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Annual
Report
2011
Contents
1
Introduction
2
Key Results
4
Year in Review
6
Chairman’s Letter
Joint Managing Directors’ Letter
8
10
About Charter Hall
12
Our Strategy
14
Our Performance
17
Sustainability
20
Key Metrics
21
Board of Directors
33
Financial Report
Co ver i mag e: Bri s bane S qu are, B r isba ne , Q ld
This year Charter Hall celebrates its 20th anniversary.1991Charter Hall is launched focusing on the provision of property services, with two of its founding partners (David Southon and Cedric Fuchs) continuing to be directly involved with the business today.2004Transfield Holdings acquires 50% of Charter Hall and David Harrison, the ex-Managing Director of Savills, joins the company as Joint Managing Director alongside David Southon.2008Charter Hall launches the Core Plus Retail Fund, now known as the Direct Retail Fund and available for investment by retail investors.1991–94Charter Hall focuses on commercial property advisory work, acquiring office, industrial and retail investments in Sydney and Melbourne in addition to financial and development workout advice to many of Australia’s major banks.2005Charter Hall lists on the Australian Securities Exchange and launches Charter Hall Opportunity Fund No.4 and the Charter Hall Diversified Property Fund.2009The Gandel Group acquires a strategic 12% interest in Charter Hall as part of the company’s capital raising and in addition invests significant capital in the unlisted Core Plus Office Fund.Charter Hall acquires the management rights to Macquarie Group’s real estate funds management platform, increasing its funds under management to over $10 billion across listed and unlisted equity sources. The acquisition is funded via a capital raising in which Macquarie takes a 10% interest in Charter Hall and Gandel raises its interest to 16%.1995Charter Hall Investment Fund No.1 (CHIF) is launched, the first in a series of seven, focusing on high quality single and multi-asset property syndicates.2006Charter Hall launches the Core Plus Office Fund, the first in the Group’s series of long-term open ended core investment vehicles.20101996Australia’s first institutional opportunistic property fund, the AMP/Charter Hall Property Development Portfolio No.1, is launched with AMP Capital; the first in a series of five opportunistic funds by Charter Hall.2007Charter Hall launches the Core Plus Industrial Fund, Charter Hall Opportunity Fund No.5 and the Charter Hall Umbrella Fund.2011Charter Hall celebrates its 20 year anniversary and through its managed funds and third party mandates acquires over $1 billion in real estate, increasing funds under management to $10.7 billion.For further details on Charter Hall’s history, please visit www.charterhall.com.auANNUAl REPORT 2011133Corporate directoryDirectorsKerry Roxburgh Roy Woodhouse Cedric Fuchs Colin McGowan David Harrison David Southon Anne BrennanGlenn Fraser Peter Kahan Company SecretaryNathan FrancisASX CodeCharter Hall Group stapled securities are listed on the Australian Securities Exchange (code CHC).Principal registered office in Australialevel 11, 333 George StreetSydney NSW 2000+61 2 8908 4000AuditorPricewaterhouseCoopersDarling Park Tower 2201 Sussex StreetSydney NSW 1171SolicitorsAllens Arthur Robinsonlevel 28, Deutsche Bank PlaceCnr of Hunter & Phillip StreetsSydney NSW 2000BankersWestpac Banking Corporation level 3, Westpac Place, 275 Kent Street Sydney NSW 2000Annual General MeetingThe Annual General Meeting for Charter Hall Group will be held on 9 November 2011 at 2.30pm at:The Hiltonlevel 2, Room 2488 George StreetSYDNEYWebsite addresswww.charterhall.com.auDisclaimer:This Annual Report has been prepared and issued by Charter Hall limited (ABN 57 113 531 150) and Charter Hall Funds Management limited (ABN 31 082 991 786, AFSl 262861) (CHFMl) as Responsible Entity of the Charter Hall Property Trust (together, the Charter Hall Group or Group). The information contained in this report has been compiled to comply with legal and regulatory requirements and to assist the recipient in assessing the performance of the Group independently and does not relate to, and is not relevant for, any other purpose. This report is not intended to be and does not constitute an offer or a recommendation to acquire any securities in the Charter Hall Group. The receipt of this report by any person and any information contained herein or subsequently communicated to any person in connection with the Charter Hall Group is not to be taken as constituting the giving of investment, legal, or tax advice by the Charter Hall Group, their related bodies corporate, their directors or employees to any such person. Each recipient should consult their own counsel, accountant, and other advisers as to legal, tax, business, financial and other considerations in relation to the Charter Hall Group.Historical performance is not a reliable indicator of future performance. Due care and attention has been exercised in the preparation of forecast information, however, forecasts, by their very nature, are subject to uncertainty and contingencies, many of which are outside the control of the Group. Actual results may vary from any forecasts and any variation may be materially positive or negative.Neither the Charter Hall Group, their related bodies corporate, directors, employees nor any other person who may be taken to have been involved in the preparation of this financial report represents or warrants that the information contained in this report, provided either orally or in writing to a recipient in the course of its evaluation of the Charter Hall Group or the matters contained in this financial report, is accurate or complete.CHFMl does not receive fees in respect of the general financial product advice it may provide; however, entities within the Charter Hall Group receive fees for operating the Trust in accordance with its constitution. Entities within the Group may also receive fees for managing the assets of, and providing resources to the Trust. For more detail on fees, see this annual report. To contact us, call +61 2 8908 4000 (local call cost). All information herein is current as at 30 June 2011 unless otherwise stated. All references to dollars ($) or A$ are Australian Dollars unless otherwise status. Exchange rates in this report are A$1.00/US$1.0713/€0.7401 CQO US sale proceedsIn determining the net sale proceeds from the sale of the US portfolio and the pro-rata special distribution to CQO unitholders, it is assumed that the conditions for closing are met for the entire US portfolio, thereby achieving closing of the sale of all properties. To the extent that conditions to closing are not satisfied for certain properties or all properties this may materially impact the proceeds received by CQO and the amount of proceeds available for the pro-rata special distribution to CQO unitholders. In addition, various other factors may vary the quantum of the net sales proceeds and the size of the pro-rata special distribution to CQO unitholders, including movements in working capital, timing of properties sold, debt transfer or termination costs. Because satisfaction of these assumptions is not within the control of CHOMl as a member of the Charter Hall Group, neither CHOMl nor the Charter Hall Group is in a position to give, and does not give, any assurance as to the quantum or timing of receipt of net sale proceeds. Information regarding U.S. Investors / U.S. Persons:Each person that holds Charter Hall Group securities that is in the United States (U.S.) or is a U.S. person is required to be a Qualified Institutional Buyer / Qualified Purchaser (QIB/QP) at the time of the acquisition of any Charter Hall Group securities, and is required to make the representations in a subscription agreement as of the time it acquired the applicable securities. The securities can only be resold or transferred in a regular brokered transaction on the ASX in accordance with Rule 903 or 904 of Regulation S, where neither it nor any person acting on its behalf knows or has reason to know, that the sale has been prearranged with, or that the purchaser is, in the United States or a U.S. person (e.g. no prearranged trades (‘special crossing’) with U.S. Persons or other off-market transactions).To the maximum extent permitted by law, the Charter Hall Group reserve the right to (i) request any person that they deem to be in the United States or a U.S. Person, who was not at the time of acquisition of the securities a QIB/QP, to sell its securities, (ii) refuse to record any subsequent sale or transfer of securities to a person in the United States or a U.S. Person, and (iii) take such other action as they deem necessary or appropriate to enable the Charter Hall Group to maintain the exception from registration under Section 3(c)(7) of the Investment Company Act. If you are not the beneficial owner of securities in the Charter Hall Group, you must pass this information to the beneficial owner of the securities.Complaints handlingA formal complaints handling procedure is in place for the Group. CHFMl is a member of the Financial Ombudsman Service (“FOS”). Complaints should in the first instance be directed to CHFMl. If you have any enquiries or complaints, please contact the Compliance Manager on +61 2 8908 4000 (local call cost).CReAteD BY DeSIgnAte{ Group }Cover and pages 1-24: Printed on environmentally friendly stock (55% recycled and 45% oxygen bleached pulp) using vegetable based inks. Pages 25-132: Printed on a stock sourced from suppliers who practise sustainable management of forests in line with strict international standards. All suppliers operate under ISO 14001 or FSC accredited environmental systems.11068_CHC_AR_Cover_PPv1.indd 5-15/10/11 10:49 AMANNUAl REPORT 2011133Corporate directoryDirectorsKerry Roxburgh Roy Woodhouse Cedric Fuchs Colin McGowan David Harrison David Southon Anne BrennanGlenn Fraser Peter Kahan Company SecretaryNathan FrancisASX CodeCharter Hall Group stapled securities are listed on the Australian Securities Exchange (code CHC).Principal registered office in Australialevel 11, 333 George StreetSydney NSW 2000+61 2 8908 4000AuditorPricewaterhouseCoopersDarling Park Tower 2201 Sussex StreetSydney NSW 1171SolicitorsAllens Arthur Robinsonlevel 28, Deutsche Bank PlaceCnr of Hunter & Phillip StreetsSydney NSW 2000BankersWestpac Banking Corporation level 3, Westpac Place, 275 Kent Street Sydney NSW 2000Website addresswww.charterhall.com.auDisclaimer:This Annual Report has been prepared and issued by Charter Hall limited (ABN 57 113 531 150) and Charter Hall Funds Management limited (ABN 31 082 991 786, AFSl 262861) (CHFMl) as Responsible Entity of the Charter Hall Property Trust (together, the Charter Hall Group or Group). The information contained in this report has been compiled to comply with legal and regulatory requirements and to assist the recipient in assessing the performance of the Group independently and does not relate to, and is not relevant for, any other purpose. This report is not intended to be and does not constitute an offer or a recommendation to acquire any securities in the Charter Hall Group. The receipt of this report by any person and any information contained herein or subsequently communicated to any person in connection with the Charter Hall Group is not to be taken as constituting the giving of investment, legal, or tax advice by the Charter Hall Group, their related bodies corporate, their directors or employees to any such person. Each recipient should consult their own counsel, accountant, and other advisers as to legal, tax, business, financial and other considerations in relation to the Charter Hall Group.Historical performance is not a reliable indicator of future performance. Due care and attention has been exercised in the preparation of forecast information, however, forecasts, by their very nature, are subject to uncertainty and contingencies, many of which are outside the control of the Group. Actual results may vary from any forecasts and any variation may be materially positive or negative.Neither the Charter Hall Group, their related bodies corporate, directors, employees nor any other person who may be taken to have been involved in the preparation of this financial report represents or warrants that the information contained in this report, provided either orally or in writing to a recipient in the course of its evaluation of the Charter Hall Group or the matters contained in this financial report, is accurate or complete.CHFMl does not receive fees in respect of the general financial product advice it may provide; however, entities within the Charter Hall Group receive fees for operating the Trust in accordance with its constitution. Entities within the Group may also receive fees for managing the assets of, and providing resources to the Trust. For more detail on fees, see this annual report. To contact us, call +61 2 8908 4000 (local call cost). All information herein is current as at 30 June 2011 unless otherwise stated. All references to dollars ($) or A$ are Australian Dollars unless otherwise status. Exchange rates in this report are A$1.00/US$1.0713/€0.7401 CQO US sale proceedsIn determining the net sale proceeds from the sale of the US portfolio and the pro-rata special distribution to CQO unitholders, it is assumed that the conditions for closing are met for the entire US portfolio, thereby achieving closing of the sale of all properties. To the extent that conditions to closing are not satisfied for certain properties or all properties this may materially impact the proceeds received by CQO and the amount of proceeds available for the pro-rata special distribution to CQO unitholders. In addition, various other factors may vary the quantum of the net sales proceeds and the size of the pro-rata special distribution to CQO unitholders, including movements in working capital, timing of properties sold, debt transfer or termination costs. Because satisfaction of these assumptions is not within the control of CHOMl as a member of the Charter Hall Group, neither CHOMl nor the Charter Hall Group is in a position to give, and does not give, any assurance as to the quantum or timing of receipt of net sale proceeds. Information regarding U.S. Investors / U.S. Persons:Each person that holds Charter Hall Group securities that is in the United States (U.S.) or is a U.S. person is required to be a Qualified Institutional Buyer / Qualified Purchaser (QIB/QP) at the time of the acquisition of any Charter Hall Group securities, and is required to make the representations in a subscription agreement as of the time it