind referred to in Class Order 98/100, issued by the Australian Securities and
Investments Commission, relating to the “rounding off” of amounts in the directors’ report. Amounts in the
directors’ report have been rounded off in accordance with that Class Order to the nearest thousand dollars,
or in certain cases, to the nearest dollar.
auDitor
PricewaterhouseCoopers continues in office in accordance with section 327 of the Corporations Act 2001.
This report is made in accordance with a resolution of directors.
K Roxburgh
Chairman
Sydney
23 August 2006
62 CHARTER HALL GROUP 2006 ANNUAL REPORT
8
AuDitoR’s inDepenDence DeclARAtion
auDitor’s inDePenDence Declaration
Pricewaterhousecoopers
abn 52 780 433 757
Darling Park Tower 2, 201 Sussex Street
GPO BOx 2650, SYDNEY NSW 1171
Dx 77 Sydney Australia
www.pwc.com/au
Telephone +61 2 8266 0000
Facsimile +61 2 8266 9999
As lead auditor for the audit of Charter Hall Group for the period ended 30 June 2006, I declare that, to the
best of my knowledge and belief, there have been:
(a)
(b)
no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation
to the audit; and
no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Charter Hall Group comprising Charter Hall Limited, and the entities it
controlled during the period, including Charter Hall Property Trust.
PricewaterhouseCoopers
B K Hunter
Partner
Sydney
23 August 2006
CHARTER HALL GROUP 2006 ANNUAL REPORT 63
9
coRpoRAte goveRnAnce stAtement
An extensive review of the Group’s corporate governance framework was completed prior to the Initial Public
Offering. This review took into account best practice recommendations of the Australian Stock Exchange
(ASx) Corporate Governance Council. The appropriate practice recommendations have been adopted so as
to reflect the Group’s commitment to the highest standards of corporate governance practice.
This Corporate Governance Statement has been prepared in a manner consistent with the reporting
recommendations of the ASx. Additional corporate governance information may be found on the Group’s
website www.charterhall.com.au or by contacting the Chief Financial Officer.
boarD of Directors
The Board is comprised of 8 members appointed with a view to providing appropriate skills and experience
likely to add value to the Group’s activities.
name
Kerry Roxburgh
Position
Chairman
Roy Woodhouse
Deputy Chairman
André Biet
Cedric Fuchs
Executive Director
Executive Director
Patrice Derrington
Non-Executive Director
Glenn Fraser
Non-Executive Director
Colin McGowan
Non-Executive Director
Peter McMahon
Non-Executive Director
independent (yes/no)
first appointed
Yes
No
No
No
Yes
No
Yes
Yes
12 April 2005
6 April 2005
6 April 2005
6 April 2005
6 April 2005
6 April 2005
6 April 2005
6 April 2005
The Board operates in accordance with a formal charter which establishes its duties and responsibilities.
Details of the Directors’ qualifications, experience, other responsibilities, number of meetings attended and
holdings of Securities in the Group can be found in the Directors Report.
Directors’ inDePenDence
The Board has adopted specific principles in relation to determining directors’ independence. These
principles are subject to specific materiality tests which are determined on both quantitative and qualitative
bases. An amount exceeding 5% of annual turnover of the Group or 5% of a director’s net worth, is
considered material for this purpose. Furthermore, any transaction and all relationships are deemed material
if they impact a securityholder’s understanding of a director’s performance.
inDePenDent aDvice
The terms of each Director’s letter of appointment permits him or her to seek independent professional
advice, including, but not limited to, legal, accounting and financial advice, at the Group’s expense or any
matter connected with the discharge of his or her responsibilities. The cost, nature and details of such advice
must first be approved by the Chairman.
64 CHARTER HALL GROUP 2006 ANNUAL REPORT
security traDinG Policy
The Group has in place a formal Security Trading Policy which regulates the manner in which Directors and
employees can buy or sell Securities in the Group. It requires that they conduct their personal investment
activities in a manner that is lawful and avoids conflicts between their own interests and those of the Group.
The policy specifies trading windows as the periods during which trading Securities can occur. Trading is
prohibited despite a window being open if the relevant person is in procession of non-public price sensitive
information regarding the Group.
A copy of the Security Trading Policy is available on the Group’s website.
auDit, risk anD comPliance committee
The Audit Risk and Compliance Committee assists the Board in fulfilling its corporate governance and
oversight responsibilities relating to financial accounting practices, risk management and internal control
systems, external reporting, compliance and the external audit function.
The Committee is comprised of Peter McMahon (Chairman), Patrice Derrington and Glenn Fraser, who are all
non-executive Directors. The members have comprehensive financial and property industry expertise. The
Committee met on four occasions during the year to 30 June 2006. Please refer to the Directors Report for
information on attendance by members.
A copy of the Audit, Risk and Compliance Committee Charter is available on the Group’s website.
continuous Disclosure Policy
The Group has a Continuous Disclosure Policy consistent with the continuous disclosure obligations of the
ASx and Corporations Act. The policy is designed to ensure that all investors have equal and timely access to
information concerning the Group, and to ensure that price-sensitive information from any part of the Group is
immediately notified to the ASx in a complete, balanced and timely manner.
A copy of the Continuous Disclosure Policy is available on the Group’s website.
communication with investors
The Group is committed to communicating with its investors in an effective and timely manner so as to
provide them with ready access to information relating to the Group. In addition to the Continuous Disclosure
Policy, the Group maintains a website (www.charterhall.com.au) providing access to information likely to be of
interest to securityholders. The Group encourages securityholders to utilise its website as their primary tool to
access information and disclosures.
risk manaGement
The Board, through the Audit, Risk and Compliance Committee, ensures that strategic, operational, legal,
reputation and financial risks are identified, effectively assessed, and efficiently managed and monitored so
as to achieve the Group’s objectives.
Considerable importance is placed on maintaining a strong control environment through an organisation
structure with clearly drawn lines of accountability and authority. Adherence to the Code of Conduct is
required at all times and the Board actively promotes a culture of honesty and integrity.
At this point in time the Directors are of the opinion that the size of the Group does not warrant an internal
audit function. This policy is subject to ongoing review.
CHARTER HALL GROUP 2006 ANNUAL REPORT 65
9
coRpoRAte goveRnAnce stAtement
Performance evaluation
Board members are subject to an annual self-assessment of their performance. The performance of all levels
of management is conducted annually in conjunction with remuneration reviews undertaken by the
Remuneration Committee and Joint Chief Executive Officers.
At this time the Group has not established a Nominations Committee. The Board concurs with the ASx
recommendation which recognises that a Nomination Committee is more relevant for larger companies.
remuneration
The Board has established a Remuneration Committee to assist it in achieving fairness and transparency in
relation to remuneration issues and overseeing the remuneration and human resource policies and practices
of the Group. The Remuneration Committee endeavours to ensure that the Group’s remuneration policies
and outcomes strike an appropriate balance between the interests of investors and rewarding and motivating
the Group’s management.
Fees paid to Non-Executive Directors are set by the Board, within an aggregate limit set by securityholders.
The total remuneration paid to Non-Executive Directors to 30 June 2006 is set out in the Remuneration
Report.
Directors’ fees are reviewed annually and are benchmarked against fees paid to Directors of similar
organisations.
Non-Executive Directors are not provided with retirement benefits other than statutory superannuation and do
not participate in staff security plans, receive options or bonus payments.
The Remuneration Committee comprises three non-executive directors being Kerry Roxburgh (Chairman),
Colin McGowan and Roy Woodhouse. (Please refer to the Directors Report for information on the number of
meetings and the attendance by members). A copy of the Remuneration Committee Charter is available on
the Group’s website.
recoGnition of the interest of stakeholDers
The Group recognises the need to observe the highest standards of corporate practice and business
conduct. In order to ensure that these standards are met, the Group has established a formal Code of
Conduct which forms the basis for ethical behaviour by all Group personnel and is the framework that
provides the foundation for maintaining and enhancing the Group’s reputation. The objective of the Code is
to ensure that employees, suppliers, clients, competitors and the community in general can be confident that
the Group conducts its affairs honestly in accordance with ethical values and practices.
All employees of the Group are required to comply with both the spirit as well as the letter of the relevant laws
which govern the operations of the Group.
66 CHARTER HALL GROUP 2006 ANNUAL REPORT
10
FinAnciAl RepoRt
income stAtements / BAlAnce sHeets
income statements
for the period 24 march 2005 to 30 June 2006
consolidated
2005
$’000
2006
$’000
Parent entity
2006
$’000
2005
$’000
Notes
revenue
Other income
Investment property expenses
Employee benefits expense
Depreciation
Other expenses
Finance costs
Share of net losses of associates
accounted for using the equity method
5
6
7
7
37,812
8
(5,065)
(5,553)
(94)
(3,628)
(5,929)
10,241
1
-
(3,370)
(53)
(2,324)
(6)
4,500
-
-
-
-
(21)
(7,813)
(22)
17,529
-
4,489
(22)
(3,356)
Net losses from fair value adjustments
on investment property
(5,564)
-
-
Profit/(loss) before income tax
11,965
4,489
(3,356)
Income tax gain / (expense)
net profit/(loss) after income tax attributable
to stapled security holders of charter hall Group
8
430
(1,376)
1,764
12,395
3,113
(1,592)
Attributable to:
Equity holders of Charter Hall Limited
Equity holders of Charter Hall Property Trust
(minority interest)
Profit attributable to stapled security
holders of charter hall Group
868
3,113
(1,592)
11,527
-
-
12,395
3,113
(1,592)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
earnings per share for profit attributable to
the ordinary shareholders of the company:
Basic earnings per security
Diluted earnings per security
38
38
cents
Cents
(0.60)
(0.40)
-
-
The above income statements should be read in conjunction with the accompanying notes, including note 38
which presents the following earnings per share for profit attributable to the stapled security holders:
earnings per stapled security
Basic earnings per security
Diluted earnings per security
38
38
cents
4.61
4.65
Cents
11.60
11.60
68 CHARTER HALL GROUP 2006 ANNUAL REPORT
balance sheets
as at 30 June 2006
assets
current assets
Cash and cash equivalents
Trade and other receivables
Financial assets
total current assets
non-current assets
Trade and other receivables
Investments accounted for using the equity method
Financial assets at fair value through the profit and loss
Other financial assets
Property, plant and equipment
Investment properties
Derivative financial instruments
Deferred tax assets
Other assets
total non-current assets
consolidated
2005
$’000
2006
$’000
Parent entity
2006
$’000
2005
$’000
Notes
9 168,370
30,529
10
5,120
11
204,019
859
891
30
1,780
14
4,153
15
497
12
3,988
16
3,240
307
17
18 284,788
2,482
13
1,284
19
300
301,039
-
-
-
-
283
-
-
-
-
283
1,151
1
5,050
6,202
4,153
497
-
1,600
-
-
-
1,929
294
8,473
total assets
505,058
2,063
14,675
liabilities
current liabilities
Trade and other payables
Current tax liabilities
Provisions
total current liabilities
non-current liabilities
Borrowings
Deferred tax liabilities
Provisions
total non-current liabilities
total liabilities
net assets
equity
Equity holders of Charter Hall Limited
Contributed equity
Reserves
Accumulated losses
Parent entity interest
20
21
84,454
-
48
84,502
589
3
35
627
9,691
-
-
9,691
22 140,119
884
23
83
24
141,086
-
-
47
47
55,050
155
-
55,205
225,588
674
64,896
279,470
1,389
(50,221)
25
26(a)
26(b)
3,371
(51,835)
(2,576)
(51,040)
1,600
-
(211)
1,389
3,371
(52,000)
(1,592)
(50,221)
Equity holders of Charter Hall Property Trust
(minority interest)
27 330,510
-
-
total equity
279,470
1,389
(50,221)
The above balance sheets should be read in conjunction with the accompanying notes.
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
CHARTER HALL GROUP 2006 ANNUAL REPORT 69
10
FinAnciAl RepoRt
stAtement oF cHAnges in eQuitY /
cAsH FloW stAtements
statements of changes in equity
for the period 24 march 2005 to 30 June 2006
consolidated
2005
$’000
2006
$’000
Parent entity
2006
$’000
2005
$’000
Notes
total equity at the beginning of the period
-
1,120
-
Changes in the fair value of cash flow hedges,
net of tax
net loss recognised directly in equity
Profit / (loss) for the period
total recognised income and expense
for the period
13
2,482
2,482
12,395
-
-
3,113
-
-
(1,592)
14,877
4,233
(1,592)
Business combination reserve
26
(52,000)
-
(52,000)
Transactions with equity holders in their
capacity as equity holders:
Contributions of equity, net of transaction costs *
Distributions provided for or paid *
Security based payments reserve
total equity at the end of the period
total recognised income and expense
for the period
Equity holders of Charter Hall Limited
Equity holders of Charter Hall Property Trust
(minority interest)
-
25 336,459
(20,031)
28
165
26
1,600
(4,444)
-
3,371
-
316,593
(2,844)
3,371
279,470
1,389
(50,221)
(2,576)
4,233
(1,592)
17,453
-
14,877
4,233
(1,592)
-
-
-
-
-
-
-
-
-
-
-
-
-
* The equity and distributions for Charter Hall Limited and Charter Hall Property Trust are combined as the
two entities are stapled together and have the same investors. As outlined in note 1, for accounting purposes,
equity attributable to Charter Hall Property Trust is considered attributable to minority interest. Refer to note 27
for a breakdown of the minority interest in equity.
