Charter Hall Group
Positioned to perform
ANNUAL REPORT 2007
PERFORMANCE ACTIVITY
03 2007 KEY HIGHLIGHTS
PERFORMANCE MILESTONES
04 SECURITY PRICE PERFORMANCE
PERFORMANCE PLATFORM
08 CHAIRMAN’S LETTER
10 JOINT MANAGING DIRECTOR’S REPORT
12 CHARTER HALL GROUP
21 FUND UPDATE
21 – CHARTER HALL PROPERTY TRUST
27 – INVESTMENT FUNDS
47 – OPPORTUNITY FUNDS
53 BOARD OF DIRECTORS
OUTPERFORMANCE
59 DIRECTORS’ REPORT
73 CORPORATE GOVERNANCE STATEMENT
76 FINANCIAL REPORT
123 DIRECTORS’ DECLARATION
124 INDEPENDENT AUDIT REPORT
125 SHAREHOLDER INFORMATION
128 CORPORATE DIRECTORY
CHARTER HALL GROUP 2007 ANNUAL REPORT
| 1
POSITIONED TO PERFORM As one of Australia’s leading
property investment fund managers, Charter Hall’s objective
is to enhance its performance by adopting a vertically
integrated business model. This approach provides a solid
platform for significant growth and enabled us to deliver total
returns of 118% in the year to 30 June 2007.
2
| CHARTER HALL GROUP 2007 ANNUAL REPORT
275 GEORGE STREET AND NORTHBANK PLAZA, BRISBANE, QLD
CHARTER HALL GROUP 2007 ANNUAL REPORT
| 3
PERFORMANCE ACTIVITY
2007 KEY HIGHLIGHTS
· FUM increased by 108% to $2.8 billion
· FY07 DPS 10.44cps – a 47% increase
on FY06 DPS
· 118% TSR to CHC security holders
– 12 months to 30 June 07
· 2 additional wholesale funds successfully
launched – CHOF5 and CPIF raised
$650 million in equity
· Crystallised profits for 3 development projects
· 26 investment assets acquired valued
at $1.53 billion
4
| CHARTER HALL GROUP 2007 ANNUAL REPORT
PERFORMANCE MILESTONES
SECURITY PRICE PERFORMANCE
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CHARTER HALL GROUP 2007 ANNUAL REPORT
| 5
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6
| CHARTER HALL GROUP 2007 ANNUAL REPORT
PERFORMANCE MILESTONES
FUND
CHC % # Assets
Asset
Capacity
Equity
Committed
Allocated
Year
Est.
CHARTER HALL OPPORTUNITY FUND 5 (CHOF5)
15%
CHARTER HALL OPPORTUNITY FUND 4 (CHOF4)
3%
CORE PLUS OFFICE FUND (CPOF)
CORE PLUS INDUSTRIAL FUND (CPIF)
CORE PLUS RETAIL FUND (CPRF)*
23%
32%
20%
0
5
12
7
14
$1,000m
$300m
0%
$500m
$165m
88%
$1,250m
$625m
62%
$700m
$350m
40%
$700m
$350m*
50%
CHARTER HALL UMBRELLA FUND (CHUF)*
0-20%
Multiple
$150m
$150m*
TBA
DIVERSIFIED PROPERTY FUND (DPF)
0-20%
CHARTER HALL INVESTMENT FUNDS 2-6 (CHIF2-6)
0%
CHARTER HALL PROPERTY TRUST (CHPT)*
100%
TOTAL Post Current Raisings
* Subject to successful capital raising of CHUF and CPRF
** Accounts for $380 million of assets being sold down into CPRF
11
10
3
62
$125m
$53m
100%
$124m
$70m
100%
96-05
$750m
$460m**
100%
05
$5,274m
$2,453m
07
05
06
07
08
07
05
Status
Closed
Ended
Closed
Ended
Open
Ended
Open
Ended
Open
Ended
Open
Ended
Open
Ended
Closed
Ended
DPS
NPAT
Tax Deferred
Underlying EPS*
AUM**
Gearing
FY07
10.44cps
$43.2m
51%
9.51cps
$2.81bn
24.4%
FY06
7.10cps
$17.5m
39.1%
6.47cps
$1.35bn
27.7%
Variance
+47%
+147%
+23%
+47%
+108%
-3.3%
* Underlying EPS is after adding back AIFRS non-cash expenses (mainly the share based remuneration expense and tax expense on the unrealised gain in the investment in Axiom Properties Limited)
** Measured on a completed basis
CHARTER HALL GROUP 2007 ANNUAL REPORT
| 7
SYDNEY WHARF, PYRMONT, NSW · ATRIUM, 50 UNION STREET, SYDNEY, NSW · ST. GEORGE BANK, KOGARAH, NSW
167 MACQUARIE STREET, SYDNEY, NSW · 225 ST GEORGES TERRACE, PERTH, WA · 34 HUNTER STREET, SYDNEY, NSW
HOME HQ, NUNAWADING, VIC · COLES GROUP LTD REGIONAL DISTRIBUTION CENTRE, PERTH AIRPORT WA · FOODTOWN, AUCKLAND, NZ
8
| CHARTER HALL GROUP 2007 ANNUAL REPORT
PERFORMANCE PLATFORM
CHAIRMAN’S LETTER
“The Group’s total
income increased
by $28.6 million to
reach $60.8 million,
an increase of 89%
on last year.”
CHARTER HALL GROUP 2007 ANNUAL REPORT
| 9
In addition to its investment strategy, the
success of Charter Hall is underpinned by an
energetic and highly experienced executive
and management team led by Joint Managing
Directors David Harrison and David Southon.
This year has seen 18 new executive
appointments around Australasia and the
opening of new offi ces in Brisbane, Perth and
Auckland. These steps will further improve
the Group’s access to capital and are an
essential part of building our capacity to deliver
future performance.
During the 2006/7 year, Charter Hall acquired
a 50% interest in national developer Commercial
and Industrial Property Pty Limited (CIP).
This acquisition is strategic for Charter Hall
and enables the Group to leverage CIP’s
industrial sector relationships and expertise.
CIP will improve Charter Hall’s access to
commercial and industrial deal fl ow throughout
Australia and assist with the growth in funds
under management across a number of the
Group’s managed funds.
On behalf of all Security Holders and investors
in Charter Hall’s suite of unlisted products,
I express the Board’s appreciation for the
outstanding contribution made by the entire
Charter Hall team. I also recognise and thank
my fellow Board members for their invaluable
contribution and support.
As Charter Hall continues to grow and perform,
we look forward to another exciting and
successful year ahead.
Yours sincerely,
Kerry Roxburgh
Chairman
Dear Investor,
On behalf of the Board of the Charter Hall
Group, I am pleased to present the Annual
Report for our second year as a listed Group.
The Group recorded a strong $43.2 million
operating result, up 147% on the previous
corresponding period. Since 30 June 2006
the price of the stapled securities of the Group
improved by 110%, ending the 2006/7 fi nancial
year at $2.84.
In 2006/7, the Group experienced solid growth
in its funds management business and our
fi nancial results exceeded our expectations.
I am delighted to say Charter Hall is now rated
one of Australia’s best performing property
investment fund managers.
The Group’s total income increased by $28.6
million to reach $60.8 million, an increase of
89% on last year. It also achieved numerous
key milestones over the past year, including:
· Net profi t after tax of $43.2 million
compared to $17.5 million in the previous
corresponding period.
· 108% growth in assets under management
during the year from $1.3 billion to
$2.8 billion, providing the Group with
signifi cant additional recurring earnings.
· Acquisition of 26 investment assets valued
at $1.53 billion.
· The establishment of two additional wholesale
funds: Charter Hall Opportunity Fund No.
5 (CHOF5) and the Charter Hall Core Plus
Industrial Fund (CPIF), raising aggregate equity
of $650 million.
· An eleventh acquisition by the Core Plus
Offi ce Fund (CPOF), bringing its assets to
approximately $1 billion.
A major highlight was the closure of CHOF5.
This was Australia’s largest opportunistic
property fund raising requiring a scaling back
to a self-imposed maximum of $300 million
in committed equity.
Charter Hall’s objective is to enhance its
performance by adopting a vertically integrated
business model that provides a solid platform
for signifi cant growth. Investors have benefi ted
from this approach with the model delivering
a total return, including distributions, of 118%
in the year to 30 June 2007. The full-year
distribution to CHC Security Holders of
10.44 cents per security was 47% higher
than last year.
10
| CHARTER HALL GROUP 2007 ANNUAL REPORT
PERFORMANCE PLATFORM
JOINT MANAGING DIRECTORS’ REPORT
“Charter Hall Group
successfully
expanded its diverse
sources of equity,
providing wholesale,
retail and high net
worth clients with
access to new
products.”
CHARTER HALL GROUP 2007 ANNUAL REPORT
| 11
The past year has been exceptionally strong
for the Charter Hall Group (CHC). The Group
has capitalised on the post-IPO momentum
created by our diversifi ed business model
return on equity focus. This has translated into
outstanding business growth and excellent total
returns to Security Holders.
During the 2006/7 year, assets under
management increased by 108% compared
to the previous corresponding period. The
Group also raised an impressive $835 million
in additional equity from unlisted investors and
$133 million of additional CHC equity.
The Charter Hall Property Trust (the Trust)
continued its transformation from owning assets
directly to owning cornerstone co-investments
within Charter Hall unlisted managed funds.
This strategy has improved the weighted
average lease term to expiry (WALE) of the
Trust to 9 years and enhanced the potential
for growth in distributions. Charter Hall Group
also successfully expanded its diverse sources
of equity, providing wholesale, retail and high
net worth clients with access to new products.
Together, these steps provide a robust platform
for future performance.
With the $300 million close of the Charter Hall
Opportunity Fund No. 5 (CHOF5) in June 2007,
the Group achieved a record equity raising for
an Australian opportunity fund. A further $350
million was raised by the Core Plus Industrial
Fund (CPIF), taking total Core Plus equity
commitments to $975 million in 12 months.
The Core Plus Offi ce Fund (CPOF) achieved an
inaugural gross IRR of 19% with excellent asset
diversity, geographic spread and a high-calibre
tenant covenant profi le. Major tenants with 10,
12, 15 and 20 year leases within the Core Plus
funds include American Express, BHP Billiton,
Coles Group, Myer Group, St.George Bank,
Toll Holdings, Bunnings and Telstra.
Due to the success of CPOF, CPIF and demand
from wholesale clients, Charter Hall also
launched the Core Plus Retail Fund (CPRF).
This retail fund is targeting $350 million in equity
with an asset capacity of $700 million. The
seed portfolio assembled by the Group includes
tenants such as Woolworths over 20 years,
Bunnings over 12 years, Harvey Norman over
12 years and various national brand tenancies
providing a WALE of 9 years.
Our opportunistic funds successfully
completed several projects and acquired 3
new projects, with a total value on completion
exceeding $900 million. The range of projects
is diverse, with 2 Brisbane CBD offi ce
developments, a Perth CBD offi ce project, a
bulky goods retail project on Sydney’s North
Shore and a New Zealand bulky goods retail
project. The success of Charter Hall Opportunity
Fund No. 4 (CHOF4), with projected returns on
equity in excess of 30% per annum, laid the
foundation for the successful equity raising
for CHOF5.
The Group’s goals for the 2007/8 fi nancial year
include completing the CPRF equity raising,
expanding the existing unlisted Core Plus and
opportunistic funds, and using increased debt
capacity, post the CPRF equity raising, to
secure further assets for new fund initiatives.
Due to the continued expansion of funds under
management, diversifi ed development activities
and new business locations, we are confi dent
Charter Hall will further capitalise on its
growth prospects.
We would like to take this opportunity to thank
everyone in the Charter Hall team, our valued
tenants and investor partners for their role in
assisting the Group prosper over the 2006/7
Year. We are excited about the potential for
the Group to continue to outperform having
now established a signifi cant platform for
further growth.
David Harrison
Joint Managing Director
Charter Hall Limited
David Southon
Joint Managing Director
Charter Hall Limited
12
| CHARTER HALL GROUP 2007 ANNUAL REPORT
CHARTER HALL GROUP
“The Charter Hall
Group is one
of Australia’s
best performing
fund managers
and property
developers.”
PROPERTY DEVELOPMENT
On behalf of its managed funds, the
development division has developed, or is
in the process of developing more than 20
projects with an estimated completion value
in excess of $2 billion.
With skills and a proven track record in
developing large-scale, institutional-grade
development projects, a number of completed
projects have been acquired by listed or
wholesale property investment groups.
Several of these developments have received
numerous awards.
PROPERTY INVESTMENT BANKING
The Property Investment Banking Division
focuses on providing the fi nancial structuring
and strategic property advice including
acquisitions and divestment strategies,
transaction structuring, investment product
structuring, portfolio optimisation and fi nancing.
Using the extensive in-house expertise, the
Property Investment Banking Division has
assisted external clients balance sheet capital
committed to property into their core business
activities or realise profi t on asset divestment.
PROPERTY MANAGEMENT
The Property Management Division provides
a range of property management services
across the commercial, industrial sectors,
for assets held by Charter Hall funds as well
as selected external clients. Services include
market analysis, risk management, occupancy
maximisation, environmental and engineering
management and information management.
Established in 1991 and listed on the ASX
in 2005 as a stapled security, Charter Hall
Group (CHC) comprises Charter Hall Limited
and Charter Hall Property Trust. Over the
past 16 years, it has continued to build on its
competitive position and expand its platform
for growth. Today the Group has funds under
management of more than $2.8 billion and a
market capitalisation of over $1.2 billion.
Charter Hall’s success has been underpinned
by its innovative and highly experienced
management team, which has enabled the
Group to source, develop and effectively
manage its funds and development portfolios.
Charter Hall has earned a strong reputation for
innovation and high performance in property
investment and managing external equity.
The Charter Hall Group believes that in order
to outperform its peers it must manage its
portfolios more actively, continue to source
acquisitions off-market through its strong
relationships with development companies
and large corporations across the country,
and leverage off its depth of experience in
implementing innovative property transactions
and projects to enhance returns for investors.
FUNDS MANAGEMENT
The Funds Management Division structures
and manages investment and opportunity
funds and the assets of Charter Hall Property
Trust. The investment product suite spans
a broad risk/return spectrum and has a
reputation for innovation and performance in
managing external equity.
The Group’s balance sheet capacity underpins
funds management activities. In addition,
Charter Hall has access to wholesale, high-net-
worth and retail investors through its unlisted
funds. Enjoying strong investor relationships,
the Group’s funds have historically delivered
attractive returns. In turn, a large proportion of
investors re-invest.
One of the Group’s strengths is its proven
ability to source cross-sector, geographically
diverse and off-market deals. Deep industry
relationships with vendors, agents and
strategic partners are leveraged to identify
acquisition opportunities, resulting in
consistent strong returns and growth in
assets under management.
CHARTER HALL GROUP
CORPORATE STRUCTURE
CHARTER HALL GROUP 2007 ANNUAL REPORT
| 13
BOARD OF DIRECTORS
CHARTER HALL LIMITED
Stapled & Managed
via Responsible Entity
Charter Hall Funds
Management Limited
CHARTER HALL
PROPERTY TRUST
FUNDS MANAGEMENT
PROPERTY MANAGEMENT
INVESTMENT
PROPERTY
DEVELOPMENT
PROPERTY
INVESTMENT BANKING
CORPORATE SERVICES:
FINANCE, COMPANY SECRETARIAL COMPLIANCE, ADMINISTRATION, INVESTOR RELATIONS, LEASING, MARKETING, ACQUISITIONS
14
| CHARTER HALL GROUP 2007 ANNUAL REPORT
CHARTER HALL GROUP
“Charter Hall
believes that in
order to outperform
its peers it must
manage its portfolios
more actively.”
The Group’s 16-year history of managing
investor capital comprises seven wholesale and
six retail unlisted property funds. The Group’s
reputation of strong performance and corporate
governance has attracted investment by many
of the largest Australian Superannuation Funds
in addition to investment master trusts and
offshore investment institutions. Charter Hall
will continue to build on its successful business
model while expanding its reach nationally
across Australia and more recently into
New Zealand.
Charter Hall’s strength lies in the diversity of its
activities, combining fund management across
the risk spectrum with property development
and management. Since its inception, the
Group has achieved a solid track record across
its activities, underpinned by a highly skilled,
incentivised and motivated management team
with diverse expertise across property sectors
and risk-return profi les. Charter Hall’s track
record is refl ected in:
· its funds management activities across the
risk-return spectrum;
· very signifi cant co-investments in all of its
unlisted property funds;
· deal sourcing of investment opportunities
predominantly off-market;
· its historical strong track-record of
performance; and
· its highly regarded property funds
management team, which currently manages
the largest series of opportunistic and core
plus property funds in Australia.
CHARTER HALL GROUP 2007 ANNUAL REPORT
| 15
CHARTER HALL GROUP
CO-INVESTMENT PHILOSOPHY
The Charter Hall Group strongly believes in aligning its interests with those of its investors. This is achieved by targeting an initial 20% co-investment in
each of its unlisted property funds.
CHARTER HALL GROUP (CHC)
15%
3%
23%
32%
20%
100%*
0-20%
0-20%
CHOF5
CHOF4
CPOF
CPIF
CPRF
CHPT
DPF
CHUF
$1bn
$500m
$925m –
$1250m
$265m –
$700m
$430m –
$700m
$590m –
$120m
$125m
$150m
* Co-Investment percentage represents target co-investment level. CHPT refers to the Group’s direct property portfolio. Actual levels of co-investment may change over time.
INVESTMENT PRODUCT SPECTRUM
RETURN
18+%
16-17%
12-15%
9-11%
CORE
DPF, CHPT, CHIF 2-6
LOW
OPPORTUNISTIC
CHOF4 & CHOF5
ENHANCED
CORE PLUS
CHUF, CPOF, CPIF, CPRF
CRITERIA
CORE INVESTMENTS
70% CORE / 30% ENHANCED
INVESTORS
INSTITUTIONAL,
HIGH NET WORTH, RETAIL
WHOLESALE
WHOLESALE
HIGH
DEVELOPMENT
OPPORTUNITIES
16
| CHARTER HALL GROUP 2007 ANNUAL REPORT
CHARTER HALL GROUP
GEOGRAPHICAL DIVERSITY OF ASSETS
Charter Hall Offices
Charter Hall Property
19%
WESTERN AUSTRALIA
9 properties
PERTH
1%
SOUTH AUSTRALIA
1 property
ADELAIDE
11%
VICTORIA
14 properties
CHARTER HALL GROUP 2007 ANNUAL REPORT
| 17
PERCENTAGE OF PORTFOLIO
BY REGION
6 7
1
5
2
33
4
1. Western Australia
2. Victoria
3. South Australia
4. New South Wales
5. Queensland
6. New Zealand
7. Australian Capital Territory
19%
11%
1%
37%
30%
2%
1%
TOP TENANTS INCLUDE:
· Telstra
· Coles Myer
· St George Bank
· Bunnings
· American Express
· Harvey Norman
· Central Qld University
· Parsons Brinkerhoff
· Foodtown
· Hatch
· BHP Billiton
· Gresham Partners
· Woolworths
AUCKLAND
2%
NEW ZEALAND
2 properties
DUNEDIN
30%
QUEENSLAND
13 properties
BRISBANE
37%
NEW SOUTH WALES
17 properties
SYDNEY
CANBERRA
1%
MELBOURNE
AUSTRALIAN CAPITAL TERRITORY
1 property
18
| CHARTER HALL GROUP 2007 ANNUAL REPORT
VIEW FROM 167 MACQUARIE STREET, SYDNEY, NSW
CHARTER HALL GROUP 2007 ANNUAL REPORT
| 19
CHARTER HALL GROUP
GROWTH IN ASSETS UNDER MANAGEMENT
Charter Hall Group has historically demonstrated its deal
sourcing capabilities by executing 53 transactions totalling
$2.6 billion completed in the FY05–FY07 period (80%
off-market) across property sectors in most Australian states.
Its integrated business model, industry relationships, proven
track record of successful joint venture relationships and
an experienced acquisition team promote greater market
penetration and off-market deal flow.
$5,000m
$4,000m
$3,000m
$2,000m
$1,000m
$0m
$273m
2000
$2,500m
$692m
$692m
$288m
$333m
$568m
$728m
$645m
$415m
$833m
$458m
$2,120m
$2,120m
2001
2002
2003
2004
2005
2006
2007
2008+
CPOF, CPIF, CHOF & CPRF* Remaining Acquisition Capacity
Opportuistic Assets (completion value)
Core and Core Plus Assets
* Subject to capital raised for CPRF
20
| CHARTER HALL GROUP 2007 ANNUAL REPORT
CHARTER HALL GROUP 2007 ANNUAL REPORT
| 21
CHARTER HALL PROPERTY TRUST UPDATE
Charter Hall’s $600 million property portfolio consists of
interests in properties diversified across the office, retail,
bulky goods retail and industrial sectors.
22
| CHARTER HALL GROUP 2007 ANNUAL REPORT
56 ANZAC STREET, CHULLORA, NSW
CHARTER HALL GROUP 2007 ANNUAL REPORT
| 23
NEW ZEALAND
In early 2007, Charter Hall initiated its New
Zealand property portfolio with the acquisition
of 2 assets off-market in Auckland and Dunedin
for a total value of $43 million. The Auckland
asset is a retail fl agship supermarket located in
the Auckland CBD and leased for an initial term
of 15 years to General Distributors Ltd, trading
as Foodtown.