acquired the applicable securities. The securities can only be resold or transferred in a regular brokered transaction on the ASX in accordance with Rule 903 or 904 of Regulation S, where neither it nor any person acting on its behalf knows or has reason to know, that the sale has been prearranged with, or that the purchaser is, in the United States or a U.S. person (e.g. no prearranged trades (‘special crossing’) with U.S. Persons or other off-market transactions).To the maximum extent permitted by law, the Charter Hall Group reserve the right to (i) request any person that they deem to be in the United States or a U.S. Person, who was not at the time of acquisition of the securities a QIB/QP, to sell its securities, (ii) refuse to record any subsequent sale or transfer of securities to a person in the United States or a U.S. Person, and (iii) take such other action as they deem necessary or appropriate to enable the Charter Hall Group to maintain the exception from registration under Section 3(c)(7) of the Investment Company Act. If you are not the beneficial owner of securities in the Charter Hall Group, you must pass this information to the beneficial owner of the securities.Complaints handlingA formal complaints handling procedure is in place for the Group. CHFMl is a member of the Financial Ombudsman Service (“FOS”). Complaints should in the first instance be directed to CHFMl. If you have any enquiries or complaints, please contact the Compliance Manager on +61 2 8908 4000 (local call cost).CReAteD BY DeSIgnAte{ Group }Cover and pages 1-24: Printed on environmentally friendly stock (55% recycled and 45% oxygen bleached pulp) using vegetable based inks. Pages 25-132: Printed on a stock sourced from suppliers who practise sustainable management of forests in line with strict international standards. All suppliers operate under ISO 14001 or FSC accredited environmental systems.This year Charter Hall celebrates its 20th anniversary.1991Charter Hall is launched focusing on the provision of property services, with two of its founding partners (David Southon and Cedric Fuchs) continuing to be directly involved with the business today.2004Transfield Holdings acquires 50% of Charter Hall and David Harrison, the ex-Managing Director of Savills, joins the company as Joint Managing Director alongside David Southon.2008Charter Hall launches the Core Plus Retail Fund, now known as the Direct Retail Fund and available for investment by retail investors.1991–94Charter Hall focuses on commercial property advisory work, acquiring office, industrial and retail investments in Sydney and Melbourne in addition to financial and development workout advice to many of Australia’s major banks.2005Charter Hall lists on the Australian Securities Exchange and launches Charter Hall Opportunity Fund No.4 and the Charter Hall Diversified Property Fund.2009The Gandel Group acquires a strategic 12% interest in Charter Hall as part of the company’s capital raising and in addition invests significant capital in the unlisted Core Plus Office Fund.Charter Hall acquires the management rights to Macquarie Group’s real estate funds management platform, increasing its funds under management to over $10 billion across listed and unlisted equity sources. The acquisition is funded via a capital raising in which Macquarie takes a 10% interest in Charter Hall and Gandel raises its interest to 16%.1995Charter Hall Investment Fund No.1 (CHIF) is launched, the first in a series of seven, focusing on high quality single and multi-asset property syndicates.2006Charter Hall launches the Core Plus Office Fund, the first in the Group’s series of long-term open ended core investment vehicles.20101996Australia’s first institutional opportunistic property fund, the AMP/Charter Hall Property Development Portfolio No.1, is launched with AMP Capital; the first in a series of five opportunistic funds by Charter Hall.2007Charter Hall launches the Core Plus Industrial Fund, Charter Hall Opportunity Fund No.5 and the Charter Hall Umbrella Fund.2011Charter Hall celebrates its 20 year anniversary and through its managed funds and third party mandates acquires over $1 billion in real estate, increasing funds under management to $10.7 billion.For further details on Charter Hall’s history, please visit www.charterhall.com.auANNUAl REPORT 2011133Corporate directoryDirectorsKerry Roxburgh Roy Woodhouse Cedric Fuchs Colin McGowan David Harrison David Southon Anne BrennanGlenn Fraser Peter Kahan Company SecretaryNathan FrancisASX CodeCharter Hall Group stapled securities are listed on the Australian Securities Exchange (code CHC).Principal registered office in Australialevel 11, 333 George StreetSydney NSW 2000+61 2 8908 4000AuditorPricewaterhouseCoopersDarling Park Tower 2201 Sussex StreetSydney NSW 1171SolicitorsAllens Arthur Robinsonlevel 28, Deutsche Bank PlaceCnr of Hunter & Phillip StreetsSydney NSW 2000BankersWestpac Banking Corporation level 3, Westpac Place, 275 Kent Street Sydney NSW 2000Annual General MeetingThe Annual General Meeting for Charter Hall Group will be held on 9 November 2011 at 2.30pm at:The Hiltonlevel 2, Room 2488 George StreetSYDNEYWebsite addresswww.charterhall.com.auDisclaimer:This Annual Report has been prepared and issued by Charter Hall limited (ABN 57 113 531 150) and Charter Hall Funds Management limited (ABN 31 082 991 786, AFSl 262861) (CHFMl) as Responsible Entity of the Charter Hall Property Trust (together, the Charter Hall Group or Group). The information contained in this report has been compiled to comply with legal and regulatory requirements and to assist the recipient in assessing the performance of the Group independently and does not relate to, and is not relevant for, any other purpose. This report is not intended to be and does not constitute an offer or a recommendation to acquire any securities in the Charter Hall Group. The receipt of this report by any person and any information contained herein or subsequently communicated to any person in connection with the Charter Hall Group is not to be taken as constituting the giving of investment, legal, or tax advice by the Charter Hall Group, their related bodies corporate, their directors or employees to any such person. Each recipient should consult their own counsel, accountant, and other advisers as to legal, tax, business, financial and other considerations in relation to the Charter Hall Group.Historical performance is not a reliable indicator of future performance. Due care and attention has been exercised in the preparation of forecast information, however, forecasts, by their very nature, are subject to uncertainty and contingencies, many of which are outside the control of the Group. Actual results may vary from any forecasts and any variation may be materially positive or negative.Neither the Charter Hall Group, their related bodies corporate, directors, employees nor any other person who may be taken to have been involved in the preparation of this financial report represents or warrants that the information contained in this report, provided either orally or in writing to a recipient in the course of its evaluation of the Charter Hall Group or the matters contained in this financial report, is accurate or complete.CHFMl does not receive fees in respect of the general financial product advice it may provide; however, entities within the Charter Hall Group receive fees for operating the Trust in accordance with its constitution. Entities within the Group may also receive fees for managing the assets of, and providing resources to the Trust. For more detail on fees, see this annual report. To contact us, call +61 2 8908 4000 (local call cost). All information herein is current as at 30 June 2011 unless otherwise stated. All references to dollars ($) or A$ are Australian Dollars unless otherwise status. Exchange rates in this report are A$1.00/US$1.0713/€0.7401 CQO US sale proceedsIn determining the net sale proceeds from the sale of the US portfolio and the pro-rata special distribution to CQO unitholders, it is assumed that the conditions for closing are met for the entire US portfolio, thereby achieving closing of the sale of all properties. To the extent that conditions to closing are not satisfied for certain properties or all properties this may materially impact the proceeds received by CQO and the amount of proceeds available for the pro-rata special distribution to CQO unitholders. In addition, various other factors may vary the quantum of the net sales proceeds and the size of the pro-rata special distribution to CQO unitholders, including movements in working capital, timing of properties sold, debt transfer or termination costs. Because satisfaction of these assumptions is not within the control of CHOMl as a member of the Charter Hall Group, neither CHOMl nor the Charter Hall Group is in a position to give, and does not give, any assurance as to the quantum or timing of receipt of net sale proceeds. Information regarding U.S. Investors / U.S. Persons:Each person that holds Charter Hall Group securities that is in the United States (U.S.) or is a U.S. person is required to be a Qualified Institutional Buyer / Qualified Purchaser (QIB/QP) at the time of the acquisition of any Charter Hall Group securities, and is required to make the representations in a subscription agreement as of the time it acquired the applicable securities. The securities can only be resold or transferred in a regular brokered transaction on the ASX in accordance with Rule 903 or 904 of Regulation S, where neither it nor any person acting on its behalf knows or has reason to know, that the sale has been prearranged with, or that the purchaser is, in the United States or a U.S. person (e.g. no prearranged trades (‘special crossing’) with U.S. Persons or other off-market transactions).To the maximum extent permitted by law, the Charter Hall Group reserve the right to (i) request any person that they deem to be in the United States or a U.S. Person, who was not at the time of acquisition of the securities a QIB/QP, to sell its securities, (ii) refuse to record any subsequent sale or transfer of securities to a person in the United States or a U.S. Person, and (iii) take such other action as they deem necessary or appropriate to enable the Charter Hall Group to maintain the exception from registration under Section 3(c)(7) of the Investment Company Act. If you are not the beneficial owner of securities in the Charter Hall Group, you must pass this information to the beneficial owner of the securities.Complaints handlingA formal complaints handling procedure is in place for the Group. CHFMl is a member of the Financial Ombudsman Service (“FOS”). Complaints should in the first instance be directed to CHFMl. If you have any enquiries or complaints, please contact the Compliance Manager on +61 2 8908 4000 (local call cost).CReAteD BY DeSIgnAte{ Group }Cover and pages 1-24: Printed on environmentally friendly stock (55% recycled and 45% oxygen bleached pulp) using vegetable based inks. Pages 25-132: Printed on a stock sourced from suppliers who practise sustainable management of forests in line with strict international standards. All suppliers operate under ISO 14001 or FSC accredited environmental systems.11068_CHC_AR_Cover_PPv1.indd 5-15/10/11 10:49 AM Pemulwu y M arketpla c e ,
Greystanes , NSW
Annual
Report
2011
Charter Hall Group
is one of Australia’s
leading fully integrated
property groups, with
20 years’ experience
managing high quality
property on behalf of
institutional, wholesale
and retail clients.
Charter Hall has over
$10 billion of funds under
management invested
across the office, retail,
industrial and residential
sectors.
A N N U A L R E P O R T 2 0 1 1
1
Key Results1
Statutory net profit
$52.3 million
Full year distribution
16.50cps
29% increase on the prior year
Operating earnings
$60.4 million
3% ahead of previous
guidance
Operating EPS
20.60cps
22% increase on the prior year
Australia Post Distribution Centre, Kingsgrove, NSW
Win dso r M ark etpl ace, Wi ndso r, N S W
1. For the 12 months ending 30 June 2011
2
CHARTER HALL GROUP Funds under management
$10.7 billion
Lease agreements secured
Over
345,000sqm
$645 million
capital raised across the
unlisted funds and via third
party mandates
225 St Georg es Ter r ace, Pe r th , WA
33 3 Geo rg e St reet, Sydn ey, N SW
3
ANNUAL REPORT 2011 Year in Review
Volkswagen Australia, 24 Muir Road, Chullora, NSW
13 0 Sti rli ng Street , Pe rt h, WA
J U LY 2 0 1 0
O C T O B E R 2 0 1 0
Charter Hall launches its new Direct Industrial Fund for
investment by retail investors and self-managed super
fund clients.
Charter Hall Opportunity Fund No.4’s Home HQ
North Shore, Sydney wins the 2010 Urban Taskforce
Development Excellence Award for Adaptive Re-use.
A U G U S T 2 0 1 0
Charter Hall Opportunity Fund No.5 enters into a
50:50 development sponsorship arrangement with the
Malaysian listed property developer and owner, TA Global
Berhad, for the development of the $600 million Little Bay
Cove residential project.
CPOF acquires a 50% interest in one of Brisbane’s iconic
office buildings, Brisbane Square, in a 50:50 joint venture
with Telstra Super for $300 million (revalued at 30 June
2011 at $363 million).
Core Plus Industrial Fund (CPIF) purchases a seven
hectare industrial site in one of Sydney’s prime
industrial suburbs, Chullora. Charter Hall’s 50%
owned CIP is managing the development to deliver a
27,000 square metre head office, training and distribution
facility for Volkswagen Group Australia (pre-leased for
13 years).
Home HQ North Shore, Sydney wins the 2010 UDIA NSW
Austral Bricks Award for Excellence for the best Retail/
Commercial Development.
CPIF completes the warehouse facility expansion and
refurbishment at 56 Anzac Street, Chullora.
N O V E M B E R 2 0 1 0
CPOF secures a new lease with the State Government
of Victoria at 570 Bourke Street, Melbourne for
12,780 square metres.
Charter Hall Office REIT (CQO) and Cbus Property
secure BHP Billiton to anchor the 171 Collins Street,
Melbourne development.
Direct Industrial Fund acquires a new distribution facility
in Kingsgrove, NSW (pre-leased to Australia Post) and
agrees terms on a third asset in Willawong, Queensland
(pre-leased to Grace Worldwide).
S E P T E M B E R 2 0 1 0
D E C E M B E R 2 0 1 0
Charter Hall holds its national 2010 Investor Forum with
1,500 investors in the listed REITs and unlisted retail funds
attending across five Australian cities.
Core Plus Office Fund (CPOF) acquires the remaining
50% interest in 570 Bourke Street, Melbourne for
$76.5 million.
CPIF acquires a new Woolworths Regional Distribution
Centre in Tasmania for $75 million.