70 CHARTER HALL GROUP 2006 ANNUAL REPORT
cash flow statements
for the period 24 march 2005 to 30 June 2006
cash flows from operating activities
Receipts from customers (inclusive of
goods and services tax)
Payments to suppliers and employees
(inclusive of goods and services tax)
Interest paid
Income taxes paid
net cash inflow / (outflow) from
operating activities
cash flows from investing activities
Payment for purchase of subsidiary,
net of cash acquired
Payments for property, plant and equipment
Payments for investment property
Payments for other financial assets
Loans to key employees
Investment in associates
Fund establishment costs for CHOF4 & CPOF
Loans from related parties
Loans to associates
Dividends received
Distributions received
Interest received
net cash (outflow) inflow from investing activities
cash flows from financing activities
Proceeds from issues of securities and
other equity securities
Proceeds from CPOF investors for
units to be issued
Proceeds from borrowings
Security issue and buy-back transaction costs
Distributions paid to securityholders
net cash inflow (outflow) from financing activities
net increase / (decrease) in cash
and cash equivalents
Cash and cash equivalents at the
beginning of the period
cash and cash equivalents at end of period
consolidated
2005
$’000
2006
$’000
Parent entity
2006
$’000
2005
$’000
Notes
44,995
10,562
1,381
(28,534)
16,461
(6,058)
4,504
(608)
773
(5,054)
(10)
-
(1,934)
(4,580)
-
37
11,397
2,570
(3,807)
(39,129)
(108)
(290,352)
(8,320)
(3,877)
(4,417)
(2,614)
-
(544)
-
194
5,615
(343,552)
-
(212)
-
(30)
-
-
-
-
(287)
-
-
188
(341)
(41,303)
-
-
(5,050)
(3,877)
(529)
-
48,947
-
3,000
10
429
1,627
319,479
1,600
3,443
58,275
140,062
(7,442)
(9,849)
500,525
-
-
-
(7,191)
5,591
-
-
(112)
-
3,331
168,370
(3,362)
1,151
-
9 168,370
4,221
859
-
1,151
-
-
-
-
-
-
--
--
--
--
--
--
--
--
--
--
--
--
-
-
-
-
-
-
-
-
-
-
The above cash flow statements should be read in conjunction with the accompanying notes.
CHARTER HALL GROUP 2006 ANNUAL REPORT 71
10
FinAnciAl RepoRt
notes to tHe FinAnciAl stAtements
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
Summary of significant accounting policies
Financial risk management
Critical accounting estimates and judgements
Segment information
Revenue
Other income
Expenses
Income tax expense
Current assets – Cash and cash equivalents
Current assets – Trade and other receivables
Current assets – Financial assets
Non-current assets – Financial assets at fair value through profit or loss
Non-current assets – Derivative financial instruments
Non-current assets – Receivables
Non-current assets – Investments accounted for using the equity method
Non-current assets – Other financial assets
Non-current assets – Property, plant and equipment
Non-current assets – Investment properties
Non-current assets – Deferred tax assets
Current liabilities – Trade and other payables
Non-current liabilities – Provisions
Non-current liabilities – Borrowings
Non-current liabilities – Deferred tax liabilities
Non-current liabilities – Provisions
Contributed equity
Reserves and retained profits
Minority interest
Distributions/Dividends
Key management personnel disclosures
Remuneration of auditors
Commitments
Related parties
Business combination
Subsidiaries
Investments in associates
Events occurring after the balance sheet date
Reconciliation of profit after income tax to net cash inflow from operating activities
Earnings per security
Security based payments
Transition to Australian equivalents to IFRS
Page
73
87
88
88
90
90
91
91
93
93
94
94
95
96
97
97
98
99
100
101
101
102
104
104
105
106
108
108
109
112
113
113
115
117
118
119
120
121
123
123
72 CHARTER HALL GROUP 2006 ANNUAL REPORT
1 summary of siGnificant accountinG Policies
The principal accounting policies adopted in the preparation of the financial report are set out below. The
financial report includes separate financial statements for Charter Hall Limited (CHL) as an individual entity
and the consolidated entity consisting of CHL and its subsidiaries and controlled entities including Charter
Hall Funds Management Limited as Responsible Entity for Charter Hall Property Trust (CHPT). For the
purposes of AASB Interpretation 1002 Post date of transition stapling arrangements, CHL has been identified
as the parent entity in relation to the stapling that occurred on 6 June 2005 which is the date of the initial
public offering (IPO). CHL was incorporated on 24 March 2005 so the financial year of the parent company in
this financial report is from 24 March 2005 to 30 June 2006. In accordance with AASB 1002 the results and
equity, not directly owned by CHL, of CHPT have been treated and disclosed as minority interest. Whilst the
results and equity of CHPT are disclosed as minority interest, the stapled security holders of CHL are the
same as the stapled security holders of CHPT.
On 6 June 2005 CHL acquired Charter Hall Holdings Pty Ltd (CHH). Under the terms of AASB 3 Business
Combinations CHH was deemed to be the accounting acquirer in this business combination. This transaction
has therefore been accounted for as a reverse acquisition under AASB 3. Accordingly the consolidated
financial statements of CHG have been prepared as a continuation of the consolidated financial statements
of CHH. CHL as the deemed acquirer, has acquisition accounted for CHL as at 6 June 2005. The comparative
information presented in the consolidated financial statements is that of CHH for the year 1 July 2004 to
30 June 2005.
(a) basis of preparation
This general purpose financial report has been prepared in accordance with Australian equivalents to
International Financial Reporting Standards (AIFRSs), other authoritative pronouncements of the Australian
Accounting Standards Board, Urgent Issues Group Interpretations and the Corporations Act 2001.
Compliance with IFRSs
Australian Accounting Standards include AIFRSs. Compliance with AIFRSs ensures that the consolidated
financial statements and notes of Charter Hall Limited comply with International Financial Reporting
Standards (IFRSs). The parent entity financial statements and notes also comply with IFRSs.
Application of AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting
Standards
These financial statements are the first Group financial statements to be prepared in accordance with AIFRSs.
AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards has been
applied in preparing these financial statements.
Financial statements of the Group until 30 June 2005 had been prepared in accordance with previous
Australian Generally Accepted Accounting Principles (AGAAP). AGAAP differs in certain respects from AIFRS.
There were no differences between the result and financial position at 1 July 2004 and 30 June 2005 under
AGAAP and AIFRS. Therefore no reconciliations are required for these two periods.
CHARTER HALL GROUP 2006 ANNUAL REPORT 73
10
FinAnciAl RepoRt
notes to tHe FinAnciAl stAtements
Historical cost convention
These financial statements have been prepared under the historical cost convention, as modified by the
revaluation of investment property.
Critical accounting estimates
The preparation of financial statements in conformity with AIFRS requires the use of certain critical accounting
estimates. It also requires management to exercise its judgement in the process of applying the Group’s
accounting policies. The areas involving a higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the financial statements, are disclosed in note 3.
(b) Principles of consolidation
Subsidiaries
(i)
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Charter Hall
Limited (“company” or “parent entity”) including Charter Hall Property Trust (CHPT), as at 30 June 2006 and
the results of all subsidiaries for the period then ended. Charter Hall Limited and its subsidiaries together are
referred to in this financial report as the Group or the consolidated entity.
Subsidiaries are all those entities (including special purpose entities) over which the Group has the power
to govern the financial and operating policies, generally accompanying a shareholding of more than one
half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or
convertible are considered when assessing whether the Group controls another entity.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are
deconsolidated from the date that control ceases.
The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group
(refer to note 1(g)).
The Group applies a policy of treating transactions with minority interests as transactions with parties external
to the Group.
Disposals to minority interests result in gains and losses for the Group that are recorded in the income
statement. Purchases from minority interests result in goodwill, being the difference between any
consideration paid and the relevant share acquired of the carrying value of identifiable net assets of the
subsidiary.
Intercompany transactions, balances and unrealised gains on transactions between Group companies are
eliminated. Unrealised losses are also eliminated unless the transaction involves impairment of the asset
transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency
with the policies adopted by the Group.
74 CHARTER HALL GROUP 2006 ANNUAL REPORT
Minority interests in the results and equity of subsidiaries are shown separately in the consolidated income
statement and balance sheet respectively.
Investments in subsidiaries are accounted for at cost in the individual financial statements of Charter Hall
Limited.
Associates
(ii)
Associates are all entities over which the Group has significant influence but not control, generally
accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are
accounted for in the parent entity financial statements using the cost method and in the consolidated financial
statements using the equity method of accounting except as noted below, after initially being recognised at
cost. The Group’s investment in associates includes goodwill (net of any accumulated impairment loss)
identified on acquisition (refer to note 35).
The Group’s share of its associates’ post acquisition profits or losses is recognised in the income statement,
and its share of post acquisition movements in reserves is recognised in reserves. The cumulative post
acquisition movements are adjusted against the carrying amount of the investment. Dividends receivable
from associates are recognised in the parent entity’s income statement, while in the consolidated financial
statements they reduce the carrying amount of the investment.
When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including
any other unsecured long term receivables, the Group does not recognise further losses, unless it has
incurred obligations or made payments on behalf of the associate.
Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the
Group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides
evidence of an impairment of the asset transferred. Accounting policies of associates have been changed
where necessary to ensure consistency with the policies adopted by the Group.
(c) segment reporting
A business segment is a group of assets and operations engaged in providing products or services that are
subject to risks and returns that are different to those of other business segments. A geographical segment is
engaged in providing products or services within a particular economic environment and is subject to risks
and returns that are different from those of segments operating in other economic environments.
CHARTER HALL GROUP 2006 ANNUAL REPORT 75
10
FinAnciAl RepoRt
notes to tHe FinAnciAl stAtements
(d) foreign currency translation
Functional and presentation currency
(i)
The financial statements are presented in Australian Dollars which is Charter Hall Limited’s functional and
presentation currency.
(ii) Group companies
All the Group entities have a functional currency which is the same as the presentation currency.
(e) revenue recognition
Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as
revenue are net of returns, trade allowances and amounts collected on behalf of third parties. Revenue is
recognised for the major business activities as follows:
Rental income
(i)
Rental income from operating leases is recognised on a straight-line basis over the lease term. Rental income
relating to straight lining is included as a component of the net gain from fair value adjustments on investment
property. An asset is recognised to represent the portion of operating lease income in a reporting period
relating to fixed increases in operating lease rentals in future periods. Such assets are recognised as a
component of the carrying amount of investment properties in the balance sheet.
(ii) Management fees
Management fees are brought to account on an accruals basis and, if not received at the balance sheet date
are reflected in the Balance sheet as a receivable.
Where management fees are derived in respect of an acquisition or disposal of property the fees are
recognised where it is probable that criteria for entitlement will be met.
Interest income
(iii)
Interest income is recognised on a time proportion basis using the effective interest method, see note 1(k).
When a receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the
estimated future cash flow discounted at the original effective interest rate of the instrument, and continues
unwinding the discount as interest income. Interest income on impaired loans is recognised using the original
effective interest rate.
(f)
income tax
The period’s income tax expense or revenue is the tax payable on the current period’s taxable income based
on the national income tax rate adjusted by changes in deferred tax assets and liabilities attributable to
temporary differences between the tax bases of assets and liabilities and their carrying amounts in the
financial statements, and to unused tax losses.
76 CHARTER HALL GROUP 2006 ANNUAL REPORT
Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply
when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or
substantively enacted for each jurisdiction. The relevant tax rates are applied to the cumulative amounts of
deductible and taxable temporary differences to measure the deferred tax asset or liability. No deferred tax
asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other
than a business combination, that at the time of the transaction did not affect either accounting profit or
taxable profit or loss.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is
probable that future taxable amounts will be available to utilise those temporary differences and losses.
Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount
and tax bases of investments in controlled entities where the parent entity is able to control the timing of the
reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable
future.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax
assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax
assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either
to settle on a net basis, or to realise the asset and settle the liability simultaneously.
Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised
directly in equity.
Tax consolidation legislation
Charter Hall Limited and its wholly owned Australian controlled entities have implemented the tax
consolidation legislation as of 22 August 2005.
The head entity, Charter Hall Limited, and the controlled entities in the tax consolidated group continue to
account for their own current and deferred tax amounts. These tax amounts are measured as if each entity in
the tax consolidated group continues to be a stand alone taxpayer in its own right.
In addition to its own current and deferred tax amounts, Charter Hall Limited also recognises the current tax
liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits
assumed from controlled entities in the tax consolidated group.
Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as
amounts receivable from or payable to other entities in the group. Details about the tax funding agreement
are disclosed in note 8.
Any difference between the amounts assumed and amounts receivable or payable under the tax funding
agreement are recognised as a contribution to (or distribution from) wholly owned tax consolidated entities.
CHARTER HALL GROUP 2006 ANNUAL REPORT 77
10
FinAnciAl RepoRt
notes to tHe FinAnciAl stAtements
(g) business combinations
The purchase method of accounting is used to account for all business combinations, regardless of whether
equity instruments or other assets are acquired. Cost is measured as the fair value of the assets given,
securities issued or liabilities incurred or assumed at the date of exchange plus costs directly attributable to
the acquisition. Transaction costs arising on the issue of equity instruments are recognised directly in equity.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are
measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest.
The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets
acquired is recorded as goodwill. If the cost of acquisition is less than the Group’s share of the fair value of
the identifiable net assets of the subsidiary acquired, the difference is recognised directly in the income
statement, but only after a reassessment of the identification and measurement of the net assets acquired.
(h)
impairment of assets
Assets are reviewed for impairment when events or changes in circumstances indicate that the carrying
amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s
carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair
value less costs to sell and value in use. In assessing impairment, assets are grouped at the lowest levels for
which there are separately identifiable cash inflows which are largely independent of the cash inflows from
other assets or groups of assets (cash generating units). Non-financial assets other than goodwill that
suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.
(i) cash and cash equivalents
For cash flow statement presentation purposes, cash and cash equivalents includes cash on hand, deposits
held at call with financial institutions, other short term, highly liquid investments with original maturities of
three months or less that are readily convertible to known amounts of cash and which are subject to an
insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are shown within borrowings in
current liabilities on the balance sheet.
(j) trade receivables
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost, less
provision for doubtful debts. Trade receivables are due for settlement no more than 30 days from the date of
recognition.