The second acquisition is of a prominent bulky
goods retail outlet located in Dunedin, with the
majority of the centre leased to Harvey Norman.
The property enjoys a high profi le landmark
corner location on the periphery of the CBD and
represents a strategic acquisition in the tightly
held Dunedin property market.
CHARTER HALL PROPERTY TRUST
FUND UPDATE
CHARTER HALL PROPERTY TRUST UPDATE
Charter Hall Property Trust’s $600 million
property portfolio consists of interests in
properties diversifi ed across the offi ce, retail,
bulky goods retail and industrial sectors. The
Trust comprises 17 investment grade properties
located across Australia and New Zealand and
co-investment stakes in the Core Plus Offi ce
Fund (CPOF), the Core Plus Industrial Fund
(CPIF) and the Diversifi ed Property Fund (DPF).
Total net property income of 26.3 million was
generated in the 12 months to 30 June 2007.
INVESTMENT STRATEGY
The Trust’s strategy is to invest in a diversifi ed
portfolio of properties through Charter Hall’s
various managed funds and acquire properties
appropriate to seed future unlisted funds
to be managed by the Group. Assets and
investments are selected for the Trust that
are forecast to provide stable and growing
investment income and capital growth. The
opportunity to add value through active asset
management increases potential returns.
Geographically, the preference is to acquire
properties in the major markets of Australia
and more recently New Zealand. However,
emerging sectors within that market may
also be considered for investment purposes.
PORTFOLIO UPDATE
Over the past fi nancial year the Trust has
acquired a number of retail properties, which
in addition to the existing retail assets held by
the Trust, will seed the Core Plus Retail Fund
(CPRF). Assets acquired include:
BUNNINGS PORTFOLIO (AUSTRALIA WIDE)
The Trust acquired 2 Bunnings properties in late
2006 and settled on a further 6 properties in
July 2007. All properties have been constructed
recently and leased to Bunnings Group Ltd
on long-term leases. Each property is in close
proximity to established shopping centres
and has strong exposure to major road and
transport networks, enjoying high visibility from
passing traffi c. They provide solid long-term
capital growth and future re-development
opportunities.
BLUEWATER PLAZA, REDCLIFFE,
BRISBANE, QLD
Currently under development, the Redcliffe
Neighbourhood Shopping Centre has been
acquired on a forward funding basis, with
the Trust (and subsequently CPRF) receiving
a coupon rate of 7.5% per annum on all
development costs to completion. Woolworths
has committed to a 20 year lease. The property
has been acquired off-market and is expected
to be completed in late 2008, with an estimated
value on completion of $67 million.
“12 retail assets acquired over the year with a total value of
$300 million, brings total retail assets to $480 million.”
24
| CHARTER HALL GROUP 2007 ANNUAL REPORT
CHARTER HALL PROPERTY TRUST
FUND UPDATE
SUMMARY OF THE TRUST’S OTHER
INTERESTS
Charter Hall Property Trust has expanded its
diversifi cation through substantial investments
in Charter Hall managed funds including CPOF
($80 million), CPIF ($42 million), CHOF5 and
CHOF4 ($4 million) and DPF ($5 million). It is
intended that the Trust will retain a stake of
at least 20% in CPRF at fi nancial close. Until
CPRF raises external equity the retail assets are
directly owned by CHPT or its subsidiaries. It is
anticipated that the Trust will also hold stakes in
other products launched by the Group.
HOME HQ, NUNAWADING, MELBOURNE, VIC
The centre opened in late 2006, anchored by
the Good Guys, Nick Scali and JB Hi Fi, with
subsequent commitments to Provincial Living,
Double One, Double One Platinum, Sleepy’s,
Godfrey’s and Workout World.
MENAI, SYDNEY, NSW
There has been a re-mixing of the Centre
following favourable amendments to the Local
Environment Plan. New tenants include a large
format fruit and vegetable retailer.
MENTONE SHOWROOMS, MENTONE, VIC
On the acquisition of the Centre, a lease was
entered into with A-Mart Sports. This resulted
in a fully let centre with other tenants including
Subaru, Ray’s Tent City, Retravision and Super
Cheap Auto.
570 BOURKE STREET, MELBOURNE, VIC
Lease renewals across two levels and a new
four-year lease to the Victorian Government
on the whole of level 20 has seen 570 Bourke
Street enjoy full occupancy throughout the
reporting year. With the next expiry not due
until the end of May 2008, 570 Bourke Street
is set to deliver strong income returns in 2008
and well positioned to take advantage of rental
growth within the Melbourne market.
CHARTER HALL GROUP 2007 ANNUAL REPORT
| 25
CHARTER HALL PROPERTY TRUST
PORTFOLIO METRICS
ASSET DIVERSIFICATION
BY VALUE
GEOGRAPHIC DIVERSIFICATION
BY VALUE
SECTOR WEIGHTING
BY NET INCOME
7
6
5
4
3
2
1
5
44
3
7
6
3
1
1
2
2
1. CPRF
2. CPOF
3. DPF
4. CPIF
5. Kent St, NSW
6. Bourke St, VIC
7. Chullora, NSW
49.4%
25.4%
2.3%
9.6%
3.0%
8.1%
2.2%
26.6%
1. New South Wales
29.8%
2. Victoria
23.7%
3. Queensland
0.5%
4. South Australia
12.0%
5. Western Australia
4.7%
6. New Zealand
7. Australian Capital Territory 2.7%
1. Office
2. Retail/Bulky Goods
3. Industrial
29.9%
54.3%
12.8%
WEIGHTED AVERAGE LEASE EXPIRIES
BY NET INCOME
ANNUAL LEASE EXPIRIES
BY NET INCOME
15%
12%
9%
6%
3%
0%
13.8
10.0
9.3
9.5
9.2 9.1
3.4
2.5
I
F
P
C
F
P
D
F
O
P
C
F
R
P
C
E
L
A
W
W
S
N
,
a
r
o
l
l
u
h
C
C
V
I
,
t
S
e
k
r
u
o
B
W
S
N
,
t
S
t
n
e
K
20%
15%
10%
5%
0%
0.0
6
0
0
2
17.5
10.7
8.8
6.8
7.5
4.8
5.3 5.4
3.3
2.7
4.1 4.2
4.4 4.0
0.5
7
0
0
2
8
0
0
2
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
0
2
0
2
0.0
1
2
0
2
+
2
2
0
2
26
| CHARTER HALL GROUP 2007 ANNUAL REPORT
CHARTER HALL GROUP 2007 ANNUAL REPORT
| 27
INVESTMENT FUNDS UPDATE
Charter Hall’s Core Plus Office Fund is the largest of the Core
Plus series of wholesale funds. It achieved a strong inaugural
financial year with a gross equity IRR of 19.1%.
28
| CHARTER HALL GROUP 2007 ANNUAL REPORT
ONE30 STIRLING STREET, PERTH, WA
CHARTER HALL GROUP 2007 ANNUAL REPORT
| 29
CORE PLUS OFFICE FUND
FUND UPDATE
CORE PLUS OFFICE FUND
Charter Hall’s Core Plus Offi ce Fund (CPOF) is
the largest of the Core Plus series of wholesale
funds. Launched in December 2005, the Fund
achieved its target equity commitment of
$500 million and was offi cially closed in July
2006. In line with the Group’s co-investment
strategy, Charter Hall Property Trust has taken
an initial $115 million stake and will maintain
its initial 20% commitment to the fund.
INVESTMENT STRATEGY
CPOF targets the offi ce property sector in
the major capital city and fringe markets by
incorporating a mix of core and enhanced
investment grade assets, and holding those
assets in the medium to long term. On a fully
invested basis, the Fund is expected to hold
approximately 70% in stabilised core assets and
30% in enhanced, value-add property assets.
In doing so CPOF aims to achieve total returns
in excess of 12% pa, in which case the Charter
Hall Group will be entitled to earn performance
fees. Fund management fees are payable
applied to gross assets of CPOF.
PERFORMANCE HIGHLIGHTS
· CPOF has achieved a strong inaugural result
for the year to 30 June 2007, delivering a
gross equity Internal Rate of Return (IRR)
of 19.1% pa.
· Revaluation of the Fund’s assets at Kogarah,
333 George Street in Sydney and 225
St Georges Terrace in Perth resulted in a
net uplift of $28 million. This resulted in a
9.66 cent increase to the unit price at
30 June 2007, which closed at $1.0966.
· Charter Hall committed 75% of the initial
$500 million CPOF equity commitment,
investing in 11 high quality assets diversifi ed
throughout the Sydney, Brisbane, Adelaide
and Perth offi ce markets.
· Management provided an opportunity for
Unit Holders to increase their respective
commitments to the Fund by 25% in March
2006, which resulted in committed equity
to the Fund rising from $500 million to
$625 million. This provides for $1.25 billion
in gross asset value capacity.
“Committed equity in CPOF rose from $500 million to $625 million;
providing $1.25 billion in gross asset value capacity.”
30
| CHARTER HALL GROUP 2007 ANNUAL REPORT
CORE PLUS OFFICE FUND
FUND UPDATE
PORTFOLIO UPDATE
50 UNION STREET, PYRMONT, NSW
Located in Pyrmont on the western fringe of
the Sydney CBD, Atrium is a newly completed
19,800 m² A-Grade offi ce tower and retail
arcade. Atrium’s offi ce tower is 100% leased
to American Express, while the retail area is
anchored by a Coles supermarket.
333 GEORGE STREET, SYDNEY, NSW
Prominently located at the western end of
Martin Place in Sydney’s CBD, the property
comprises a 15-level commercial offi ce tower
built in 1971 which was substantially refurbished
in 2003/4 at a cost of approximately $11 million.
In January 2007, CPOF acquired the adjoining
property at 331 George Street. This strategic
acquisition is part of a medium-term plan to
capitalise on the prime location of this asset
which would see the building completely
redeveloped as a high quality A-grade offi ce
building with premium retail facilities along the
George Street frontage.
126 STIRLING STREET, PERTH, WA
The property is located approximately 800m
from Perth’s GPO, in an area which is attracting
major offi ce users as it offers a high amenity,
affordable alternative to Perth’s CBD, while
having excellent access to all modes
of transport.
ONE30 STIRLING STREET, PERTH, WA
Located approximately 800m from Perth’s CBD,
this site was secured for $5 million as part of
the acquisition of the adjacent ‘Hatch’ offi ce
building in Stirling Street. This property is being
developed within the mandate of CPOF and the
architects, Woods Bagot, have designed the
building to achieve a 4.5 Star Australian Building
Greenhouse Rating (ABGR) and Green Building
Council of Australia (GBCA) 4 star Green Star
Rating. Works will commence in September
2007 and building completion is scheduled for
mid-2009.
ST. GEORGE BANK HQ, KOGARAH, NSW
Fully leased to St. George Bank until 2020,
the property is well positioned along the south/
southwest rail network, providing the bank
with an excellent ability to tap into the large
southern Sydney workforce, which generally
has limited alternative major local offi ce
employment options.
BANK SA HQ (ST. GEORGE BANK), SA
Fully leased to St. George Bank until 2020,
the property comprises a basement vault,
ground and mezzanine level banking branch,
and an offi ce building over 8 upper levels. The
building also includes a gymnasium and squash
courts which are located on the roof area. The
total NLA for the building is 15,115 m², which
incorporates the banking branch area
of 3,555 m².
225 ST GEORGES TERRACE, PERTH, WA
The property is located on St Georges Terrace,
the primary offi ce address within the Perth CBD
and is situated opposite the Woodside building
and diagonally opposite QV1, 2 of the most
prestigious buildings in Perth. CPOF acquired
this property via an off-market negotiation with
Wyllie Group in December 2006. In the period
to 30 June 2007, strong market rental growth
and moderate fi rming of the capitalisation
rate has delivered strong capital returns of
approximately 21%.
275 GEORGE STREET, BRISBANE, QLD
CPOF acquired 275 George Street Brisbane at
an early stage of its development, following its
pre-commitment to Telstra on a 10 year lease.
This signifi cantly enhanced returns to CPOF
through a combination of savings on initial
acquisitions costs and development profi t which
is expected to provide signifi cant returns on
capital invested through to completion.
Designed by award winning architectural fi rm
Crone Partners, 275 George Street will be a
state of the art energy effi cient offi ce tower
accommodating approximately 40,000 m² of
modern offi ce space and 1,600 m² of retail.
Construction commenced in March 2007, with
completion expected mid-2009.
NORTHBANK PLAZA, BRISBANE, QLD
The building comprises 26,736 m² of contiguous
offi ce space, with fl oor plates of 1,180–1,250 m².
The majority of fl oors feature expansive river,
mountain and CBD views and the entire building
is currently being comprehensively refurbished
and repositioned with A-grade services, with
completion scheduled for July 2008.
167 MACQUARIE ST, SYDNEY, NSW
Located in the prestigious fi nancial core of
Sydney’s CBD, Macquarie House is a recently
refurbished A-grade offi ce tower offering
spectacular views across the Royal Botanic
Gardens and Sydney Harbour. The building
spans 19 levels with a total net lettable area
of 9,734 m², consisting of 2 ground level
retail tenancies.
34 HUNTER ST, SYDNEY, NSW
34 Hunter Street is ideally positioned on an
island site with frontages to Pitt, Hunter, Curtin
and Hamilton Streets in the heart of Sydney’s
fi nancial core precinct. It is positioned 200 metres
north of the GPO and a further 100 metres
north from Australia’s premier retail strip –
Pitt Street Mall. The site is centrally located on
the Circular Quay to Pitt Street Mall “Ant Track”.
CHARTER HALL GROUP 2007 ANNUAL REPORT
| 31
ONE30 STIRLING STREET, PERTH, WA · ST. GEORGE BANK, KOGARAH, NSW · ATRIUM, 50 UNION STREET, SYDNEY, NSW
333 GEORGE STREET, SYDNEY, NSW · 275 GEORGE STREET, BRISBANE, QLD · 225 ST GEORGES TERRACE, PERTH, WA
34 HUNTER STREET, SYDNEY, NSW · 126 STIRLING STREET, PERTH, WA · VIEW FROM 167 MACQUARIE STREET, SYDNEY, NSW
“CPOF aims to achieve total returns in excess of 12% pa.”
32
| CHARTER HALL GROUP 2007 ANNUAL REPORT
167 MACQUARIE STREET, SYDNEY, NSW
CHARTER HALL GROUP 2007 ANNUAL REPORT
| 33
CORE PLUS OFFICE FUND
PORTFOLIO METRICS
ASSET DIVERSIFICATION
BY VALUE
GEOGRAPHIC DIVERSIFICATION
BY ACQUISITION PRICE
TENANT TYPE
BY NET INCOME
9
6
8
7
11
10
1
2
3
5
4
1. Northbank Plaza, QLD 17.9%
16.0%
2. 275 George St, QLD
3. 34 Hunter St, NSW
4.2%
4. 167 Macquarie St. NSW 9.3%
14.2%
5. Atrium, NSW
7.1%
6. 333 George St, NSW
3.2%
7. ONE30 Stirling St, WA
6.9%
8. Stirling St, Stage 2, WA
12.9%
9. Kogarah, NSW
2.0%
10. Adelaide, SA
6.3%
11. St Georges Tce, WA
4
1. Queensland
2. South Australia
3. Western Australia
4. New South Wales
1
2
3
33.9%
2.0%
16.5%
47.6%
3
2
1
1. National, International
& Retail Chain
2. Gov't & Gov't Related
3. Other
71.3%
1.9%
25.1%
WEIGHTED AVERAGE LEASE EXPIRIES
BY INCOME
ANNUAL LEASE EXPIRIES
BY NET INCOME
15%
12%
9%
6%
3%
0%
11.8
9.8
14.3
14.3
8.2
11.6
30%
25%
9.3
20%
5.5
5.4
W
S
N
,
e
i
r
a
u
q
c
a
M
7
6
1
D
L
Q
,
t
S
e
g
r
o
e
G
5
7
2
D
L
Q
l
,
a
z
a
P
k
n
a
b
h
t
r
o
N
A
W
,
e
c
T
s
e
g
r
o
e
G
t
S
5
2
2
A
S
i
,
e
d
a
e
d
A
l
15%
10%
5%
0%
3.2
2.8
3.7
W
S
N
,
h
a
r
a
g
o
K
A
W
,
2
e
g
a
t
S
,
t
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g
n
i
l
r
i
t
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t
S
g
n
i
l
r
i
t
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W
S
N
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t
S
e
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r
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G
3
3
3
W
S
N
,
m
u
i
r
t
A
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S
N
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t
S
r
e
t
n
u
H
4
3
28.1
16.8
12.9
7.9
7.3
6.2
4.7
0.9
3.0
2.7
2.0
7
0
0
2
8
0
0
2
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
0.0
6
0
0
2
1.1
3
1
0
2
4.0
2.3
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
0.1
0
2
0
2
+
1
2
0
2
34
| CHARTER HALL GROUP 2007 ANNUAL REPORT
CORE PLUS INDUSTRIAL FUND
FUND UPDATE
Earlier this year Charter Hall announced the
establishment of the Core Plus Industrial Fund
(CPIF) with $350 million in equity commitments.
This was seen as a signifi cant raising and was
sourced from a mix of institutional investors
from Australia, Singapore and Germany.
The Fund currently consists of eight properties
throughout Australia and has 40% of committed
equity allocated for the acquisition of 6 high
quality core investment assets and 2 enhanced
site opportunities in the Melbourne, Brisbane
and Perth industrial markets.
A key feature of the Fund is the 70%/30%
spread between ‘core/stabilised’ assets and
‘enhanced’ assets. This feature provides the
opportunity for the CPIF to target a broader
spectrum of assets than if it existed as a one
dimensional ‘core only’ or ‘enhanced only’
fund. Acting as a blend of core and
enhanced assets allows for even greater
market penetration and provides a catalyst for
outperformance.
PERFORMANCE HIGHLIGHTS
· Completed the fi rst close of its capital raising.
· Increased assets (on a completed basis) from
$155 million to $248 million, which has further
increased to $268 million including the July
acquisition of Richlands, Brisbane.
· Secured a 14,400m² ($23 million) expansion
of the Coles Regional Distribution Centre
in Perth, taking the total area to 87,000m²
and making it one of the largest industrial
buildings in the country.
· Reached Practical Completion for the two
buildings at Melbourne Airport Business Park
and secured Primus as the tenant for the
third warehouse tenancy upon completion
of the building.
· Reached Practical Completion on the
6,500m² Toll logistics facility at Brisbane
Airport Business Park.
· Acquired a 3.2 hectare development site
in Pinkenba (Brisbane) and entered into a
joint venture with Commercial & Industrial
Property Pty Ltd to develop an 18,000m²
distribution centre.
· Acquired a $32 million Distribution Centre
leased to Myer, Woolworths and national
logistics fi rm, SCT in Kewdale, (Perth).
· Acquired the property adjoining CPIF’s
existing holding at 160 Robinson Road,
Geebung, creating a $26 million Business
Park comprising 5 buildings and a strong
tenancy profi le.
· Contracted to acquire a 2.3 hectare
development site in Richlands, Brisbane and
entered into a joint venture with Commercial
& Industrial Property Ltd to develop a circa
13,500 m² ($20 million) distribution facility.
INVESTMENT STRATEGY
CPIF’s strategy is to focus predominantly on
industrial/logistics sectors in major capital city
markets of Australia and to source a mix of core
and enhanced investment grade property assets.
On a fully invested basis, the Fund is targeting
a weighted average lease expiry (WALE) of
between 7–10 years and a target 10-year equity
IRR of 11% net of fees. The CPIF team will
work diligently to enhance the Fund’s portfolio
through the introduction of newly developed
product and accretive acquisitions.
“A blend of core and enhanced assets allows for even greater
market penetration and provides a catalyst for outperformance.”
CHARTER HALL GROUP 2007 ANNUAL REPORT
| 35
COLES GROUP LTD REGIONAL DISTRIBUTION CENTRE, HORRIE MILLER DRIVE, PERTH AIRPORT WA
36
| CHARTER HALL GROUP 2007 ANNUAL REPORT
CORE PLUS INDUSTRIAL FUND
FUND UPDATE
PORTFOLIO UPDATE
Coles Group Regional Distribution Centre,
Horrie Miller Drive, Perth Airport WA.
Strategically situated close to Perth Airport,
the 25-hectare site was acquired with an
agreement for an 87,000 m² purpose built facility
to be developed by Commercial & Industrial
Property Pty Ltd and Australand, with a
target completion date of May 2008 and an
on-completion value of $178 million. Coles has
committed to lease the property for an initial
term of 20 years, with fi ve further terms each
of fi ve years.
123 KEWDALE ROAD, KEWDALE, PERTH WA
123 Kewdale Road was secured off market for
$31.8 million in March 2007. Kewdale is one of
Perth’s premier industrial precincts, situated
8 kilometres north east of Perth CBD and adjoins
the Kewdale freight terminal, a proven transport
and distribution location. The 4.5 hectare site
contains a former Woolworth’s distribution
centre, comprising approximately 2,013 m²
of offi ce and 27,942 m² of warehouse space.
The property is anchored by a 12-year lease
to Myer, in addition to leases to Woolworths
and national logistics fi rm SCT.