Charter Hall Direct Property Fund consolidates two
separate debt facilities into a new $240 million loan
facility expiring in September 2013, extending the fund’s
weighted average debt expiry to three years.
Charter Hall launches the unlisted Direct Retail Fund,
targeting high net worth and self-managed super
fund investors.
Charter Hall’s 130 Stirling Street Trust closes
over-subscribed with $41 million in equity invested
by retail and self-managed super fund investors.
CQO extends the term of its Australian Syndicate Debt
Facility to January 2014, from the current maturity date
of September 2011.
4
CHARTER HALL GROUP Little Bay Cove, 1408 Anzac Parade, Little Bay, NSW
Go rdon C ent re, G ordon , N SW
J A N U A R Y 2 0 1 1
A P R I L 2 0 1 1
Charter Hall and its employees donate approximately
$150,000 to the Queensland Premier’s Disaster Relief
Appeal and flood affected families.
Charter Hall Retail REIT (CQR) acquires Gordon Village
Shopping Centre and Arcade in Sydney for $67 million
and announces an on-market buyback of up to
$20 million of its units.
CQR completes the sale of the majority of the
New Zealand portfolio for NZ$85.3 million and secures
a conditional funding commitment from UniSuper to
refinance its Australian CMBS facility at a substantially
reduced margin, 12 months ahead of maturity.
Charter Hall Group celebrates 20 years and launches
its new sustainability policy.
F E B R U A R Y 2 0 1 1
CQO is included in the global sustainability index,
FTSE4Good Index, for the fourth consecutive year.
The ‘Charter Hall Malabar Magic’ charity ocean swim
at Little Bay, Sydney raises over $36,000 for the
Rainbow Club.
M AY 2 0 1 1
M A R C H 2 0 1 1
Charter Hall Opportunity Fund No.5’s Lacrosse Apartment
development in Docklands, Melbourne launches a charity
partnership with Lighthouse Foundation, aiming to raise
$100,000 for homeless young people.
Charter Hall executes a $75 million corporate debt facility
with Westpac Banking Corporation to provide greater
liquidity and debt capacity for the Group.
Charter Hall acquires a 50% interest in an office
development site at 685 La Trobe Street, Melbourne
and enters into a Development Agreement with Flagship
to jointly develop a prime grade 35,000 square metre
office building.
CQR completes the sale of it United States interest in the
Desco/Regency joint venture, significantly progressing its
strategy to reweight to Australia.
J U N E 2 0 1 1
Commencement of construction on Charter Hall and
TA Global’s $600 million Little Bay Cove residential project
in Sydney.
Charter Hall increases its corporate Westpac debt facility
limit by $25 million to $100 million.
In joint venture with Telstra Super, CQR acquires eight
neighbourhood and sub-regional shopping centres
in Australia from Woolworths Limited for a total
consideration of $266 million.
5
ANNUAL REPORT 2011 Chairman’s Letter
K E R R Y R O X B U R G H
On behalf of the Board of Directors, it is my pleasure to
present Charter Hall Group’s 2011 Annual Report.
This year marks the Group’s 20 year anniversary where we
have grown to be one of Australia’s leading fully integrated
property groups with over 260 employees, managing
capital allocated to long-term property investments across
Australia for our wholesale, retail and institutional clients
and securityholders.
At the end of this year, Charter Hall had $10.7 billion in
assets under management in 19 individual funds, owning
198 buildings generating $943 million of gross rental income
from 2.46 million square metres of net lettable area with
3,150 tenants. In aggregate this year, all of the Charter Hall
Group fund earnings before interest, tax, depreciation and
amortisation amounted to $630 million.
Charter Hall itself delivered a strong result this financial
year, with operating earnings of $60.4 million increasing by
68.7% on last year and operating earnings per security of
20.6 cents, up 22.4% on last year. This translated into a
statutory net profit of $52.3 million.
This pleasing performance was achieved in a year that
presented a number of external challenges. In particular,
the unsuccessful attempt by a group of United States (US)
based activist hedge funds to remove Charter Hall as the
manager of the listed Charter Hall Office REIT (CQO).
$10.7 billion
assets under management
in 19 individual funds
6
Our commitment to good corporate governance
Charter Hall has always been committed to ensuring the
highest level of corporate governance standards across all
of our managed funds. The Charter Hall Board supports
the independent review of CQO and Charter Hall Retail
REIT’s (CQR) corporate governance arrangements and
fee structures announced this year.
This review is being undertaken by CQO and CQR’s
Independent Directors with the assistance of their
independent adviser Ernst & Young. It is possible that
the implementation of some changes may require
unitholder approval.
Charter Hall Office REIT
Charter Hall investors will be aware that CQO recently
announced it has executed a contract for sale of its entire
US portfolio for a gross sale price of US$1.71 billion or
US$1.57 billion after estimated costs and adjustments.
The CQO Board has advised investors it intends to return
the net capital generated from the US sale to unitholders
as a capital return via a special distribution(s). In isolation of
other factors such as revaluations, acquisitions and further
divestments during financial year 2012, Charter Hall’s assets
under management are expected to fall by approximately
US$1.7 billion as a result of this sale by CQO and its
capital return.
During the year, three US based activist hedge funds
invested in CQO embarked upon a very public campaign
against CQO and Charter Hall, eventually calling a meeting
of CQO unitholders to consider a resolution to remove
Charter Hall Office Management Limited (CHOML), a
wholly owned subsidiary of Charter Hall, as the responsible
entity of CQO and replace CHOML with their nominated
responsible entity.
I am pleased to confirm that this resolution was not passed
by CQO unitholders at their meeting held on 27 July 2011.
Sixty-eight per cent of voting unitholders voted against the
resolution with a very clear majority of Australian based
institutional and retail investors voting against the US hedge
funds proposal.
On behalf of the Charter Hall Board, I thank all those CQO
unitholders who supported CHOML and Charter Hall in
this vote.
On 29 August 2011, CHOML announced it had received an
indicative, highly conditional, non-binding and confidential
CHARTER HALL GROUP K E R R Y R O X B U R G H
“ We remain committed to
maximising returns for our clients
invested in our managed funds,
in turn maximising returns to
Charter Hall securityholders.”
proposal from Macquarie Capital Group Limited on behalf of
a consortium to acquire for cash, all of CQO’s issued units,
other than the 13.3% relevant interest held by Charter Hall.
The proposal is subject to a number of conditions including
a requirement that Charter Hall maintains its existing
investment in CQO and that it remains as the manager and
responsible entity of CQO.
The proposal is being reviewed by the Independent Director
Sub-Committee of the CHOML Board together with their
adviser, Bank of America Merrill Lynch. Charter Hall is
awaiting a determination by CHOML’s Independent Director
Sub-Committee and will only consider the consortium’s
proposal if the CHOML Independent Directors resolve
to agree to Macquarie Capital’s request for access to
undertake due diligence.
I note that, if this proposal proceeds, it may be a number
of months before completion, as one of its conditions is
settlement of the sale of the US property portfolio of CQO
and subsequent return of capital to CQO investors.
Delivering on our commitment to sustainability
This year we revised our sustainability policy, reinforcing the
Group’s commitment to the implementation of sustainable
business practices across all its funds and operations.
We are committed and focused on our workplace,
performance, the environment and communities and their
positive contribution to our business.
As part of this commitment, the Group introduced
a Charitable Giving Policy which will see the Group
establishing a charitable giving program to coordinate our
contributions to our local communities.
Our people
Charter Hall consists of a team of highly experienced
property professionals. Following the major business
acquisition in March 2010, and to ensure the Group
continues to be well positioned to take advantage of further
opportunities, this year we undertook a comprehensive
review of the organisation and our remuneration strategies.
This has already delivered positive outcomes, with further
changes and benefits anticipated.
We continue to build on our culture of accountability and
excellence, ensuring our people are equipped to take full
advantage of future opportunities to grow the business and
to deliver competitive returns for all our stakeholders.
The development of our people is key to this commitment.
During the year, we finalised our Diversity Policy and
established a Diversity Committee to drive initiatives
that further enhance our fair and equitable work
environment. Over the next year, we will continue
to build a high performance workplace that offers
greater development opportunities for all of our
people, with particular attention to providing women
at Charter Hall with career development options.
We continue to build on our
culture of accountability
and excellence
The future
Charter Hall’s strategy is to grow the business across our
integrated property services platform, to recycle its capital
to improve return on equity, to de-risk our Australian centric
REITs and to extract cost savings and improve investment
returns from improved operational efficiencies throughout
the Group.
The Board of Charter Hall remains committed to maximising
returns for our clients invested in our unlisted funds and for
our listed REIT investors, which in turn will maximise returns
for Charter Hall securityholders.
On behalf of all securityholders and investors, I welcome
Anne Brennan to the Board. She is a highly qualified
director who now Chairs the Remuneration and Human
Resources Committee and is a member of the Audit, Risk
and Compliance Committee. It is also my pleasure to
recognise and thank the continuing Board members and the
much enlarged team of property professionals that work at
Charter Hall.
Finally, I thank all investors for their constructive feedback
and support over the past 12 months.
KERRY RO XBURGH
CH AIRMAN
7
ANNUAL REPORT 2011 “ We continue to look at
opportunities to leverage
our in‑house development
and delivery skills for the
benefit of the Group and
our managed funds.”
Joint Managing
Directors’ Letter
D A V I D S O U T H O N A N D D A V I D H A R R I S O N
This year has been a very active year for Charter Hall and
we are pleased to report that we have maintained strong
momentum across all our managed funds, delivering
strong returns for our fund investors and Charter Hall
securityholders.
Strong results
The Group delivered operating earnings of $60.4 million, 3%
above previous guidance, and equivalent to 20.60 cents per
security, up 22% on the prior corresponding period. The full
year distribution was 16.50 cents per security, 29% up on
last year and also above previous guidance.
As a fully integrated property group, our business comprises
three core income streams – property investment, property
funds management and development investment – with
earnings across all three streams significantly increasing
over the past year. Property investment contributed 60.4%
of the Group’s operating EBITDA (earnings before interest,
tax, depreciation and amortisation) in financial year 2011,
funds management contributed 33.5% and development
investment contributed 6.1%.
Importantly, 84% of EBITDA was derived from annuity
style activities such as property investment, investment
management and asset/property management, providing
the Group with earnings stability in the current market.
Improved capital management
During the year, the Group maintained low balance sheet
gearing of 8.1%1 and a sound liquidity position, enabling it
to proactively manage its working capital and investment
requirements. The Group’s corporate debt facility was
increased from $75 million to $100 million and at 30 June
2011, the Group had liquidity of $91.5 million, comprising
a combination of cash and undrawn debt facilities2.
Diversified funds management platform delivering
strong returns
Charter Hall’s business model involves, where appropriate,
a target co-investment of up to 20% across the majority
of its funds, ensuring it is strongly aligned with investors’
interests. Our fund investment portfolio remains well
diversified across office, retail and industrial, ensuring that
the Group is exposed to the key core property sectors.
Following the active management of our fund’s property
portfolios, over 345,000 square metres of leases were
secured during the year, or approximately 14% of the total
portfolio, delivering total portfolio occupancy of 94% and
maintaining an above industry average weighted average
lease expiry of 6.5 years. This activity also helped to
generate $943 million of gross operating income across
the platform.
84%
EBITDA derived from annuity
style earnings
Delivering across our funds management platform
The Group’s funds under management increased to
$10.7 billion during the year, driving funds management
revenue of $85.5 million.
Our unlisted funds benefited from the increasing equity from
superannuation funds, raising $645 million during the year,
including third party mandates. Taking advantage of this
point in the property cycle, we have actively sourced over
$1 billion in assets in off-market transactions, including the
acquisition of a $266 million Woolworths portfolio by Charter
Hall Retail REIT (CQR) and Telstra Super and the acquisition
of the $363 million Brisbane Square property by the Charter
Hall managed Core Plus Office Fund and Telstra Super.
1.
2.
Charter Hall has balance sheet gearing of 1.0% on a deconsolidated basis (deconsolidating the Direct Retail Fund)
Excludes Direct Retail Fund cash balance and debt facilities
8
CHARTER HALL GROUP D A V I D S O U T H O N A N D D A V I D H A R R I S O N
“ Charter Hall continues to
be well placed to benefit
from the projected growth
of superannuation in Australia
and offshore markets.”
Both transactions have supported the growth in our third
party mandate funds under management, which increased
to $626 million. We continue to see strong opportunities
in this sector as both onshore and offshore investors are
looking for direct investment opportunities and will continue
to focus on growing this business.
Importantly, our two listed funds, CQR and Charter Hall
Office REIT (CQO) made significant progress on reweighting
to Australia during the year, with both REITs now primarily
Australian invested REITs that are well positioned to
deliver defensive and resilient income and capital growth
for unitholders.