78 CHARTER HALL GROUP 2006 ANNUAL REPORT
Collectibility of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible
are written off. A provision for doubtful receivables is established when there is objective evidence that the
Group will not be able to collect all amounts due according to the original terms of receivables. The amount
of the provision is the difference between the asset’s carrying amount and the present value of estimated
future cash flows, discounted at the original effective interest rate. Cash flows relating to short term
receivables are not discounted if the effect of discounting is immaterial. The amount of the provision is
recognised in the income statement.
(k)
investments and other financial assets
The Group classifies its investments in the following categories: financial assets at fair value through profit
or loss, loans and receivables, held to maturity investments, and available for sale financial assets. The
classification depends on the purpose for which the investments were acquired. Management determines the
classification of its investments at initial recognition and, in the case of assets classified as held to maturity,
re-evaluates this designation at each reporting date.
Financial assets at fair value through profit or loss
(i)
Financial assets at fair value through profit or loss are financial assets held for long term investment.
Derivatives are also categorised as held for trading unless they are designated as hedges.
Loans and receivables
(ii)
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not
quoted in an active market. They arise when the Group provides money, goods or services directly to a
debtor with no intention of selling the receivable. They are included in current assets, except for those with
maturities greater than 12 months after the balance sheet date which are classified as non-current assets.
Loans and receivables are included in receivables in the balance sheet (notes 10 and 14).
(iii) Held-to-maturity investments
Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and
fixed maturities that the Group’s management has the positive intention and ability to hold to maturity.
(iv) Available-for-sale financial assets
Available-for-sale financial assets, comprising principally marketable equity securities, are non-derivatives that
are either designated in this category or not classified in any of the other categories. They are included in
non-current assets unless management intends to dispose of the investment within 12 months of the balance
sheet date.
CHARTER HALL GROUP 2006 ANNUAL REPORT 79
10
FinAnciAl RepoRt
notes to tHe FinAnciAl stAtements
Regular purchases and sales of investments are recognised on trade date – the date on which the Group
commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs
for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value
through profit or loss are initially recognised at fair value and transaction costs are expensed in the income
statement. Financial assets are derecognised when the rights to receive cash flows from the financial assets
have expired or have been transferred and the Group has transferred substantially all the risks and rewards of
ownership.
Available-for-sale financial assets and financial assets at fair value through profit and loss are subsequently
carried at fair value. Loans and receivables and held to maturity investments are carried at amortised cost
using the effective interest method. Gains or losses arising from changes in the fair value of the ‘financial
assets at fair value through profit or loss’ category, excluding interest and dividend income, are presented in
the income statement within other income or other expenses in the period in which they arise.
When securities classified as available for sale are sold or impaired, the accumulated fair value adjustments
recognised in equity are included in the income statement as gains and losses from investment securities.
The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not
active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These
include the use of recent arm’s length transactions, reference to other instruments that are substantially the
same, discounted cash flow analysis, and option pricing models making maximum use of market inputs and
relying as little as possible on entity specific inputs.
The Group assesses at each balance date whether there is objective evidence that a financial asset or group
of financial assets is impaired. In the case of equity securities classified as available-for-sale, a significant or
prolonged decline in the fair value of a security below its cost is considered in determining whether the
security is impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss
measured as the difference between the acquisition cost and the current fair value, less any impairment loss
on that financial asset previously recognised in profit and loss – is removed from equity and recognised in the
income statement. Impairment losses recognised in the income statement on equity instruments classified as
available-for-sale are not reversed through the income statement.
(l) Derivatives
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are
subsequently remeasured to their fair value at each reporting date. The accounting for subsequent changes
in fair value depends on whether the derivative is designated as a hedging instrument, and if so, the nature of
the item being hedged. The Group designates certain derivatives as either; (1) hedges of the fair value of
recognised assets or liabilities or a firm commitment (fair value hedge); or (2) hedges of the cash flows of
recognised assets and liabilities and highly probable forecast transactions (cash flow hedges).
80 CHARTER HALL GROUP 2006 ANNUAL REPORT
The Group documents at the inception of the hedging transaction the relationship between hedging
instruments and hedged items, as well as its risk management objective and strategy for undertaking various
hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing
basis, of whether the derivatives that are used in hedging transactions have been and will continue to be
highly effective in offsetting changes in fair values or cash flows of hedged items.
The fair values of various derivative financial instruments used for hedging purposes are disclosed in note 13.
Movements in the hedging reserve in securityholders’ equity are shown in note 26.
Cash flow hedge
(i)
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow
hedges is recognised in equity in the hedging reserve. The gain or loss relating to the ineffective portion is
recognised immediately in the income statement within other income or other expense.
Amounts accumulated in equity are recycled in the income statement in the periods when the hedged item
will affect profit or loss. The gain or loss relating to the effective portion of interest rate swaps hedging
variable rate borrowings is recognised in the income statement within ‘finance costs’. However, when the
forecast transaction that is hedged results in the recognition of a non-financial asset (for example, inventory)
or a non-financial liability, the gains and losses previously deferred in equity are transferred from equity and
included in the measurement of the initial cost or carrying amount of the asset or liability.
When a hedging instrument expires or is sold or terminated, or when a hedge no longer meets the criteria for
hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is
recognised when the forecast transaction is ultimately recognised in the income statement. When a forecast
transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is
immediately transferred to the income statement.
(m) fair value estimation
The fair value of financial assets and financial liabilities must be estimated for recognition and measurement
or for disclosure purposes.
The fair value of financial instruments traded in active markets is based on quoted market prices at the
balance sheet date. The quoted market price used for financial assets held by the Group is the current bid
price; the appropriate quoted market price for financial liabilities is the current ask price.
CHARTER HALL GROUP 2006 ANNUAL REPORT 81
10
FinAnciAl RepoRt
notes to tHe FinAnciAl stAtements
The fair value of financial instruments that are not traded in an active market is determined using valuation
techniques. The Group uses a variety of methods and makes assumptions that are based on market
conditions existing at each balance date. Quoted market prices or dealer quotes for similar instruments are
used for long term debt instruments held. Other techniques, such as estimated discounted cash flows, are
used to determine fair value for the remaining financial instruments. The fair value of interest rate swaps is
calculated as the present value of the estimated future cash flows. The fair value of forward exchange
contracts is determined using forward exchange market rates at the balance sheet date.
The nominal value less estimated credit adjustments of trade receivables and payables are assumed to
approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by
discounting the future contractual cash flows at the current market interest rate that is available to the Group
for similar financial instruments.
(n) Plant and equipment
Plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is
directly attributable to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as
appropriate, only when it is probable that future economic benefits associated with the item will flow to the
Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to
the income statement during the financial period in which they are incurred.
Depreciation on other assets is calculated using the straight line method to allocate their cost or revalued
amounts, net of their residual values, over their estimated useful lives, as follows:
Depreciation on other assets is calculated using the straight line method to allocate their cost or revalued
amounts, net of their residual values, over their estimated useful lives, as follows:
– Furniture, fittings and equipment
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet
date.
3-8 years
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying
amount is greater than its estimated recoverable amount (note 1(h)).
Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are
included in the income statement.
82 CHARTER HALL GROUP 2006 ANNUAL REPORT
(o)
investment property
Investment properties
(i)
Investment properties comprise investment interests in land and buildings held for long term rental yields and
not occupied by the Group. The group aims to have properties valued externally on a regular basis.
The carrying amount of investment properties recorded in the balance sheet includes components relating to
lease incentives and assets relating to fixed increases in operating lease rentals in future periods. Changes in
fair values are recorded in the income statement as part of fair value adjustments.
Investment properties under development
(ii)
Investment properties under development are valued at the lower of cost and recoverable amount. An
independent valuation is undertaken at practical completion of each investment property in order to assess
the completion value.
(p) trade and other payables
These amounts represent liabilities for goods and services provided to the Group prior to the end of period
which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition.
(q) borrowings
Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are
subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs)
and the redemption amount is recognised in the income statement over the period of the borrowings using
the effective interest method. Fees paid on the establishment of loan facilities, which are not incremental cost
relating to the actual draw down of the facility, are recognised as prepayments and amortised on a straight
line basis over the term of the facility.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement
of the liability for at least 12 months after the balance sheet date.
(r) borrowing costs
Borrowing costs incurred for the construction of any qualifying asset are capitalised during the period of time
that is required to complete and prepare the asset for its intended use or sale. Other borrowing costs are
expensed.
(s) Provisions
Provisions for legal claims are recognised when: the Group has a present legal or constructive obligation as a
result of past events; it is probable that an outflow of resources will be required to settle the obligation; and
the amount has been reliably estimated. Provisions are not recognised for future operating losses.
CHARTER HALL GROUP 2006 ANNUAL REPORT 83
10
FinAnciAl RepoRt
notes to tHe FinAnciAl stAtements
(t) employee benefits
(i) Wages and salaries, annual leave and sick leave
Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave
expected to be settled within 12 months of the reporting date are recognised in other payables in respect of
employees’ services up to the reporting date and are measured at the amounts expected to be paid when the
liabilities are settled.
Long service leave
(ii)
Liabilities for other employee entitlements which are not expected to be paid or settled within 12 months of
balance date are accrued in respect of all employees at present values of future amounts expected to be
paid, based on a projected weighted average increase in wage and salary rates. Expected future payments
are discounted using interest rates on national government securities with terms to maturity that match, as
closely as possible, the estimated future cash outflows.
(iii) Retirement benefit obligations
Contributions to employee defined contribution superannuation funds are recognised as an expense as they
become payable.
(iv) Security based payments
Security based compensation benefits are provided to employees via the Charter Hall Limited Executive Loan
Security Plan. Information relating to these schemes is set out in note 39.
The fair value at grant date is independently determined using a Black Scholes option pricing model that
takes into account the exercise price, the term of the option, the impact of dilution, the security price at grant
date and expected price volatility of the underlying security, the expected dividend yield and the risk free
interest rate for the term of the option.
The fair value of the securities granted is adjusted to reflect market vesting conditions, but excludes the
impact of any non-market vesting conditions (for example, profitability and sales growth targets). Non-market
vesting conditions are included in assumptions about the number of securities that are expected to vest. At
each balance sheet date, the entity revises its estimate of the number of securities that are expected to vest.
The employee benefit expense recognised each period takes into account the most recent estimate.
Upon the vesting of securities, the balance of the security based payments reserve relating to those securities
is transferred to equity and the proceeds received, net of any directly attributable transaction costs, are
credited to equity.
Bonus plans
(v)
The Group recognises a liability and an expense. The Group recognises a provision where contractually
obliged or where there is a past practice that has created a constructive obligation.
84 CHARTER HALL GROUP 2006 ANNUAL REPORT
(u) contributed equity
Ordinary stapled securities are classified as equity. Incremental costs directly attributable to the issue of new
securities or options are shown in equity as a deduction, net of tax, from the proceeds.
(v) Distributions and dividends
Provision is made for the amount of any distribution or dividend declared, being appropriately authorised and
no longer at the discretion of the entity, on or before the end of the period but not distributed at balance date.
(w) earnings per security
Basic earnings per security
(i)
Basic earnings per security is calculated by dividing the profit attributable to equity holders of CHG, excluding
any costs of servicing equity other than ordinary stapled securities, by the weighted average number of
ordinary securities outstanding during the period, adjusted for bonus elements in ordinary stapled securities
issued during the year.
(ii) Diluted earnings per security
Diluted earnings per security adjusts the figures used in the determination of basic earnings per stapled
security to take into account the after income tax effect of interest and other financing costs associated with
dilutive potential ordinary securities and the weighted average number of stapled securities assumed to have
been issued in relation to dilutive potential stapled securities.
(x) Goods and services tax (Gst)
Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST
incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of
acquisition of the asset or as part of the expense.
Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or
financing activities which are recoverable from, or payable to the taxation authority, are presented as
operating cash flow.
(y) rounding of amounts
The company is of a kind referred to in Class order 98/0100, issued by the Australian Securities and
Investments Commission, relating to the “rounding off” of amounts in the financial report. Amounts in the
financial report have been rounded off in accordance with that Class Order to the nearest thousand dollars,
or in certain cases, the nearest dollar.
(z) new accounting standards and uiG interpretations
Certain new accounting standards and UIG interpretations have been published that are not mandatory for
30 June 2006 reporting periods. The Group’s assessment of the impact of these new standards and
interpretations is set out on page 88.
CHARTER HALL GROUP 2006 ANNUAL REPORT 85
10
FinAnciAl RepoRt
notes to tHe FinAnciAl stAtements
UIG 4 Determining whether an Asset Contains a Lease
(i)
UIG 4 is applicable to annual periods beginning on or after 1 January 2006. The Group has not elected to
adopt UIG 4 early. It will apply UIG 4 in its 2007 financial statements and the UIG 4 transition provisions. The
Group will therefore apply UIG 4 on the basis of facts and circumstances that existed as of 1 July 2006.
Implementation of UIG 4 is not expected to change the accounting for any of the Group’s current
arrangements.
(ii) UIG 5 Rights to Interests arising from Decommissioning, Restoration and Environmental
Rehabilitation Funds
The Group does not have interests in decommissioning, restoration and environmental rehabilitation funds.
This interpretation will not affect the Group’s financial statements.
(iii) AASB 2005 9 Amendments to Australian Accounting Standards [AASB 4, AASB 1023, AASB 139 &
AASB 132]
AASB 2005 9 is applicable to annual reporting periods beginning on or after 1 January 2006. The
amendments relate to the accounting for financial guarantee contracts. The Group has not elected to adopt
the amendments early. It will apply the revised standards in its 30 June 2007 financial statements. Application
of the revised rules may result in the recognition of financial liabilities in the financial statements of Charter
Hall Property Trust for guarantees given on behalf of Charter Hall Funds Management Limited. The new rules
will be implemented retrospectively with a restatement of the comparatives as required by AASB108
Accounting Policies, Changes in Accounting Estimates and Errors.