200 HOLT STREET, PINKENBA,
BRISBANE, QLD
The property comprises a 31,380 m² site, an
existing offi ce building (2,062 m²), and it is
proposed to construct new industrial buildings,
providing a total GLA of circa 18,000 m². The
project will be delivered under a Development
Agreement with Commercial & Industrial
Property Pty Ltd. The property represents
one of the last remaining large scale freehold
industrial development sites in the precinct and
provides for drive around access from dual
entry/exit ports.
772 BOUNDARY ROAD, RICHLANDS,
BRISBANE, QLD
The property comprises a 23,050 m²
development site, and it is proposed to
construct a new industrial building, providing
circa 500 m² of offi ce and a 12,312 m²
distribution style warehouse, to meet the needs
of the current strong demand by corporate
industrial users in this location. The Richlands
industrial precinct is one of Brisbane’s traditional
and sought after south western industrial
precincts which is benefi ting from Queensland’s
strong economy and infrastructure upgrades.
The project will be delivered under a development
agreement with Commercial & Industrial
Property Pty Ltd, which will provide CPIF
with a funding return of 15% on equity, until
a pre-commitment is secured.
7 VIOLA PLACE, BRISBANE AIRPORT
BUSINESS PARK, QLD
7 Viola Place is a newly completed industrial
building comprising 6,549 m² of offi ce and
warehouse space located within in the newly
developed Brisbane Airport Business Park.
The property was secured for $9.5 million.
Viola Place is also set to benefi t from future
upgrades to the surrounding road network.
The property is leased to Toll Holdings for
an initial term of 10 years.
140–150 ROBINSON ROAD, GEEBUNG, QLD
140–150 Robinson Road was secured for
$18.3 million and comprises a site of
2.75 hectares within the core industrial precinct
of Geebung. Geebung is located within close
proximity to the airport and Gateway Motorway.
The major tenant is TJM Products and they
represent approximately 66% of the current net
income. TJM have 7.25 years remaining on the
lease. The acquisition of this property creates
a $26 million business park as it adjoins the
160 Robinson Road property acquired in 2006.
160 ROBINSON ROAD, GEEBUNG, QLD
The property comprises a 10,380 m² site
improved with a newly constructed purpose
built industrial building, providing two levels
of offi ce/showroom accommodation totalling
703 m² and warehouse accommodation of
3,693 m², completed in December 2006.
The property is leased to Protector Alsafe
Pty Limited (a subsidiary of Wesfarmers)
for 10 years.
55–65 SKY ROAD AND 130–138 LINK ROAD,
MELBOURNE AIRPORT BUSINESS PARK, VIC
The property comprises two industrial facilities
each located within the Melbourne Airport
Business Park which is located to the southern
confi nes of Tullamarine Airport. The fi rst building
facility was pre-committed to Kathmandu on a
10-year lease. The second was pre-committed
to Caterpillar Logistics (CAT) for a fi ve year term.
CHARTER HALL GROUP 2007 ANNUAL REPORT
| 37
CORE PLUS INDUSTRIAL FUND
PORTFOLIO METRICS
ASSET DIVERSIFICATION
BY ACQUISITION PRICE
GEOGRAPHIC DIVERSIFICATION
BY ACQUISITION PRICE
1
2
3
4
1. Western Australia
2. Victoria
3. Queensland
4. Future
23.6%
3.5%
11.3%
61.6%
1
22
33
4
5
6
7
8
9
Coles, WA
Toll, QLD
Geebung, QLD
Tullamarine, VIC
Pinkenba, QLD
Kewdale, WA
Robinson Rd, QLD
Richlands, QLD
Future
19.0%
1.4%
1.1%
3.5%
3.3%
4.5%
2.6%
2.6%
61.9%
WEIGHTED AVERAGE LEASE EXPIRIES
BY NET INCOME
20.9
13.8
9.5
9.7
8.5
7.9
6.2 6.2
5.9
25%
20%
15%
10%
5%
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38
| CHARTER HALL GROUP 2007 ANNUAL REPORT
181 ST GEORGE’S TERRACE, PERTH, WA
CHARTER HALL GROUP 2007 ANNUAL REPORT
| 39
DIVERSIFIED PROPERTY FUND
FUND UPDATE
The Diversifi ed Property Fund (DPF) is an
unlisted, open-ended fund with a broad
investment mandate. Since its launch in
September 2005, DPF has acquired 11
properties across
4 states with a total value of approximately
$125 million, with approximately $70 million
acquired in fi nancial year 2007.
Additional acquisitions throughout the year
have maintained the high quality status of the
portfolio. DPF has 94% of its tenants being
either government, national or international,
and the Fund has one of the highest weighted
average lease expiries in the industry at above
10 years.
PERFORMANCE HIGHLIGHTS:
· DPF provided an 8% distribution yield
(8.25% for wholesale investors) in the 2006/7
fi nancial year, and 100% of the income was
tax deferred.
· DPF remains on track to deliver on its long-
term objective to outperform a 10-year equity
IRR of 10%.
· DPF is listed on the retail investment Wrap
platforms offered by Macquarie (including
the Macquarie Super wrap), BT Financial,
MLC Masterkey and Avanteos. DPF also
maintained its upper recommended product
rating by Lonsec.
INVESTMENT STRATEGY
DPF’s mandate is to acquire and actively
manage quality investment properties
across the offi ce, retail and industrial
sectors generally in the range of $5 million
to $30 million across Australia.
“DPF remains on track to deliver on its long-term objective to
outperform a 10-year equity IRR of 10%.”
40
| CHARTER HALL GROUP 2007 ANNUAL REPORT
DIVERSIFIED PROPERTY FUND
98–100 GLOVER STREET, CREMORNE, NSW
Acquired in May 2007 for $10.45 million,
DPF owns a boutique 3 level offi ce building on
the Lower North Shore of Sydney. The building
is leased to EMI Music Australia as their
Australian head offi ce, and they have occupied
the building for approximately 20 years.
615–619 MAROONDAH HIGHWAY,
MITCHAM, VIC
Acquired in June 2007 for $5.1 million, DPF
owns a prominent single tenanted retail
showroom with off street parking along one
of Melbourne’s most established showroom/
bulky goods locations.
PORTFOLIO UPDATE
COLES MYER DISTRIBUTION CENTRE,
HORRIE HILLER DRIVE, PERTH AIRPORT, WA
Acquired in August 2006 for approximately
$178 million, DPF owns a 25% interest
(approximately $44.4 million) in an industrial
leasehold property to accommodate a new
Coles Myer distribution centre adjacent to
Perth Airport comprising an area of 87,242 m².
This is a signifi cant anchor property and tenant
for DPF and the anticipated completion
date is mid-2008. Coles Myer has taken a
20 year lease from completion plus 5,
5-year option periods.
65 SOUTH CENTRE ROAD & 1–15 JETS
COURT, TULLAMARINE, VIC
Acquired in April 2007 for approximately
$10.65 million, DPF owns a portfolio of 3
industrial leasehold investments in the new
Melbourne Airport Business Park, with a total
combined area of 10,462 m². The properties
comprise a stand alone offi ce/warehouse
building leased to Bax Global, and a separate
facility comprising 2 adjoining offi ce/warehouse
properties, leased to Jets Transport and Gibson
Freight.
CHARTER HALL GROUP 2007 ANNUAL REPORT
| 41
DIVERSIFIED PROPERTY FUND
PORTFOLIO METRICS
ASSET DIVERSIFICATION
BY VALUE
GEOGRAPHIC DIVERSIFICATION
BY ACQUISITION PRICE
TENANT TYPE
BY NET INCOME
1
3
4
1
1
2
2
3
1. Western Australia
2. New South Wales
3. Victoria
4. Queensland
49.5%
19.1%
27.0%
4.4%
11.9%
1. Government
2. Other
5.7%
3. National & International 82.4%
9
8
7
6
5
2
4
3
1. Perth Airport, WA
2. Tullamarine, VIC
3. Cremorne, NSW
4. Mitcham, VIC
5. Kent Street, NSW
6. Corio, VIC
7. St Pauls Tce, QLD
8. Mulgrave, VIC
9. St Georges Tce, WA
36.6%
8.6%
8.4%
4.1%
10.7%
9.7%
4.4%
4.6%
12.9%
WEIGHTED AVERAGE LEASE EXPIRIES
BY INCOME
25%
20%
15%
10%
5%
0%
20.9
10.0
2.9
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42
| CHARTER HALL GROUP 2007 ANNUAL REPORT
CHARTER HALL INVESTMENT FUND 1 & 6
CHARTER HALL INVESTMENT FUND 1 (CHIF1)
CHIF1 was the fi rst of six discrete Charter
Hall investment funds and comprised a single
tenanted industrial property at 8 Aquatic
Drive, Frenchs Forest. This was acquired for
$3.2 million in 1996 and sold in early 2007 for
$6.3 million. The sale delivered investors an
IRR on equity of approximately 24.8% before
fund management and performance fees, or
approximately 21.5% post fund management
and performance fees, exceeding the original
target IRR for the fund of 15%.
CHARTER HALL INVESTMENT FUND 6 (CHIF6)
Acquired in late 2004 for $14.6 million, 436
Elgar Road, Box Hill, formed part of a three-
property investment fund. It was sold in mid
2007 for $18 million. During the relatively short
period of ownership, this offi ce building in
suburban Melbourne delivered investors an IRR
on equity of approximately 19%, exceeding the
original target IRR for the fund of 11%.
CHARTER HALL GROUP 2007 ANNUAL REPORT
| 43
400 KENT STREET, SYDNEY, NSW
44
| CHARTER HALL GROUP 2007 ANNUAL REPORT
BUNNINGS, KALGOORLIE, WA · HOME HQ, NUNAWADING, VIC · FOODTOWN, AUCKLAND, NZ
34 HUNTER STREET, SYDNEY, NSW · 400 KENT STREET, SYDNEY, NSW · 167 MACQUARIE STREET, SYDNEY, NSW
VIOLA PLACE, BRISBANE AIRPORT, QLD · COLES GROUP LTD REGIONAL DISTRIBUTION CENTRE, PERTH AIRPORT WA · 140 ROBINSON ROAD, GEEBUNG, QLD
CHARTER HALL GROUP 2007 ANNUAL REPORT
| 45
Historically over 90% of the capital raised and
invested in Charter Hall’s unlisted property
funds has been sourced from the wholesale
market, being large superannuation funds
and institutional investors. The Charter Hall
Umbrella Fund provides retail investors with
an unprecedented opportunity to invest across
Charter Hall’s range of property funds,
which own a variety of quality warehouses,
logistics distribution centres, offi ce towers,
bulky good showrooms and neighbourhood
shopping centres.
CHARTER HALL UMBRELLA FUND
FUND UPDATE
Charter Hall has created a new managed
fund called the Charter Hall Umbrella Fund
(CHUF), to provide retail investors with a unique
opportunity to invest across a suite of Charter
Hall property funds, the assets of which include
commercial properties in the offi ce, industrial
and retail markets.
The portfolio of Charter Hall funds that
CHUF will invest in comprises more than
55 assets with a secure weighted average
lease expiry profi le. Charter Hall’s nationwide
tenant list includes American Express, BHP
Billiton, Bunnings, Coles, St.George Bank,
Harvey Norman, Telstra, Toll Holdings, Myer,
Wesfarmers and Woolworths, demonstrating
the diversity of the Fund’s underlying cash fl ow.
KEY FEATURES OF THE FUND
· The Fund’s portfolio will include investments
in the Charter Hall Core Plus Industrial,
Retail and Offi ce Funds. It will also invest
in the Charter Hall Opportunity Fund No.5,
the Charter Hall Diversifi ed Property Fund,
unlisted property funds operated by third-
party managers and a portfolio of LPTs
through a mandate which will be actively
managed by UBS Global Asset Management.
· A forecast net cash yield of 7.99% pa in
FY08 and 8.09% pa for FY09 for initial
investors that acquire Units without using
the instalment option available.
· Quarterly distributions targeted to be tax
deferred to 100% for FY08 and FY09 for
Initial Investors.
· A Limited Liquidity Facility provided by
Charter Hall Limited that gives Investors the
opportunity to apply to sell Units to CHPT
subject to certain conditions.
· The Offer is fully underwritten by NAB.
46
| CHARTER HALL GROUP 2007 ANNUAL REPORT
CHARTER HALL GROUP 2007 ANNUAL REPORT
| 47
OPPORTUNITY FUNDS UPDATE
Charter Hall’s Opportunity Fund 4 is currently 88% allocated
with approximately $20 million of equity remaining available
for investment.
48
| CHARTER HALL GROUP 2007 ANNUAL REPORT
CHARTER HALL OPPORTUNITY FUND 4
FUND UPDATE
CHARTER HALL OPPORTUNITY FUND 4
CHOF4 is still in its investment and delivery
phase and is on track to deliver the highest
return of the Charter Hall series of opportunistic
funds to date. The performance is underpinned
by the result achieved on 420 George Street,
Brisbane and major offi ce developments in
progress at Mounts Bay Road in Perth and
Northbank Plaza and 275 George Street in
Brisbane, in addition to a signifi cant bulky
goods development in Artarmon on Sydney’s
North Shore.
275 GEORGE STREET, BRISBANE, QLD
This project is a 50/50 joint venture between
CHOF4 and CPOF and involves the
development of a 41,400m² A-grade offi ce
tower, which has been designed to achieve
a 5 Green Star Rating. Construction has
commenced with completion expected mid-
2009. Telstra has committed to 30,800m²
on a 10-year term, which represents 78% of
the offi ce area. The balance of the building is
currently being marketed for lease with several
parties expressing interest.
HOME HQ, NORTH SHORE, ARTARMON, NSW
Home HQ North Shore is CHOF4’s fi fth
investment. It involves the adaptive reuse of a
heritage warehouse building into an integrated
bulky goods retail complex of approximately
23,500m² plus parking for 515 cars. The
project is expected to attract strong interest
from bulky goods retailers due to the large
estimated trade area within close proximity to
the site and the lack of other bulky goods sites
on the lower North Shore.
OUTLOOK
CHOF4 is currently 88% allocated, with
approximately $20 million of equity remaining
available for investment. This remaining equity
is likely to be allocated in the second quarter
of FY08 and provides capacity for a $50-60
million fi nal project for this fund.
INVESTMENT STRATEGY
The ongoing CHOF4 strategy is to identify,
acquire and deliver property development and
value-add opportunities across various sectors
within the Manager’s existing skill base. This
will include commercial, industrial, retail, bulky
goods retail and infi ll residential sectors located
primarily in the major cities on the Eastern
Seaboard of Australia that aim to deliver an IRR
on equity above 20%.
DEVELOPMENT UPDATE
420 GEORGE STREET, BRISBANE, QLD
This property on the corner of George and Tank
Streets was originally intended for refurbishing,
repositioning, releasing and divesting.
Development Consent was obtained and,
following an off-market approach, the property
was sold delivering an outstanding result for
CHOF4 Unit Holders, 10 months ahead of
schedule with an IRR on equity of 97.4%.
NORTHBANK PLAZA, BRISBANE, QLD
This project is a 50/50 joint venture between
CHOF4 and CPOF and involves the
refurbishment of a 26,300m² building to an
A-grade standard. The building is approximately
90% pre-leased to Telstra – Levels 6–20
(17,965m²) and Parsons Brinkerhoff – Levels
1–5 (5,808m²). CPOF has now acquired
CHOF4’s 50% economic interest in the project
on a forward-funded basis, allowing both equity
and approximately 70% of the profi t to be
returned to investors.
ALLUVION, 58 MOUNTS BAY ROAD, PERTH, WA
Located in the heart of Perth’s CBD, CHOF4’s
third asset is a 50/50 joint venture with a local
property group. Development Consent has
been secured for a 21,000m² A-grade offi ce
building for the site, which fronts onto Mounts
Bay Road and has access to its offi ce lobby
from St Georges Terrace. The Buchan Group
has designed the building to achieve a 4.5 star
Australian Building Greenhouse Rating (ABGR)
and Green Building Council of Australia (GBCA)
4 Green Star Rating.
CHARTER HALL GROUP 2007 ANNUAL REPORT
| 49
275 GEORGE STREET AND NORTHBANK PLAZA, BRISBANE, QLD
50
| CHARTER HALL GROUP 2007 ANNUAL REPORT
CHARTER HALL OPPORTUNITY FUND 5 &
PROPERTY DEVELOPMENT PORTFOLIO 3
FUND UPDATE
CHARTER HALL OPPORTUNITY FUND 5
Charter Hall Group announced earlier this
year the close of Australia’s largest wholesale
opportunistic property fund, Charter Hall
Opportunity Fund 5 (CHOF5).
PROPERTY DEVELOPMENT PORTFOLIO 3
PDP3 is the third and fi nal opportunistic fund
in the series jointly managed with AMP Capital
Investors. There are 2 remaining projects in this
Fund as outlined below.
ZONE AT SYDNEY OLYMPIC PARK, NSW
Zone at Sydney Olympic Park comprises 3
A-grade commercial offi ce building totalling
approximately 56,000m² of commercial offi ce
space, with ground fl oor retail and parking for
900 cars.
In March 2007, the leasehold interests in
Sites 6 and 7 were sold and an uplift payment
was achieved in relation to additional fl oor
space. Practical Completion for the Site 5
building was achieved in August 2007 and the
Commonwealth Bank, which pre-committed
to lease 100% of the offi ce and part of the
retail area, has completed its fi tout and
commenced occupation.
Occupation of the building will be undertaken
in a staged manner from September 2007.
The leasehold interests in Site 5 were pre-sold
to 2 Colonial First State Property investment
funds as part of the Commonwealth Bank
pre-commitment.
The response to CHOF5 was extremely positive
with applications to the fund being signifi cantly
oversubscribed. This required an allocation
scale back to the Fund’s self imposed maximum
cap of $300 million in committed equity. CHOF5
follows the successful CHOF4 capital raising
of $165 million in 2005 and represents the
largest wholesale capital raising in Australia to
date for an Australian opportunistic property
fund. The completed value of projects that
may be delivered by CHOF5 is anticipated to
approximate $1 billion over the next 5 years.
CHOF5’s mandate has expanded from the
previous 4 funds to include up to 20% of its
equity in opportunistic investments in New
Zealand. The geographic expansion of CHOF5’s
mandate follows Charter Hall’s establishment of
offi ces in Auckland, Brisbane and Perth.
CHOF5 has an objective of delivering an equity
IRR in excess of 20% pa over its fi xed-term
life. The Charter Hall Group, both directly
and through one of its managed funds, has
committed to a $50 million co-investment in
CHOF5. This further aligns the interest of the
Group with its wholesale investors and provides
its listed investors with access to attractive
opportunistic returns on this co-investment
together with fund management, development
management and performance fees from
the Fund.
SYDNEY WHARF, PYRMONT, NSW
The Sydney Wharf project consists of 104
luxury waterfront apartments on Wharves
8 and 9, a café and marina offi ce, a private
54-berth marina and boardwalks surrounding
the apartment complex. The breathtaking
view of Sydney City can be enjoyed from the
apartments on Wharf 8, while Wharf 9 receives
uninterrupted views across the marina to
Darling Island and Pyrmont. The project was
designed by PTW Architects with interiors
by SJB.
Since August 2006, Multiplex Constructions
has been working on the $300 million Sydney
Wharf project. Construction remains ahead of
programme and is scheduled for completion
1st quarter 2008. The marketing of this project
has been highly successful with over 90% of
the apartments pre-sold.
The development is a joint venture between an
investment syndicate managed by Babcock
& Brown and PDP3 jointly managed by AMP
Capital Investors and Charter Hall.
CHARTER HALL GROUP 2007 ANNUAL REPORT
| 51
ZONE, SYDNEY OLYMPIC PARK, NSW
52
| CHARTER HALL GROUP 2007 ANNUAL REPORT
CHARTER HALL GROUP 2007 ANNUAL REPORT
| 53
BOARD OF DIRECTORS
Charter Hall’s objective is to enhance its performance by
adopting a vertically integrated business model that provides
a solid platform for significant growth.
54
| CHARTER HALL GROUP 2007 ANNUAL REPORT
BOARD OF DIRECTORS
ROY WOODHOUSE
NON EXECUTIVE DEPUTY
CHAIRMAN
Roy has been the Deputy Chairman
of Charter Hall since July 2004
and is a member of Transfi eld
Holdings Advisory Committee.
Roy worked for the Baillieu family
for 30 years in various senior
executive capacities commencing
in 1975, including Director L.J.
Hooker, Managing Director Knight
Frank Australia and Chairman
Knight Frank Australia. Roy co-
founded KFPW, a joint venture
with PricewaterhouseCoopers
specialising in outsourcing and is a
qualifi ed valuer. Roy is a Director of
Stephenson Mansell, an executive
development company and Chair
of National Recycling Company, a
waste recycling company. Roy was
a Fellow of the Australian Institute of
Valuers and a Fellow of the Institute
of Company Directors.
KERRY ROXBURGH
NON EXECUTIVE INDEPENDENT
CHAIRMAN
Kerry is an SDIA Practitioner
Member and holds positions on the
boards of several listed and unlisted
companies. He is the Chairman of
Babcock & Brown Capital and of
Asian Express Airlines. He is also
a director of Ramsay Health Care,
Everest Babcock & Brown, PNG
Sustainable Energy, the LawCover
Group, the Medical Indemnity
Protection Society Group and
Professional Insurance Australia.