Adding value to our portfolios
We continue to look at opportunities to leverage our
in-house development and delivery skills for the benefit
of the Group and our managed funds, undertaking
asset enhancement as well as new residential and office
development projects, in conjunction with our investment
partners. We currently have 17 development projects
underway from our $1.9 billion pipeline, including CQO
and Cbus Property’s 171 Collins Street, Melbourne office
development which commenced last year following the
lease pre-commitment from BHP Billiton for approximately
12,000 square metres of the building.
Well positioned for future growth
As a fully integrated property group with diversified sources
of equity invested across the office, retail and industrial
sectors, Charter Hall continues to be well placed to benefit
from the projected growth of superannuation in Australia and
offshore markets and the expected increase in allocation
towards property as the market recovers.
We remain focused on leveraging our fully integrated
property services capabilities through initiating acquisition
and developments, undertaking capital raisings for unlisted
funds, external mandates and partnerships, while also
recycling capital to improve the return on equity from the
co-investment portfolio. For our listed funds, which as
mentioned are now primarily Australian asset owning REITs
following significant reweighting initiatives undertaken
during the year, we will continue to implement strategies
to deliver secure and growing capital and income returns
for unitholders.
Charter Hall has made significant progress over the year to
30 June 2011 and is well positioned across both its fund
and property services platforms to drive both income and
capital growth.
DAVI D SOUTHON
JOINT MANAGIN G
DIREC TOR
DAVI D HARRISON
JOINT MANAGING
DIREC TOR
$943 million
gross operating income generated
across the platform
9
ANNUAL REPORT 2011
The Group’s success is underpinned by
a highly skilled and motivated team with
diverse expertise across property sectors
and risk‑return profiles.
About Charter Hall
Charter Hall Group (ASX:CHC) is one of Australia’s
leading fully integrated property groups, with 20 years’
experience managing high quality property on behalf
of institutional, wholesale and retail clients. Charter
Hall has over $10 billion of funds under management
across the office, retail, industrial and residential
sectors. The Group has offices in Sydney, Melbourne,
Brisbane, Adelaide, Perth, Warsaw and Chicago.
The Group’s success is underpinned by a highly skilled
and motivated team with diverse expertise across
property sectors and risk-return profiles. Sustainability is
a key element of its business approach and by ensuring its
actions are commercially sound and make a difference to
its people, customers and the environment, Charter Hall
can make a positive impact for its investors, the community
and the Group.
Charter Hall provides management services across the
full spectrum of real estate investment and development
activities and has more than 260 personnel.
Charter Hall adds value for investors through its:
asset, property and development management activities
across the risk-return spectrum;
significant co-investments in all of its listed and unlisted
property funds;
deal sourcing of investment opportunities, predominantly
off-market;
consistent track-record of performance through cycles;
focus on securing long lease assets and portfolios;
full service property management expertise, across office,
industrial and retail sectors;
strong corporate governance principles evidenced by
the Group’s 20 year history and long track record in
managing pension fund capital for many of Australia’s
leading superannuation funds; and
highly regarded property funds management and
in-house development team, which currently manages
the largest series of Opportunistic and Core Plus property
funds in Australia.
Men ai Cen tr al , Sydney, NSW
17 5 Eag le St reet, Bri sbane , Q l d
1 0
CHARTER HALL GROUP
C H A R T E R H A L L B U S I N E S S M O D E L
CHARTER HALL GROUP (ASX:CHC)
Stapled Security
Charter Hall Property Trust (CHPT)
Charter Hall Limited (CHL)
Property Investment
Property Funds Management
Development Investment
$164M
CO-INVESTMENT
$274M
CO-INVESTMENT
Wholesale Unlisted
Funds $3.5bn FUM
Listed Funds
$5.6bn FUM
• Investment management
• Asset management
• Property management
$29M INVESTMENT
CIP
50% interest
$139M
CO-INVESTMENT
$17M INVESTMENT
• Development management
$33M CO-INVESTMENT
Retail Investor Funds
$1.5bn FUM
Direct Property
$16.7m FUM
• Leasing services
• Transaction services
Wholesale Opportunistic
Investments in CHOF4 and CHOF5
$8M INVESTMENT
685 LaTrobe
50% interest
FUM = funds under management
1 1
ANNUAL REPORT 2011 Our vertically integrated business model
allows Charter Hall to generate income
across its platform and its managed funds.
Our Strategy
Charter Hall targets a higher return on equity across the
Group than achievable from direct property investments as:
Key earnings streams strategy
Property investment
our vertically integrated business model allows
Charter Hall to generate income across its platform
and its managed funds; and
this ensures Charter Hall’s return on equity is superior to
that of other conventional REIT peers.
As one of Australia’s leading integrated property groups, our
medium term strategy is to:
leverage off integrated property services platform through
capital raising for unlisted funds, external mandates and
partnerships;
focus on recycling capital to enhance return on equity
from the co-investment platform;
drive de-risking and stabilisation of Australian only REITs;
and
enhance co-investment earnings by implementing active
investment and capital management initiatives through
the utilisation of our in-house property skills.
Enhance return on equity through recycling of
co-investment capital across all funds
Improve quality of funds earnings through improving
property metrics, simplifying derivative structures and
proactively refinancing debt facilities
Property funds management
Grow business through existing and new products that
satisfy current investor appetite
Continue to reweight listed FUM platform to Australia
− Post completion of contracted disposals, offshore
exposure will reduce to 6% from 30% at 30 June 2010
Improve return on equity through:
− Achieving scale in each domestic sector
− Delivering a more efficient service to managed funds
− Obtaining cost efficiencies across the platform
− Rationalising the number of funds under management
− Accretive fund capital raisings
Continuing alignment with listed investors interests
through the Charter Hall managed REITs (CQO and CQR)
corporate governance review
Utilise in-house skills to reposition existing assets and
enhance property values
Development investment
Target growth in development investment earnings with
higher return on equity
Leverage off in-house development expertise at this point
in the cycle by incubating new opportunities on balance
sheet with appropriate partners to be sourced over time
— 685 La Trobe Street, Melbourne
Access scale through partnering with external capital
by way of segregated mandates or project by project
partnerships
1 2
C H A R T E R H A L L G R O U P
68 Pitt Street,
Sydney, NSW
A N N U A L R E P O R T 2 0 1 1
1 3
Our Performance
P R O P E R T Y I N V E S T M E N T
Charter Hall co-invests in the majority of its managed
funds, strongly aligning itself with its investors.
The Group’s managed fund investment portfolios are well
diversified across the office, retail and industrial sectors,
with the Group generating $943 million of gross operating
income across its $10.7 billion platform this year.
P R O P E R T Y I N V E S T M E N T S E C T O R D I V E R S I T Y
by value
This result was driven by strong leasing momentum
across the total portfolio during the financial year, with over
345,000 square metres of space being leased, increasing
Charter Hall’s total portfolio average occupancy to 94% and
delivering a weighted average lease expiry of 6.5 years.
$161m Retail
$79m
Industrial
$353m
Office
$943 million
of gross operating income generated across
the Group’s $10.7 billion funds platform
P R O P E R T Y I N V E S T M E N T S
by value
$17m
Direct Property
$186m Charter Hall Office REIT
$139m
Retail Investor Funds
$88m
Charter Hall Retail REIT
$164m
Wholesale Unlisted Funds
1 4
CHARTER HALL GROUP 27 5 Geor ge Stre et,
Br isb ane , Qld
DIF raised approximately $50 million in equity since
its launch in July 2010 and in June 2011 committed
to purchase its fourth asset, a 25% interest in a Coles
Distribution Centre in Perth Airport, Western Australia
for $42.9 million, bringing the fund’s portfolio value to
approximately $110 million.
Listed funds
Charter Hall’s two listed funds both made significant
progress on their strategies of reweighting to Australia
during the year.
Following $262 million in asset sales from non-core offshore
markets and the acquisition of $501 million1 of Australian
assets, Charter Hall Retail REIT’s (CQR) Australian portfolio
represents 86% of net tangible assets (NTA). A key
acquisition during the year was the $266 million eight
shopping centre Woolworths Limited portfolio with Telstra
Super, which increased CQR’s proportion of Australian
annual base rent secured by Woolworths to 31%.
Charter Hall Office REIT (CQO) progressed its exit from non-
core markets with the sale of its Japanese portfolio and the
sale of the Atrium in Berlin, Germany (post balance date),
while also executing a contract to sell 100% of the United
States (US) portfolio post year end. Following completion of
the US asset sale, CQO will be a domestic only A-REIT with
a portfolio of high quality, well-leased, Australian investment-
grade office assets located in capital cities and mature
commercial markets.
Development
The Group and its managed funds are currently undertaking
17 development projects (one on balance sheet), from its
$1.9 billion development pipeline. Highlighting the Group’s
strong tenant relationships, Charter Hall Opportunity Fund
No.5’s WorkZone development in Perth secured Leighton
Contractors for 76% of the proposed 28,000 square metre
office campus, enabling the project to proceed, subject to
the finalisation of the construction debt finance2.
P R O P E R T Y F U N D S M A N A G E M E N T
Charter Hall’s funds under management increased
from $10.2 billion to $10.7 billion over the year to
30 June 2011, following upward revaluations and a
number of significant acquisitions within the funds.
This enhances the funds management income derived
by the Group through our investment management
services, asset and property management services,
development management services and transaction
and leasing services.
Unlisted wholesale funds
Highlighting the continued demand for quality assets,
Charter Hall’s Core Plus Office Fund (CPOF) and the Charter
Hall Core Plus Industrial Fund (CPIF) raised significant new
equity from Australian and UK pension funds.
Utilising this equity, CPOF acquired $258 million of A-grade
CBD office assets in Melbourne and Brisbane including
50% of the $363 million Brisbane Square in Brisbane with
Telstra Super, which helped to increase the Group’s third
party mandates to $626 million. CPIF acquired a $70 million
19.8 hectare industrial site in Tasmania accommodating a
new 46,000 square metre logistics facility which has been
pre-leased to Woolworths for 25 years.
The Group also acquired a 50% joint venture interest in the
office development site 685 La Trobe Street, Melbourne,
entering into a Development Agreement to jointly develop
the property into an A-grade 35,000 square metre, 12 level,
highly efficient office building. Charter Hall continues to
see strong interest in these partnership opportunities and
will continue to pursue wholesale equity sources, through
partnerships and/or separate mandates, for high quality
development opportunities within Australia.
Unlisted retail funds
Charter Hall Direct Property strengthened its platform
during the year, raising significant equity across its unlisted
retail funds platform and bringing a number of new retail
products to market.
The Charter Hall Direct Property Fund was reopened and
three new funds were launched; Charter Hall Direct Retail
Fund, Charter Hall Direct Industrial Fund (DIF) and the
Charter Hall Property Securities Fund.
1.
2.
Calculated on a 100% basis
Leighton Contractors lease was executed in August 2011
1 5
ANNUAL REPORT 2011 Our Performance continued
D E V E L O P M E N T I N V E S T M E N T
C H A R T E R H A L L O F F I C E R E I T
Charter Hall’s 50% interest in CIP, a national industrial
pre-lease developer, contributed $4 million of earnings
after tax to the Group for the year ended 30 June 2011.
CIP provides Charter Hall with a strategic off-market
source of industrial investments for its funds and
mandates, including highly accretive acquisitions
such as Volkswagen Australia’s new headquarters
in Chullora, Sydney.
This year, a group of US based activist hedge funds
that together hold an interest of approximately 19.3%
in CQO agitated against the Group’s management of
CQO. In June 2011, the hedge funds called a meeting
of CQO unitholders to consider a resolution to remove
a Charter Hall entity, Charter Hall Office Management
Limited (CHOML), as the responsible entity of CQO
and replace it with their nominee responsible entity.
The Group’s co-investment in its Charter Hall Opportunity
Funds increased to $33 million with the Group anticipating
capital recycling and operating earnings contributions
from the development investments in these funds to begin
to emerge during the 2012 financial year.
17 projects
underway from a
$1.9 billion development
pipeline
G R O U P E A R N I N G S
EBITDA
This resolution was not passed at the 27 July 2011 meeting,
with 68% of voting unitholders voting against the resolution.
CHOML remains as responsible entity and manager of CQO.
On 29 August 2011, a Macquarie Capital Group arranged
consortium made an indicative, highly conditional, non-
binding and confidential proposal on behalf of itself and
a number of global institutional investors to acquire for
cash all of the CQO issued units, other than those held
by Charter Hall. The proposal is subject to a number of
conditions, including that Charter Hall does not divest its
existing investment in CQO and a wholly owned subsidiary
is retained as responsible entity/manager of CQO.
$20.7m Funds Management
$3.8m
Development Investment
$37.4m
Property Investment
1 6
C H A R T E R H A L L G R O U P
Committed to managing risks
and harnessing opportunities
to improve our business.