(iv) AASB 7 Financial Instruments: Disclosures and AASB 2005 10 Amendments to Australian Accounting
Standards [AASB 132, AASB 101, AASB 114, AASB 117, AASB 133, AASB 139, AASB 1, AASB 4, AASB
1023 & AASB 1038]
AASB 7 and AASB 2005 10 are applicable to annual reporting periods beginning on or after 1 January 2007.
The Group has not adopted the standards early. Application of the standards will not affect any of the
amounts recognised in the financial statements, but will impact the type of information disclosed in relation to
the Group’s financial instruments.
(v) UIG 6 Liabilities arising from Participating in a Specific Market – Waste Electrical and Electronic
Equipment
UIG 6 is applicable to annual reporting periods beginning on or after 1 December 2006. The Group has not
sold any electronic or electrical equipment on the European market and has not incurred any associated
liabilities. This interpretation will not affect the Group’s financial statements.
(vi) AASB 2005 6 Amendments to Australian Accounting Standards [AASB 121]
AASB 2005 6 is applicable to annual reporting periods ending on or after 31 December 2006. The
amendment relates to monetary items that form part of a reporting entity’s net investment in a foreign
operation. It removes the requirement that such monetary items had to be denominated either in the
functional currency of the reporting entity or the foreign operation. Charter Hall Limited does not have any
monetary items forming part of a net investment in a foreign operation. The amendment to AASB 121 will
therefore have no impact on the Group’s financial statements.
86 CHARTER HALL GROUP 2006 ANNUAL REPORT
(aa) leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are
classified as operating leases (note 31). Payments made under operating leases are charged to the income
statement on a straight-line basis.
Lease income from operating leases is recognised in income on a straight-line basis over the lease term.
(ab) Going concern
Although the parent entity shows net liabilities there is no reason to believe that it will not be able to pay it’s
liabilities as and when they fall due. The deficiency relates to a debit to equity reserve as a result of $52m
paid by CHL. Refer to note 26 for further details.
2 financial risk manaGement
The Group’s activities expose it to a variety of financial risks; market risk (fair value interest rate risk and price
risk), credit risk, liquidity risk and cash flow interest rate risk. The Group’s overall risk management program
focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the
financial performance of the Group. The Group uses derivative financial instruments such as interest rate
swaps to hedge certain risk exposures.
Risk management is carried out by the Chief Executive Officers in discussion with the Board of Directors. The
CEO’s identify, evaluate and hedge financial risks in close co operation with the finance department. The
Board provides guidance for overall risk management, as well as covering specific areas, such as mitigating
interest rate, price and credit risks, use of derivative financial instruments and investing excess liquidity.
(a) market risk
Price risk
(i)
The Group is exposed to equity securities price risk. This arises from investments held by the Group and
classified on the balance sheet as at fair value through the profit or loss.
Fair value interest rate risk
(ii)
Refer to (d) on the following page.
(b) credit risk
The Group has no significant concentrations of credit risk. The Group has policies in place to ensure that
sales of services are made to customers with an appropriate credit history. Derivative counterparties and
cash transactions are limited to high credit quality financial institutions. The Group has policies that limit the
amount of credit exposure to any one financial institution.
liquidity risk
(c)
Prudent liquidity risk management implies maintaining sufficient cash, the availability of funding through an
adequate amount of committed credit facilities and the ability to close out market positions. Due to the
dynamic nature of the underlying businesses, Group Treasury aims at maintaining flexibility in funding by
keeping committed credit lines available.
CHARTER HALL GROUP 2006 ANNUAL REPORT 87
10
FinAnciAl RepoRt
notes to tHe FinAnciAl stAtements
(d) cash flow and fair value interest rate risk
As the Group has no significant long term interest bearing assets, the Group’s income and operating cash
flows are not materially exposed to changes in market interest rates.
The Group’s interest rate risk arises from long term borrowings. Borrowings issued at variable rates expose
the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value
interest rate risk. Group policy is to fix the rates for up to 100% of its long term borrowings (when appropriate).
At year end 96% of debt had fixed rates.
The Group manages its cash flow interest rate risk by using floating to fixed interest rate swaps. Such interest
rate swaps have the economic effect of converting borrowings from floating rates to fixed rates. Generally, the
Group raises long term borrowings at floating rates and swaps them into fixed rates that are lower than those
available if the Group borrowed at fixed rates directly. Under the interest rate swaps, the Group agrees with
other parties to exchange, at specified intervals (mainly quarterly), the difference between fixed contract rates
and floating rate interest amounts calculated by reference to the agreed notional principal amounts.
3 critical accountinG estimates anD JuDGements
Estimates and judgements are continually evaluated and are based on experience and other factors,
including expectations of future events that may have a financial impact on the entity and that are believed to
be reasonable under the circumstances.
(a) critical accounting estimates and assumptions
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will,
by definition, seldom equal the related actual results. No estimates or assumptions have a significant risk of
causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.
4 seGment information
(a) Description of segments
business segments
The consolidated entity is organised into the following divisions:
Property investment
Has interests in investment properties and unlisted funds.
Funds management and corporate
Responsible for funds management, development management, property investment banking and property
management.
88 CHARTER HALL GROUP 2006 ANNUAL REPORT
2006
Property
Funds
Investment management
and corporate
$’000
$’000
Revenue
Intersegment sales (note (ii))
Total sales revenue
Share of net loss of associates (note (iii))
Total segment revenue/income
Segment result before interest expense
Interest expense
Segment result after interest expense
Fair value adjustments
Profit/(loss) before income tax
Income tax expense
Profit for the period
31,769
-
31,769
-
31,769
25,978
(5,929)
20,049
(6,621)
13,428
-
13,428
13,864
1,589
15,453
(22)
15,431
6,350
(7,813)
(1,463)
-
(1,463)
430
(1,033)
Inter-segment
-segment
eliminations/
unallocated
$’000
(7,813)
(1,589)
(9,402)
-
(9,402)
(8,870)
7,813
(1,057)
1,057
-
-
-
Consolidated
Consolidated
$’000
37,820
-
37,820
(22)
37,798
23,458
(5,929)
17,529
(5,564)
11,965
430
12,395
Segment assets
484,458
21,918
(223)
506,153
Segment liabilities (note (ii))
159,191
67,715
(223)
226,683
Investments in associates (note (iii))
3,888
497
Acquisitions of plant and equipment and
other non-current segment assets
288,028
288,028
Depreciation and amortisation expense
Non-cash expenses
-
-
307
307
(94)
(165)
-
-
-
-
-
4,385
228,335
228,335
(94)
(165)
The segment information for 2005 is not presented as the comparative shows the results for Charter Hall
Holdings Pty Limited which is considered to be one segment. Charter Hall Holdings Pty Limited forms part of
the funds management and corporate segment.
Geographical segments
The consolidated entity operates wholly within Australia.
(b) notes to and forming part of the segment information
Accounting policies
(i)
Segment information is prepared in conformity with the accounting policies of the entity as disclosed in note 1
and accounting standard AASB 114 Segment Reporting.
Segment revenues, expenses, assets and liabilities are those that are directly attributable to a segment and
the relevant portion that can be allocated to the segment on a reasonable basis. Segment assets include all
assets used by a segment and consist primarily of operating cash, receivables, investment properties,
property, plant and equipment net of related provisions. While most of these assets can be directly
attributable to individual segments, the carrying amounts of certain assets used jointly by segments are
allocated based on reasonable estimates of usage. Segment liabilities consist primarily of trade and other
creditors, employee benefits and provisions. Segment assets and liabilities include income taxes.
CHARTER HALL GROUP 2006 ANNUAL REPORT 89
10
FinAnciAl RepoRt
notes to tHe FinAnciAl stAtements
Inter segment transfers
(ii)
Segment revenues, expenses and results include transfers between segments. Such transfers are priced on
an “arm’s length” basis and are eliminated on consolidation.
Investments in associates
(iii)
The Group owns approximately 19.9% of Charter Hall Diversified Property Fund which is accounted for at fair
value and is allocated to the property investment segment. An investment of 3.03% in Charter Hall
Opportunity Fund is equity accounted and allocated to the funds management and corporate segment.
5 revenue
Sales revenue
Gross rental income
Management fees
Other revenue
Other revenue
Interest
Dividends / distributions (a)
(a) Distributions from investments
consolidated
2005
$’000
2006
$’000
Parent entity
2006
$’000
2005
$’000
18,354
12,637
745
31,736
-
9,824
228
10,052
-
585
210
795
5,892
184
37,812
189
-
10,241
705
3,000
4,500
-
-
-
-
-
-
-
CHPT has an investment of approximately 19.9% in Charter Hall Diversified Property Fund which is
recognised at fair value. This is the distribution of income from that Fund.
6 other income
Other
consolidated
2005
$’000
2006
$’000
Parent entity
2006
$’000
2005
$’000
8
8
1
1
-
-
-
-
90 CHARTER HALL GROUP 2006 ANNUAL REPORT
7 exPenses
Profit before income tax includes
the following specific expenses:
Depreciation
Plant and equipment
Finance costs
consolidated
2005
$’000
2006
$’000
Parent entity
2006
$’000
2005
$’000
94
53
-
-
-
-
-
Interest and finance charges paid/payable
5,929
6
7,813
Defined contribution superannuation expense
453
261
Rent expense relating to operating leases
Minimum lease payments
329
254
-
-
8 income tax exPense
(a)
income tax expense / (gain)
Current tax
Deferred tax
Under (over) provided in prior years
Deferred income tax (revenue) expense
included in income tax expense comprises:
Decrease (increase) in deferred tax assets (note 19)
(Decrease) increase in deferred tax liabilities (note 23)
consolidated
2005
$’000
2006
$’000
Parent entity
2006
$’000
2005
$’000
(30)
(400)
-
(430)
1,376
-
-
1,376
-
(1,774)
10
(1,764)
(1,284)
884
(400)
-
-
-
(1,929)
155
(1,774)
-
-
-
-
-
-
-
CHARTER HALL GROUP 2006 ANNUAL REPORT 91
10
FinAnciAl RepoRt
notes to tHe FinAnciAl stAtements
consolidated
2005
$’000
2006
$’000
Parent entity
2006
$’000
2005
$’000
(b) numerical reconciliation of income tax
expense to prima facie tax payable
Profit before income tax expense
11,965
4,489
(3,356)
Tax at the Australian tax rate of 30%
Tax effect of amounts which are not
deductible (taxable) in calculating taxable income:
Charter Hall Property Trust income
Entertainment
Interest on LTI securities excluded from accounts
Non-taxable dividends
Sundry items
3,590
1,347
(1,007)
(4,028)
6
-
-
2
(430)
-
5
-
-
24
1,376
-
-
156
(900)
(13)
(1,764)
(c) amounts recognised directly in equity
Aggregate current and deferred tax arising in the
reporting period and not recognised in net profit or
loss but directly debited or credited to equity
Current tax – credited directly to equity
Net deferred tax – debited (credited) directly
to equity (notes 19 and 23)
(d) tax consolidation legislation
10
-
10
-
-
-
10
-
10
-
-
-
-
-
-
-
-
-
-
-
Charter Hall Limited and its wholly owned Australian controlled entities have implemented the tax
consolidation legislation as of 1 July 2003. The accounting policy in relation to this legislation is set out in
note 1(f).
On adoption of the tax consolidation legislation, the entities in the tax consolidated group entered into a tax
sharing agreement which, in the opinion of the directors, limits the joint and several liability of the wholly
owned entities in the case of a default by the head entity, Charter Hall Limited.
The entities have also entered into a tax funding agreement under which the wholly owned entities fully
compensate Charter Hall Limited for any current tax payable assumed and are compensated by Charter Hall
Limited for any current tax receivable and deferred tax assets relating to unused tax losses or unused tax
credits that are transferred to Charter Hall Limited under the tax consolidation legislation. The funding
amounts are determined by reference to the amounts recognised in the wholly owned entities’ financial
statements.
92 CHARTER HALL GROUP 2006 ANNUAL REPORT
The amounts receivable/payable under the tax funding agreement are due upon receipt of the funding advice
from the head entity, which is issued as soon as practicable after the end of each financial year. The head
entity may also require payment of interim funding amounts to assist with its obligations to pay tax
instalments. The funding amounts are recognised as current intercompany receivables or payables (see
note 32).
9 current assets – cash anD cash equivalents
consolidated
2005
$’000
2006
$’000
Parent entity
2006
$’000
2005
$’000
113,177
55,193
168,370
257
602
859
854
297
1,151
-
-
-
Cash at bank and in hand
Deposits at call
(a) cash at bank and on hand
These amounts earn between 5.4% and 5.6%.
(b) Deposits at call
The deposits are bearing floating interest rates between 5.5% and 5.93%. These deposits have an average
maturity of 73 days.
10 current assets – traDe anD other receivables
Trade receivables
Provision for doubtful debts
Loans to associates
GST receivable
Other receivables
Call receivable
Prepayments
consolidated
2005
$’000
2006
$’000
Parent entity
2006
$’000
2005
$’000
2,484
(100)
2,384
536
2,259
924
21,682
2,744
30,529
517
(50)
467
287
-
21
-
116
891
-
-
-
-
1
-
-
-
1
-
-
-
-
-
-
-
-
-
Further information relating to loans to associates is set out in note 32.
CHARTER HALL GROUP 2006 ANNUAL REPORT 93
10
FinAnciAl RepoRt
notes to tHe FinAnciAl stAtements
(a) bad and doubtful trade receivables
The Group has recognised a loss of $116,000 (2005 $50,000) in respect of bad and doubtful trade
receivables during the period ended 30 June 2006. The loss has been included in ‘other expenses’ in the
income statement.
(b) effective interest rates and credit risk
Information concerning the effective interest rate and credit risk of both current and non-current receivables is
set out in the non-current receivables note (note 14).