Until it was acquired by the ANZ in
June this year, he was Chairman of
E*TRADE Australia where he had
previously served as CEO until July
2000. In the past 10 years, Kerry’s
prior public company directorships
were at J.Boag & Son and Climax
Mining. Before joining E*TRADE
he spent 10 years as an Executive
Director of the Hong Kong Bank
of Australia Group, including roles
as Executive Chairman at James
Capel Australia and fi ve years as
Managing Director of the bank’s
corporate fi nance subsidiary.
CEDRIC FUCHS
EXECUTIVE DIRECTOR
Cedric is a co-founder of Charter
Hall with over 40 years of
experience in the fi elds of property
investment banking and fi nancial
services. He is responsible for
the Group’s funds management
business and is a member of the
Investment Committee for all of
Charter Hall’s wholesale and retail
property funds. Prior to co-founding
Charter Hall in 1991, he 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.
GLENN FRASER
NON EXECUTIVE DIRECTOR
A member of Transfi eld Holdings
Advisory Board, Glenn was
instrumental in Transfi eld Holdings’
acquisition of its interest in Charter
Hall and has substantial experience
in the project fi nance industry.
He specialises in infrastructure
and property projects and joined
Transfi eld Holdings in 1996. Glenn
has previously held positions of
Chief Financial Offi cer and was
General Manager – Finance,
Project Development, where he
was responsible for the fi nancial
elements of Transfi eld Holdings’
infrastructure and property projects.
Preceding his time with Transfi eld
Holdings, Glenn was a principal of
a project fi nance 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.
CHARTER HALL GROUP 2007 ANNUAL REPORT
| 55
56
| CHARTER HALL GROUP 2007 ANNUAL REPORT
BOARD OF DIRECTORS
CHARTER HALL GROUP 2007 ANNUAL REPORT
| 57
DAVID HARRISON
JOINT MANAGING DIRECTOR
David heads the Funds
Management Division & Property
Management Division and has
more than 19 years of experience
in the Australian commercial
property markets. His role
entails responsibility for the
strategic growth of the funds
management business with
particular focus on investment
sourcing, capital raisings and
structuring of transactions. Prior
to joining Charter Hall in 2004,
David was Managing Director
of Savills in Australia. Savills is
an international commercial real
estate agency business. David
has transacted approximately
$6 billion of commercial, retail and
industrial property assets across
all capital city of Australia over
the past 10 years. David holds
a Land Economics degree from
the University of Western Sydney,
a graduate Diploma in Applied
Finance from SIA and is a Fellow
of the Australian Property Institute.
COLIN MCGOWAN
NON EXECUTIVE INDEPENDENT
DIRECTOR
Colin was formerly CEO of the
listed AMP Diversifi ed 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. He is a qualifi ed valuer, a
Fellow of the Australian Property
Institute and a Senior Fellow of
the Financial Services Institute of
Australasia (formally SIA). Colin
was the honorary SIA National
Principal Lecturer and Task
Force Chairman for the Graduate
Diploma’s Property Investment
Analysis course – a position held
for 10 years until 2003. Colin is
a member of the Remuneration
and Nomination Committee and
is chairman and member of a
number of Charter Hall Group
Investment Committees.
DAVID SOUTHON
JOINT MANAGING DIRECTOR
David is a co-founder of Charter
Hall. As Joint Managing Director,
David heads the Development
Division and Property Investment
Banking Division and has over
20 years of property industry
experience. He is responsible
for overseeing project origination,
project strategy development
and management of projects and
resources while also being
involved in the procurement
of investment properties. Prior
to co-founding Charter Hall in
1991, David was a Development
Manager with the Heine Group’s
property arm (now part of ING)
and Leighton Properties. David
received a Business Degree (Land
Economy) from the University of
Western Sydney.
PATRICE DERRINGTON
NON EXECUTIVE INDEPENDENT
DIRECTOR
Patrice is currently CEO of
Penrith Lakes Development
Corporation Limited. 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,
2001 terrorist attacks on New
York City. Prior positions have
included Managing Director at
the US asset management fi rm,
Spears, Benzak, Salomon and
Farrell, Vice President in the
Real Estate Finance Group at
Chemical Bank (now, JPMorgan
Chase) and in 1997 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 a MBA from Harvard
University.
ANDRÉ BIET
NON EXECUTIVE DIRECTOR
Andre was co-founder and
Managing Director of the Charter
Hall Group from its inception in
1991 until 2005. Prior to that
he was Managing Director of
the Heine Group’s property arm
(now part of ING) and previously
Director of Operations for Leighton
Properties. He remains a non
executive director of Charter Hall
and is also a director of Metrix
Capital Partners. Andre is a
Fellow of the Australian Institute of
Company Directors and a Fellow
of the Australian Property Institute.
He has a degree in Economics and
an MBA.
58 | CHARTER HALL GROUP ANNUAL REPORT 2007
OUTPERFORMANCE
2007 FINANCIAL STATEMENTS
OUTPERFORMANCE
76
INCOME STATEMENTS
77 BALANCE SHEETS
78 STATEMENTS OF CHANGES IN EQUITY
79 CASH FLOW STATEMENTS
80 NOTES TO THE FINANCIAL STATEMENTS
123 DIRECTORS’ DECLARATION
124 INDEPENDENT AUDIT REPORT
125 SHAREHOLDER INFORMATION
128 CORPORATE DIRECTORY
CHARTER HALL GROUP ANNUAL REPORT 2007 | 59
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 2007.
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 - Executive Director
D Harrison - Joint Managing Director (Appointed 30/8/06)
C McGowan
P McMahon (Resigned 30/8/06)
D Southon - Joint Managing Director (Appointed 30/8/06)
PRINCIPAL ACTIVITIES
During the period the principal continuing activities of the Group consisted of:
(a) Property investment
(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.
DISTRIBUTIONS - CHARTER HALL GROUP
Distributions paid / declared to members during the period were as follows:
- Interim ordinary distribution for the period ended 31 December 2006 of 4.77 cents per security paid on 28 February 2007
2007
$’000
17,440
- Final ordinary distribution for the 6 months ended 30 June 2007 of 5.67 cents per security expected to be paid on 31 August 2007
20,632
2006
$’000
-
-
- 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 paid on 30 August 2006
-
-
9,849
10,182
38,072
20,031
RESULTS
The Group has reported a solid financial result for the year to 30 June 2007. The distribution per security of 10.44c for the 12 months to 30 June 2007
(30 June 2006: 7.55c) is 9.5% above the forecast of 9.53c provided in the PDS/Prospectus dated 19 May 2006.
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 comparative financial results of the parent company in this financial report are from
24 March 2005 to 30 June 2006. CHL and CHPT commenced on 24 March 2005 but there was no activity until 6 June 2005 when the listing occurred
and Charter Hall Holdings Pty Limited (CHH) was purchased by CHL. The comparative consolidated financial results are for the period 24 March 2005 to
30 June 2006 but include CHH from 6 June 2005.
DISTRIBUTION
The distribution for the year is 10.44 cents per security (30 June 2006: 7.55 cents per security).
60 | CHARTER HALL GROUP ANNUAL REPORT 2007
DIRECTORS’ REPORT (CONTINUED)
FINANCIAL PERFORMANCE - 1 JULY 2006 TO 30 JUNE 2007
The Group recorded a net profit after tax for the financial year of $31.7 million (before fair value adjustments) (2006: $18.0 million). After adjusting for income
tax expense on an unrealised gain in the Group’s investment in Axiom Properties Limited, the net profit after tax was $32.5 million, or 4.4% above the
PDS/Prospectus (PDS) dated 19 May 2006. Under Australian equivalents to International Financial Reporting Standards (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 gain of $11.5 million (30 June 2006: $5.6 million net loss) the AIFRS reported Group result is a profit after tax for the period of $43.2 million
(2006: $12.4 million). This was $13.3 million higher than the income statement forecast for the period 1 July 2006 to 30 June 2007 that was included
in the PDS. The Group recorded solid gains in its directly owned properties and its investments in Charter Hall managed funds (Charter Hall Core Plus
Office Fund (CPOF), Charter Hall Core Plus Industrial Fund (CPIF) and Charter Hall Diversified Property Fund (DPF).
Three properties have been independently externally revalued as at 30 June 2007 namely 570 Bourke Street, Melbourne, 56 Anzac Street, Chullora and
Menai Central, Menai. The Bunnings portfolio properties that were purchased on 20 June 2007 and 27 June 2007 are carried at the valuation that was
completed on 1 June 2007 (refer note 18).
Significant gains were recorded on the Group’s investments in Charter Hall managed unlisted funds and in its investment in Axiom Properties Limited (Axiom).
- the value of the group’s 23.0% investment in CPOF increased $7 million (19% annualised) to $80.0 million
- the value of the group’s 32.1% investment in CPIF increased $1 million (10% annualised) to $46.0 million
- the value of the group’s 4.9% investment in Axiom increased $2.8 million (75% annualised) to $7.9 million
- the value of the group’s 11.7% investment in DPF increased $0.2 million (4% for the full year) to $5.2 million
The 30 June 2007 financial results with comparatives can be summarised as follows:
Gross revenue ($m)
Net profit after tax ($m)
Distribution ($m)
AIFRS earnings per stapled security including fair value adjustments (cents)
Underlying EPS excluding fair value adjustments
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) Comparative period is 6 June 2005 to 30 June 2006.
Notes
(i)
(i)
(i)
(i),(ii)
(ii),(iii)
(iii)
2007
61
43
38
12.00
9.51
10.44
650
189
461
1.12
2006
38
12
20
4.61
6.47
7.55
505
226
279
0.85
24.4%
27.7%
2.8
1.3
(ii)
DPS reflects distribution of CHPT (the trust) profit only and nil dividends from CHL (the company). CHL recorded a loss for the period and hence
reduces Group EPS.
(iii) excludes stapled securities issued under LTI Plan in accordance with AASB 2.
(iv) comparative period is 1 July 2005 to 20 June 2007
DISTRIBUTION RE-INVESTMENT PLAN (DRP)
The DRP is currently de-activated.
CHARTER HALL GROUP ANNUAL REPORT 2007 | 61
DIRECTORS’ REPORT (CONTINUED)
REVIEW OF OPERATIONS
During the period the Group launched 4 new property funds comprising Charter Hall Opportunity Fund No.5 (CHOF5) and three additional investment
funds Charter Hall Core Plus Industrial Fund (CPIF), Charter Hall Core Plus Retail Fund (CPRF) and Charter Hall Umbrella Fund (CHUF). The Group has
further expanded its diverse sources of equity, providing institutional, wholesale, retail and high net worth clients with these new products.
CHUF is a retail fund in which Charter Hall Property Trust (CHPT) holds a 47% interest and a major financial institution holds 50%.
The $300 million oversubscribed raising for CHOF5 reinforced Charter Hall’s position as the pre-eminent opportunity fund manager in Australia and
reinforced the Group’s access to wholesale equity. In addition $350 million in equity has been raised for CPIF from wholesale investors. CPRF is currently
100% owned by CHPT with assets of $165 million which including CHPT directly owned retail assets comprise a $400 million seed portfolio of CPRF
assets, which are intended to go off CHPT balance sheet during FY08.
The Group raised $350 million in equity for CPIF in April 2007 which at 30 June 2007 had been called to 40% to purchase industrial assets.
The Group raised $133 million in June 2007 via a placement offer, the proceeds of which have provided funding for additional seed assets for CPRF and
the purchase of 50% of Commercial and Industrial Property Pty Ltd.
CPOF, in which CHPT holds a 23% interest, recently acquired its 11th asset bringing the total asset value to nearly $1 billion (on a fully developed basis)
having increased from $140 million at 1 July 2006.
DPF, in which CHPT holds a 12% interest, recently acquired its 11th property which in total are valued at approximately $123 million.
CPIF, in which CHPT holds a 32% interest, recently acquired its 8th asset bringing the total fund size to $270 million (on a fully developed basis).
The Group entered the New Zealand market for the first time during the year, agreed to purchase 2 properties within CPRF for a combined total of
$41 million. The Group intends to raise wholesale equity during FY08, consistent with the strategy of seeding assets before selling down interests to
external investors. The Group will retain an interest of at least 20% in CPRF.
Total assets under management as at 30 June 2007 have grown to $2.8 billion. As foreshadowed in the PDS/Prospectus, Charter Hall Group has utilised
its balance sheet capacity to secure and warehouse a number of quality assets for new investment funds, such as CPIF and CPRF as well as investing
$5 million in Axiom Properties Limited to secure development deal flow. 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
The principal activities of the group are property investment, funds management and development management. Funds management involves minimal
environmental impact. The group ensures compliance with applicable environmental standards and regulations in its property investment and development
management activities.
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
Significant changes in the state of affairs of the Group during the period, in addition to the review of operations, above were as follows:
· The Group raised $133 million in June 2007 via the placement of 44,444,445 securities at $3.00 per security.
MATTERS SUBSEQUENT TO THE END OF THE PERIOD
Since 30 June 2007 CHPT has completed the following transactions:
· Settlement of Foodtown Auckland for NZ$28 million on 4 July 2007
· Settlement of Ipswich Super Centre site for $8 million in CPRF on 14 August 2007
· The purchase of 50% of Commercial and Industrial Property Pty Ltd for $40 million
Except for the matters discussed above, no other matter or circumstance has arisen since 30 June 2007 that has significantly affected, or may
significantly affect:
(a) the Group’s operations in future financial years, or
(b) the results of those operations in future financial years, or
(c) 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.
62 | CHARTER HALL GROUP ANNUAL REPORT 2007
DIRECTORS’ REPORT (CONTINUED)
INFORMATION ON DIRECTORS
K Roxburgh Chairman - Non-Executive. Age 65
EXPERIENCE AND EXPERTISE
Kerry is an SDIA Practitioner Member and
holds positions on the boards of several listed
and unlisted companies. He is the Chairman
of Babcock & Brown Capital and of Asian
Express Airlines. He is also a director of Ramsay
Health Care, Everest Babcock & Brown,
PNG Sustainable Energy, the LawCover Group,
the Medical Indemnity Protection Society Group
and Professional Insurance Australia. Until it
was acquired by the ANZ in June this year, he
was Chairman of E*TRADE Australia where
he had previously served as CEO until July
2000. In the past 10 years, Kerry’s prior public
company directorships were at J.Boag & Son
and Climax Mining. Before joining E*TRADE he
spent 10 years as an Executive Director of the
Hong Kong Bank of Australia Group, including
roles as Executive Chairman at James Capel
Australia and five years as Managing Director of
the bank’s corporate finance subsidiary.
OTHER CURRENT LISTED COMPANY
DIRECTORSHIPS
Babcock and Brown Capital Limited (since
February 2006)
Non-Executive Director of Ramsay Health Care
Ltd (since 1997)
Non-Executive Director of Everest Babcock and
Brown Group (since 2005).
FORMER LISTED COMPANY DIRECTORSHIPS
IN LAST 3 YEARS
Non-Executive Chairman of E*TRADE Australia
(from 1996 until June 2007)
Everest Babcock and Brown Alternative
Investment Trust (2005-2006)
SPECIAL RESPONSIBILITIES
Chairman of the Board.
Chairman of remuneration and nominations
committee.
Member of the audit risk and compliance
committee
INTERESTS IN SECURITIES
50,000 securities in Charter Hall Group.
R Woodhouse Deputy Chairman -
Non-Executive. Age 60
C McGowan Independent Non-Executive
Director. Age 61
EXPERIENCE AND EXPERTISE
Roy has been the Deputy Chairman of Charter
Hall since July 2004 and is a member of
Transfield Holdings Advisory Committee. Roy
worked for the Baillieu family for 30 years in
various senior executive capacities commencing
in 1975, including Director L.J. Hooker, Managing
Director Knight Frank Australia and Chairman
Knight Frank Australia. Roy co-founded KFPW,
a joint venture with PricewaterhouseCoopers
specialising in outsourcing and is a qualified
valuer. Roy is a Director of Stephenson Mansell,
an executive development company and Chair of
National Recycling Company, a waste recycling
company. Roy was a Fellow of the Australian
Institute of Valuers and a Fellow of the Institute of
Company Directors.
EXPERIENCE AND EXPERTISE
Colin 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. He is a qualified valuer, a Fellow of the
Australian Property Institute and a Senior Fellow
of the Financial Services Institute of Australasia
(formally SIA). Colin was the honorary SIA
National Principal Lecturer and Task Force
Chairman for the Graduate Diploma’s Property
Investment Analysis course – a position held for
10 years until 2003. Colin is a member of the
Remuneration and Nomination Committee and
is chairman and member of a number of Charter
Hall Group Investment Committees.
OTHER CURRENT LISTED COMPANY
DIRECTORSHIPS
Nil
OTHER CURRENT LISTED COMPANY
DIRECTORSHIPS
Nil
FORMER LISTED COMPANY DIRECTORSHIPS
IN LAST 3 YEARS
Nil
FORMER LISTED COMPANY DIRECTORSHIPS
IN LAST 3 YEARS
Nil
SPECIAL RESPONSIBILITIES
Deputy Chairman of the Board
Member of remuneration and nominations
committee
INTERESTS IN SECURITIES
366,666 securities in Charter Hall Group.
SPECIAL RESPONSIBILITIES
Member of remuneration and nominations
committee
INTERESTS IN SECURITIES
Nil securities in Charter Hall Group.
CHARTER HALL GROUP ANNUAL REPORT 2007 | 63
INFORMATION ON DIRECTORS (CONTINUED)
A Biet Non-Executive Director. Age 58
EXPERIENCE AND EXPERTISE
Andre was co-founder and Managing Director of
the Charter Hall Group from its inception in 1991
until 2005. Prior to that he was Managing Director
of the Heine Group’s property arm (now part of
ING) and previously Director of Operations for
Leighton Properties. He remains a non executive
director of Charter Hall and is also a director of
Metrix Capital Partners. Andre is a Fellow of the
Australian Institute of Company Directors and a
Fellow of the Australian Property Institute. He has
a 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
5,559,724 securities in Charter Hall Group via
direct and indirect interests including 350,000
vested securities in the Charter Hall Executive
Loan Security Plan.
P Derrington Independent Non-Executive
Director. Age 51
EXPERIENCE AND EXPERTISE
Patrice is currently CEO of Penrith Lakes
Development Corporation Limited. 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, 2001
terrorist attacks on New York City. Prior
positions have included Managing Director at the
US asset management firm, Spears, Benzak,
Salomon and Farrell, Vice President in the Real
Estate Finance Group at Chemical Bank (now,
JPMorgan Chase) and in 1997 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 a MBA from Harvard University.
OTHER CURRENT LISTED COMPANY
DIRECTORSHIPS
Nil
FORMER LISTED COMPANY DIRECTORSHIPS
IN LAST 3 YEARS
Non-Executive Director of AmeriVest Properties
based in Denver, Colorado. Commenced in 2003.
SPECIAL RESPONSIBILITIES
Chair of audit, risk and compliance committee.
INTERESTS IN SECURITIES
Nil securities in Charter Hall Group.
G Fraser Non-Executive Director. Age 50
EXPERIENCE AND EXPERTISE
A member of Transfield Holdings 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. Glenn has
previously held positions of Chief Financial
Officer and 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.
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
225,000 securities in Charter Hall Group via
direct and indirect interests.
64 | CHARTER HALL GROUP ANNUAL REPORT 2007
DIRECTORS’ REPORT (CONTINUED)
INFORMATION ON DIRECTORS (CONTINUED)
C Fuchs Executive Director. Age 63
EXPERIENCE AND EXPERTISE
Cedric is a co-founder of Charter Hall with over
40 years of experience in the fields of property
investment banking and financial services. He is
responsible for the Group’s funds management
business and is a member of the Investment
Committee for all of Charter Hall’s wholesale
and retail property funds. Prior to co-founding
Charter Hall in 1991, he 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.
OTHER CURRENT LISTED COMPANY
DIRECTORSHIPS
Nil
FORMER LISTED COMPANY DIRECTORSHIPS
IN LAST 3 YEARS
Nil
SPECIAL RESPONSIBILITIES
Nil
INTERESTS IN SECURITIES
5,486,595 securities in Charter Hall Group via
direct and indirect interests including 350,000
securities in the Charter Hall Executive Loan
Security Plan which have vested. A further
interest in 1,456,019 securities in the Plan which
will vest upon the satisfaction of performance
and service criteria. The issue of 362,319
securities in the Plan is subject to security holder
approval at the Annual General Meeting.
D Southon Joint Managing Director. Age 41
(appointed 30/8/06)
EXPERIENCE AND EXPERTISE
David is a co-founder of Charter Hall. As
Joint Managing Director, David heads the
Development Division and Property Investment
Banking Division and has over 20 years of
property industry experience. He is responsible
for overseeing project origination, project
strategy development and management of
projects and resources while also being involved
in the procurement of investment properties.
Prior to co-founding Charter Hall in 1991, David
was a Development Manager with the Heine
Group’s property arm (now part of ING) and
Leighton Properties. David received a Business
Degree (Land Economy) from the University of
Western Sydney.
OTHER CURRENT LISTED COMPANY
DIRECTORSHIPS
Nil
FORMER LISTED COMPANY DIRECTORSHIPS
IN LAST 3 YEARS
Nil
SPECIAL RESPONSIBILITIES
Nil
INTERESTS IN SECURITIES
8,754,870 securities in Charter Hall Group via
direct and indirect interests including 491,667
securities in the Charter Hall Executive Loan
Security Plan which have vested. A further
interest in 4,817,456 securities in the Plan will
vest upon the satisfaction of performance and
service criteria. The issue of 2,717,391 securities
in the Plan is subject to security holder approval
at the Annual General Meeting.