Sustainability
Sustainability is a key element to good business. By
ensuring that our actions are not only commercially
sound but that they make a difference to our people,
our customers and the environment in which we work
and live, we can contribute in a positive way.
Charter Hall is integrating sustainability into its business
practices, ensuring our business opportunities address our
economic, environmental and social responsibilities. Central
to our approach are four key areas:
Our performance
Our workplace
Our environment
Our communities
Charter Hall’s sustainability strategy seeks to manage
risks and harness opportunities across these areas and
contribute to our business success.
DIVERSITY
SAFETY
EDUCATION AND TRAINING
INTEGRITY, TRANSPARENCY AND ETHICS
a
R
n
d
o
b
OPERATIONAL EXCELLENCE
OPPORTUNITY
REWARD
E ngaging W orkplace
P eo ple
s
u
u
s
t
s
t
a
i
n
p
e
rf
a
o
r
b
l
e
m
R
e
p
u
t
a
ti
o
n
a
n
b
u
c
e
si
n
e
s
s
Australia’s leading
fully integrated
property group
M
a
r
k
e
t
p
l
a
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o
n
n
e
c
ti
n
g
w
it
h
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e
/
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t
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k
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h
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l
d
e
r
s
c
o
m
m
u
n
iti
e
s
E nviron m ental enhance m ent
P erfor m ance
an d resource conservation
PHILANTHROPY
OUTREACH PROGRAMS
PROJECTS
SUPPLY CHAIN
VALUE CREATION
CLIMATE CHANGE
BIODIVERSITY
EFFICIENT USE OF RESOURCES
1 7
ANNUAL REPORT 2011
Sustainability continued
Performance and
sustainable business
Workplace
To maximise our customer and investor satisfaction
through operational excellence and by delivering
long term value.
To create an engaging environment that attracts,
develops, retains and supports our people.
Our Achievements in 2010/11:
Our Achievements in 2010/11:
✓ Development and adoption of a Group-wide
✓ Appointment of Charter Hall’s Diversity Committee
sustainability policy and strategy.
and development of a Diversity Strategy.
✓ Establishment of the Charter Hall Sustainability Working
Group, with representation from across the business,
responsible for driving the sustainability strategy.
✓ Responded to the Carbon Disclosure Project 2011,
our first reporting year.
Our Priorities for 2011/12:
Increase the transparency of our sustainability
performance disclosure.
Monitor satisfaction through tenant surveys across our
commercial office and industrial portfolios.
Participation in sustainability ratings to enable
benchmarking of our approach and performance.
Continue to implement the United Nations Principles
of Responsible Investment.
✓ Establishment of in-house training programs to
support and develop our people and encourage
alignment of behaviours with Charter Hall policies
and business values.
✓ Continued to progress a suite of benefits that support
our people to develop and grow with our business.
Our Priorities for 2011/12:
Build on our career and development opportunities
for all employees.
Sustain a high performance workforce through robust
performance management.
Continue to drive sustainability as a key strategic
imperative by including sustainability performance
objectives for all employees.
Diversity remains a priority. Targeted programs are
being developed to address any barriers to diversity
at each stage of the employee lifecycle.
Establish a health and safety leadership group to
oversee health and safety performance across
Charter Hall.
171 Collins Street, Melbourne, Vic. (Artist’s impression)
Targeting 6 Star Green Star Design and As-Built ratings
333 George Street, Sydney, NSW
Charter Hall’s head office
1 8
C H A R T E R H A L L G R O U P
Allianz Centre, 2 M arke t Stre e t,
Sydney, NSW
Environment
Community
To actively work to reduce our consumption of
natural resources.
To connect with and make a positive contribution
to the communities where we work.
Our Achievements in 2010/11:
Our Achievements in 2010/11:
✓ Implemented Group-wide sustainability data
management system.
✓ Completed energy road maps for all commercial
office properties.
✓ Established a Charitable Giving Policy for Charter Hall.
✓ Invested over $212,000 in good causes, through
money and time donations and activities associated
with our development projects.
✓ Benchmarked the energy performance of all
✓ Became a platinum sponsor of Property
commercial and retail assets.
Industry Foundation.
✓ Completed NABERS Energy ratings on all eligible
commercial assets.
Our Priorities for 2011/12:
Our Priorities for 2011/12:
Improve the coverage of our environmental
performance data and refine metrics and targets to
allow greater transparency in reporting.
Complete energy road maps for all asset classes where
we have operational control.
Continue to integrate sustainability considerations into
our asset business plans.
Appoint a Charitable Steering Committee and develop
a formal charitable giving program to positively
contribute to our local communities.
Develop a community involvement strategy for our
retail centres.
Continue to implement the local charity support
program by our new development projects.
Home HQ North Shore, Artarmon, NSW
Australia’s first 4 Star Green Star Retail Bulky Goods Centre
Charter Hall Malabar Magic, NSW
A N N U A L R E P O R T 2 0 1 1
1 9
Key Metrics
20 0 Queen S treet,
M elbo ur ne, Vic.
No.
properties
Notes
Lettable
area
(sqm)
Total
assets
($m)
EBITDA
($m)
Operating
earnings
($m)
Operating
EPS
growth
Charter hall Group
1, 4, 7
Charter hall office reIt
Charter hall retail reIt
Core plus office Fund
Core plus
Industrial Fund
Direct retail Fund
Diversified
property Fund
Charter hall Direct
property Fund
Direct Industrial Fund
Charter hall
Investment Funds
No.1 Martin place trust
Charter hall
umbrella Fund
property Securities Fund
Charter hall opportunity
Fund No.4
Charter hall opportunity
Fund No.5
external mandates
the Group
2, 4
2, 4
2, 4
2, 4
3
3
3
3
3
3
3
3
6
6
5
7
1
34
93
15
18
8
9
9
3
7
1
–
–
–
–
–
9,805
836,383
694,601
251,530
337,473
72,520
54,492
106,347
34,940
44,932
20,119
N/a
N/a
N/a
N/a
–
958
3,618
1,998
1,438
500
179
170
483
70
198
233
153
31
108
873
626
198
2,463,141
10,700
62
249
135
92
33
11
10
33
3
18
18
7
2
5
(7)
–
630
60
134
85
38
20
6
4
18
4
14
10
9
1
(2)
(1)
–
22%
(10%)
(14%)
30%
(6%)
14%
(16%)
–
N/a
(27%)
31%
3%
N/a
(125%)
(70%)
–
360
(4.5%)
1. ChC figures are on a consolidated basis
2. CQo, CQr, CpoF, CpIF assets/liabilities are calculated on a look through basis, CQr is reflected net of cash
3. retail investor funds — reflects changes in distribution per unit rather than operating earnings as the vehicles do not report on an
operating earnings basis
4. the gross revenue is calculated on a net property income rather than gross property income basis
5. the external mandates are joint ventures with existing funds, hence, the number of assets and lease area are calculated in the
existing funds
6. the asset values of the Charter hall opportunistic funds are calculated based on existing developments ‘on completion’ value,
operating earnings reflect the Charter hall opportunistic funds contribution to Charter hall Group operating earnings on a
100% basis
7. the total assets for the Group have been adjusted such that ChC’s co-investments in its managed funds are not double counted
2 0
C h a r t e r h a l l G r o u p
11068_CHC_AR_Editorial_PPv3.indd 20
7/10/11 9:26 AM
Board of Directors
K E R R Y R O X B U R G H
Chairman – Independent non-executive Director
Appointed 12 April 2005
Age: 69
D A V I D S O U T H O N
Executive Director
Appointed 30 August 2006
Age: 45
D A V I D H A R R I S O N
Executive Director
Appointed 30 August 2006
Age: 45
Kerry is a Practitioner Member of the Stockbroker
Association of Australia. He holds positions on the
boards of several listed and unlisted companies.
He is the non-executive Chairman of Tasman
Cargo Airlines and of Tyro Payments Limited. He
is also a non-executive director of Ramsay Health
Care, the Medical Indemnity Protection Society
Group and Marshall Investments Pty Limited. Until
it was acquired by ANZ in June 2007, 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 Everest Financial Group,
Climax Mining and Eircom Holdings Limited.
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.
Kerry holds a Bachelor of Commerce, and also
an MBA.
Other current listed company directorships
Non-executive director of Ramsay Health Care
Ltd (since 1997)
Former listed company directorships in last
three years
Non executive Chairman of E*TRADE Australia
(from 1996 until June 2007)
Everest Babcock and Brown Alternative
Investment Trust (resigned December 2006)
Non-executive Chairman of Eircom Holdings
Limited (from 2006 to January 2010)
Special responsibilities
Chairman of the Board
Chairman of the Nomination Committee
Member of the Audit, Risk and Compliance
Committee
Interests in securities
31,250 securities in Charter Hall Group.
David is Charter Hall Group’s Joint Managing
Director and a co-founder, with over 25
years of property industry experience. He is
primarily responsible for overseeing wholesale
opportunistic funds, the operation of the
development services division, project origination,
project strategy and the formulisation and
implementation of Group strategy together with
the other Joint Managing Director, David Harrison,
the CHC Executive Committee and the Board.
In addition, David is involved in the procurement
and divestment of investment properties for the
various Funds managed by the Group. He is
an Executive Director on the Boards of Charter
Hall Retail REIT and Charter Hall Office REIT, as
well as the Responsible Entity Board of Charter
Hall Direct Funds. He is also a member of the
Investment Committees of the Group’s series of
opportunity funds.
David holds a Bachelor of Business Degree (Land
Economy) from the University of Western Sydney
and is a Fellow Member of the Australian Property
Institute (FAPI).
Other current listed company directorships
Charter Hall Retail Management Limited
Charter Hall Office Management Limited
Former listed company directorships in last
three years
Nil
Special responsibilities
Member of the Valuation Sub Committee
Interests in securities
2,048,360 securities in Charter Hall Group via
direct interests. 2,143,570 securities in the Charter
Hall Executive Loan Security Plan; securities in the
Plan will vest upon the satisfaction of performance
and service criteria. 1,175,121 Options and
490,385 Performance Rights in the Charter Hall
Performance Rights and Options Plan; options and
performance rights also vest after performance
and service conditions are met.
As Charter Hall Group’s Joint Managing Director,
David Harrison is jointly responsible for all aspects
of the Charter Hall business, with specific focus
on Funds, Asset and Property Management
operations. David also substantially contributes
to investment sourcing, capital raisings and
structuring of transactions. In addition to his
responsibilities on the various unlisted Fund
Boards and Investment Committees, David is
an Executive Director on the responsible entity
Boards of Charter Hall Retail REIT and Charter
Hall Office REIT and is Chairman of the Charter
Hall Direct Responsible Entity Board.
David has more than 25 years of experience in
the Australian commercial property market and
has jointly overseen the growth of the Charter Hall
Group from $500 million to $10 billion of assets
under management in six years. David has been
principally responsible for transactions exceeding
$13 billion of commercial, retail and industrial
property assets across all property sectors.
Other current listed company directorships
Charter Hall Office Management Limited
Charter Hall Retail Management Limited
Former listed company directorships in last
three years
Nil
Special responsibilities
Member of the Valuation Sub Committee
Interests in securities
2,009,521 securities in Charter Hall Group via
direct and indirect interests. 2,150,788 securities
in the Charter Hall Executive Loan Securities Plan;
securities in the Plan will vest upon the satisfaction
of performance and service criteria. 490,385
Performance Rights and 1,175,121 Options in the
Charter Hall Performance Rights and Options Plan;
performance rights and options also vest after
performance and service criteria are met.
2 1
ANNUAL REPORT 2011 Board of Directors continued
A N N E B R E N N A N
Independent non-executive Director
Appointed 6 October 2010
Age: 50
G L E N N F R A S E R
Independent non-executive Director
Appointed 6 April 2005
Age: 54
C E D R I C F U C H S
Executive Director
Appointed 6 April 2005
Age: 67
A member of Transfield Holdings Advisory Board,
Glenn was instrumental in Transfield Holdings’
acquisition of its interest in Charter Hall and its
expansion and listing in 2005.
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
three years
Nil
Special responsibilities
Chairman of the Audit, Risk and Compliance
Committee.
Interests in securities
156,934 securities in Charter Hall Group via
indirect interests.
Cedric is a co-founder of Charter Hall with over
40 years of experience in the fields of property
investment, development and financial services.
He 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. Cedric
holds a degree in Business Management.
Other current listed company directorships
Nil
Former listed company directorships in last
three years
Nil
Special responsibilities
Member of the Valuation Sub Committee
Interests in securities
1,358,649 securities in Charter Hall Group via
indirect interests. 312,156 securities in the
Charter Hall Executive Loan Security Plan;
securities in the Plan vest upon the satisfaction
of performance and service criteria. 117,909
Performance Rights and 310,253 Options in the
Charter Hall Performance Rights and Options
Plan; options and performance rights also vest
after performance and service conditions are met.