(c) call receivable
The call receivable represents the final instalment of 25c remaining payable on partly paid securities at
30 June 2006. All of this amount outstanding had been received by 10 August 2006.
11 current assets – financial assets
Nunawading performance fee right
Other assets
consolidated
2005
$’000
2006
$’000
Parent entity
2006
$’000
2005
$’000
5,050
70
5,120
-
30
30
5,050
-
5,050
-
-
Charter Hall Limited purchased from Pivot Group Limited the right to a share in the performance fee from the
development of 372 Whitehorse Road, Nunawading.
12 non-current assets – financial assets at fair value throuGh income statement
Opening balance
Additions
Revaluation
Closing balance
consolidated
2005
$’000
2006
$’000
Parent entity
2006
$’000
2005
$’000
-
3,988
-
3,988
-
-
-
-
-
-
-
-
-
-
-
-
Changes in fair values of other financial assets at fair value through profit or loss are recorded in other income
in the income statement (note 6). This is the investment in Charter Hall Diversified Property Fund by CHPT of
$3,888k and an option fee of $100k paid on a property.
94 CHARTER HALL GROUP 2006 ANNUAL REPORT
13 Derivative financial instruments
non-current assets
Interest rate swap contracts – cash flow hedges ((a)(i))
Total non-current derivative financial instrument assets
(a)
instruments used by the Group
consolidated
2005
$’000
2006
$’000
Parent entity
2006
$’000
2005
$’000
2,482
2,482
-
-
-
-
-
-
The Group is party to derivative financial instruments in the normal course of business in order to hedge
exposure to fluctuations in interest rates in accordance with the Group’s financial risk management policies
(refer to note 2).
Interest rate swap contracts – cash flow hedges
(i)
It is policy to protect up to 100% of bank loans from exposure to increasing interest rates. Accordingly, the
Group has entered into interest rate swap contracts under which it is obliged to receive interest at variable
rates and to pay interest at fixed rates.
Swaps currently in place cover 96% of the loan principal outstanding and are timed to expire as each loan
repayment falls due. The fixed interest rates range between 5.97% and 6.29% and the variable rates for the
remainder was 5.94%.
At 30 June 2006, the notional principal amounts and periods of expiry of the interest rate swap contracts are
as follows:
3-4 years
6-7 years
2006
$’000
2005
$’000
47,000
87,000
134,000
-
-
-
The contracts require settlement of net interest receivable or payable each 90 days for the $47m swap and
30 days for the $87m swap. The settlement dates coincide with the dates on which interest is payable on the
underlying debt. The contracts are settled on a net basis.
The gain or loss from remeasuring the hedging instruments at fair value is deferred in equity in the hedging
reserve, to the extent that the hedge is effective, and re classified into profit and loss when the hedged
interest expense is recognised. The ineffective portion is recognised in the income statement immediately.
At balance date for both the Group and the parent entity these contracts were assets with fair value
of $2,482,000.
(b) credit risk exposures
Credit risk arises from the potential failure of counterparties to meet their obligations under the respective
contracts at maturity. This arises with amounts receivable from unrealised gains on derivative financial
instruments.
The Group undertakes 100% of its transactions in interest rate contracts with financial institutions.
(c)
interest rate risk exposures
Refer to note 22 for the Group’s exposure to interest rate risk on interest rate swaps.
CHARTER HALL GROUP 2006 ANNUAL REPORT 95
10
FinAnciAl RepoRt
notes to tHe FinAnciAl stAtements
14 non-current assets – receivables
Loans to key management personnel
Other receivables
consolidated
2005
$’000
2006
$’000
Parent entity
2006
$’000
2005
$’000
3,964
189
4,153
-
-
-
3,964
189
4,153
-
-
-
Further information relating to loans to key management personnel is set out in 29.
(a) fair values
The fair values and carrying values of non-current
receivables of the Group are as follows:
Loans to key management personnel
Other receivables
(b)
interest rate risk
2006
2005
carrying
amount
$’000
fair Carrying
value amount
amount
$’000
$’000
Fair
value
value
value
$’000
3,964
189
4,153
3,964
189
4,153
-
-
-
-
-
-
-
-
-
-
-
-
The Group’s exposure to interest rate risk and the effective weighted average interest rate by maturity periods is set out
in the following tables.
2006
Floating
interest
interest
rate
$’000
Trade receivables
Loans to associates
Loans to others
Loans to key
management
personnel
Other receivables
Weighted average
interest rate
-
-
-
-
-
-
-
Fixed interest maturing in:
1 year Over 1 to Over 2 to Over 3 to Over 4 to Over 5 to
Over 2 to Over 3 to Over 4 to Over 5 to
Over 2 to Over 3 to Over 4 to Over 5 to
1 year Over 1 to Over 2 to Over 3 to Over 4 to Over 5 to
years
or less
years
or less
4 years
4 years
5 years
5 years
3 years
3 years
2 years
2 years
$’000
$’000
$’000
$’000
$’000
$’000
-
519
150
-
-
669
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,964
189
4,153
-
-
-
-
-
-
Non-
Non-
Non-
Non-
interest
interest
bearing
$’000
2,384
17
-
Total
Total
Total
Total
$’000
$’000
2,384
2,384
536
150
-
27,459
29,860
3,964
3,964
27,648
34,682
8.75%
-
-
-
8.34%
-
-
96 CHARTER HALL GROUP 2006 ANNUAL REPORT
2005
Floating
interest
rate
$’000
Fixed interest maturing in:
1 year Over 1 to Over 2 to Over 3 to Over 4 to
5 years
3 years
or less
2 years
4 years
Over 5
years
$’000
$’000
$’000
$’000
$’000
$’000
Non-
interest
bearing
$’000
Total
$’000
Trade receivables
Loans to associates
Loans to key
management
personnel
Other receivables
Weighted average
interest rate
(c) credit risk
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
467
287
-
137
891
467
287
-
137
891
-
-
There is no concentration of credit risk with respect to current and non-current receivables, as the Group has a large
number of customers. Refer to note 2 for more information on the risk management policy of the Group.
15 non-current assets – investments accounteD for usinG the equity methoD
Units in associates (note 35)
(a) units in associates
consolidated
2005
2006
$’000
497
497
-
-
Parent entity
2006
$’000
497
497
2005
-
-
Investments in associates are accounted for in the consolidated financial statements using the equity method of
accounting and are carried at cost by the parent entity.
16 non-current assets – other financial assets
Shares and units in subsidiaries (note 34)
Share and units in associates (note 35)
333 George Street deposit paid
Option fee paid on property
These financial assets are carried at cost.
consolidated
2005
$’000
2006
$’000
Parent entity
2005
$’000
2006
$’000
-
-
2,178
1,062
3,240
-
-
-
-
-
1,600
-
-
-
1,600
-
-
-
-
-
CHARTER HALL GROUP 2006 ANNUAL REPORT 97
10
FinAnciAl RepoRt
notes to tHe FinAnciAl stAtements
17 non-current assets ProPerty, Plant anD equiPment
consolidated
Period ended 30 June 2006
Opening net book amount
Additions
Depreciation charge
Closing net book amount
at 30 June 2006
Cost
Accumulated depreciation
Net book amount
Period ended 30 June 2004
Cost or fair value
Accumulated depreciation
Net book amount
Period ended 30 June 2005
Opening balance
Additions
Depreciation charge
Closing net book amount
at 30 June 2005
Cost or fair value
Accumulated depreciation
Net book amount
furniture, fittings
and equipment
$’000
293
108
(94)
307
659
(352)
307
336
(212)
124
124
212
(53)
283
548
(265)
283
total
$’000
293
108
(94)
307
659
(352)
307
336
(212)
124
124
212
(53)
283
548
(265)
283
The consolidated table for 30 June 2005 represents balances for Charter Hall Holdings Pty Limited up to
30 June 2005. The consolidated table for 30 June 2006 shows the purchase of the assets held by Charter
Hall Holdings Pty Limited at 6 June 2005 and the balances at that date are shown as an acquisition of
subsidiary assets.
98 CHARTER HALL GROUP 2006 ANNUAL REPORT
18 non-current assets – investment ProPerties
consolidated
2006
$’000
2005
$’000
Parent entity
2006
$’000
2005
$’000
at fair value
Opening balance
Acquisitions
Capitalised subsequent expenditure
Net gain / (loss) from fair value adjustment
Closing balance at 30 June
(a) amounts recognised in profit and loss
for investment property
Rental income
Direct operating expenses from property that
generated rental income
Property
Type
%
Owned
-
289,207
1,145
(5,564)
284,788
18,354
(5,064)
13,290
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Book
Book
value
value
value
value
2006
2006
2006
$’000
$’000
$’000
$’000
$’000
$’000
Date Cost incl Independent Independent valuer
Date Cost incl
acquired additions
valuer
Independent
valuation
valuation
date
date
Independent
valuation
valuation
valuation
amount
amount
amount
$’000
$’000
$’000
$’000
61 Nepean Hwy, Mentone
570 Bourke St, Melbourne
56 Anzac St, Chullora
Menai Central, Menai
400 Kent St, Sydney
60 Union St, Pyrmont^
372 Whitehorse Rd,
Nunawading +
Bulky retail
Office
Industrial
Retail
Office
Office
50
50
100
100
50
100
15/6/05
20/6/05
21/6/05
4/7/05
28/7/05
22/12/05
Bulky retail
100
N/A
$’000
$’000
24,919
64,990
18,436
40,424
25,018
106,780
9,785
290,352
12/4/05
30/6/06
30/6/06
5/4/05
12/4/05
20/12/05
22,500 Savills
65,000 CBRE
17,650 Savills
38,000 JLL
23,900 Savills
23,464
65,000
17,650
38,222
23,961
134,000 Savills 106,780
15/3/05
14,150 JLL
9,711
284,788
+ Investment property under development deposit of $9.45m paid 10/6/05 on land valued at $14.15m
^ Investment property under development
(a) valuation basis
The basis of the valuation of investment properties is fair value being based on a discounted cash flow calculation or
capitalisation approach. The 2006 revaluations were based on a combination of directors’ valuations and independent
valuations.
CHARTER HALL GROUP 2006 ANNUAL REPORT 99
10
FinAnciAl RepoRt
notes to tHe FinAnciAl stAtements
19 non-current assets – DeferreD tax assets
the balance comprises temporary differences
attributable to:
Amounts recognised in profit or loss
Prepayments
Employee benefits
Other provisions
Fund establishment costs
Tax losses
Net deferred tax assets
movements:
Credited/(charged) to the income statement (note 8)
Credited/(charged) to equity
Closing balance at 30 June
Deferred tax assets to be recovered after more
than 12 months
Deferred tax assets to be recovered within 12 months
consolidated
2005
$’000
2006
$’000
Parent entity
2006
$’000
2005
$’000
-
90
230
214
750
1,284
1,284
-
1,284
642
642
1,284
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,929
1,929
1,929
-
1,929
1,929
-
1,929
-
-
-
-
-
-
-
-
-
-
-
-
100 CHARTER HALL GROUP 2006 ANNUAL REPORT
20 current liabilities – traDe anD other Payables
Trade payables
Deposits
Accruals
Charter Hall Holdings Pty Ltd purchase price payable
Development agreement payable
Cash received from Core Plus Office Fund investors
for units to be issued
Underwriting fee payable for initial public offering
Distribution payable
Other payables
21 current liabilities – Provisions
Employee benefits – long service leave
(a) movements in provisions
consolidated
2005
$’000
2006
$’000
Parent entity
2006
$’000
2005
$’000
645
154
2,322
9,691
1,337
58,275
1,771
10,182
77
84,454
18
-
537
-
-
-
-
-
-
-
9,691
-
-
-
34
589
-
9,691
-
-
-
-
-
-
-
-
-
consolidated
2005
$’000
2006
$’000
Parent entity
2006
$’000
2005
$’000
48
48
35
35
-
-
-
-
Refer to Note 24 for the movement in provisions and split between current and non-current.
CHARTER HALL GROUP 2006 ANNUAL REPORT 101
10
FinAnciAl RepoRt
notes to tHe FinAnciAl stAtements
22 non-current liabilities – borrowinGs
unsecured
Bank loans
Loan – Charter Hall Property Trust
Total unsecured non-current borrowings
(a) total unsecured liabilities
The total unsecured liabilities
(current and non-current) are as follows:
Bank loans
Loan – Charter Hall Property Trust
Total unsecured liabilities
(b) financing arrangements
Unrestricted access was available at balance
date to the following lines of credit:
Total facilities
Used at balance date
Unused at balance date
consolidated
2005
$’000
2006
$’000
Parent entity
2006
$’000
2005
$’000
140,119
-
140,119
-
-
-
-
55,050
55,050
-
-
-
consolidated
2005
$’000
2006
$’000
Parent entity
2006
$’000
2005
$’000
140,119
-
140,119
-
-
-
-
55,050
55,050
-
-
-
consolidated
2005
$’000
2006
$’000
Parent entity
2006
$’000
2005
$’000
225,500
140,119
85,381
-
-
-
75,000
55,050
19,950
-
-
-
The consolidated entity has access to a National Australia Bank evergreen facility. Subject to the continuance
of satisfactory loan covenants and credit ratings, the bank loan facilities may be drawn at any time.
The Parent entity has a facility given by Charter Hall Property Trust.
The current interest rates are 5.97% on the bill facility and 8.75% on the loan from Charter Hall Property Trust.
102 CHARTER HALL GROUP 2006 ANNUAL REPORT
(c)
interest rate risk exposures
The following table sets out the Group’s exposure to interest rate risk, including the contractual repricing dates
and the effective weighted average interest rate by maturity periods.
Exposures arise predominantly from liabilities bearing variable interest rates as the Group intends to hold fixed
rate liabilities to maturity.