D Harrison Joint Managing Director, Age 41
David heads the Funds Management Division &
Property Management Division and has more
than 19 years of experience in the Australian
commercial property markets. His role entails
responsibility for the strategic growth of the
funds management business with particular
focus on investment sourcing, capital raisings
and structuring of transactions. Prior to joining
Charter Hall in 2004, David was Managing
Director of Savills in Australia. Savills is an
international commercial real estate agency
business. David has transacted approximately
$6 billion of commercial, retail and industrial
property assets across all capital city of
Australia over the past 10 years. David holds
a Land Economics degree from the University
of Western Sydney, a graduate Diploma in
Applied Finance from SIA and is a Fellow of the
Australian Property Institute.
OTHER CURRENT LISTED COMPANY
DIRECTORSHIPS
Nil
FORMER LISTED COMPANY DIRECTORSHIPS
IN LAST 3 YEARS
Nil
SPECIAL RESPONSIBILITIES
Nil
INTERESTS IN SECURITIES
8,666,809 securities in Charter Hall Group via
direct and indirect interests including 491,667
securities in the Charter Hall Executive Loan
Security Plan which have vested. A further
interest in 4,837,141 securities in the Plan will
vest upon the satisfaction of performance and
service criteria. The issue of 2,717,391 securities
in the Plan is subject to security holder approval
at the Annual General Meeting.
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.
CHARTER HALL GROUP ANNUAL REPORT 2007 | 65
DIRECTORS’ REPORT (CONTINUED)
MEETINGS OF DIRECTORS
K Roxburgh
R Woodhouse
A Biet
P Derrington
G Fraser
C Fuchs
C McGowan
P McMahon (Resigned 30/8/06)
D Harrison (Appointed 30/8/06)
D Southon (Appointed 30/8/06)
A = Number of meetings attended
Full meetings
of Directors
Meetings of committees
A
10
10
9
9
10
10
10
1
8
8
B
10
10
10
10
10
10
10
2
8
8
Investment
Audit
Remuneration Nominations
A
6
11
11
1
5
7
12
0
12
9
B
12
12
12
12
12
12
12
0
12
12
A
4
*
*
5
5
*
*
1
*
*
B
4
*
*
5
5
*
*
1
*
*
A
1
1
*
*
*
*
1
*
*
*
B
1
1
*
*
*
*
1
*
*
*
A
1
1
*
*
*
*
1
*
*
*
B
1
1
*
*
*
*
1
*
*
*
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
The investment committee is made up of A Biet, C Fuchs, C McGowan, R Woodhouse, D Harrison and D Southon.
Remuneration report
The remuneration report is set out under the following main headings:
A Principles used to determine the nature and amount of remuneration
B Details of remuneration
C Service agreements
D Security-based compensation
E Additional information.
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 security holders’ interests:
· has economic profit as a core component of plan design
·
focuses on sustained growth in security holder 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.
66 | CHARTER HALL GROUP ANNUAL REPORT 2007
DIRECTORS’ REPORT (CONTINUED)
Alignment to program participants’ interests:
·
·
rewards capability and experience
reflects competitive reward for contribution to growth in security holder 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.
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 Executive 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 2008.
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 (STI)
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 Managing Directors 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.
For the period ended 30 June 2007, the KPI’s linked to STI plans were based on group and personal objectives. The KPI’s required performance in
achieving specific targets.
The Managing Directors 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 - Executive Directors
The Executive Directors (Cedric Fuchs, David Harrison and David Southon) short term incentive is linked to a percentage of distribution growth above the
relevant PDS/Prospectus forecast or Board approved budget. The Remuneration Committee has approved an FY07 bonus for the Executive Directors of
15% in the aggregate (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. Once the 30 June 2007 distribution is approved by the Board
the bonus will be able to be calculated and paid in FY08.
CHARTER HALL GROUP ANNUAL REPORT 2007 | 67
For the year to 30 June 2006 Andre Biet, Cedric Fuchs, David Harrison and David Southon were entitled to a bonus of 20% (to be shared evenly) of
the amount that the distribution for the 12 months to 30 June 2006 exceeded the distribution forecast in the IPO PDS/Prospectus dated 27 May 2005.
The total amount of the bonus was $212,235, expensed in FY06.
Charter Hall Limited Executive Loan Security Plan
Information on the Charter Hall Limited Executive Loan Security Plan is set out in note 38 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 6 - 9 above and the following executive officers, who with the
Executive Directors are also the 5 highest paid executives of the Group:
· M Winnem – Fund Manager and Development Director
· R Champion – Fund Manager and Retail Director
The cash bonuses are dependent on the satisfaction of performance conditions as set out in the section headed Short term incentives above. All other
elements of remuneration are not directly related to performance.
Key management personnel of the Group
2007*
Name
Non-Executive Directors
K Roxburgh, Chairman
R Woodhouse, Deputy Chairman**
P Derrington
G Fraser**
C McGowan
P McMahon
A Biet (from 1/1/07)*
Sub-total Non-Executive Directors
Executive Directors
A Biet (until 31/12/06)*
C Fuchs
D Harrison
D Southon
Other key management personnel
R Champion
M Winnem
Totals
Short-term benefits
Post-
employment
benefits
Security-
based
payment
Cash salary
Cash
Super-
Securities
Total
and fees
bonus
annuation
$
106,422
13,761
59,174
13,761
22,019
14,220
22,892
252,249
335,742
183,813
437,314
437,314
343,702
237,314
$
-
-
-
-
-
-
-
-
-
-
-
-
60,000
60,000
$
9,376
826
5,326
826
48,981
1,280
4,579
71,194
40,000
103,500
12,686
12,686
12,686
12,686
$
-
-
-
-
-
-
-
-
33,904
70,813
156,509
152,448
51,673
22,146
$
115,798
14,587
64,500
14,587
71,000
15,500
27,471
323,443
409,646
358,126
606,509
602,448
468,061
332,146
2,227,448
120,000
265,438
487,493
3,100,379
* Remuneration period is 1 July 2006 to 30 June 2007. Short term benefits to Non-Executive Directors include Director and committee fees. A Biet
transitioned from Executive to Non-Executive Director on 31 December 2006 and was paid an eligible termination payment of $300,000 upon termination
of his contract. The table above divides the remuneration received by A Biet into that received as an Executive Director and as a Non-Executive Director.
** Roy Woodhouse and Glenn Fraser had 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).
68 | CHARTER HALL GROUP ANNUAL REPORT 2007
DIRECTORS’ REPORT (CONTINUED)
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
Totals
Short-term benefits
Post-
employment
benefits
Security-
based
payment
Cash
salary and fees
$
77,895
-
58,046
-
60,550
59,046
255,537
181,510
168,182
337,861
337,861
210,000
Cash
bonus
$
-
-
-
-
-
-
-
53,059
53,059
53,059
53,059
40,000
Super-
Securities
Total
annuation
$
7,011
-
5,224
-
5,450
5,314
22,999
35,968
81,818
12,139
12,139
12,139
$
-
-
-
-
-
-
-
28,031
28,031
39,378
39,378
-
$
84,906
-
63,270
-
66,000
64,360
278,536
298,568
331,090
442,437
442,437
262,139
1,490,951
252,236
177,202
134,818
2,055,207
* Roy Woodhouse and Glenn Fraser 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)
The remuneration for Charter Hall Limited is identical to that shown above as Charter Hall Limited does not have employees.
C Service agreements (unaudited)
The Managing Directors, David Harrison and David Southon signed 3 year agreements expiring on 18 October 2007 and 1 July 2007, respectively which
related to the purchase of 50% of Charter Hall Holdings Pty Limited by Transfield (CHG) Limited on 1 July 2004. Updated agreements have not been pursued
because the un-vested component of the Charter Hall Limited Executive Loan Security Plan provides a strong incentive for continuity of employment.
D Employee security scheme (unaudited)
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.
2005 Offers: issued 5,900,000 securities on 6 June 2005 at $1.00 per security and issued 300,000 securities on 11 November at $1.0731 per security.
Service conditions: the plan participants must be an employee at 30 September each year which is the time of vesting.
Performance conditions: for the period ended 30 June 2006 at least meet 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 and service 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.
Loans totalling $6,200,000 under the 2005 offer were provided by Charter Hall Limited to participants.
CHARTER HALL GROUP ANNUAL REPORT 2007 | 69
2006 Offers: issued 6,299,212 securities on 3 July 2006 at $1.27 per security, 352,564 securities on 5 October at $1.56, 807,453 securities on
16 October 2006 at $1.61, 50,000 securities on 15 December 2006 at $2.00 and 202,428 securities on 7 March 2006 at $2.47.
Performance conditions: for the period ended 30 June 2007 at least meet 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 and service 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 $10,449,997 under the offer were provided by Charter Hall Limited to participants.
2007 Offer: issued 10,041,015 securities on 2 July 2007 at $2.76 per security.
Performance conditions: for the period ended 30 June 2008 at least meet the Board approved budgeted DPS and at least 5% growth in like for like
distributions per security for each of the years ended 30 June 2009 and 30 June 2010.
Vesting conditions: securities will vest in three tranches. Subject to the satisfaction of the performance and service conditions above, one-third of the
securities provided under the plan will vest after the end of the 30 June 2008, one-third will vest after 30 June 2009 and one-third after 30 June 2010.
Loans totalling $27,713,201 under the offer were provided by Charter Hall Limited to participants.
The Executive Directors of Charter Hall Group and other key management personnel of the Group received the following vested securities during the
period from the company’s employee security scheme:
Name
Executive Directors
A Biet
C Fuchs
D Harrison
D Southon
Key management personnel
M Winnem
R Champion
LSP Securities
Issued in
2005
LSP Securities
Issued in
2006
LSP Securities
Issued in
2007
LSP Securities
Forfeited in
2007
Total
securities
LSP Securities
Vested
in 2007
- -
(700,000)
1,050,000
1,050,000
1,475,000
1,475,000
393,700
362,319*
1,161,417
2,717,391*
1,118,110
2,717,391*
-
N/A
236,220
N/A
289,855
326,087
350,000
1,806,019
5,353,808
5,310,501
526,075
326,087
350,000
350,000
491,667
491,667
N/A
N/A
-
-
-
-
-
* Subject to securityholder approval at the 2007 AGM
Andre Biet’s securities were forfeited when he became a Non-Executive Director as the service criteria could not be met as a Non-Executive Director.
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 $163,809 (2006: $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.
70 | CHARTER HALL GROUP ANNUAL REPORT 2007
DIRECTORS’ REPORT (CONTINUED)
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 APES 110 Code of Ethics for Professional
Accountants, 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.
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
Parent entity
2007
$’000
2006
$’000
2007
$’000
2006
$’000
(a) Assurance services
Audit services
PricewaterhouseCoopers Australian firm
Audit and review of financial reports and other audit work under the Corporations Act 2001
207,887
157,500
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
Total remuneration for assurance services
(b) Taxation services
PricewaterhouseCoopers Australian firm
Tax compliance services, including review of company income tax returns
Tax advice on IPO / equity raising
Total remuneration for taxation services
(c) Advisory Services
PricewaterhouseCoopers Australian firm
Long term incentive plan structure
Legal advice
Total remuneration for advisory services
33,290
241,177
29,000
186,500
-
-
446,577
446,577
241,177
633,077
37,610
97,123
134,733
38,500
-
38,500
52,700
200,622
253,322
-
42,123
42,123
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
10,000
-
10,000
-
-
-
CHARTER HALL GROUP ANNUAL REPORT 2007 | 71
Auditors’ independence declaration
A copy of the auditors’ independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 72.
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
20 August 2007
72 | CHARTER HALL GROUP ANNUAL REPORT 2007
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
Auditors’ Independence Declaration
As lead auditor for the audit of Charter Hall Group for the period ended 30 June 2007, I declare that, to the best of my knowledge and belief, there have been:
(a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
(a) 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.
B K Hunter
Partner
Sydney
20 August 2007
Liability limited by a scheme approved under Professional Standards Legislation
CHARTER HALL GROUP ANNUAL REPORT 2007 | 73
CHARTER HALL GROUP CORPORATE GOVERNANCE STATEMENT
CORPORATE GOVERNANCE STATEMENT
The Group reviews its corporate governance framework on an ongoing basis. This review takes into account best practice recommendations of the
Australian Securities 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 9 members appointed with a view to providing appropriate skills and experience likely to add value to the Group’s activities.
Name
Kerry Roxburgh
Roy Woodhouse
André Biet
Cedric Fuchs
Patrice Derrington
Glenn Fraser
Colin McGowan
David Harrison
David Southon
Chairman
Deputy Chairman
Non-Executive Director
Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Joint Managing Director
Joint Managing Director
Independent (Yes/No)
Yes
No
No
No
Yes
No
Yes
No
No
First Appointed
12 April 2005
6 April 2005
6 April 2005
6 April 2005
6 April 2005
6 April 2005
6 April 2005
30 August 2006
30 August 2006
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 security holder’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.
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 possession of non-public price sensitive information regarding the Group.
A copy of the Security Trading Policy is available on the Group’s website.
74 | CHARTER HALL GROUP ANNUAL REPORT 2007
CHARTER HALL GROUP CORPORATE GOVERNANCE STATEMENT (CONTINUED)
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 Patrice Derrington (Chair), Kerry Roxburgh and Glenn Fraser, who are all Non-Executive Directors. The members have
comprehensive financial and property industry expertise. The Committee met on five occasions during the year to 30 June 2007. 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 security holders. The Group encourages security holders 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.
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 Managing Directors.
On 21 August 2006 the Board resolved to establish the Nominations Committee which has a Charter to assess the competency of Board members,
review the succession plans that are in place and review the performance of the Board. The Committee consists of the Chairman Kerry Roxburgh,
Roy Woodhouse and Colin McGowan.
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 security holders. The total remuneration paid to Non-Executive
Directors to 30 June 2007 is set out in the Remuneration Report.
Directors’ fees are reviewed annually and are benchmarked against fees paid to Directors of similar organisations.
CHARTER HALL GROUP ANNUAL REPORT 2007 | 75
CHARTER HALL GROUP CORPORATE GOVERNANCE STATEMENT (CONTINUED)
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.
76 | CHARTER HALL GROUP ANNUAL REPORT 2007
INCOME STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007
Revenue from continuing operations
Other income
Investment property expenses
Employee benefits expense
Depreciation
Other expenses
Finance costs
Share of net profit/(loss) of associates accounted for using the equity method
Net gain/(loss) on financial assets held by Charter Hall Limited
Net profit/(loss) from fair value adjustments
Profit/(loss) before income tax
Income tax gain / (expense)
Net profit/(loss) after income tax attributable to stapled security
holders of Charter Hall Group
Notes
5
6
7
7
12
8
Consolidated
Parent entity
2007
$’000
60,829
35
(7,120)
(9,893)
(197)
(4,084)
(6,496)
287
-
33,361
11,493
2006
$’000
37,812
8
(5,065)
(5,553)
(94)
(3,628)
(5,929)
(22)
-
17,529
(5,564)
2007
$’000
4,089
-
-
-
-
(82)
(14,163)
-
287
2006
$’000
4,500
-
-
-
-
(21)
(7,813)
-
(22)
(9,869)
(3,356)
-
-
44,854
11,965
(9,869)
(3,356)
(1,686)
43,168
430
12,395
3,540
(6,329)
1,764
(1,592)
Attributable to:
Equity holders of Charter Hall Limited
Equity holders of Charter Hall Property Trust (minority interest)
Profit/(loss) attributable to stapled security holders of Charter Hall Group
1,239
41,929
43,168
868
11,527
12,395
(6,329)
(1,592)
-
-
(6,329)
(1,592)
Group earnings per stapled security
Basic earnings per security
Diluted earnings per security
The above income statements should be read in conjunction with the accompanying notes.
Cents
Cents
37
37
12.00
11.94
4.61
4.65
CHARTER HALL GROUP ANNUAL REPORT 2007 | 77
Consolidated
Parent entity
Notes
2007
$’000
2006
$’000
2007
$’000
2006
$’000
9
10
11
19
14
15
12
16
17
18
13
19
20
21
22
23
24
25
26(a)
26(b)
27
26,507
26,564
218
641
168,370
30,529
5,120
642
53,930
204,661
7,405
760
149,945
-
1,355
4,153
497
3,988
3,240
307
430,701
284,788
5,345
642
295
596,448
650,378
2,482
642
300
300,397
505,058
28,043
149
28,192
84,454
48
84,502
168
-
-
2,843
3,011
12,424
-
760
1,600
-
-
-
2,844
295
17,923
20,934
5
-
5
1,151
1
5,050
-
6,202
4,153
-
497
1,600
-
-
-
1,929
294
8,473
14,675
9,691
-
9,691
158,572
140,119
75,351
55,050
2,562
41
161,175
189,367
461,011
5,131
(50,952)
207
(45,614)
506,625
461,011
884
83
141,086
225,588
279,470
3,371
(51,835)
(2,576)
(51,040)
330,510
368
-
75,719
75,724
155
-
55,205
64,896
(54,790)
(50,221)
5,131
(52,000)
(7,921)
(54,790)
-
3,371
(52,000)
(1,592)
(50,221)
-
279,470
(54,790)
(50,221)
BALANCE SHEETS AS AT 30 JUNE 2007
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Financial assets available for sale
Deferred tax 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
Total assets
LIABILITIES
Current liabilities
Trade and other payables
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
Retained profits / (accumulated losses)
Parent entity interest
Equity holders of Charter Hall Property Trust (minority interest)
Total equity
The above balance sheets should be read in conjunction with the accompanying notes.
78 | CHARTER HALL GROUP ANNUAL REPORT 2007
STATEMENTS OF CHANGES IN EQUITY FOR THE PERIOD 1 JULY 2006 TO 30 JUNE 2007
Consolidated
Parent entity
Total equity at the beginning of the period
Notes
Changes in the fair value of cash flow hedges, net of tax
13,26
Net loss recognised directly in equity
Profit / (loss) for the period
2007
$’000
279,470
(1,340)
(1,340)
43,168
2006
$’000
2007
$’000
2006
$’000
-
(50,221)
2,482
2,482
12,395
-
-
(6,329)
(1,592)
-
-
-
Total recognised income and expense for the period
41,828
14,877
(6,329)
(1,592)
Foreign currency reserve movement
Business combination reserve movement
Movement in reserves
Transactions with equity holders in their capacity as equity holders:
Contributions of equity, net of transaction costs *
Distributions provided for or paid *
Other
Security based payments reserve
26
26
25
28
26
22
-
22
-
(52,000)
(52,000)
-
-
-
-
(52,000)
(52,000)
177,138
(38,072)
(254)
883
336,459
(20,031)
-
165
1,760
3,371
-
-
-
-
-
-
139,691
316,593
1,760
3,371
Total equity at the end of the period
461,011
279,470
(54,790)
(50,221)
Total recognised income and expense for the period:
Equity holders of Charter Hall Limited
Equity holders of Charter Hall Property Trust (minority interest)
1,238
40,590
41,828
(2,576)
17,453
14,877
(6,329)
(1,592)
-
-
(6,329)
(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.
The above statement of changes in equity should be read in conjunction with the accompanying notes.
CHARTER HALL GROUP ANNUAL REPORT 2007 | 79
CASH FLOW STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007
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)
Notes
Interest paid
Income taxes paid
Net cash inflow / (outflow) from operating activities
36
Consolidated
Parent entity
2007
$’000
78,099
(43,380)
34,719
2006
$’000
44,995
(28,534)
16,461
2007
$’000
5,050
(77)
4,973
2006
$’000
1,381
(608)
773
(6,506)
(5,054)
(14,163)
(4,580)
-
28,213
(10)
11,397
-
-
(9,190)
(3,807)
(9,691)
(41,303)
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
Loans to subsidiaries
Dividends received
Distributions received
Interest received
(9,691)
(1,244)
(39,129)
(108)
(248,173)
(290,352)
-
(2,936)
(134,091)
-
-
(9,081)
-
-
2,931
5,043
(8,320)
(3,877)
(4,417)
(2,614)
-
(544)
-
-
194
5,615
-
-
-
(2,936)
(875)
-
-
-
(5,019)
4,222
-
450
Net cash (outflow) inflow from investing activities
(397,242)
(343,552)
(13,849)
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 security holders
Net cash inflow (outflow) from financing activities
201,584
(58,318)
116,357
(4,621)
(27,836)
227,166
319,479
58,275
140,062
(7,442)
(9,849)
1,755
-
20,301
-
-
500,525
22,056
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
9
(141,863)
168,370
168,370
26,507
-
168,370
(983)
1,151
168
The above cash flow statements should be read in conjunction with the accompanying notes.