Anne joined the Board of the Charter Hall Group
in October 2010 and she is on the boards of a
number of other companies.
Anne is an experienced executive and she has
held senior management roles in both large
corporates and professional services firms.
During Anne’s executive career she was the CFO
at CSR and the Finance Director of the Coates
Group. Prior to her executive roles, Anne was
a partner in three professional services firms:
KPMG, Arthur Andersen and Ernst & Young.
She has more than 20 years’ experience in audit,
corporate finance and transaction services. Anne
was also a member of the national executive
team and a board member of Ernst & Young.
Anne holds a Bachelor of Commerce degree and is
a Fellow of the Institute of Chartered Accountants
in Australia and a Fellow of the Australian Institute
of Company Directors. Anne resides in New South
Wales and is 50 years of age.
Other current listed company directorships
Myer Holdings Limited
Argo Investments Limited
Nufarm Limited
Former listed company directorships in last
three years
Nil
Special responsibilities
Member of Audit, Risk and Compliance
Committee
Chair of Remuneration and Human
Resources Committee
Interests in securities
30,000 securities in Charter Hall Group via direct
and indirect interests.
2 2
CHARTER HALL GROUP P E T E R K A H A N
Non-executive Director
Appointed 1 October 2009
Age: 52
Peter Kahan joined the Charter Hall Board in
October 2009, following an investment in the
Charter Hall Group. Peter Kahan is the CEO of
The Gandel Group and has over 15 years of
property and funds management experience. He
joined The Gandel Group in 1994 and became
the Group’s Finance Director in 2001, prior to his
appointment as the Group’s CEO in 2007.
Prior to joining The Gandel Group, Peter worked
as a Chartered Accountant and has held senior
financial roles in various industry sectors. Between
2002 and 2006, Peter was a Director of Gandel
Retail Management Pty Ltd and Colonial First
State Property Retail Pty Ltd, a leading property
and fund manager, managing a portfolio of
approximately $8 billion of retail assets in Australia.
Peter is a member of the Institute of Chartered
Accountants in Australia and the Australian
Institute of Company Directors and holds
a Bachelor of Commerce and Bachelor of
Accountancy degree from the University of
The Witwatersrand, Johannesburg, South Africa.
Other current listed company directorships
Nil
Former listed company directorships in last
three years
Nil
Special responsibilities
Nil
Interests in securities
Nil
C O L I N Mc G O W A N
Independent non-executive Director
Appointed 6 April 2005
Age: 65
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 he held
for 11 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
Former listed company directorships in last
three years
Nil
Special responsibilities
Chair of the Valuation Sub Committee
Member of the Remuneration Committee and of
the Nomination Committee
Interests in securities
Nil
R O Y W O O D H O U S E
Deputy Chairman – Independent non-executive
Director
Appointed 6 April 2005
Age: 64
Roy has been the Deputy Chairman of Charter
Hall since July 2004.
Roy worked for the Baillieu family for 30 years
in various senior executive capacities including
Director of L.J.Hooker, Managing Director of
Knight Frank Australia and Chairman of Knight
Frank Asia Pacific. Roy co-founded KFPW, a
joint venture with PricewaterhouseCoopers
specialising in outsourcing.
Roy is Chairman of National Recycling Group,
a member of Transfield Holding Advisory Board
and a principal shareholder of The Stephenson
Mansell Group, an Executive Leadership
Development company. Roy was a Fellow of the
Australian Institute of Valuers and is a Fellow of
the Institute of Company Directors.
Other current listed company directorships
Nil
Former listed company directorships in last
three years
Nil
Special responsibilities
Deputy Chairman of the Board
Member of the Remuneration and HR Committee
Member of the Nomination Committee
Interests in securities
21,429 securities in Charter Hall Group.
2 3
ANNUAL REPORT 2011 2 4
C H A R T E R H A L L G R O U P
57 0 Bou rk e St reet , M elbo ur ne, Vic.
Corporate governance statement
Charter Hall’s commitment to Corporate Governance
Charter Hall Group (comprising Charter Hall Limited and the Charter Hall
Property Trust, listed jointly on the ASX as a stapled security) (the Group
or Charter Hall) is committed to the achievement of superior financial
performance and long-term prosperity, while meeting stakeholders’
expectations of sound corporate governance practices. The Charter Hall
Board determines the corporate governance arrangements for the Group.
As with all its business activities, Charter Hall is proactive in respect of
corporate governance and puts in place those arrangements which it
considers are in the best interests of the Group and securityholders,
and consistent with its responsibilities to other stakeholders. The Group
has adopted a Sustainability Policy which forms the basis for integrating
environmental and social governance issues into the group’s activities.
A copy of the Sustainability Policy is available on the Group’s website.
Principles and underlying Recommendations
Principle 1: Lay solid foundations for management and oversight
This commitment translates into Charter Hall’s complete adoption of the
Corporate Governance Principles and Recommendations released by the
Australian Securities Exchange (ASX) Corporate Governance Council on
2 August 2007 and as amended on 30 June 2010 (Principles). The Principles
can be viewed at www.asx.com.au. The Principles are not prescriptive;
however, listed entities (including Charter Hall) are required to disclose the
extent of their compliance with the Principles, and to explain why they have
not adopted a Principle if they consider it inappropriate in their particular
circumstances (the ‘If not, why not’ approach).
Below is a summary of each of the Principles and Recommendations
in table format that confirms Charter Hall has adopted all of the
recommendations.
Adopted
(Yes /
No)
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
1.1: Companies should establish the functions reserved to the board and those delegated to senior executives and disclose those functions.
1.2: Companies should disclose the process for evaluating the performance of senior executives.
1.3: Companies should provide the information indicated in the Guide to reporting on Principle 1
Principle 2: Structure the Board to add value
2.1:
A majority of the Board should be independent directors.
2.2:
The chair should be an independent director.
2.3:
The roles of the chair and chief executive officer should not be exercised by the same individual.
2.4:
The Board should establish a nomination committee.
2.5: Companies should disclose the process for evaluating the performance of the Board, its committees and individual directors.
2.6: Companies should provide the information indicated in the Guide to reporting on Principle 2
Principle 3: Promote ethical and responsible decision making
3.1: Companies should establish a code of conduct and disclose the code or a summary of the code as to:
−
−
−
the practices necessary to maintain confidence in the company’s integrity;
the practices necessary to take into account their legal obligations and the reasonable expectations of their stakeholders
the responsibility and accountability of individuals for reporting and investigating reports of unethical practices
3.2: Companies should establish a policy concerning diversity and disclose the policy or a summary of that policy. The policy should include
Yes
requirements for the board to establish measurable objectives for achieving gender diversity and for the board to assess annually both
the objectives and progress in achieving them.
3.3: Companies should disclose in each annual report the measurable objectives for achieving gender diversity set by the board in
accordance with the diversity policy and progress towards achieving them.
3.4: Companies should disclose in each annual report the proportion of women employees in the whole organisations, women in senior
executive positions and women on the board.
3.5: Companies should provide the information indicated in the Guide to reporting on Principle 3
Principle 4: Safeguard integrity in financial reporting
4.1:
The Board should establish an audit committee.
4.2:
The audit committee should be structured so that it:
−
−
−
−
consists only non-executive directors;
consists of a majority of independent directors;
is chaired by an independent chair, who is not chair of the Board; and
has at least three members.
4.3:
The Audit Committee should have a formal Charter.
4.4: Companies should provide the information indicated in the Guide to reporting on Principle 4
Principle 5: Make timely and balanced disclosure
Yes
Yes
Yes
Yes
Yes
Yes
Yes
5.1: Companies should establish written policies and procedures designed to ensure compliance with ASX Listing Rule disclosure requirements
Yes
and to ensure accountability at a senior management level for that compliance and disclose those policies or a summary of those policies.
5.2: Companies should provide the information indicated in the Guide to reporting on Principle 5
Yes
2 5
11068_CHC_AR_Financial_PPv2.indd 25
5/10/11 10:35 AM
AnnuAl report 2011 Corporate governance statement continued
Principles and underlying Recommendations
Principle 6: Respect the rights of shareholders
6.1: Design and disclose a communications strategy to promote effective communication with shareholders and encourage effective
participation at general meetings.
6.2: Companies should provide the information indicated in the Guide to reporting on Principle 6
Principle 7: Recognise and manage risk
Adopted
(Yes /
No)
Yes
Yes
7.1: Companies should establish policies for the oversight and management of the material business risks and disclose a summary of those
Yes
policies.
7.2:
7.3:
The Board should require management to design and implement the risk management and internal control system to manage the
Company’s material business risks and report to it on whether those risks are being managed effectively. The Board should disclose that
management has reported to it as to the effectiveness of the company’s management of its material business risks.
The Board should disclose whether it has received assurance from the Chief Executive Officer (or equivalent) and the chief financial officer
(or equivalent) that the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk
management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks.
7.4: Companies should provide the information indicated in the Guide to reporting on Principle 7
Principle 8: Remunerate fairly and responsibly
8.1:
The Board should establish a remuneration committee.
8.2: Companies should clearly distinguish the structure of non-executive directors’ remuneration from that of executive directors and senior
executives
8.3: Companies should provide the information indicated in the Guide to reporting on Principle 8
Yes
Yes
Yes
Yes
Yes
Yes
A detailed outline of Charter Hall’s main corporate governance practices
as at 30 June 2011 is detailed below. This outline has been prepared in a
manner consistent with the Principles in the form of a report against each
Recommendation. Unless otherwise stated, they reflect the practices in
place throughout the financial year ended.
Principle 1: Lay solid foundations for management and oversight
Recommendation 1.1: Companies should establish the functions
reserved to the board and those delegated to senior executives and
disclose those functions.
Responsibility for corporate governance and the internal working of the
Group rests with the Board. The Board has adopted a formal charter of
directors’ functions and matters that are delegated to management, having
regard to the recommendations in the Principles.
An outline of the Board’s responsibilities under the charter is set out below:
ww
providing strategic direction and deciding upon Charter Hall’s business
strategies and objectives with a view to seeking to optimise the risk
adjusted returns to investors;
ww monitoring the operational and financial position and performance of
ww
ww
ww
ww
Charter Hall;
overseeing risk management for Charter Hall;
ensuring that Charter Hall’s financial and other reporting mechanisms
result in adequate, accurate and timely information being provided to
the Board;
ensuring that unitholders and the market are fully informed of all material
developments; and
overseeing and evaluating the performance of the Joint Managing
Directors and other senior executives in the context of Charter Hall’s
strategies and objectives and, where appropriate, removing the Joint
Managing Directors, approving other key executive appointments and
planning for executive succession.
In addition to the matters outlined above, there is a formal delegation
structure in place. Under this structure, the Joint Managing Directors have
been delegated authority to make decisions in respect of the day to day
management of the Group and its assets up to certain delegated levels,
including appointment of advisers, approvals of asset business plans,
budgets, capital expenditure and hedging (within approved Hedging Policy).
At appointment, each independent director of Charter Hall has received
a letter of appointment which details the key terms of their appointment.
This letter has been enhanced for the more recent Board appointments
to include all of the recommended matters in the Principles.
Charter Hall’s senior executives, including the Joint Managing Directors
and Chief Financial Officer, have formalised job descriptions and, as with
all Charter Hall employees, letters of appointment.
Recommendation 1.2: Companies should disclose the process for
evaluating the performance of senior executives.
To ensure that Charter Hall’s senior executives properly perform their duties,
the following procedures are in place:
ww
ww
ww
ww
ww
ww
performance is formally assessed twice each year as part of Charter
Hall’s formal employee performance review process;
the full year achievement review takes place in June at the end of the
financial year;
a 360 review process was introduced for senior executives,
this involved an assessment against behavioural and technical
competencies relevant to their role. The assessment was by their
manager, peers, direct reports and themselves;
in addition to this, all employees were assessed in terms of their
achievement of agreed KPI’s (both financial and non-financial) for
the period;
there is a strong link between the outcomes of this performance review
process and the subsequent remuneration review as outlined in the
Remuneration Report at page 43; and
executives are provided with access to continuing education to update
and enhance their skills and knowledge.
The above process was followed for the year ended 30 June 2011.
What you can find on our website:
Charter Hall’s Board Charter.
2 6
11068_CHC_AR_Financial_PPv2.indd 26
5/10/11 10:35 AM
Charter hall Group Principle 2: Structure the Board to add value
a) Composition
The Board is comprised of nine 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
Glenn Fraser
Anne Brennan
Colin McGowan
Cedric Fuchs
David Harrison
David Southon
Peter Kahan
Position
Chairman
Deputy Chairman
Non-executive Director
Non-executive Director
Non-executive Director
Executive Director
Joint Managing Director
Joint Managing Director
Non-executive Director
Recommendation 2.1: A majority of the Board should be independent
directors.