Fixed interest rate
2006 consolidated
Bank and
other loans
Interest rate swaps
Weighted average
interest rate
2006 – Parent
Floating
interest rate
$’000
140,119
(134,000)
6,119
6.24%
Floating
interest rate
$’000
1 year Over 1 to Over 2 to Over 3 to Over 4 to
5 years
3 years
or less
$’000
$’000
$’000
2 years
$’000
4 years
$’000
Over 5
years
$’000
Total
$’000
-
-
-
-
-
-
-
-
-
-
-
134,000
134,000
140,119
-
140,119
Fixed interest rate
1 year Over 1 to Over 2 to Over 3 to Over 4 to
5 years
3 years
or less
$’000
$’000
$’000
4 years
$’000
2 years
$’000
5.99%
Over 5
years
$’000
Total
$’000
Loan from CHPT
-
-
-
-
-
-
-
-
-
-
-
-
55,050
55,050
55,050
55,050
Weighted average interest rate
* Notional principal amounts
(d) fair value
The carrying amounts and fair values of borrowings at balance date are:
8.75%
on-balance sheet
Non-traded financial liabilities
Bank loans
Other loans
consolidated
2006
Parent
2006
carrying
amount
$’000
fair
value
$’000
Carrying
amount
$’000
Fair
value
value
$’000
140,119
-
140,119
-
-
55,050
-
55,050
Fair value is inclusive of costs which would be incurred on settlement of a liability.
On-balance sheet
(i)
The fair value of borrowings is based upon market prices where a market exists or by discounting the expected
future cash flows by the current interest rates for liabilities with similar risk profiles.
(ii) Off-balance sheet
There are no off-balance sheet liabilities
CHARTER HALL GROUP 2006 ANNUAL REPORT 103
10
FinAnciAl RepoRt
notes to tHe FinAnciAl stAtements
23 non-current liabilities – DeferreD tax liabilities
the balance comprises temporary differences
attributable to:
Amounts recognised in profit or loss
Prepayments
Fund establishment costs
Tax payable in subsidiary offset by losses
Net deferred tax liabilities
movements:
Charged/(credited) to the income statement (note 8)
Closing balance at 30 June
Deferred tax liabilities to be settled after more than 12 months
Deferred tax liabilities to be settled within 12 months
24 non-current liabilities – Provisions
consolidated
2005
$’000
2006
$’000
Parent entity
2006
$’000
2005
$’000
170
714
-
884
884
884
564
320
884
-
-
-
-
-
-
-
-
-
155
-
-
155
155
155
-
155
155
-
-
-
-
-
-
-
-
-
consolidated
2005
$’000
2006
$’000
Parent entity
2006
$’000
2005
$’000
Employee benefits – long service leave
83
47
-
-
(a) movements in provisions
Movements in each class of provision during the period,
other than employee benefits, are set out below:
long service leave
Opening balance
Additional provisions recognised
Carrying amount at end of period
Current
Non-current
Total
104 CHARTER HALL GROUP 2006 ANNUAL REPORT
$’000
$’000
82
49
131
48
83
131
54
28
82
35
47
82
25 contributeD equity
(a) security capital*
Ordinary securities
Fully paid
Partly paid
Final instalment to be paid
Parent
Parent
Parent
2006
securities
2005
Securities
2006
$’000
2005
$’000
Notes
(b),(c)
242,457,179
92,928,962
-
335,386,141
-
-
-
-
257,852
70,880
23,232
351,964
-
-
-
-
(b) movements in ordinary security capital:
Details
Notes
Initial allotment
Initial public offering
Dividend reinvestment plan issues
Employee security scheme issue
Employee security scheme issue
Final call of $0.25 on 278,368,890
partly paid securities
Entitlement issue
(d)
(e)
(e)
(f)
Less: Transaction costs on security issues
Less: LTI securities reversed
Balance
Charter Hall Limited
Charter Hall Property Trust
number of
securities
100
264,078,910
8,090,980
5,900,000
300,000
57,017,151
335,386,141
-
(6,200,000)
329,186,141
issue price
issue price
$’000
$’000
$1.0000
$0.7500
$0.8936
$0.7500
$0.8231
$1.2700
-
198,059
7,229
4,425
247
69,592
72,412
351,964
(9,283)
(6,222)
336,459
3,371
333,088
The primary purpose of the call on partly paid securities was to fund the purchase of the investment property
at 372-394 Whitehorse Road, Nunawading, victoria. Funds raised from the entitlement, placement and public
offer will be used to purchase properties at Melbourne Airport Business Park, Tullamarine and 25 Nepean
Highway, Mentone and fund investments in Charter Hall Core Plus Office Fund and Charter Hall Diversified
Property Fund.
* This includes security capital of Charter Hall Limited and Charter Hall Property Trust which are stapled.
Refer to note 1 for details of the accounting for this stapling arrangement.
CHARTER HALL GROUP 2006 ANNUAL REPORT 105
10
FinAnciAl RepoRt
notes to tHe FinAnciAl stAtements
(c) ordinary securities
Ordinary securities entitle the holder to participate in distributions/dividends and the proceeds on winding up
of the trust/company in proportion to the number of and amounts paid on the securities held. The securities
issued under the rights issue are fully paid with no entitlement to the distribution for 30 June 2006.
On a show of hands every holder of ordinary securities present at a meeting in person or by proxy, is entitled
to one vote, and upon a poll each security is entitled to one vote.
(d) Distribution/dividend reinvestment plan
The company has established a distribution/dividend reinvestment plan (DRP) under which holders of
ordinary securities may elect to have all or part of their dividend entitlements satisfied by the issue of new
ordinary securities rather than by being paid in cash. Securities are issued under the plan at a discount to the
market price. The DRP was active for the December 2005 distribution however it was deactivated for the
30 June 2006 distribution.
(e) employee security scheme
Information on the employee security scheme, including details of securities issued under the scheme, is set
out in note 39.
(f)
entitlement, placement and public offer
On 19 May 2006 the company invited its securityholders to subscribe to a entitlement, placement and public
offer of $61.8m ordinary securities at an issue price of $1.27 per security on the basis of 2 securities for every
9 fully or partly paid ordinary securities held, such securities to be issued on 15 June 2006 or 3 July 2006 and
rank for distributions/dividends after 30 June 2006. Securities not taken up under the entitlement offer were
subscribed for under a placement and public offer.
26 reserves anD retaineD Profits
consolidated
2005
$’000
2006
$’000
Parent entity
2006
$’000
2005
$’000
-
-
-
-
-
(52,000)
-
(52,000)
-
-
-
-
2,482
(52,000)
165
(49,353)
(51,835)
2,482
(49,353)
(a) reserves
Hedging reserve – cash flow hedges
Business combination reserve
Security-based payments reserve
Charter Hall Limited
Charter Hall Property Trust
106 CHARTER HALL GROUP 2006 ANNUAL REPORT
consolidated
2005
$’000
2006
$’000
Parent entity
2006
$’000
2005
$’000
movements:
Hedging reserve – cash flow hedges
Revaluation (note 13)
Balance 30 June
Security-based payments reserve
Expense relating to LTI scheme
Balance 30 June
Business combination reserve
2,482
2,482
165
165
Amount paid for Charter Hall Holdings Pty Limited
Balance 30 June
(52,000)
(52,000)
-
-
-
-
-
-
-
-
-
-
(52,000)
(52,000)
-
-
-
-
-
-
(b) retained profits / (accumulated losses)
movements in retained profits were as follows:
Opening balance
Net profit / (loss) for the period
Distributions / dividends
Balance 30 June
Charter Hall Limited
Charter Hall Property Trust
(c) nature and purpose of reserves
consolidated
consolidated
2005
$’000
2006
$’000
Parent entity
Parent entity
2006
$’000
2005
$’000
-
12,395
(20,031)
(7,636)
1,120
3,113
(4,444)
(211)
-
(1,592)
-
(1,592)
-
-
-
-
(2,576)
(5,060)
(7,636)
Hedging reserve – cash flow hedges
(i)
The hedging reserve is used to record gains or losses on a hedging instrument in a cash flow hedge that are
recognised directly in equity, as described in note 1(l).
Security-based payments reserve
(ii)
The security-based payments reserve is used to recognise the fair value of securities issued to the Charter
Hall Limited Executive Loan Security Plan but not issued to employees.
(iiI) Business combinations reserve
This reserve relates to the reverse acquisition at IPO as described in note 1. This is the amount that relates to
the investment in CHH that is not eliminated by paid in capital. No goodwill is recognised as this transaction
is the result of a reverse acquisition.
CHARTER HALL GROUP 2006 ANNUAL REPORT 107
10
FinAnciAl RepoRt
notes to tHe FinAnciAl stAtements
27 minority interest
The financial report includes separate financial statements for Charter Hall Limited (CHL) as an individual
entity and the consolidated entity consisting of Charter Hall Limited and its subsidiaries and controlled entities
including Charter Hall Property Trust (CHPT). For the purposes of AASB Urgent Issues Group Interpretation
1002 Post date of transition stapling arrangements (UIG 1002), Charter Hall Limited has been identified as the
Parent Entity in relation to the stapling. In accordance with UIG 1002 the results and equity, not directly owned
by CHL, of CHPT have been treated and disclosed as minority interest. Whilst the results and equity of CHPT
are disclosed as minority interest, the stapled security holders of CHL are the same as the stapled security
holders of CHPT.
consolidated
2005
$’000
2006
$’000
Parent entity
2006
$’000
2005
$’000
Notes
26(a)
26(b)
25 333,088
2,482
(5,060)
330,510
-
-
-
-
-
-
-
-
-
-
-
-
consolidated entity
2006
$’000
10,420
8,868
1,215
20,503
(472)
20,031
13,274
7,229
20,503
2005
$’000
1,314
1,600
1,530
4,444
-
4,444
4,444
4,444
Interest in:
Contributed equity
Reserves
Retained profits
28 Distributions/DiviDenDs
(a) ordinary securities
Unfranked final distribution for the period ended 30 June 2006
of 3.82 cents per partly paid security to be paid on 30 August 2006
Unfranked Interim distribution for the period ended 31 December 2005
of 3.28 cents per partly paid security paid 28 February 2006
Unfranked Interim distribution for the period ended 30 June 2005
of 0.45 cents per partly paid security paid 28 February 2006
Final ordinary distribution for the period ended 30 June 2004 of
47.5 cents per security paid on 2 July 2004 (on 2,690,000 securities)
Interim ordinary distribution for the period ended 30 June 2005 of
5.9 cents per security paid on 14 April 2005 (on 26,900,000 securities)
Final ordinary distribution for the period ended 30 June 2005 of
5.7 cents per security paid on 2 June 2005
Total dividends provided for or paid
Less: distributions paid to holders of LTI securities
Distributions paid in cash or satisfied by the issue of securities
under the distribution reinvestment plan during the period
ended 30 June 2006 were as follows:
Paid in cash
Satisfied by issue of securities
108 CHARTER HALL GROUP 2006 ANNUAL REPORT
29 key manaGement Personnel Disclosures
(a) Directors
The following persons were directors of Charter Hall Limited during the period:
Chairman – non-executive
(i)
K Roxburgh
Executive directors
(ii)
A Biet
C Fuchs
(iii) Non-executive directors
R Woodhouse (Deputy Chairman)
P Derrington
G Fraser
C McGowan
P McMahon
(b) other key management personnel
The following persons also had authority and responsibility for planning, directing and controlling the activities
of the Group, directly or indirectly, during the period:
Name
D Harrison
D Southon
M Winnem
Position
Joint Chief Executive Officer
Joint Chief Executive Officer
Development Director
Employer
Charter Hall Holdings Pty Ltd
Charter Hall Holdings Pty Ltd
Charter Hall Holdings Pty Ltd
(c) key management personnel compensation
Short term employee benefits
Post employment benefits
Security-based payment
consolidated
2005
$
2006
$
Parent entity
2006
$
2005
$
1,814,925 1,261,047
57,352
182,301
134,818
-
2,132,044 1,318,399
-
-
-
-
-
-
-
-
The company has taken advantage of the relief provided by ASIC Class Order 06/50 and has transferred the
detailed remuneration disclosures to the directors’ report. The relevant information can be found in sections
A-C of the remuneration report on pages 52 to 59.
CHARTER HALL GROUP 2006 ANNUAL REPORT 109
10
FinAnciAl RepoRt
notes to tHe FinAnciAl stAtements
(d) equity instrument disclosures relating to key management personnel
Security holdings
(i)
The numbers of securities in the company held during the period by each director of Charter Hall Limited and
other key management personnel of the Group, including their personally related parties, are set out below.
There were no securities granted during the reporting period as compensation.
2006
Name
Directors of Charter Hall Limited
ordinary securities
A Biet
P Derrington
G Fraser
C Fuchs
C McGowan
P McMahon
K Roxburgh
R Woodhouse
Other key management personnel of the Group
ordinary securities
D Harrison
D Southon
M Winnem
2005
Name
Directors of Charter Hall Limited
ordinary securities
A Biet
P Derrington
G Fraser
C Fuchs
C McGowan
P McMahon
K Roxburgh
Other key management personnel of the Group
ordinary securities
D Harrison
D Southon
M Winnem
Opening
balance
Purchased
during the
period
Balance at the
end of the
period
5,576,595
-
156,262
5,656,595
-
55,073
50,000
366,666
5,339,208
4,424,092
1,482,982
153,129
-
-
-
-
-
-
-
559,909
184,703
-
5,729,724
-
156,262
5,656,595
-
55,073
50,000
366,666
5,899,117
4,608,795
1,482,982
Opening
balance
Purchased
during the
period
Balance at the
end of the
period
-
-
-
-
-
-
-
-
-
-
5,576,595
-
156,262
5,656,595
-
55,073
50,000
5,576,595
-
156,262
5,656,595
-
55,073
50,000
5,339,208
4,424,092
1,482,982
5,339,208
4,424,092
1,482,982
110 CHARTER HALL GROUP 2006 ANNUAL REPORT
(e)
loans to key management personnel
Details of loans made to directors of Charter Hall Limited and other key management personnel of the Group,
including their personally related parties, are set out below.