-
-
(5,050)
(3,877)
(529)
-
48,947
-
-
3,000
10
429
1,627
3,443
-
-
(112)
-
3,331
1,151
-
1,151
80 | CHARTER HALL GROUP ANNUAL REPORT 2007
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2007
1 Summary of significant accounting policies
2 Financial risk management
3 Critical accounting estimates and judgements
4 Segment information
5 Revenue
6 Other income
7 Expenses
8 Income tax expense
9 Current assets - Cash and cash equivalents
10 Current assets - Trade and other receivables
11 Current assets - Financial assets
12 Current assets - Other financial assets at fair value through profit and loss
13 Derivative financial instruments
14 Non-current assets - Trade and other receivables
15 Non-current assets - Investments accounted for using the equity method
16 Non-current assets - Other financial assets
17 Non-current assets - Property, plant and equipment
18 Non-current assets - Investment properties
19 Non-current assets - Deferred tax assets
20 Current liabilities - Trade and other payables
21 Current liabilities - Provisions
22 Non-current liabilities - Borrowings
23 Non-current liabilities - Deferred tax liabilities
24 Non-current liabilities - Provisions
25 Contributed equity
26 Reserves and retained profits
27 Minority interest
28 Distributions
29 Key management personnel disclosures
30 Remuneration of auditors
31 Commitments
32 Related party transactions
33 Subsidiaries
34 Investments in associates
35 Events occurring after the balance sheet date
36 Reconciliation of profit after income tax to net cash inflow from operating activities
37 Earnings per security
38 Security-based payments
Page
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90
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92
93
94
94
95
95
95
96
97
98
98
98
100
100
100
101
103
103
104
106
107
108
109
113
114
114
116
117
119
120
120
122
CHARTER HALL GROUP ANNUAL REPORT 2007 | 81
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 (AASB I – 1002), 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 comparative period of the parent
company in this financial report is from 24 March 2005 to 30 June 2006. In accordance with AASB I - 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. CHH as the deemed
acquirer, has acquisition accounted for CHL as at 6 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 financial report complies with International Financial Reporting
Standards (IFRSs) in accordance with AASB 101 Presentation of financial statements.
Historical cost convention
These financial statements have been prepared under the historical cost convention, as modified by the revaluation of investment property, financial assets
and liabilities (derivative financial instruments) at fair value through the profit and loss.
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
(i) Subsidiaries
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Charter Hall Limited (‘’company’’ or ‘’parent entity’’)
including CHPT, as at 30 June 2007 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 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 de-consolidated 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)).
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.
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.
82 | CHARTER HALL GROUP ANNUAL REPORT 2007
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2007
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(ii) Associates
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 as financial assets at fair value through the profit
and loss 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 34).
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.
Investments in associates held by CHPT are accounted for as financial assets at fair value through the profit and loss. Investments are initially and in
subsequent periods carried at fair value. Gain or losses arising from changes in the fair value of the “financial assets at fair value through the profit or loss”
category are presented in the income statement within fair value gains / (losses) in the period in which they arise. Distribution income from financial assets
accounted at fair value through the profit and loss is recognised in the income statement as part of revenue.
(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.
(D) FOREIGN CURRENCY TRANSLATION
(i) Functional and presentation currency
The financial statements are presented in Australian Dollars which is Charter Hall Limited’s functional and presentation currency.
(ii) Group companies
The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency
different from the presentation currency are translated into the presentation currency as follows:
· assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet
·
income and expenses for each income statement are translated at average exchange rates; and
· all resulting exchange differences are recognised as a separate component of equity.
On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and of borrowings are taken to a separate
component of equity.
(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:
(i) Rental income
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.
CHARTER HALL GROUP ANNUAL REPORT 2007 | 83
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(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. In the case of performance fees receivable a judgement on the likelihood of receipt is made under a percentage of completion basis method
based on the actual service provided as a percentage of the services to be provided.
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.
(iii) Interest income
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.
(iv) Dividends
Dividends are recognised as revenue when the right to receive payment is established.
(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.
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
On 22 August 2005 Charter Hall Limited and its wholly-owned Australian controlled entities implemented the tax consolidation legislation.
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.
(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.
84 | CHARTER HALL GROUP ANNUAL REPORT 2007
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2007
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
(i) Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are financial assets held for long term investment. Their treatment is discussed at Note 1b(ii). Derivatives
are also categorised as held for trading unless they are designated as hedges.
(ii) Loans and receivables
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 ANNUAL REPORT 2007 | 85
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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).
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.
(i) Cash flow hedge
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.
86 | CHARTER HALL GROUP ANNUAL REPORT 2007
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2007
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(ii) Derivatives that do not qualify for hedge accounting
Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instruments that do not qualify for hedge
accounting are recognised immediately in the income statement and are included in fair value adjustment gains / (losses). The fair value previously
recognised for hedges which are no longer effective is amortised over the remaining period of the hedge.
(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.
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:
Furniture, fittings and equipment
3-8 years
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.
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.
(O) INVESTMENT PROPERTY
(i) Investment properties
Investment properties comprise investment interests in land and buildings held for long-term rental yields and not occupied by the Group. Investment
property is carried at fair value, which is based on active market prices, adjusted, if necessary, for any differences in the nature, location and condition of
the specific asset. 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.
(ii) Investment properties under development
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.
CHARTER HALL GROUP ANNUAL REPORT 2007 | 87
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(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.
(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.
(ii) Long service leave
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 38.
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.
(v) Bonus plans
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.
(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.
88 | CHARTER HALL GROUP ANNUAL REPORT 2007
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2007
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(V) DISTRIBUTIONS
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
(i) Basic earnings per security
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 2007 reporting periods. The Group’s
assessment of the impact of these new standards and interpretations is set out below.
(i) 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.
(ii) Revised AASB 101 Presentation of Financial Statements
A revised AASB 101 was issued in October 2006 and is applicable to annual reporting periods beginning on or after 1 January 2007. The Group has not
adopted the standard early. Application of the revised standard will not affect any of the amounts recognised in the financial statements.
(iii) AASB-I 11 AASB 2 - Group and Treasury Share Transactions and AASB 2007-1
Amendments to Australian Accounting Standards arising from AASB Interpretation 11 AASB-I 11 and AASB 2007-1 are effective for annual reporting
periods commencing on or after 1 March 2007. AASB-I 11 addresses whether certain types of share-based payment transactions should be accounted
for as equity-settled or as cash settled transactions and specifies the accounting in a subsidiary’s financial statements for share-based payment arrangements
involving equity instruments of the parent. The Group will apply AASB-I 11 from 1 July 2007, but it is not expected to have any impact on the Group’s
financial statements.
(iv) AASB 8 Operating Segments and AASB 2007-3
Amendments to Australian Accounting Standards arising from AASB 8 and AASB 2007-3 are effective for annual reporting periods commencing on or after
1 January 2009. AASB 8 will result in a significant change in the approach to segment reporting, as it requires adoption of a “management approach” to
reporting on the financial performance. The information being reported will be based on what the key decision-makers use internally for evaluating segment
performance and deciding how to allocate resources to operating segments. The Group has not yet decided when to adopt AASB 8. Application of AASB 8
may result in different segments, segment results and different type of information being reported in the segment note of the financial report. However, it will
not affect any of the amounts recognised in the financial statements.
CHARTER HALL GROUP ANNUAL REPORT 2007 | 89
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(iv) Revised AASB 123 Borrowing Costs and AASB 2007-6 Amendments to Australian Accounting Standards arising from AASB 123 [AASB 1, AASB 101,
AASB 107, AASB 111, AASB 116 & AASB 138 and Interpretations 1 & 12]
The revised AASB 123 is applicable to annual reporting periods commencing on or after 1 January 2009. It has removed the option to expense all borrowing
costs and - when adopted - will require the capitalisation of all borrowing costs directly attributable to the acquisition, construction or production of a
qualifying asset. This is consistent with the Group’s current accounting policy. The Group will apply the revised AASB 123 from 1 July 2009 and capitalise
its borrowing costs relating to all qualifying assets for which the commencement date for capitalisation is on or after this date. There is not expected to be
an impact on the financial statements in the first year of application.
(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 its liabilities as and when they fall due. The deficiency
relates to a debit to a business combination reserve as a result of $52 million paid by CHL to acquire Charter Hall Holdings Pty Ltd.
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 Joint Managing Directors in discussion with the Board of Directors. The Managing Directors 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
(i) Price risk
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.
(ii) Fair value interest rate risk
Refer to (d) below.
(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.
(C) LIQUIDITY RISK
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.
(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 70% 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.
90 | CHARTER HALL GROUP ANNUAL REPORT 2007
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2007
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. The estimates or assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the
next financial year are discussed below:
(i) Estimated value of investments
Critical judgements are made by the Group in respect of the fair value of investments in associates (Note 12) and investment properties (Note 18). These
investments are reviewed regularly for impairment by reference to external independent property valuations and market conditions, using generally
accepted market practices.
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.
2007
Revenue
Intersegment sales (note (ii))
Total sales revenue
Share of net profit of associates (note (iii))
Total segment revenue/income
Segment result before interest expense
Interest expense
Segment result after interest expense
Fair value adjustments
Profit before income tax
Income tax expense
Profit for the period
Segment assets
Segment liabilities (note (ii))
Investments in associates (note (iii))
Acquisitions of plant and equipment and other non-current segment assets
Depreciation and amortisation expense
Non-cash expenses
Property
Investment
$’000
Funds
management
and corporate
$’000
Inter-segment
eliminations
unallocated
$’000
Consolidated
$’000
49,379
-
49,379
-
49,379
41,005
(6,496)
34,509
7,363
41,872
57
41,929
690,301
184,170
142,096
145,913
-
-
25,648
1,997
27,645
287
27,932
14,307
(14,163)
144
2,838
2,982
(1,743)
1,239
36,740
81,860
760
1,245
(197)
(883)
(14,163)
(1,997)
(16,160)
-
(16,160)
(15,455)
14,163
(1,292)
1,292
-
-
-
(76,663)
(76,663)
-
-
-
-
60,864
-
60,864
287
61,151
39,857
(6,496)
33,361
11,493
44,854
(1,686)
43,168
650,378
189,367
142,856
147,158
(197)
(883)
CHARTER HALL GROUP ANNUAL REPORT 2007 | 91
4. SEGMENT INFORMATION (CONTINUED)
2006
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
Segment assets
Segment liabilities (note (ii))
Investments in associates (note (iii))
Acquisitions of plant and equipment and other non-current segment assets
Depreciation and amortisation expense
Non-cash expenses
Property
Investment
$’000
Funds
management
and corporate
$’000
Inter-segment
eliminations
unallocated
$’000
Consolidated
$’000
31,769
-
31,769
-
31,769
25,978
(5,929)
20,049
(6,621)
13,428
-
13,428
484,458
159,191
3,888
288,028
-
-
13,864
1,589
15,453
(22)
15,431
6,350
(7,813)
(1,463)
-
(1,463)
430
(1,033)
20,823
66,620
497
307
(94)
(165)
(7,813)
(1,589)
(9,402)
-
(9,402)
(8,870)
7,813
(1,057)
1,057
-
-
-
(223)
(223)
-
-
-
-
37,820
-
37,820
(22)
37,798
23,458
(5,929)
17,529
(5,564)
11,965
430
12,395
505,058
225,588
4,385
228,335
(94)
(165)
(B) NOTES TO AND FORMING PART OF THE SEGMENT INFORMATION
(i) Accounting policies
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.
(ii) Inter-segment transfers
Segment revenues, expenses and results include transfers between segments. Such transfers are priced on an ‘’arm’s length’’ basis and are eliminated on
consolidation.
(iii) Investments in associates
The Group owns approximately 11.7% of Charter Hall Diversified Property Fund, 23.0% of Charter Hall Core Plus Office Fund, 32.1% of Charter Hall
Core Plus Industrial Fund and 47.3% of Charter Hall Umbrella Fund which are all accounted for at fair value and are allocated to the property investment
segment. Investments of 3.03% in Charter Hall Opportunity Fund No 4 and 20.0% in Charter Hall Opportunity Fund No 5 are equity accounted and
allocated to the funds management and corporate segment.
92 | CHARTER HALL GROUP ANNUAL REPORT 2007
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2007
5. REVENUE
Sales Revenue
Gross rental income
Management and performance fees
Other revenue
Other revenue
Interest
Distributions
6. OTHER INCOME
Other
7. EXPENSES
Profit before income tax includes the following specific expenses:
Depreciation
Plant and equipment
Finance costs
Consolidated
Parent entity
2007
$’000
26,726
24,977
-
51,703
5,043
4,083
60,829
2006
$’000
18,354
12,637
745
31,736
5,892
184
37,812
2007
$’000
-
-
-
-
766
3,323
4,089
2006
$’000
-
585
210
795
705
3,000
4,500
Consolidated
Parent entity
2007
$’000
35
35
2006
$’000
8
8
2007
$’000
-
-
2006
$’000
-
-
Consolidated
Parent entity
2007
$’000
2006
$’000
2007
$’000
2006
$’000
197
94
-
-
Interest and finance charges paid/payable
6,496
5,929
14,163
7,813
Defined contribution superannuation
654
453
Rent expense relating to operating leases
Minimum lease payments
349
329
-
-
-
-
CHARTER HALL GROUP ANNUAL REPORT 2007 | 93
8. INCOME TAX EXPENSE
(A) INCOME TAX EXPENSE / (GAIN)
Current tax
Deferred tax
Under 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
Parent entity
2007
$’000
(180)
1,674
192
1,686
2006
$’000
(30)
(400)
-
(430)
2007
$’000
-
(3,545)
5
(3,540)
(4)
(1,284)
(3,758)
1,678
1,674
884
(400)
213
(3,545)
2006
$’000
-
(1,774)
10
(1,764)
(1,929)
155
(1,774)
(B) NUMERICAL RECONCILIATION OF INCOME TAX EXPENSE TO PRIMA FACIE TAX PAYABLE
Profit before income tax expense
44,854
11,965
(9,869)
(3,356)
Tax at the Australian tax rate of 30%
13,456
3,590
(2,961)
(1,007)
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
Reversal of tax losses previously recognised
Non taxable dividends
Adjustments to current tax of prior periods
Sundry items
(C) AMOUNT RECOGNISED DIRECTLY IN EQUITY
Net deferred tax debited directly to equity (note 25)
(D) TAX CONSOLIDATION LEGISLATION
(12,562)
(4,028)
7
341
131
-
192
121
6
-
-
-
-
2
-
-
341
131
(997)
5
(59)
-
-
156
-
(900)
10
(23)
1,686
(430)
(3,540)
(1,764)
5
-
-
-
Charter Hall Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation 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.
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).
94 | CHARTER HALL GROUP ANNUAL REPORT 2007
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2007
9. CURRENT ASSETS - CASH AND CASH EQUIVALENTS
Cash at bank and in hand
Deposits at call
(A) CASH AT BANK AND ON HAND
These amounts earn between 5.5% and 5.8% (2006: 5.4% and 5.6%).
(B) DEPOSITS AT CALL
Consolidated
Parent entity
2007
$’000
3,808
22,699
26,507
2006
$’000
113,177
55,193
168,370
2007
$’000
168
-
168
2006
$’000
854
297
1,151
The deposits are bearing floating interest rates between 6.0% and 6.3% (2006: 5.5% and 5.9%). These deposits have an average maturity of 25 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
Parent entity
2007
$’000
9,715
(290)
9,425
9,283
33
4,173
-
3,650
26,564
2006
$’000
2,484
(100)
2,384
536
2,259
924
21,682
2,744
30,529
2007
$’000
2006
$’000
-
-
-
-
-
-
-
-
-
-
-
-
-
1
-
-
-
1
Further information relating to loans to associates is set out in note 32.
(A) BAD AND DOUBTFUL TRADE RECEIVABLES
The Group has recognised a loss of $190,000 (2006: $116,000) in respect of bad and doubtful trade receivables during the period ended 30 June 2007.
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 represented the final instalment of 25c remaining payable on partly paid securities at 30 June 2006. All of this amount outstanding was
received by 10 August 2006.
CHARTER HALL GROUP ANNUAL REPORT 2007 | 95
11. CURRENT ASSETS - FINANCIAL ASSETS
Nunawading performance fee right
Other assets
Consolidated
Parent entity
2007
$’000
-
218
218
2006
$’000
5,050
70
5,120
2007
$’000
-
-
-
2006
$’000
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. The fee was realised in October 2006.
12. NON-CURRENT ASSETS – FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT AND LOSS
Opening balance
Additions
Reallocation
Revaluation
Closing balance
Share and units in associates (note 34)
Shares in listed securities
Consolidated
Parent entity
2007
$’000
3,988
134,990
(100)
11,067
149,945
142,096
7,849
149,945
2006
$’000
-
3,988
-
-
3,988
3,988
-
3,988
2007
$’000
497
-
-
263
760
760
-
760
2006
$’000
-
-
-
497
497
497
-
497
Changes in fair values of other financial assets at fair value through profit or loss are recorded in fair value gains / (losses) in the income statement.
13. DERIVATIVE FINANCIAL INSTRUMENTS
Non-current assets
Interest rate swap contracts
Interest rate swap contracts – cash flow hedges
Total non-current derivative financial instrument assets
(A) INSTRUMENTS USED BY THE GROUP
Consolidated
Parent entity
2007
$’000
5,345
-
5,345
2006
$’000
-
2,482
2,482
2007
$’000
2006
$’000
-
-
-
-
-
-
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
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 70% (2006: 96%) of the loan principal outstanding and are timed to expire as each loan repayment falls due. The fixed
interest rates range between 6.02% and 6.70%. Hedging is at 70% to allow for the raising of external equity in the Charter Hall Core Plus Retail Fund
which is currently a wholly owned subsidiary.
96 | CHARTER HALL GROUP ANNUAL REPORT 2007
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2007
13. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
At 30 June 2007, the notional principal amounts and periods of expiry of the interest rate swap contracts are as follows:
3 - 4 years
4 - 5 years
5 - 6 years
6 - 7 years
2007
$’000
47,000
-
63,450
-
110,450
2006
$’000
-
47,000
-
87,000
134,000
The contracts require settlement of net interest receivable or payable each 90 days for the $47 million swap and 30 days for the $63.45 million 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 was previously deferred in equity in the hedging reserve. With the hedge no longer
tested for effectiveness $1,331,000 was recorded in equity at 31 December 2006 and is currently being amortised to fair value adjustments over the period
of the hedge remaining. The amount amortised in the year ended 30 June 2007 was $189,000. The amount of the hedge recorded directly in fair value
adjustments in the profit and loss statement was $4,014,000.
(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 (c) for the Group’s exposure to interest rate risk on interest rate swaps.
14. NON-CURRENT ASSETS – TRADE AND OTHER RECEIVABLES
Loans to key management personnel
Loans to subsidiaries
Other receivables
Further information relating to loans to key management personnel is set out in note 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
Consolidated
Parent entity
2007
$’000
7,062
-
343
7,405
2006
$’000
3,964
-
189
4,153
2007
$’000
7,062
5,019
343
12,424
2006
$’000
3,964
-
189
4,153
2007
Carrying
amount
$’000
7,062
343
7,405
2007
Fair value
$’000
7,062
343
7,405
2006
Carrying
amount
$’000
3,964
189
4,153
2006
Fair value
$’000
3,964
189
4,153
CHARTER HALL GROUP ANNUAL REPORT 2007 | 97
14. NON-CURRENT ASSETS – TRADE AND OTHER RECEIVABLES (CONTINUED)
(B) INTEREST RATE RISK
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.
2007
Floating
interest
rate
Fixed interest maturing in:
1 year
or less
Over 1 to
2 years
Over 2 to
3 years
Over 3 to
4 years
Over 4 to
5 years
Over 5
years
Trade receivables
Loans to associates
Loans to others
Loans to key management
personnel
Other receivables
Weighted average interest rate
$’000
$’000
$’000
$’000
$’000
$’000
$’000
-
-
-
-
-
-
-
-
7,901
-
-
-
7,901
8.75%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
343
7,062
-
7,405
10.44%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2006
Floating
interest
rate
Fixed interest maturing in:
1 year
or less
Over 1 to
2 years
Over 2 to
3 years
Over 3 to
4 years
Over 4 to
5 years
Over 5
years
Trade receivables
Loans to associates
Loans to others
Loans to key management
personnel
Other receivables
Weighted average interest rate
(C) CREDIT RISK
$’000
$’000
$’000
$’000
$’000
$’000
$’000
-
-
-
-
-
-
-
-
519
150
-
-
669
8.75%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,964
189
4,153
8.34%
-
-
-
-
-
-
-
Non-
interest
bearing
$’000
9,425
1,382
-
-
7,856
Total
$’000
9,425
9,283
343
7,062
7,856
18,663
33,969
-
Non-
interest
bearing
$’000
2,384
17
-
-
27,459
29,860
-
Total
$’000
2,384
536
150
3,964
27,648
34,682
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 33)
(A) UNITS IN ASSOCIATES
Consolidated
2007
$’000
760
760
2006
$’000
497
497
Investments in associates are accounted for in the consolidated financial statements using the equity method of accounting and are carried at fair value by
the parent entity.
98 | CHARTER HALL GROUP ANNUAL REPORT 2007
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2007
16. NON-CURRENT ASSETS – OTHER FINANCIAL ASSETS
Shares and units in subsidiaries (note 33)
333 George Street deposit paid
Option fee paid on investment property
These financial assets are carried at cost.