The Board has a majority of independent directors.
Profiles of these directors, including details of their skills, experience and
expertise can be found later in the directors’ report.
Independence
Independence of directors determined by objective criteria is acknowledged
as being desirable to protect investor interests and optimise the financial
performance of the managed vehicle and returns to investors. The Board
regularly assesses independence of its directors.
In determining the status of a director, Charter Hall considers that a
director is independent when he or she is independent of management
and free of any business or other relationship that could materially interfere
with, or could reasonably be perceived to interfere with the exercise of
unfettered and independent judgement. Charter Hall’s criteria for assessing
independence is in line with standards set by the Principles.
The relationships that affect the independent status of the directors classed
as non-independent are as follows:
− Mr Harrison, Mr Southon and Mr Fuchs are employed in an
executive capacity by the Group;
− Mr Kahan is the Chief Executive Officer and a director of The
Gandel Group of Companies, which is a substantial securityholder
in the Charter Hall Group.
Recommendation 2.2: The chair should be an independent director.
Recommendation 2.3: The roles of the chair and chief executive officer
should not be exercised by the same individual.
Mr Kerry Roxburgh is the Chair of the Board. Mr Roxburgh is a non-
executive, independent member of the Board (in accordance with the
criteria described above). The role of Chief Executive Officer – or Managing
Director – is carried out jointly by Mr Harrison and Mr Southon, two executive
directors of the group.
Independent
(Yes/No)
Yes
Yes
Yes
Yes
Yes
No
No
No
No
First
appointed
12 April 2005
6 April 2005
6 April 2005
6 October 2010
6 April 2005
6 April 2005
30 August 2006
30 August 2006
1 October 2009
Recommendation 2.4: The Board should establish a nomination
committee.
The Board has established a Nomination Committee which consists of the
Group Chairman Kerry Roxburgh (Committee Chairman), Roy Woodhouse
and Colin McGowan, who are all independent, non-executive directors.
Details of the committee members experience and the number of meetings
held and attended can be found in the Directors’ Report. A copy of the
Nomination Committee Charter which sets out the competencies of the
Committee is available on the Group’s website.
The following Board composition and membership criteria have been
adopted by the Committee and nominations to the Board are approved by
the Charter Hall Board:
ww
ww
ww
ww
the Board is to comprise at least three directors. Additional directors
may be appointed if the Board feels that additional expertise is required
in specific areas, or when an outstanding candidate is identified;
directors nominated for election are approved by the Board;
a majority of the directors must be independent as defined by Charter
Hall (refer above); and
the Board is to be comprised of directors with an appropriate range
of qualifications and expertise.
The following guidelines apply to director selection and nomination
by the Board:
ww
ww
ww
ww
integrity;
particular expertise (sector and functional) and the degree to which they
complement the skill set of the existing Board members;
reputation and standing in the market; and
in the case of prospective independent directors, actual (as prescribed
by the Charter Hall definition of independence above) and perceived
independence from Charter Hall.
11068_CHC_AR_Financial_PPv2.indd 27
2 7
5/10/11 10:35 AM
AnnuAl report 2011 Corporate governance statement continued
Recommendation 2.5: Companies should disclose the process
for evaluating the performance of the Board, its committees and
individual directors.
To ensure that the directors of Charter Hall are properly performing their
duties, the following procedures are in place:
In addition to this, in order to deal specifically with the responsibility and
accountability of individuals for reporting and investigating reports of
fraudulent and unethical practices, Charter Hall has adopted a Fraud Risk
Management Policy which addresses these matters. A full copy of this policy
is posted on the Corporate Governance section of the Group’s website.
a formal annual performance self -assessment of the Board, the
Audit, Risk and Compliance Committee, Nominations Committee
and Remuneration Committee and individual directors;
Staff are trained regularly on matters pertaining to ethical behaviour in the
workplace. This year, the topics covered were Fraud, Corruption and Insider
Trading awareness, as well as appropriate workplace behaviour training.
ww
ww
ww
an induction program for directors; and
access by directors to continuing education to update and enhance
their skills and knowledge.
The procedure for evaluation of the Board’s performance is:
ww
each independent director will complete an annual performance
evaluation which will be submitted to an independent party (during
this financial year, the lead corporate legal advisor to the Group was
engaged for this process), who collates and provides summarised and
anonymous results to the Chairman, who then distributes the results to
the full Board; and
ww
the Board as a whole discusses and analyses Board and committee
performance during the year, including suggestions for change or
improvement, based on the results of the survey and Chairman’s feedback.
Six or more full Board meetings are held each year. Other meetings are
called as required.
Directors are provided with Board reports in advance of Board meetings
which contain sufficient information to enable informed discussion of all
agenda items.
Independent professional advice
The directors are entitled to obtain independent professional advice at the
cost of the Group, subject to the estimated costs being first approved by
the Chairman as reasonable.
Principle 3: Promote ethical and responsible decision making
Charter Hall is committed to being a good corporate citizen and has a
robust framework of policies to achieve this.
Recommendation 3.1: Companies should establish a code of conduct
and disclose the code or a summary of the code as to:
ww
the practices necessary to maintain confidence in the company’s integrity;
ww
ww
the practices necessary to take into account their legal obligations and
the reasonable expectations of their stakeholders
the responsibility and accountability of individuals for reporting and
investigating reports of unethical practices
Charter Hall Group has established a Code of Conduct which forms
the basis for ethical behaviour by staff 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 directors, other stakeholders
and the broader community can be confident that the Group conducts its
affairs honestly in accordance with ethical values and practices.
The Code sets the standards for dealing ethically with employees, investors,
customers, regulatory bodies and the financial and wider community,
and the responsibility and accountability of individuals for reporting and
investigating reports of unethical behaviour.
A full copy of the Directors’ Code of Conduct and a summary of the Charter
Hall Code of Conduct can be obtained from the Corporate Governance
section of the Group’s website. A full copy of the Charter Hall Code of
Conduct is also available upon request from the Company Secretary.
Managing conflicts
Charter Hall has a strong governance framework to safeguard the interests
of investors in the investment vehicles, which at times may conflict with
those of Charter Hall as sponsor of related vehicles. As part of this
framework, the Group has established a Related Party Transactions Policy
for identifying and managing conflicts.
Conflicts of interest arising between Charter Hall-managed vehicles and
their related parties must be managed appropriately and, in particular:
ww
ww
ww
related party transactions should be identified and conducted on arm’s
length terms;
related party transactions should be tested by reference to whether they
meet market standards;
decisions about transactions between Charter Hall-managed vehicles
and Charter Hall or its affiliates should be made by independent
members of the board or Investment Committees (where they have been
appointed) the Board must have a majority of independent directors.
The Related Party Transactions Policy can be viewed in the Corporate
Governance section of the website and contains detailed guidelines to deal
with conflicts.
In particular, in the case of the Board:
ww Board members declare their interests as required under the
Corporations Act, ASX Listing Rules and other general law requirements;
ww Board members with a material personal interest in a matter are not
present at a Board meeting during the consideration of the matter
and subsequent vote unless the Board (excluding the relevant Board
member) resolves otherwise;
ww Board members with a conflict not involving a material personal interest
may be required to absent themselves from the relevant deliberations of
the Board.
The Group also has a Conflicts Protocol for dealing with competing deals
(e.g. acquisitions, leasing) which may arise out of the fact that Charter Hall
is also the manager of other listed and unlisted vehicles and the Group may
transact with them from time to time or share staff or information with other
Charter Hall companies or managed vehicles.
Personal conflicts that might arise generally for directors and staff are
covered by the Code of Conduct referred to above.
Corporate Governance review of Charter Hall managed REITs
On 18 July 2011, Charter Hall Group announced its support of a review of
corporate governance arrangements and fee structure with its managed
REITs, namely Charter Hall Office REIT (CQO) and Charter Hall Retail REIT.
The review is examining the existing governance framework between
Charter Hall Group and the REITs and will provide recommendations on
appropriate corporate governance arrangements and a fee structure that
are consistent with current best practice models in ASX listed trusts.
2 8
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Charter hall Group Security Trading
The Group has in place a formal Security Trading Policy which regulates the
manner in which directors and staff involved in the management of the Group
can deal in Group securities. 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 and contains all contents suggested
in the ASX Corporate Governance Principles and Recommendations.
The policy specifies trading blackouts as the periods during which trading
securities cannot occur. Trading is always prohibited if the relevant person is
in possession of non-public price sensitive information regarding the Group.
The policy has been formally reviewed and updated by the Board of Charter
Hall in April 2010. A copy of the current Security Trading Policy is available
on the Group’s website.
Recommendation 3.2: Companies should establish a policy
concerning diversity and disclose the policy or a summary of that
policy. The policy should include requirements for the board to
establish measurable objectives for achieving gender diversity and
for the board to assess annually both the objectives and progress in
achieving them.
Recommendation 3.3 Companies should disclose in each annual
report the measurable objectives for achieving gender diversity set
by the board in accordance with the diversity policy and progress
towards achieving them.
Although the Group is not required to report under this new
recommendation until the Annual Report for the following financial year, i.e.
for the financial year ending 30 June 2012, Charter Hall has made significant
progress in relation to diversity and so wishes to disclose the extent of
developments in this area.
ww
Implementing policies and training which address impediments to
diversity in the workplace.
Progress made: All employees have been trained on appropriate
workplace behaviour, with additional training provided to managers.
The outcomes of the training include an understanding of what
behaviours contribute to a diverse and inclusive environment as well as
an understanding of the support structures and mechanisms to support
individuals who don’t have this experience.
ww
Implementing initiatives designed to identify, support and develop
talented individuals with leadership potential to prepare them for senior
management and board positions. For example, in the case of gender
diversity, such initiatives may include:
− mentoring programs;
−
−
targeted professional development programs aimed at helping
women to develop skills and experience that prepare them for
senior management and board positions;
supporting the promotion of talented women into management
positions;
−
networking opportunities and other.
Progress made: During the period we conducted an organisational
review as a health check for our systems, structure, culture, people and
processes. As part of the review we have identified individuals with high
capability and have a succession plan for all our senior roles.
Leadership development programs for different levels of the
organisation are currently being developed and we anticipate that they
will be rolled out during the first quarter of the next financial year. Once
our leaders have completed these programs we will be building on their
skills and experience through a formal mentoring program.
A Diversity Committee has been appointed by the Board, comprising senior
executives within the Group, chaired by the Head of People, which has
been charged with dealing with Diversity issues.
A number of women in senior roles have flexible work arrangements in
place to enable them to balance their personal and professional lives
and to enable Charter Hall to retain key talent within the organisation.
A Diversity and Inclusion policy was adopted in November 2010 which
includes requirements for the board to establish measurable objectives for
achieving gender diversity and for the board to assess annually both the
objectives and progress in achieving them. The objectives set by the Board,
which are included in the Policy, are as follows:
ww
Selecting and appointing directors from a diverse pool of talent by
developing an appointment process for future directors that takes
diversity of background into account, in addition to previous Board and
leadership experience and experience in a specified field.
Progress made: During the period Anne Brennan was appointed as
an Independent Director and is also the Chair of the Remuneration and
Human Resources Committee as well as a member of the Audit, Risk
and Compliance Committee. A clear process was also defined.
ww
Considering the Diversity policy when assessing, selecting and making
recommendations to the Board on senior executive appointments. In
considering these recommendations the Board is also required to take
into account the objectives of this policy.
Progress made: The only senior appointment made during the period
was to the Head of People role and the appointment was female.
All our employees are encouraged to actively seek out networking
opportunities. Importantly, during the period Charter Hall became a member
of NEEOPA (NSW EEO Practitioners Association) where organisations
network, share experiences and ideas on implementing quality equal
employment opportunity programs through sharing best practice.
ww
Identifying ways to entrench diversity as a cultural priority across the group.
Progress made: The Diversity Committee agreed that all HR strategy,
policies and processes needed to be reviewed by the Committee with a
view to entrenching diversity across the group.
ww Setting targets for women’s participation in the Board, senior
management and across all employees and report such in the
Annual Report.
Progress made: The Diversity Committee currently has a number of
measures it is assessing over a 6 month period. The measures track
diversity at each stage of the employee lifecycle. An analysis of the
information gathered during this period will enable the Committee,
the Board and Management to understand where we should focus
our initiatives to ensure maximum penetration and success and to set
meaningful targets.
11068_CHC_AR_Financial_PPv2.indd 29
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AnnuAl report 2011 Corporate governance statement continued
Recommendation 3.4: Companies should disclose in each
annual report the proportion of women employees in the whole
organisations, women in senior executive positions and women
on the board.