(i)
Aggregates for key management personnel
Group
Balance at the
start of the
period
Interest paid
and payable
for the period
Interest not
charged
Balance at the
end of the
period
$
$
$
$
Number in
Group at the
end of the
period
$
2006
6,758,366
534,647
-
3,964,504
3
(ii)
Individuals with loans above $100,000 during the period
2006
Name
D Harrison
D Southon
M Winnem
Balance at the
start of the
period
Interest paid
and payable
for the period
Interest not
charged
Balance at the
end of the
period
$
$
$
$
Number in
Group at the
end of the
period
$
4,004,400
1,875,000
370,746
230,365
190,548
48,660
-
-
-
1,970,720
4,004,400
1,970,720
1,970,720
23,064
370,746
Loans to key management personnel are for periods of 5 years at interest rates equivalent to the distribution,
and are secured by mortgages over the securities that have been purchased with the loan.
CHARTER HALL GROUP 2006 ANNUAL REPORT 111
10
FinAnciAl RepoRt
notes to tHe FinAnciAl stAtements
30 remuneration of auDitors
During the period the following fees were paid or payable for services provided by the auditor of the parent
entity, its related practices and non-related audit firms:
consolidated
2005
$
2006
$
Parent entity
2006
$
2005
$
(a) assurance services
Audit services
PricewaterhouseCoopers Australian firm
Audit and review of financial reports and other
audit work under the
under the Corporations Act 2001
Non-PricewaterhouseCoopers audit firms for the audit
or review of financial reports of any entity in the Group
Total remuneration for audit services
Other assurance services
PricewaterhouseCoopers Australian firm
Investigating Accountants Reports
Total remuneration for other assurance services
157,500
-
29,000
186,500
3,000
3,000
446,577
446,577
-
-
Total remuneration for assurance services
633,077
3,000
-
-
-
-
-
-
(b) taxation services
PricewaterhouseCoopers Australian firm
Tax compliance services, including review
of company income tax returns
company income tax returns
Tax advice on IPO / equity raising
Total remuneration for taxation services
(c) advisory services
PricewaterhouseCoopers Australian firm
Legal fees
Total remuneration for advisory services
52,700
200,622
253,322
42,123
42,123
-
-
-
-
-
10,000
-
10,000
-
-
-
-
-
-
-
-
-
-
-
-
-
The Group’s policy to employ PricewaterhouseCoopers (PwC) on assignments additional to their statutory
audit duties where PwC’s expertise and experience with the Group are important. These assignments are
principally tax advice and Investigating Accountants Reports reporting on acquisitions, or where PwC is
awarded assignments on a competitive basis. It is the Group’s policy to seek competitive tenders for all major
consulting projects.
112 CHARTER HALL GROUP 2006 ANNUAL REPORT
31 commitments
(a) capital commitments
Expenditure contracted for at the reporting date but not recognised as liabilities is as follows:
Investment property
Payable:
Within one year
Later than one year but not later than five years
Later than five years
consolidated
2005
$’000
2006
$’000
Parent entity
2006
$’000
2005
$’000
165,885
-
-
165,885
-
-
-
-
-
-
-
-
-
-
-
-
(b) lease commitments: Group company as lessee
Commitments in relation to leases contracted for at the reporting date but not recognised as
liabilities, payable:
consolidated
2005
$’000
2006
$’000
Parent entity
2006
$’000
2005
$’000
313
1,075
-
1,388
305
1,303
85
1,693
-
-
-
-
-
-
-
-
Within one year
Later than one year but not later than five years
Later than five years
32 relateD Parties
(a) Parent entity
The parent entity within the Group is Charter Hall Limited.
(b) subsidiaries
Interests in subsidiaries are set out in note 34.
CHARTER HALL GROUP 2006 ANNUAL REPORT 113
10
FinAnciAl RepoRt
notes to tHe FinAnciAl stAtements
(c) key management personnel
Disclosures relating to key management personnel are set out in note 29.
In addition to these amounts the director C McGowan received $20,000 for acting on the due dilligence
committee for the initial public offering.
(d) transactions with related parties
The following transactions occurred with related parties:
consolidated
Parent entity
2006
2005
2006
2005
$
300,000
$
-
$
-
285,400
-
-
-
1,158,182
-
3,000,000
$
-
-
-
-
Sales of services
Commitment fees from related parties
Staff loan establishment and spotters
fee received from subsidiary
Tax consolidation legislation
Current tax payable assumed from
wholly-owned tax consolidated entities
Dividend revenue
Subsidiaries
(e) Guarantees
Guarantee of $3,900,000 provided for Charter Funds Management Limited.
(f) outstanding balances arising from sales of services
The following balances are outstanding at the reporting date in relation to transactions with related parties:
consolidated
Parent entity
2006
$
2005
$
2006
$
2005
$
Current receivables (tax funding agreement)
Wholly-owned tax consolidated entities
-
-
1,158,182
-
No provisions for doubtful debts have been raised in relation to any outstanding balances, and no expense
has been recognised in respect of bad or doubtful debts due from related parties.
114 CHARTER HALL GROUP 2006 ANNUAL REPORT
(g) loans to/from related parties
Loans from associates
Loans advanced
Loan repayments received
Interest charged
Interest received
End of period
Loans to subsidiaries
Beginning of the period
Loans received
Loan repayments paid
Interest charged
Interest paid
End of period
consolidated
Parent entity
2006
$
2005
$
2006
$
2005
$
11,401,476
(10,930,697)
211,631
(146,213)
536,197
287,064
-
-
-
287,064
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
55,570,475
(4,333,708)
7,393,582
(3,580,368)
55,049,981
-
-
-
-
-
-
-
-
-
-
-
No provisions for doubtful debts have been raised in relation to any outstanding balances, and no expense
has been recognised in respect of bad or doubtful debts due from related parties.
33 business combination
(a) summary of acquisition
At initial allotment (6 June 2005), Charter Hall Limited acquired Charter Hall Holdings Pty Limited and its
subsidiaries by purchasing 100% of the equity in Charter Hall Holdings Pty Limited.
Details of the fair value of the assets and liabilities acquired and goodwill are as follows:
Purchase consideration (refer to (b) on page 118):
Purchase consideration
Fair value of net identifiable assets acquired (refer to (c) on page 118)
Debit to equity reserve
consolidated
$’000
52,000
-
52,000
Parent
$’000
53,600
(1,600)
52,000
$2.9m of the purchase consideration was provided to vendors of CHH as equity. $1.6m was paid in cash to
the vendors. 80% of the $49.1m left was paid on 6/6/05 with the remaining 20% deferred. This has been offset
by minimal amounts of the call owed as at 30 June 2006.
CHARTER HALL GROUP 2006 ANNUAL REPORT 115
10
FinAnciAl RepoRt
notes to tHe FinAnciAl stAtements
(b) Purchase consideration
Outflow of cash to acquire subsidiary,
net of cash acquired
Purchase price
Less: equity consideration
Less: consideration due
Add: stamp duty on transfer of shares
Less: Cash balances acquired
Outflow of cash
(c) assets and liabilities acquired*
The assets and liabilities arising from the
acquisition are as follows:
Cash
Trade receivables
Plant and equipment
Trade payables
Provisions
Deferred tax liability
Net identifiable assets acquired
consolidated
2005
$’000
2006
$’000
Parent entity
2006
$’000
2005
$’000
52,000
(2,900)
(9,691)
294
39,703
(574)
39,129
-
-
-
-
-
-
-
53,600
(2,900)
(9,691)
294
41,303
-
41,303
-
-
-
-
-
-
-
acquiree’s
carrying
amount
$’000
574
1,805
293
(890)
(131)
(51)
1,600
fairfair
value
value
$’000
574
1,805
293
(890)
(131)
(51)
1,600
* This acquisition is only relevant to the parent entity as it was part of the reverse acquisition referred to in
note 1.
116 CHARTER HALL GROUP 2006 ANNUAL REPORT
(d) summary of stapling
At the time of the IPO CHL acquired CHPT for nil consideration. The net assets and results of CHPT were nil
at 6 June 2005 as there were no transactions between the formation of the Trust and this date. Refer to note 1
for further details of the accounting for the stapling arrangement.
34 subsiDiaries
The consolidated financial statements incorporate the assets, liabilities and results of the following
subsidiaries in accordance with the accounting policy described in note 1(b):
name of entity
country of
incorporation
class of
class of
securities
Charter Hall Holdings Pty Limited
Atrium Pyrmont Pty Limited
Charter Hall Funds Management Pty Limited
Bowvilla Pty Limited
Charter Hall Real Estate Pty Limited
Frolish Pty Limited
Stelridge Pty Limited
visokoi Pty Limited
Bieson Pty Limited
Sandkilt (No 2) Pty Limited
Charter Hall Real Estate (vic) Pty Limited
Charter Hall Core Plus Office Fund
Atrium Trust
333 George Street Trust
Stirling Street Trust
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
equity holding
equity holding
2006
%
2005
%
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
N/AN/A
N/A
100
100
100
100
100
100
100
100
100
N/A
N/A
N/A
N/A
CHARTER HALL GROUP 2006 ANNUAL REPORT 117
10
FinAnciAl RepoRt
notes to tHe FinAnciAl stAtements
35 investments in associates
(a) carrying amounts
Information relating to associates is set out below.
name of company
Principal
activity
activity
ownership
interest
interest
interest
consolidated
consolidated
Parent entity
Parent entity
2006
%
2005
%
2006
$’000
2005
$’000
2006
$’000
2005
$’000
Unlisted
Charter Hall Diversified
Diversified
Property Fund
Charter Hall Opportunity
Fund No 4
Property
Property
Investment
Investment
Property
Property
Development
19.9%
N/A
3,888
3.03%
N/A
497
-
-
-
497
-
-
The above associates are incorporated in Australia. The investment in Charter Hall Opportunity Fund No 4 is
held by Charter Hall Limited and is equity accounted. The investment in Charter Hall Diversified Property
Fund is held by Charter Hall Property Trust and as such is accounted for at fair value.
consolidated
2006
$’000
2005
$’000
(b) movements in carrying amounts
charter hall Diversified Property fund
Investment and carrying amount at the
end of the period
Distributions on this investment of $184k
are in the income statement
charter hall opportunity fund no 4
Investment
Share of losses after income tax
Distributions received/receivable
Carrying amount at the end of the period
(c) fair value of unlisted investments in associates
Charter Hall Diversified Property Fund
Charter Hall Opportunity Fund No 4
3,888
529
(22)
(10)
497
3,888
497
118 CHARTER HALL GROUP 2006 ANNUAL REPORT
(d) share of associates’ profits or losses
Profit before income tax
Income tax expense
Profit after income tax
(e) summarised financial information of associates
consolidated
2006
$’000
2005
$’000
(31)
9
(22)
2006
Charter Hall Diversified
Property Fund
Charter Hall Opportunity
Fund No 4 Pty Limited
Group’s share of:
assets
$’000
liabilities
$’000
revenues Profit/(loss)
$’000
$’000
8,727
5,627
484
(538)
1,068
586
3
(22)
36 events occurrinG after the balance sheet Date
(a) Equity of $86.4m in Charter Hall Core Plus Office Fund was issued to external investors on 1 July 2006.
CHPT’s investment was increased to $27.1m so it will be accounted for at fair value in future years.
(b)
The purchase of 372 White Horse Road, Nunawading was completed on 3 July with the outstanding
amount of $4.7m paid to the vendor. In addition, $40m was paid as a first instalment under the
development agreement.
(c)
The purchase of 25 Nepean Highway, Mentone, victoria was completed on 21 July 2006 with a total of
$21.9m paid to the vendor.
CHARTER HALL GROUP 2006 ANNUAL REPORT 119
10
FinAnciAl RepoRt
notes to tHe FinAnciAl stAtements
37 reconciliation of Profit after income tax to net cash flow inflow from
oPeratinG activities
Profit for the period
Depreciation and amortisation
Non-cash employee benefits expense –
security-based payments
Dividend and interest income
Fair value adjustment to investment property
Share of profits of associates not received as dividends
Change in operating assets and liabilities, net of
effects from purchase of controlled entity
Decrease / (increase) in trade debtors
(Decrease) / increase in operating liabilities
Increase / (decrease) in provision for
income taxes payable
Increase / (decrease) in provision for
deferred income tax
Increase in other provisions
from operating activities
Net cash inflow / (outflow) from operating activities
(outflow) from operating activities
consolidated
2005
$’000
2006
$’000
Parent entity
2006
$’000
2005
$’000
12,395
94
3,113
53
(1,592)
-
165
(6,075)
5,564
22
-
(189)
-
-
-
(3,705)
22
(3,763)
3,106
508
(394)
-
3,232
1,938
(558)
(1,764)
(2,379)
330
11,397
-
37
2,570
-
-
(3,807)
-
-
-
-
-
-
-
-
-
-
-
-
120 CHARTER HALL GROUP 2006 ANNUAL REPORT
38 earninGs Per security
(a) basic earnings / (loss) per security
Profit before fair value adjustments
Fair value adjustments
Profit attributable to the ordinary
equity holders of the company
(b) Diluted earnings / (loss) per security
Profit before fair value adjustments
Fair value adjustments
Profit attributable to the ordinary
equity holders of the company
(c) reconciliations of earnings used in
calculating earnings per security
Basic earnings per security
Profit / (loss) before fair value adjustments
Fair value adjustments
Profit / (loss) attributable to the ordinary
equity holders of the consolidated entity used
in calculating basic earnings per security
Diluted earnings per security
Profit / (loss)
Interest received from LTI securities
Profit / (loss) attributable to the ordinary
equity holders of the consolidated entity
used in calculating diluted earnings per security
Fair value adjustments
Profit / (loss) attributable to the ordinary
equity holders of the consolidated entity used
in calculating diluted earnings per security
before fair value adjustments
consolidated
Parent
2006
cents
2005
Cents
2006
cents
2005
Cents
6.67
(2.06)
11.60
-
(0.60)
-
4.61
11.60
(0.60)
6.67
(2.02)
11.60
-
(0.40)
-
4.65
11.60
(0.40)
17,959
(5,564)
3,113
-
(1,592)
-
12,395
3,113
(1,592)
12,395
404
3,113
-
(1,592)
404
12,799
3,113
(1,188)
5,564
-
-
18,363
3,113
(1,188)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
CHARTER HALL GROUP 2006 ANNUAL REPORT 121
10
FinAnciAl RepoRt
notes to tHe FinAnciAl stAtements
(d) weighted average number of securities used as the denominator
Weighted average number of ordinary
securities used as the denominator in
alculating basic earnings per security
Adjustments for calculation of diluted
earnings per security:
Securities issued to the Charter Hall
Limited Executive Loan Security Plan
Weighted average number of ordinary
securities and potential ordinary securities
used as the denominator in calculating
earnings per security
diluted earnings per security
consolidated
Parent entity
2006
number
2005
Number
2006
number
2005
Number
269,115,828
26,830,685 269,115,828
(6,078,462)
-
(6,078,462)
275,194,290
26,830,685 275,194,290
-
-
-
(e)
information concerning the classification of securities
Securities issued under the Charter Hall Limited Executive Loan Security Plan
(i)
Securities issued under the Charter Hall Limited Executive Loan Security Plan have been issued in trust and
have a corresponding loan given to the employee. Under AIFRS the loan, securities, interest received on the
loan and the distribution paid and payable is derecognised for the preparation of the financial report but
recognised for the calculation of diluted earnings per security.