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 2007
Opening net book amount
Additions
Depreciation charge
Closing net book amount
At 30 June 2007
Cost
Accumulated depreciation
Net book amount
18. NON-CURRENT ASSETS – INVESTMENT PROPERTIES
At Fair value
Opening balance
Acquisitions
Capitalised subsequent expenditure
Lease incentives paid
Lease incentives amortised
Asset removed on deconsolidation
Net gain / (loss) from fair value adjustment
Closing balance at 30 June
Consolidated
Parent entity
2007
$’000
-
-
-
-
2006
$’000
-
2,178
1,062
3,240
2007
$’000
1,600
-
-
2006
$’000
1,600
-
-
1,600
1,600
Furniture, fittings
and equipment
$’000
Fixtures
$’000
Total
$’000
293
108
(94)
307
659
(352)
307
307
211
(111)
407
870
(463)
407
-
-
-
-
-
-
-
-
1,034
(86)
948
1,034
(86)
948
293
108
(94)
307
659
(352)
307
307
1,245
(197)
1,355
1,904
(549)
1,355
Consolidated
Parent entity
2007
$’000
284,788
250,144
5,133
2,957
(211)
(106,780)
2006
$’000
-
289,207
1,145
-
-
-
(5,330)
(5,564)
430,701
284,788
2007
$’000
2006
$’000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
CHARTER HALL GROUP ANNUAL REPORT 2007 | 99
Consolidated
Parent entity
2007
$’000
2006
$’000
2007
$’000
2006
$’000
26,726
(7,120)
19,606
18,354
(5,065)
13,289
-
-
-
-
-
-
Independent
valuation
date
Independent
valuation
amount
Valuer
$’000
Book
value
2007
$’000
Book
value
2006
$’000
12/4/05
30/6/07
30/6/07
30/6/07
30/9/06
22,500
Savills
23,615
23,464
72,000
CBRE
72,000
65,000
19,250
Savills
19,250
17,650
38,000
CBRE
36,746
38,222
26,650
Savills
26,650
23,961
15/6/05
20/6/05
21/6/05
$’000
25,371
66,723
18,589
4/7/05
40,860
28/7/05
25,267
22/12/05
-
20/12/05
134,000
Savills
-
106,780
31/10/06
71,752
21/7/06
23,341
20/12/06
20/12/06
2/2/07
20/6/07
20/6/07
20/6/07
20/6/07
20/6/07
27/6/07
N/A
N/A
6,566
9,208
16,351
27,677
20,013
14,543
27,974
21,623
25,428
1,307
95
442,688
5/10/06
1/7/06
13/11/06
1/11/06
2/2/07
1/6/07
1/6/07
1/6/07
1/6/07
1/6/07
1/6/07
N/A
N/A
66,300
Colliers
67,931
9,711
21,900
Savills
21,900
6,200
CBRE
8,700
CBRE
6,200
8,700
16,343
CBRE
16,343
26,220
Colliers
26,220
19,100
Colliers
19,100
13,720
Colliers
13,720
26,520
Colliers
26,520
20,640
Colliers
20,640
23,800
Colliers
23,800
N/A
N/A
N/A
N/A
1,271
95
-
-
-
-
-
-
-
-
-
-
-
-
430,701
284,788
18. NON-CURRENT ASSETS – INVESTMENT PROPERTIES (CONTINUED)
(A) AMOUNTS RECOGNISED IN PROFIT AND LOSS FOR INVESTMENT
PROPERTY
Rental income
Direct operating expenses from property that generated rental income
Property
Type
%
Owned
Date
acquired
Cost incl
additions
61 Nepean Hwy, Mentone#
Bulky retail
570 Bourke St, Melbourne
56 Anzac St, Chullora
Menai Central, Menai
400 Kent St, Sydney
60 Union St, Pyrmont^
Office
Industrial
Retail
Office
Office
372 Whitehorse Rd, Nunawading+
Bulky retail
25 Nepean Hwy, Mentone
Bulky retail
CPRF properties
Bunnings, Kalgoorlie
Bunnings, Bendigo
Harvey Norman, Dunedin, NZ
Bunnings, Box Hill
Bunnings, Nerang
Bunnings, Nowra
Bunnings, Penrith
Bunnings, Stafford
Bunnings, Belconnen
Foodtown, Auckland, NZ*
Bluewater Square, Redcliffe*
# Development assets
Bulky retail
Bulky retail
Bulky retail
Bulky retail
Bulky retail
Bulky retail
Bulky retail
Bulky retail
Bulky retail
Retail
Retail
50
50
100
100
50
100
100
100
100
100
100
100
100
100
100
100
100
100
100
^ Owned in CPOF which ceased to be a wholly owned sub-trust on 1 July 2006.
+ Valuation is based on a capitalised value of $70.8m less an allowance for incentives required to be paid for the property to be fully leased.
* Deposit paid
CPRF properties are properties held in a wholly owned sub-trust of CHPT
(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 2007 revaluations were based on a combination of Directors’ valuations and independent valuations.
100 | CHARTER HALL GROUP ANNUAL REPORT 2007
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2007
19. NON-CURRENT ASSETS – DEFERRED TAX ASSETS
The balance comprises temporary differences attributable to:
Prepayments
Employee benefits
Other provisions
Fund establishment costs
Tax losses
Movements:
Opening balance
Credited to the income statement (note 8)
Amounts recognised in 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
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
Refer to Note 24 for the movement in provisions and split between current and non-current.
Consolidated
Parent entity
2007
$’000
2006
$’000
15
247
256
214
551
-
90
230
214
750
1,283
1,284
1,284
4
(5)
1,283
642
641
1,283
-
1,284
-
1,284
642
642
1,284
2007
$’000
210
-
-
-
5,477
5,687
1,929
3,758
-
5,687
2,844
2,843
5,687
2006
$’000
-
-
-
-
1,929
1,929
-
1,929
-
1,929
1,929
-
1,929
Consolidated
Parent entity
2007
$’000
2,991
86
4,268
-
-
-
-
20,677
21
28,043
2006
$’000
645
154
2,322
9,691
1,337
58,275
1,771
10,182
77
84,454
2007
$’000
5
-
-
-
-
-
-
-
-
5
2006
$’000
-
-
-
9,691
-
-
-
-
-
9,691
Consolidated
Parent entity
2007
$’000
149
149
2006
$’000
48
48
2007
$’000
-
-
2006
$’000
-
-
CHARTER HALL GROUP ANNUAL REPORT 2007 | 101
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
Parent entity
2007
$’000
2006
$’000
158,572
140,119
-
-
158,572
140,119
2007
$’000
-
75,351
75,351
2006
$’000
-
55,050
55,050
Consolidated
Parent entity
2007
$’000
2006
$’000
158,572
140,119
-
-
158,572
140,119
2007
$’000
-
75,351
75,351
2006
$’000
-
55,050
55,050
Consolidated
Parent entity
2007
$’000
160,000
158,572
1,428
2006
$’000
2007
$’000
225,500
150,000
140,119
85,381
75,351
74,649
2006
$’000
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 facility limit was increased to $260 million on 5 July 2007.
The Parent entity has a facility given by Charter Hall Property Trust.
The current interest rates are 7.0% on the bill facility and 16.4% on the loan from Charter Hall Property Trust.
(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.
2007 Consolidated
Bank and other loans
Interest rate swaps*
Fixed interest rate:
Floating
interest rate
1 year
or less
Over 1 to
2 years
Over 2 to
3 years
Over 3 to
4 years
Over 4 to
5 years
Over 5
years
Total
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
158,572
(110,450)
48,122
-
-
-
-
-
-
-
-
-
-
47,000
47,000
6.02%
-
-
-
-
158,572
63,450
-
63,450
158,572
6.52%
Weighted average interest rate
7.02%
102 | CHARTER HALL GROUP ANNUAL REPORT 2007
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2007
22. NON-CURRENT LIABILITIES – BORROWINGS (CONTINUED)
2007 Parent
Loan from CHPT
Weighted average interest rate
2006 Consolidated
Bank and other loans
Interest rate swaps*
Fixed interest rate:
Floating
interest rate
1 year
or less
Over 1 to
2 years
Over 2 to
3 years
Over 3 to
4 years
Over 4 to
5 years
$’000
$’000
$’000
$’000
$’000
$’000
-
-
-
-
-
-
-
-
-
-
-
-
Over 5
years
$’000
75,351
Total
$’000
75,351
75,351
75,351
16.41%
Fixed interest rate:
Floating
interest rate
$’000
140,119
(134,000)
6,119
1 year
or less
$’000
-
-
-
Over 1 to
2 years
Over 2 to
3 years
Over 3 to
4 years
Over 4 to
5 years
$’000
$’000
$’000
$’000
Over 5
years
$’000
Total
$’000
-
-
-
-
-
-
-
-
-
-
-
-
-
140,119
134,000
-
134,000
140,119
Weighted average interest rate
6.24%
5.99%
Fixed interest rate:
Floating
interest rate
$’000
-
1 year
or less
$’000
-
Over 1 to
2 years
Over 2 to
3 years
Over 3 to
4 years
Over 4 to
5 years
$’000
$’000
$’000
$’000
Over 5
years
$’000
Total
$’000
-
-
-
-
55,050
55,050
-
55,050
55,050
13.17%
2006 Parent
Loan from CHPT
Weighted average interest rate
* Notional principal amounts
(D) FAIR VALUE
The carrying amounts and fair values of borrowings at balance date are:
On-balance sheet
Non-traded financial liabilities
Bank loans
Other loans
Fair value is inclusive of costs which would be incurred on settlement of a liability.
2007
Carrying
amount
Fair value
$’000
$’000
2007 Parent
Carrying
amount
$’000
Fair value
$’000
158,572
158,572
-
-
-
75,351
-
75,351
CHARTER HALL GROUP ANNUAL REPORT 2007 | 103
22. NON-CURRENT LIABILITIES – BORROWINGS (CONTINUED)
(i) On-balance sheet
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
23. NON CURRENT LIABILITIES – DEFERRED TAX LIABILITIES
The balance comprises temporary differences attributable to:
Financial assets at fair value through profit and loss
Prepayments
Fund establishment costs
Accrued revenue
Other
Movements:
Opening balance
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
Employee benefits – long service leave
(A) MOVEMENTS IN PROVISIONS
Movements in employee benefits provisions are set out below:
Long service leave
Opening balance
Additional provisions recognised
Carrying amount at end of period
Current
Non-current
Total
Consolidated
Parent entity
2007
$’000
832
16
946
367
401
2,562
884
1,678
2,562
2,562
-
2,562
2006
$’000
2007
$’000
2006
$’000
-
170
714
-
-
884
-
884
884
884
-
884
-
-
-
367
1
368
155
213
368
368
-
368
-
155
-
-
-
155
-
155
155
155
-
155
Consolidated
Parent entity
2007
$’000
41
2006
$’000
83
2007
$’000
-
2006
$’000
-
Consolidated
2007
$’000
2006
$’000
131
59
190
149
41
190
82
49
131
48
83
131
104 | CHARTER HALL GROUP ANNUAL REPORT 2007
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2007
25. CONTRIBUTED EQUITY
(A) SECURITY CAPITAL*
Ordinary securities
Fully paid
Partly paid
Final instalment to be paid
(B) MOVEMENTS IN ORDINARY SECURITY CAPITAL:
Details
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
Less: Transaction costs on security issues
Less: LTI securities reversed
Balance at 30 June 2006
Addback LTI securities reversed last year
Entitlement issue
Employee security scheme issue
Employee security scheme issue
Employee security scheme issue
Employee security scheme issue
Employee security scheme issue
Securities issued to Wyllie as part of asset purchase
Placement
Balance at 30 June 2007
Less: Transaction costs on security issues
Less: LTI securities reversed
Balance per accounts at 30 June 2007
Charter Hall Limited
Charter Hall Property Trust
Parent
Parent
2007
2006
Notes
Securities
Securities
2007
$’000
2006
$’000
(b),(c)
420,965,611
242,457,179
513,597
-
-
92,928,962
-
-
-
257,852
56,925
21,682
420,965,611
335,386,141
513,597
336,459
(d)
(e)
(e)
(f)
(f)
(e)
(e)
(e)
(e)
(e)
(g)
(h)
Number of
Notes
Securities
100
264,078,910
8,089,980
5,900,000
300,000
Issue
price
$1.0000
$0.7500
$0.8936
$0.7500
$0.8231
57,017,151
$1.2700
335,386,141
-
(6,200,000)
329,186,141
6,200,000
15,423,367
6,299,213
352,564
807,453
50,000
202,428
18,000,000
44,444,445
420,965,611
-
(11,844,991)
409,120,620
$1.2700
$1.2700
$1.5600
$1.6100
$2.0000
$2.4700
$1.4869
$3.0000
$’000
-
198,059
7,229
4,425
247
69,592
72,412
351,964
(9,283)
(6,222)
336,459
6,222
19,588
8,000
550
1,300
100
500
26,764
133,333
532,816
(4,621)
(14,598)
513,597
5,131
508,466
* 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 ANNUAL REPORT 2007 | 105
25. CONTRIBUTED EQUITY (CONTINUED)
In 2006 the issued capital of $336,459,000 was divided between Charter Hall Limited ($3,371,000) and Charter Hall Property Trust ($333,088,000)
(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 placement are fully paid with no entitlement to the distribution for
30 June 2007.
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 REINVESTMENT PLAN
The company has established a distribution reinvestment plan (DRP) under which holders of ordinary securities may elect to have all or part of their
distribution 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 and remains
deactivated.
(E) EMPLOYEE SECURITY SCHEME
Information on the employee security scheme, including details of securities issued under the scheme, is set out in note 38.
(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 61.8 million 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.
(G) WYLLIE ISSUE
On 11 December 2006, 18,000,000 securities were issued to Wyllie Group and $26,764,000 was received as proceeds. This was part of the purchase
of 225 St Georges Terrace, Perth by Charter Hall Core Plus Office Fund.
(H) PLACEMENT
On 6 June 2007 44,444,445 securities were issued at $3.00 partially used to fund the acquisition of the Bunnings Portfolio and a 50% interest in Commercial
and Industrial Property Pty Limited. The securities were not entitled to the distribution for the six months ended 30 June 2007.
106 | CHARTER HALL GROUP ANNUAL REPORT 2007
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2007
26. RESERVES AND RETAINED PROFITS
(A) RESERVES
Hedging reserve - cash flow hedges
Business combination reserve
Security-based payments reserve
Foreign currency reserve
Charter Hall Limited
Charter Hall Property Trust
Movements:
Hedging reserve - cash flow hedges
Opening balance
Hedge novated to Charter Hall Core Plus Fund
Revaluation (note 13)
Amortisation
Closing balance
Security-based payments reserve
Opening balance
Expense relating to LTI scheme
Closing balance 30 June
Business combination reserve
Opening balance
Amount paid for Charter Hall Holdings Pty Limited
Closing balance
Foreign currency reserve
Opening balance
Translation
Closing balance
Consolidated
Parent entity
2007
$’000
2006
$’000
2007
$’000
2006
$’000
1,142
2,482
-
-
(52,000)
(52,000)
(52,000)
(52,000)
1,048
22
165
-
-
-
-
-
(49,788)
(49,353)
(52,000)
(52,000)
(50,952)
1,164
(51,835)
2,482
(49,788)
(49,353)
2,482
(1,512)
361
(189)
1,142
165
883
1,048
-
2,482
-
2,482
-
165
165
(52,000)
(52,000)
-
-
(52,000)
(52,000)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(52,000)
(52,000)
(52,000)
(52,000)
-
22
22
-
-
-
-
-
-
-
-
-
CHARTER HALL GROUP ANNUAL REPORT 2007 | 107
Consolidated
Parent entity
2007
$’000
(7,636)
43,168
(38,074)
(256)
(2,798)
207
(3,005)
(2,798)
2006
$’000
-
12,395
(20,031)
-
2007
$’000
(1,592)
(6,329)
-
-
2006
$’000
-
(1,592)
-
-
(7,636)
(7,921)
(1,592)
(2,576)
(5,060)
(7,636)
26. RESERVES AND RETAINED PROFITS (CONTINUED)
(B) RETAINED PROFITS / (ACCUMULATED LOSSES)
Movements in retained profits were as follows:
Opening balance
Net profit / (loss) for the period
Distributions / dividends
Other
Balance 30 June
Charter Hall Limited
Charter Hall Property Trust
(i) Hedging reserve - cash flow hedges
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).
(ii) Security-based payments reserve
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 combination 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.
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 Interpretation 1002 Post date of transition stapling arrangements (AASB I - 1002), Charter Hall Limited has been identified as the Parent Entity
in relation to the stapling. In accordance with AASB I - 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.
Interest in:
Contributed equity
Reserves
Retained profits
Notes
25
26(a)
26(b)
Consolidated
Parent entity
2007
$’000
2006
$’000
2007
$’000
2006
$’000
508,466
333,088
1,164
(3,005)
2,482
(5,060)
506,625
330,510
-
-
-
-
-
-
-
-
108 | CHARTER HALL GROUP ANNUAL REPORT 2007
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2007
28. DISTRIBUTIONS
(A) ORDINARY SECURITIES
- Final distribution for the period ended 30 June 2006 of 3.8288 cents per partly paid security paid on 28 August 2006
- Interim distribution for the period ended 31 December 2005 of 3.281 cents per partly paid security paid 28 February 2006
- Interim distribution for the period ended 30 June 2005 of 0.449 cents per partly paid security paid 28 February 2006
- Interim ordinary distribution for the period ended 31 December 2006 of 4.77 cents per security paid on 28 February 2007
- Final ordinary distribution for the period ended 30 June 2007 of 5.67 cents per security payable on 31 August 2007
Total distributions 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 were as follows:
Paid in cash
Satisfied by issue of securities
Consolidated
Entity
2007
$’000
-
-
-
17,950
21,349
39,299
(1,227)
38,072
39,299
-
39,299
2006
$’000
10,420
8,868
1,215
-
-
20,503
(472)
20,031
13,274
7,229
20,503
CHARTER HALL GROUP ANNUAL REPORT 2007 | 109
29. KEY MANAGEMENT PERSONNEL DISCLOSURES
(A) DIRECTORS
The following persons were Directors of Charter Hall Limited during the period:
(i) Chairman - Non-Executive
K Roxburgh
(ii) Executive Directors
C Fuchs
D Harrison (appointed 30/8/06)
D Southon (appointed 30/8/06)
(iii) Non-Executive Directors
R Woodhouse (Deputy Chairman)
A Biet
P Derrington
G Fraser
C McGowan
P McMahon (resigned 30/8/06)
(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
R Champion
M Winnem
Position
Fund Manager and Retail Director
Fund Manager and Development Director
Employer
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
Parent entity
2007
$’000
2006
$’000
2007
$’000
2006
$’000
2,347,448
1,743,187
265,438
487,493
177,202
134,818
3,100,379
2,055,207
-
-
-
-
-
-
-
-
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 9 to 13.
110 | CHARTER HALL GROUP ANNUAL REPORT 2007
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2007
29. KEY MANAGEMENT PERSONNEL DISCLOSURES (CONTINUED)
(D) EQUITY INSTRUMENT DISCLOSURES RELATING TO KEY MANAGEMENT PERSONNEL
(i) Security holdings
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.
2007
Name
Directors of Charter Hall Limited
Ordinary securities
A Biet
P Derrington
G Fraser
C Fuchs
D Harrison
C McGowan
K Roxburgh
D Southon
R Woodhouse
Other key management personnel of the Group
Ordinary securities
M Winnem
R Champion
Opening
balance
Purchased /
(sold) during
the period
LTI securities
vesting during
the period
Balance at
the end of
the period
5,729,724
(520,000)
350,000
5,559,724
-
-
156,262
68,738
-
-
-
225,000
5,656,595
(520,000)
350,000
5,486,595
5,899,117
2,276,025
491,667
8,666,809
-
50,000
-
-
-
-
-
50,000
4,608,795
3,654,408
491,667
8,754,870
366,666
-
1,482,982
171,566
-
-
-
-
-
366,666
1,654,548
-
CHARTER HALL GROUP ANNUAL REPORT 2007 | 111
Opening
balance
Purchased
during the
period
Balance at
the end of the
period
5,576,595
153,129
5,729,724
-
156,262
5,656,595
-
55,073
50,000
366,666
-
-
-
-
-
-
-
-
156,262
5,656,595
-
55,073
50,000
366,666
5,339,208
559,909
5,899,117
4,424,092
1,482,982
184,703
4,608,795
-
1,482.982
29. KEY MANAGEMENT PERSONNEL DISCLOSURES (CONTINUED)
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
(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
2007
2006
Balance at the
start of the
period
Interest paid
and payable
for the period
Balance at
the end of
the period
Number
in Group
at the
end of
$
$
$
the period
3,964,504
378,946
7,062,280
6,758,366
534,647
3,964,504
4
3
112 | CHARTER HALL GROUP ANNUAL REPORT 2007
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2007
29. KEY MANAGEMENT PERSONNEL DISCLOSURES (CONTINUED)
(ii) Individuals with loans above $100,000 during the period
2007
Name
D Harrison
D Southon
C Fuchs
A Biet
2006
Name
D Harrison
D Southon
M Winnem
Balance at the
start of the
period
Interest paid
and payable
for the
period
Balance at
the end of
the period
Highest
indebtedness
during the
period
$
1,970,720
1,970,720
-
-
$
312,330
312,330
36,540
36,540
$
$
3,161,295
3,161,295
3,161,295
3,161,295
369,845
369,845
369,845
369,845
Balance at the
start of the
period
Interest paid
and payable
for the period
Balance at
the end of
the period
Highest
indebtedness
during 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 ANNUAL REPORT 2007 | 113
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
Parent entity
2007
$’000
2006
$’000
2007
$’000
2006
$’000
(A) ASSURANCE SERVICES
Audit services
PricewaterhouseCoopers Australian firm
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
207,887
157,500
33,290
241,177
29,000
186,500
Other assurance services
PricewaterhouseCoopers Australian firm
Investigating Accountants Reports
Total remuneration for other assurance services
-
-
446,577
446,577
Total remuneration for assurance services
241,177
633,077
(B) TAXATION SERVICES
PricewaterhouseCoopers Australian firm
Tax compliance services, including review of company income tax returns
Tax advice on IPO / equity raising
Total remuneration for taxation services
(C) ADVISORY SERVICES
PricewaterhouseCoopers Australian firm
Long term incentive plan
Legal fees
Total remuneration for advisory services
37,610
97,123
134,733
52,700
200,622
253,322
38,500
-
38,500
-
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.
114 | CHARTER HALL GROUP ANNUAL REPORT 2007
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2007
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
Within one year
Later than one year but not later than five years
Later than five years
Consolidated
Parent entity
2007
$’000
2006
$’000
2007
$’000
2006
$’000
-
-
-
-
-
165,885
-
-
-
165,885
-
-
-
-
-
-
-
-
-
-
(B) LEASE COMMITMENTS : GROUP AS LESSEE
Commitments in relation to leases contracted for at the reporting date but not recognised as liabilities, payable:
Consolidated
Parent entity
2007
$’000
-
1,506
1,173
2,679
2006
$’000
313
1,075
-
1,388
2007
$’000
2006
$’000
-
-
-
-
-
-
-
-
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 33.
(C) KEY MANAGEMENT PERSONNEL
Disclosures relating to key management personnel are set out in note 29.
CHARTER HALL GROUP ANNUAL REPORT 2007 | 115
Consolidated
Parent entity
2007
$’000
2006
$’000
2007
$’000
2006
$’000
15,296,464
1,936,226
2,008,273
3,050,422
173,218
300,000
-
-
-
-
-
-
-
-
-
-
-
-
-
285,400
4,901,957
1,158,182
3,322,674
3,000,000
Consolidated
Parent entity
2007
$’000
2006
$’000
2007
$’000
2006
$’000
536,197
-
57,492,387
11,401,476
(49,051,395)
(10,930,697)
1,152,920
211,631
(846,803)
(146,213)
9,283,306
536,197
-
-
-
-
-
-
5,010,000
8,510
5,018,510
55,049,981
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
20,027,776
55,570,475
(2,939,812)
(4,333,708)
14,162,749
7,393,582
(10,950,000)
(3,580,368)
75,350,694
55,049,981
-
-
-
-
-
-
-
-
-
-
32. RELATED PARTIES (CONTINUED)
(D) TRANSACTIONS WITH RELATED PARTIES
The following transactions occurred with related parties:
Sales of services
Management fees from associates
Procurement fees from associates
Commitment fees from associates
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) LOANS TO/FROM RELATED PARTIES
Loans to associates
Beginning of the period
Loans advanced
Loan repayments received
Interest charged
Interest received
End of period
Loans to subsidiaries
Loans advanced
Interest charged
Loans from subsidiaries
Beginning of the period
Loans received
Loan repayments paid
Interest charged
Interest paid
End of period
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.
116 | CHARTER HALL GROUP ANNUAL REPORT 2007
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2007
33. 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 securities
Equity holding
2007
2006
Charter Hall Holdings Pty Limited
Charter Hall (NZ) Pty Limited (formerly Atrium Pyrmont Pty Limited)
CH Management Australia Pty Limited
Charter Hall Funds Management Limited
Bowvilla Pty Limited
Charter Hall Holdings Real Estate Pty Limited
Frolish Pty Limited
Stelridge Pty Limited
Visokoi Pty Limited
Bieson Pty Limited
Sandkilt (No 2) Pty Limited
Charter Hall Holdings Real Estate (Vic) Pty Limited
333 George Street Trust
Charter Hall Core Plus Office Fund
Atrium Trust
Stirling Street Trust
Charter Hall Investment Fund No. 15
Charter Hall Core Plus Retail Fund
Charter Hall Core Plus Retail Fund (NZ)
Redcliffe Retail Property Trust
Belconnen Retail Warehouse Trust
Box Hill Retail Warehouse Trust
Nerang Retail Warehouse Trust
Nowra Warehouse Trust
Penrith Warehouse Trust
Stafford Retail Warehouse Trust
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
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
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
* The holding in these Trusts has been reduced to 23% with the raising of external equity resulting in a dilution from 100%.
%
100
100
100
100
100
100
100
100
100
100
100
100
*
*
*
*
100
100
100
100
100
100
100
100
100
100
%
100
100
N/A
100
100
100
100
100
100
100
100
100
100
100
100
100
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
CHARTER HALL GROUP ANNUAL REPORT 2007 | 117
34. INVESTMENTS IN ASSOCIATES
(A) CARRYING AMOUNTS
Information relating to associates is set out below.
Name of company
Unlisted
Charter Hall Diversified Property Fund
Charter Hall Opportunity Fund No 4
Charter Hall Core Plus Office Fund
Charter Hall Core Plus Industrial Fund
Charter Hall Umbrella Fund
Charter Hall Opportunity Fund No 5
Principal
activity
Ownership
Interest
Consolidated
Parent entity
2007
%
2006
%
2007
$’000
2006
$’000
2007
$’000
2006
$’000
Property
Investment
Property
Development
Property
Investment
Property
Investment
Property
Investment
Property
Development
11.7%
19.9%
5,179
3,888
3.03%
3.03%
662
497
23%
100%
80,058
32.1%
N/A
45,986
47.3%
N/A
10,873
20%
N/A
98
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
The above associates are incorporated in Australia. The investments in Charter Hall Opportunity Fund Nos 4 & 5 are held by Charter Hall Limited are equity
accounted in the consolidated financial statements and as financial assets at fair value through the profit and loss in the parent financial statements. The
investments in Charter Hall Diversified Property Fund, Charter Hall Core Plus Office Fund, Charter Hall Core Plus Industrial Fund and Charter Hall Umbrella
Fund are held by Charter Hall Property Trust and as such are accounted for at fair value.
118 | CHARTER HALL GROUP ANNUAL REPORT 2007
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2007
34 . INVESTMENTS IN ASSOCIATES (CONTINUED)
Consolidated
(B) MOVEMENTS IN CARRYING AMOUNTS
Charter Hall Diversified Property Fund
Opening balance
Investment
Fair value increase
Closing balance
Distributions on this investment of $399k (2006 $184k) are in the income statement
Charter Hall Opportunity Fund No 4
Opening balance
Investment
Share of profit/(loss) after income tax
Distributions received/receivable
Carrying amount at the end of the period
Charter Hall Core Plus Office Fund
Opening balance (Eliminated on consolidation last year)
Investment
Fair value increase
Charter Hall Core Plus Industrial Fund
Investment
Fair value increase
Charter Hall Umbrella Fund
Investment and closing balance
Charter Hall Opportunity Fund No 5
Investment and closing balance
(C) FAIR VALUE OF UNLISTED INVESTMENTS IN ASSOCIATES
Charter Hall Diversified Property Fund
Charter Hall Opportunity Fund No 4
Charter Hall Core Plus Office Fund
Charter Hall Core Plus Industrial Fund
Charter Hall Umbrella Fund
Charter Hall Opportunity Fund No 5
(D) SHARE OF ASSOCIATES’ PROFITS OR LOSSES
Profit / (loss) before income tax
Income tax expense
Profit / (loss) after income tax
2007
$’000
3,888
1,096
195
5,179
497
777
287
(899)
662
10,000
63,011
7,047
80,058
45,000
986
45,986
10,873
98
5,179
662
80,058
45,986
10,873
98
287
-
287
2006
$’000
-
3,888
-
3,888
529
(22)
(10)
497
-
-
-
-
-
-
-
-
3,888
497
-
-
-
-
(31)
9
(22)
CHARTER HALL GROUP ANNUAL REPORT 2007 | 119
34 . INVESTMENTS IN ASSOCIATES (CONTINUED)
(E) SUMMARISED FINANCIAL INFORMATION OF ASSOCIATES
2007
Charter Hall Diversified Property Fund
Charter Hall Opportunity Fund No 4
Charter Hall Core Plus Office Fund
Charter Hall Core Plus Industrial Fund
Charter Hall Umbrella Fund
Charter Hall Opportunity Fund No 5
Group’s share of:
Assets
Liabilities
Revenues
Profit/(Loss)
$’000
$’000
$’000
$’000
8,647
1,245
153,291
62,926
10,873
98
3,697
594
78,971
13,042
-
-
599
1,034
6,379
1,119
95
-
637
287
4,386
448
95
-
35 . EVENTS OCCURRING AFTER THE BALANCE SHEET DATE
(a) Charter Hall Core Plus Retail Fund (CPRF) completed the purchase of Foodtown, Auckland on 4 July 2007 for $25 million.
(b) CPRF completed the $8 million purchase of the Ipswich Super Centre on 14 August 2007.
(c) The purchase of 50% of Commercial and Industrial Property Pty Ltd initially for $40 million on 20 July 2007.
120 | CHARTER HALL GROUP ANNUAL REPORT 2007
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2007
36. RECONCILIATION OF PROFIT AFTER INCOME TAX TO NET CASH FLOW INFLOW FROM OPERATING ACTIVITIES
Consolidated
Parent entity
2007
$’000
43,168
197
883
(9,126)
(11,493)
(287)
-
4,721
602
124
(2,347)
(184)
327
-
1,686
(58)
28,213
Profit for the period
Depreciation and amortisation
Non-cash employee benefits expense - security-based payments
Dividend and interest income
Fair value adjustments
Share of profits of associates not received as dividends
Net gain/(loss) on financial assets held by Charter Hall Limited
Change in operating assets and liabilities, net of effects from purchase of controlled entity
Decrease / (increase) in trade debtors
Decrease / (increase) in accrued revenue
Decrease / (increase) in other operating assets
Increase / (decrease) in trade creditors
Increase / (decrease) in accrued expenses
Increase / (decrease) in other operating liabilities
Increase / (decrease) in provision for income taxes payable
Increase / (decrease) in provision for deferred income tax
Increase in other provisions
Net cash inflow / (outflow) from operating activities
37. 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 Group
(B) DILUTED EARNINGS / (LOSS) PER SECURITY
Profit before fair value adjustments
Fair value adjustments
Profit attributable to the ordinary equity holders of the Group
2006
$’000
12,395
94
165
(6,075)
5,564
22
-
-
-
-
-
3,106
1,938
(2,379)
330
11,397
(3,763)
5,050
2007
$’000
(6,329)
-
-
2006
$’000
(1,592)
-
-
(4,089)
(3,705)
-
-
(287)
-
-
-
-
5
-
(3,540)
-
-
-
22
-
-
-
-
-
3,232
(1,764)
-
-
(9,190)
(3,807)
Consolidated
2007
Cents
8.80
3.20
12.00
8.84
3.10
11.94
2006
Cents
6.67
(2.06)
4.61
6.67
(2.02)
4.65
CHARTER HALL GROUP ANNUAL REPORT 2007 | 121
37. EARNINGS PER SECURITY (CONTINUED)
(C) RECONCILIATIONS OF EARNINGS USED IN CALCULATING EARNINGS PER SECURITY
Basic earnings per security
Profit / (loss) before fair value adjustments
Fair value adjustment (gains) / losses
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 adjustment (gains) / losses
Consolidated
2007
$’000
31,675
11,493
43,168
43,168
1,136
44,304
(11,493)
2006
$’000
17,959
(5,564)
12,395
12,395
404
12,799
5,564
Profit / (loss) attributable to the ordinary equity holders of the consolidated entity used in calculating diluted earnings per
security before fair value adjustments
32,811
18,363
(D) WEIGHTED AVERAGE NUMBER OF SECURITIES USED AS THE DENOMINATOR
Weighted average number of ordinary securities used as the denominator in calculating 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 diluted earnings per security
Consolidated
2007
2006
Number
Number
359,384,110
269,115,828
11,298,942
6,078,462
370,683,052
275,194,290
(E) INFORMATION CONCERNING THE CLASSIFICATION OF SECURITIES
(i) Securities issued under the Charter Hall Limited Executive Loan Security Plan
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 are derecognised for the preparation of the
financial report but recognised for the calculation of diluted earnings per security.
122 | CHARTER HALL GROUP ANNUAL REPORT 2007
38. 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 Joint Managing Directors 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:
Number of securities issued under the plan to participating employees
on 3 July 2006 at $1.27 (6 June 2005 at $1.00)
Number of securities issued on 5 October 2006 at $1.56
Number of securities issued on 16 October 2006 at $1.61
Number of securities issued on 15 December 2006 at $2.00
Number of securities issued on 7 March 2007 at $2.47
(B) EXPENSES ARISING FROM SECURITY BASED PAYMENT TRANSACTIONS
Securities issued under employee security plan
Consolidated
Parent entity
2007
2006
2007
2006
6,318,898
6,200,000
6,318,898
6,200,000
352,564
807,453
50,000
202,428
-
-
-
-
352,564
807,453
50,000
202,428
-
-
-
-
7,731,343
6,200,000
7,731,343
6,200,000
Consolidated
Parent entity
2007
$’000
883
2006
$’000
165
2007
$’000
-
2006
$’000
-
CHARTER HALL GROUP ANNUAL REPORT 2007 | 123
CHARTER HALL GROUP DIRECTORS’ DECLARATION 30 JUNE 2007
In the Directors’ opinion:
(a) the financial statements and notes set out on pages 20 to 64 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
(ii) giving a true and fair view of the company’s and consolidated entity’s financial position as at 30 June 2007 and of their performance for the financial
year ended on that date; and
(b) 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
(c) the audited remuneration disclosures set out on pages 9 to 13 of the Directors’ report comply with Accounting Standard AASB 124 Related Party
Disclosures and the Corporations Regulations 2001.
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
20 August 2007
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
124 | CHARTER HALL GROUP ANNUAL REPORT 2007
Independent auditor’s report
to the stapled security holders of Charter Hall Group
Report on the financial report and the AASB 124 Remuneration disclosures contained in the
Directors’ report
We have audited the accompanying financial report of Charter Hall Limited (the company), which comprises the
balance sheet as at 30 June 2007, and the income statement, statement of changes in equity and cash flow
statement for the year ended on that date, a summary of significant accounting policies, other explanatory notes
and the Directors’ declaration for both Charter Hall Limited and the Charter Hall Group (the consolidated entity).
The consolidated entity comprises the company and the entities it controlled at the year’s end or from time to
time during the financial year.
We have also audited the remuneration disclosures contained in the Directors’ report. As permitted by the
Corporations Regulations 2001, the company has disclosed information about the remuneration of Directors and
Executives (“remuneration disclosures”), required by Accounting Standard AASB 124 Related Party Disclosures,
under the heading “remuneration report” in pages 9 to 12 of the Directors’ report and not in the financial report.
Director responsibility for the financial report and the AASB 124 Remuneration disclosures
contained in the Directors’ report
The Directors of the company are responsible for the preparation and fair presentation of the financial report in
accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the
Corporations Act 2001. This responsibility includes establishing and maintaining internal control relevant to the
preparation and fair presentation of the financial report that is free from material misstatement, whether due to
fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are
reasonable in the circumstances. In Note 1a, the Directors also state, in accordance with Accounting Standard
AASB 101 Presentation of Financial Statements, that compliance with the Australian equivalents to International
Financial Reporting Standards ensures that the financial report, comprising the financial statements and notes,
complies with International Financial Reporting Standards.
The Directors of the company are also responsible for the remuneration disclosures contained in the Directors’
report.
Auditor’s responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit
in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with
relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable
assurance whether the financial report is free from material misstatement. Our responsibility is to also express an
opinion on the remuneration disclosures contained in the Directors’ report based on our audit.
CHARTER HALL GROUP ANNUAL REPORT 2007 | 125
CHARTER HALL GROUP SHAREHOLDER INFORMATION 30 JUNE 2007
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report and the remuneration
disclosures contained in the Directors’ report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of
material misstatement of the financial report and the remuneration disclosures contained in the Directors’ report, whether due to fraud or error. In making
those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial report and the
remuneration disclosures contained in the Directors’ report in order to design audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates made by the Directors, as well as evaluating the overall presentation of the financial report
and the remuneration disclosures contained in the Directors’ report.
Our procedures include reading the other information in the Annual Report to determine whether it contains any material inconsistencies with the financial
report.
For further explanation of an audit, visit our website
http://www.pwc.com/au/financialstatementaudit
Our audit did not involve an analysis of the prudence of business decisions made by Directors or management.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.
Independence
In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.
Auditor’s opinion on the financial report
In our opinion:
(a) the financial report of Charter Hall Limited is in accordance with the Corporations Act 2001, including:
(i) giving a true and fair view of the company’s and consolidated entity’s financial position as at 30 June 2007 and of their performance for the year
ended on that date; and
(ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; and
(b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 1a.
Auditor’s opinion on the AASB 124 Remuneration disclosures contained in the Directors’ report
In our opinion, the remuneration disclosures that are contained in pages 9 to 12 of the Directors’ report comply with Accounting Standard AASB 124.
PricewaterhouseCoopers
B K Hunter
Partner
Sydney
20 August 2007
126 | CHARTER HALL GROUP ANNUAL REPORT 2007
The shareholder information set out below was applicable as at 30 June 2007.
(A) DISTRIBUTION OF EQUITY SECURITIES
Analysis of numbers of equity security holders by size of holding:
1 - 1000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 and over
(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
HSBC Custody Nominees (Australia) Limited
Transfield (CHG) Limited
National Nominees Limited
J P Morgan Nominees Australia Limited
ANZ Nominees Limited
Wyllie Group Pty Ltd
CHL Executive Loan Security Plan Managers Pty Limited
Cogent Nominees Pty Limited
Doverville Holdings Pty Limited
Citicorp Nominees Pty Limited (CFSIL Cwlth Property 1)
Bond Street Custodians Pty Limited
Citicorp Nominees Pty Limited (CFSIL Cwlth Property 2)
Cogent Nominees Limited
Portmist Pty Limited
AMP Life Limited
Southon Family Trust
Citicorp Nominees Pty Limited
Citicorp Nominees Pty Limited
David William Harrison
RBC Dexia Investor Services Australia Nominees Pty Limited (PIPOOLED A/C)
Ordinary Securities
40,329
764,379
2,150,799
21,172,380
396,837,724
420,965,611
Ordinary securities
Number held
Percentage
of issued
securities
70,724,748
66,235,131
60,301,070
34,842,037
19,424,865
18,000,000
13,678,325
10,894,532
10,760,040
7,052,044
6,448,226
6,370,876
6,246,548
5,562,117
4,816,552
4,608,795
3,352,319
2,915,330
2,613,025
1,999,202
16.80
15.73
14.32
8.28
4.61
4.27
3.56
2.59
2.56
1.68
1.53
1.51
1.48
1.32
1.14
1.09
0.80
0.69
0.62
0.47
360,953,782
85.05
CHARTER HALL GROUP ANNUAL REPORT 2007 | 127
Ordinary securities
Number held
Percentage
of issued
securities
66,235,131
38,294,509
20,077,669
15.73%
9.10%
5.48%
(C) SUBSTANTIAL HOLDERS
Substantial holders in the group are set out below:
Name
Ordinary securities
Transfield (CHG) Pty Limited
UBS Global Asset Management
BT Financial Group
(D) VOTING RIGHTS
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.
128 | CHARTER HALL GROUP ANNUAL REPORT 2007
ASX LISTING DETAILS
Charter Hall Group is listed on the Australian
Securities 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. Any queries
regarding change of details, mailing address,
distribution and communication instructions
should be forwarded to:
Link Market Services
Level 8, 580 George Street
Sydney NSW 2000
Telephone: 1300 664 498
Fax: +61 2 9287 0303
Fax: +61 2 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 28, Deutsche Bank Place
Corner of Hunter & Phillip Streets
Sydney NSW 2000
BANKERS
National Australia Bank
Level 24, NAB House
255 George Street
Sydney NSW 2000
THE ANNUAL GENERAL MEETING OF
CHARTER HALL GROUP WILL BE HELD AT:
Hilton Hotel
Level 4, Room 1
488 George Street, Sydney, NSW 2000
Date: 25 October, 2007
Time: 2.00pm
CORPORATE DIRECTORY
Charter Hall Group
Charter Hall Limited and Charter Hall Funds
Management Limited as Responsible Entity for
the Charter Hall Property Trust
DIRECTORS
Kerry Roxburgh – Chairman
Roy Woodhouse – Deputy Chairman
André Biet – Non-Executive Director
Cedric Fuchs – Executive Director
Patrice Derrington –
Non-Executive Independent Director
Glenn Fraser – Non-Executive Director
Colin McGowan –
Non-Executive Independent Director
David Harrison – Joint Managing Directors
David Southon – Joint Managing Directors
Nathan Francis – Company Secretary
PRINCIPAL REGISTERED OFFICE
Level 11, 333 George Street
Sydney NSW 2000
PO Box 2404 Sydney NSW 2011
Telephone: +61 2 8908 4000
Fax: +61 2 8908 4040
WEBSITE
www.charterhall.com.au
SYDNEY · BRISBANE · PERTH · AUCKLAND
www.charterhall.com.au