122 CHARTER HALL GROUP 2006 ANNUAL REPORT
39 security-baseD Payments
(a) employee security Plan
The establishment of the Charter Hall Limited Executive Loan Security Plan was approved by the Board in the
process of the initial public offering. Staff who are eligible to participate in the plan are determined by the
Chief Executive Officers in discussion with the Board. Please refer to the Remuneration Report for details
relating to vesting conditions.
Securities are granted under the plan at market value and are purchased with a loan to the employee.
Recourse on the loan is limited to the value of the securities. The securities are intended to vest over a three
year period in equal portions. The amount of interest due on the loan is equivalent to the amount of the
distribution receivable on the underlying securities.
Set out below are summaries of securities granted under the plan:
Securities issued under the plan to
participating employees on 6 June 2005
6,200,000
-
6,200,000
-
consolidated
2006
2005
Parent entity
2006
2005
(b) expenses arising from security-based payment transactions
Total expenses arising from security-based
payment transactions recognised during the
period as part of employee benefit expense were as follows:
consolidated
2006
$’000
2005
$’000
Parent entity
2006
$’000
2005
$’000
Securities issued under employee security plan
165
-
-
-
40 transition to australian equivalents to ifrs
There were no differences between the result and financial position at 1 July 2004 and 30 June 2005 under
AGAAP and AIFRS. Therefore no reconciliations are required for these two periods.
CHARTER HALL GROUP 2006 ANNUAL REPORT 123
11
DiRectoRs’ DeclARAtion
In the directors’ opinion:
(a)
(b)
(c)
the financial statements and notes set out on the preceding pages are in accordance with the
Corporations Act 2001, including:
(i)
complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory
professional reporting requirements; and
giving a true and fair view of the company’s and consolidated entity’s financial position as at
30 June 2006 and of its performance, as represented by the results of their operations, changes
in equity and their cash flows, for the financial year ended on that date; and
(ii)
there are reasonable grounds to believe that the company will be able to pay its debts as and when
they become due and payable; and
the audited remuneration disclosures set out on pages 52 to 59 of the directors’ report comply with
Accounting Standards AASB 124 Related Party Disclosures and the Corporations Regulations 2001; and
The directors have been given the declarations by the chief executive officer and chief financial officer
required by section 295A of the Corporations Act 2001.
This declaration is made in accordance with a resolution of the directors.
K Roxburgh
Chairman
Sydney
23 August 2006
124 CHARTER HALL GROUP 2006 ANNUAL REPORT
12
inDepenDent AuDit RepoRt to tHe stApleD
secuRitY HolDeRs oF cHARteR HAll gRoup
inDePenDent auDit rePort to the staPleD
security holDers of charter hall GrouP
Pricewaterhousecoopers
abn 52 780 433 757
Darling Park Tower 2, 201 Sussex Street
GPO BOx 2650, SYDNEY NSW 1171
Dx 77 Sydney Australia
www.pwc.com/au
Telephone +61 2 8266 0000
Facsimile +61 2 8266 9999
MATTERS RELATING TO THE ELECTRONIC PRESENTATION OF THE AUDITED FINANCIAL REPORT
This audit report relates to the financial report and remuneration disclosures of Charter Hall Limited (the
company) and Charter Hall Group for the period ended 30 June 2006 included on Charter Hall Limited’s web
site. The company’s directors are responsible for the integrity of the Charter Hall Limited web site. We have
not been engaged to report on the integrity of this web site. The audit report refers only to the financial report
and remuneration disclosures identified below. It does not provide an opinion on any other information which
may have been hyperlinked to/from the financial report or the remuneration disclosures. If users of this report
are concerned with the inherent risks arising from electronic data communications they are advised to refer to
the hard copy of the audited financial report and remuneration disclosures to confirm the information included
in the audited financial report and remuneration disclosures presented on this web site.
AUDIT OPINION
In our opinion:
1.
the financial report of the Charter Hall Group:
•
gives a true and fair view, as required by the Corporations Act 2001 in Australia, of the financial
position of the Charter Hall Group (defined below) as at 30 June 2006, and of its performance for
the period ended on that date, and
is presented in accordance with the Corporations Act 2001, Accounting Standards and other
mandatory financial reporting requirements in Australia, and the Corporations Regulations 2001
and
•
2.
the remunerations disclosures that are contained on pages 52 to 59 of the directors’ report comply
with Accounting Standard AASB 124 Related Party Disclosures (AASB 124) and the Corporations
Regulations 2001.
This opinion must be read in conjunction with the rest of our audit report.
SCOPE
the financial report, remunerations disclosures and directors’ responsibility
The financial report comprises the balance sheets, income statements, cash flow statements, statements of
changes in equity, accompanying notes to the financial statements, and the directors’ declaration for both
Charter Hall Limited and Charter Hall Group (the consolidated entity) for the period ended 30 June 2006.
The consolidated entity comprises both the company and the entities it controlled during that period.
The company has disclosed information about the remuneration of directors and executives (remuneration
disclosures) as required by AASB 124, under the heading “remuneration report” on pages 52 to 59 of the
directors’ report, as permitted by the Corporations Regulations 2001.
CHARTER HALL GROUP 2006 ANNUAL REPORT 125
12
inDepenDent AuDit RepoRt to tHe stApleD
secuRitY HolDeRs oF cHARteR HAll gRoup
The directors of the company are responsible for the preparation and true and fair presentation of the
financial report in accordance with the Corporations Act 2001. This includes responsibility for the
maintenance of adequate accounting records and internal controls that are designed to prevent and detect
fraud and error, and for the accounting policies and accounting estimates inherent in the financial report.
The directors are also responsible for the remuneration disclosures contained in the directors’ report.
AUDIT APPROACH
We conducted an independent audit in order to express an opinion to the stapled securityholders of the
group. Our audit was conducted in accordance with Australian Auditing Standards, in order to provide
reasonable assurance as to whether the financial report is free of material misstatement and the remuneration
disclosures comply with AASB 124 and the Corporations Regulations 2001. The nature of an audit is
influenced by factors such as the use of professional judgement, selective testing, the inherent limitations of
internal control, and the availability of persuasive rather than conclusive evidence. Therefore, an audit cannot
guarantee that all material misstatements have been detected. For further explanation of an audit, visit our
website http://www.pwc.com/au/financialstatementaudit.
We performed procedures to assess whether in all material respects the financial report presents fairly, in
accordance with the Corporations Act 2001, Accounting Standards and other mandatory financial reporting
requirements in Australia, a view which is consistent with our understanding of the company’s and the
consolidated entity’s financial position, and of their performance as represented by the results of their
operations, changes in equity and cash flows. We also performed procedures to assess whether the
remuneration disclosures comply with AASB 124 and the Corporations Regulations 2001.
We formed our audit opinion on the basis of these procedures, which included:
•
examining, on a test basis, information to provide evidence supporting the amounts and disclosures in
the financial report and remuneration disclosures, and
assessing the appropriateness of the accounting policies and disclosures used and the
reasonableness of significant accounting estimates made by the directors.
•
Our procedures include reading the other information in the Annual Report to determine whether it contains
any material inconsistencies with the financial report.
While we considered the effectiveness of management’s internal controls over financial reporting when
determining the nature and extent of our procedures, our audit was not designed to provide assurance on
internal controls.
Our audit did not involve an analysis of the prudence of business decisions made by directors or
management.
INDEPENDENCE
In conducting our audit, we followed applicable independence requirements of Australian professional ethical
pronouncements and the Corporations Act 2001.
PricewaterhouseCoopers
Sydney
23 August 2006
B K Hunter
B K Hunter
Partner
126 CHARTER HALL GROUP 2006 ANNUAL REPORT
13
secuRitY HolDeR inFoRmAtion
The Security Holder information set out below was applicable as at 31 July 2006.
a. Distribution of equity securities
Analysis of numbers of equity security holders by size of holding:
Ordinary Securities
1 – 1000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
13,746
239,641
1,228,399
20,115,759
335,262,176
356,859,721
b.
equity security holders
Twenty largest quoted equity security holders
The names of the twenty largest holders of quoted equity securities are listed below:
name
Transfield (CHG) Limited
Westpac Custodian Nominees Limited
National Nominees Limited
J P Morgan Nominees Australia Limited
CHL Executive Loan Security Plan Managers Pty Limited
Westpac Financial Services Limited
Citicorp Nominees Pty Limited
Doverville Holdings Pty Limited
ANZ Nominees Limited
Citicorp Nominees Pty Limited
Cogent Nominees Pty Limited
Bond Street Custodians Pty Limited
Cogent Nominees
Portmist Pty Limited
Citicorp Nominees Pty Limited
AMP Life Limited
Transport Accident Commission
victorian Workcover Authority
David John Southon
Queens Hill Pty Ltd
c.
substantial holders
Substantial holders in the group are set out below:
Ordinary securities
Transfield (CHG) Pty Limited
Deutsche Asset Management (Australia) Limited
Westpac Banking Corporation (BT)
UBS Nominees Pty Ltd
Legg Mason Asset Management Australia Ltd
D.
voting rights
ordinary securities
number held
59,250,131
57,472,526
40,933,516
29,102,007
12,507,013
11,375,548
11,289,595
10,760,040
9,037,611
7,420,964
6,634,028
5,927,826
5,606,056
5,562,117
4,829,465
3,815,081
3,358,626
2,607,636
2,499,997
2,407,683
292,397,466
Percentage of
issued securities
16.60
16.11
11.47
8.16
3.50
3.19
3.16
3.02
2.53
2.08
1.86
1.66
1.57
1.56
1.35
1.07
0.94
0.73
0.70
0.67
81.93
number held
59,250,131
32,136,526
28,531,810
27,348,669
18,067,729
Percentage
16.59%
9.00%
7.99%
7.66%
5.06%
The voting rights attaching to each class of equity securities are set out below:
(a) Ordinary shares
On a show of hands every member present at a meeting in person or by proxy shall have one vote and
upon a poll each share shall have one vote.
CHARTER HALL GROUP 2006 ANNUAL REPORT 127
14
coRpoRAte DiRectoRY
charter hall Group
Charter Hall Limited and Charter Hall Funds
Management Limited as Responsible Entity for the
Charter Hall Property Trust
Any queries regarding change of details, mailing
address, distribution and communication
instructions should be forwarded to:
Link Market Services
Level 12, 680 George Street
Sydney NSW 2000
Locked Bag A14
Sydney South NSW 1235
Telephone: 02 8280 7111
International: +61 2 8280 7111
Fax: 02 9287 0303
Fax: 02 9287 0309 (for proxy voting)
Email: registrars@linkmarketservices.com.au
Website: www.linkmarketservices.com.au
auditor
PricewaterhouseCoopers
Darling Park Tower 2
201 Sussex Street
Sydney NSW 2000
legal advisers
Allens Arthur Robinson
Level 23, The Chifley Tower
2 Chifley Square
Sydney NSW 2000
bankers
National Australia Bank
Level 24, NAB House
255 George Street
Sydney NSW 2000
notice of annual General meeting
The Annual General Meeting of Charter Hall Group
Will be held at:
City Recital Hall Angel Place
Function Room
123 Pitt Street, Sydney
Time:
2.30pm
Date:
Thursday 26 October 2006
Directors
Kerry Roxburgh – Chairman
Roy Woodhouse – Deputy Chairman
André Biet – Executive Director
Cedric Fuchs – Executive Director
Patrice Derrington
Glenn Fraser
Colin McGowan
Peter McMahon
company secretary
Nathan Francis
Joint chief executive officers
David Harrison
David Southon
Principal registered office
Level 6, 110 Walker Street
North Sydney NSW 2060
PO Box 1367 North Sydney NSW 2059
Telephone: 02 8908 4000
Fax: 02 8908 4040
website
www.charterhall.com.au
stock exchange listing details
Charter Hall Group is listed on the Australian
Stock Exchange (ASx) as a stapled entity with
the code ‘CHC’.
Stapled securities are traded weekdays on the ASx
between the hours of 10.00am and 4:00pm (AEST).
registry
Charter Hall Group’s stapled security registration
and distribution communication is managed by Link
Market Services.
128 CHARTER HALL GROUP 2006 ANNUAL REPORT