As at 30 June 2011, the proportion of women on the Board is 11%, in
senior management 17% and across all staff 45%.
What you can find on our website:
a summary of the Charter Hall Code of Conduct;
the Securities’ Trading Policy; and
the Diversity and Inclusion policy.
Principle 4: Safeguard integrity in financial reporting
The Board has the responsibility for the integrity of Charter Hall’s financial
reporting. To assist the Board in fulfilling its responsibility, the processes
discussed below have been adopted with a view to ensuring that the
Group’s financial reporting is a truthful and factual presentation of Charter
Hall’s financial position.
Recommendation 4.1: The Board should establish an audit committee.
Recommendation 4.2: The audit committee should be structured so
that it:
ww
consists only of non-executive directors;
The key responsibilities of the Audit, Risk and Compliance Committee under
the Charter in relation to financial reporting are to:
ww
review the internal control and compliance systems of Charter Hall;
ww monitor the integrity of the financial statements of Charter Hall;
ww
consider significant financial reporting issues and judgements made in
connection with Charter Hall’s financial statements;
ww monitor and review the performance of the external audit function and
make recommendations to the Board;
ww monitor compliance by the Company with legal and regulatory
requirements;
ww
ww
regularly monitor risk management reports provided by management;
assess at regular intervals whether Charter Hall’s compliance plan,
internal financial control systems, risk management policies and risk
management systems are adequate;
ww where appropriate, and at least twice a year, meet privately with the
external auditor to discuss any matters that the Committee or the
External Auditor believe should be discussed privately; and
ww where appropriate, meet with the Group’s external legal counsel, any
member of management or the internal audit team (if any) in separate
session to discuss any matters that the Committee, the Group’s
external legal counsel, the member of management or the internal audit
team believe should be discussed privately.
consists of a majority of independent directors;
is chaired by an independent chair, who is not chair of the Board; and
Details of the risk monitoring duties of the Audit, Risk and Compliance
Committee are set out in the Principle 7 commentary below.
ww
ww
ww
has at least three members.
To assist the Board in fulfilling its responsibility for overseeing the quality and
integrity of the accounting, audit, financial and risk management practices
of Charter Hall, Charter Hall has appointed an Audit, Risk and Compliance
Committee comprising only independent directors and which complies with
the requirements of the Principles.
The Committee is comprised of Glenn Fraser (Chair), Kerry Roxburgh
and Anne Brennan, who are all independent non-executive directors.
The members have comprehensive financial and property industry
expertise. The Committee met on seven (7) occasions during the year
to 30 June 2011. Please refer to the Directors’ report for more information
on members, including attendance at committee meetings.
The Audit, Risk and Compliance Committee also meet privately with the
external auditors at least twice a year.
Auditor independence
The Audit, Risk and Compliance Committee has adopted a policy which
includes the following to ensure the independence of the external auditor:
ww
ww
ww
ww
ww
the external auditor must remain independent from Charter Hall;
the external auditor must monitor its independence and report to
the Board every six months that it has remained independent;
significant permissible non-audit assignments awarded to the
external auditor must be approved in advance by the Audit, Risk
and Compliance Committee (or its chairman between meetings);
all non-audit assignments are to be reported to the Audit, Risk and
Compliance Committee every six months; and
the Group’s audit engagement partner and review partner must be rotated
every five years. Charter Hall’s audit engagement partner rotated at the
conclusion of the 31 December 2009 half-year financial reporting period.
Recommendation 4.3: The Audit Committee should have a
formal Charter.
In establishing the Audit, Risk and Compliance Committee, the Board has
developed a charter which sets out the Committee’s role, responsibilities,
composition, structure and membership requirements. This Charter has
been last updated and reviewed in August 2010.
The Board and the Audit, Risk and Compliance Committee are of the view that,
at the present time, PricewaterhouseCoopers (PwC) is best placed to provide
the Group’s audit services because PwC is a top tier professional services
firm. It has provided audit services to the Group since its establishment and is
familiar with its structure and assets. The auditor is required to be independent
from the Group and Charter Hall. PwC meets this requirement.
The auditor attends Charter Hall’s annual meeting and is available to answer
securityholder questions on the conduct of the audit, and the preparation
and content of the auditor’s report.
What you can find on our website:
the Audit, Risk and Compliance Committee Charter; and
Auditors’ Independence Policy.
3 0
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Charter hall Group Principle 5: Make timely and balanced disclosure
Principle 7: Recognise and manage risk
Recommendation 5.1: Companies should establish written policies
and procedures designed to ensure compliance with ASX Listing
Rule disclosure requirements and to ensure accountability at a senior
management level for that compliance and disclose those policies or a
summary of those policies.
It is Charter Hall’s policy to provide timely, open and accurate information
to all stakeholders, including securityholders, regulators and the wider
investment community.
Charter Hall has a Continuous Disclosure and External Communications
Policy which includes policies and procedures in relation to disclosure and
compliance with the disclosure requirements in the ASX Listing Rules.
These policies include procedures for dealing with potentially price- sensitive
information which includes referral to the Joint Managing Directors and company
secretary and sometimes the Board for a determination as to disclosure
required. The ASX liaison person is the Company Secretary of Charter Hall.
What you can find on our website:
Continuous Disclosure and Communications Policy.
Principle 6: Respect the right of shareholders
Recommendation 6.1: Design and disclose a communications strategy
to promote effective communication with shareholders
and encourage effective participation at general meetings.
As mentioned above, Charter Hall has adopted a Continuous Disclosure
and Communications Policy. The cornerstone of this policy is the delivery
of timely and relevant information as described below.
Investors receive an annual report and updates which keep them informed
of Charter Hall’s performance and operations.
After lodging market-sensitive information with ASX, Charter Hall’s policy is
to place the information on its website, including annual and half year results
announcements and analyst presentations as soon as practically possible.
Charter Hall’s website (charterhall.com.au) contains recent announcements,
presentations, past and current reports to securityholders, answers to
frequently asked questions and a summary of key financial data since
inception. Investors may also register here to receive email copies of the
Group’s significant ASX announcements.
Domestic investor roadshows are held periodically throughout Australia.
International roadshows are also held for institutional securityholders. Where
they contain new information, analyst and roadshow presentations are
released to the ASX and included on the Group’s website.
For formal meetings, an explanatory memorandum on the resolutions is
included with the notice of meeting. Presentations by the chairman and
Joint Managing Directors are webcast.
Full copies of notices of meetings are placed on the Charter Hall website.
Unless specifically stated in the notice of meeting, all holders of fully
paid securities are eligible to vote on all resolutions. In the event that
securityholders cannot attend formal meetings, they are able to lodge a
proxy on line in accordance with the Corporations Act. Proxy forms can be
mailed or faxed.
What you can find on our website:
Continuous Disclosure and Communications Policy;
the latest annual report and full financial statements; and
Charter Hall’s latest ‘Investor Focus’ newsletter.
Recommendation 7.1: Companies should establish policies for the
oversight and management of the material business risks and disclose
a summary of those policies.
Charter Hall has a formalised risk management framework, which is
disclosed on the Group’s website. Compliance with risk management
policies is monitored by the Audit, Risk and Compliance Committee.
As part of its risk monitoring duties, the Audit, Risk and Compliance
Committee is required to:
ww
ww
ww
review the internal control and compliance systems of Charter Hall;
regularly monitor risk management reports provided by management;
and
assess at regular intervals whether Charter Hall’s compliance plan,
internal financial control systems, risk management policies and risk
management systems are adequate.
The Audit, Risk and Compliance Committee members must satisfy the
independence criteria set out in s601JB(2) of the Corporations Act and are
required to certify their compliance with these requirements annually and
otherwise notify Charter Hall if they cease to satisfy the criteria.
Recommendation 7.2: The Board should require management to
design and implement the risk management and internal control
system to manage the Company’s material business risks and
report to it on whether those risks are being managed effectively.
The Board should disclose that management has reported to it as
to the effectiveness of the company’s management of its material
business risks.
Charter Hall has a robust Risk Management framework in place for
identifying, assessing, monitoring and managing its risks. A key component
of the framework is an annual Operational Risk Self Assessment (ORSA)
whereby management workshop key risks and controls in place and their
effectiveness. Findings resulting from this assessment are reported to the
Audit, Risk and Compliance Committee, which in turn reports on this to the
Board. During the year, management has reported to the Audit, Risk and
Compliance Committee as to the manner in which it manages its material
risks, the effectiveness of the framework and the results of the annual ORSA.
Considerable importance is placed on maintaining a strong control
environment through an organisation structure with clearly drawn lines of
accountability and authority.
At this point in time, the Board is of the opinion that the structure of the
Group does not warrant an internal audit function. This policy is subject to
ongoing review.
The Audit, Risk and Compliance Committee and designated compliance
staff also assist the Charter Hall Board in overseeing the risk management
framework of the Group by monitoring the observance of the risk management
principles and ensuring that there is an underlying compliance framework
including detailed policies and procedures, staff training and supervision and
appropriate compliance reporting. The compliance officer for the Group is
responsible for reviewing and monitoring the efficiency of compliance systems
on an ongoing basis so that appropriate compliance procedures, staff
education and compliance committee reporting arrangements are in place to
enable observance of the compliance framework.
11068_CHC_AR_Financial_PPv2.indd 31
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AnnuAl report 2011 Corporate governance statement continued
Recommendation 7.3: The Board should disclose whether it has
received assurance from the Chief Executive Officer (or equivalent)
and the chief financial officer (or equivalent) that the declaration
provided in accordance with section 295A of the Corporations Act is
founded on a sound system of risk management and internal control
and that the system is operating effectively in all material respects in
relation to financial reporting risks.
The Board of Charter Hall has received assurance from the Joint Managing
Directors and Chief Financial Officer that their confirmation given to the
Board in respect of the integrity of financial statements is founded on a
sound system of risk management and internal control which implements
the policies adopted by the Board and that the system is operating in all
material respects in relation to financial reporting risks. This assurance to
the Board by the Managing Directors and CFO is further backed by a review
and sign-off process from management on key items that make up the risk
management and controls systems.
What you can find on our website:
Group’s Risk Management framework.
Principle 8: Remunerate fairly and responsibly
Recommendation 8.1: The Board should establish a remuneration
committee.
The Board has established a Remuneration and Human Resources
Committee to assist the Group so that:
ww
The remuneration policies and practices are in line with strategic goals
and enable the Company to attract and retain high calibre executives
and Directors who will create value for shareholders;
ww Directors and executives are fairly and responsibly remunerated having
regard to the performance of the Company, the performance of the
executives and the general remuneration environment;
ww
ww
ww
The Group’s remuneration policy is communicated to and supported by
investors;
The Company has effective policies and procedures to attract, motivate
and retain talented individuals to meet it’s needs;
The Company implements an appropriate Human Resources strategy
to enable it to deliver on its business strategy;
ww HR policies and practices are designed to align with the Company’s
vision, values and overall objectives as well as comply with the relevant
legislation, reflect current governance and mitigate against operational,
financial and reputation risk.
The Remuneration and Human Resources Committee comprises three
non-executive, independent directors being Anne Brennan (Chairman),
Colin McGowan and Roy Woodhouse (please refer to the Directors’ Report
for information in regard to the members and the number of meetings held
and attended).
The Remuneration and Human Resources Committee obtains the advice
of independent experts to ensure the Group’s remuneration policies are
appropriate and follow best practice and address the requirements of the
Group’s stakeholders.
For further information in regard to the Group’s remuneration policies and
framework, please refer to the Remuneration Report, including a detailed
description of the structure of non-executive directors’ remuneration and
executive directors’ and senior executives’ remuneration.
A copy of the Remuneration and Human Resources Committee Charter is
available on the Group’s website. The Security Trading Policy, also posted
on the website, deals with the Group’s policy on entering into transactions
in associated products which limit the economic risk of participating in
unvested entitlements under any equity-based remuneration scheme.
Recommendation 8.2: Companies should clearly distinguish the
structure of non-executive directors’ remuneration from that of
executive directors and senior executives
Fees paid to non-executive directors are set by the Board in consultation
with remuneration experts, within an aggregate limit approved by
securityholders. The total remuneration paid to non-executive directors to
30 June 2011 is set out in the Remuneration Report.
Directors’ fees are reviewed annually and are benchmarked against fees
paid to directors of similar organisations.
Non-executive directors are not provided with retirement benefits other than
statutory superannuation and do not participate in staff security plans or
receive options or bonus payments.
Executive directors’, as well as senior executives’, remuneration packages
comprise salary, short-term incentives (i.e. bonus) and long-term incentives.
Further details on executive directors’ packages are set out in the
Remuneration Report.
3 2
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Charter hall Group Financial report
Contents
Directors’ report
Auditor’s independence declaration
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated statement of changes in equity
Consolidated cash flow statement
Notes to the consolidated financial statements
1 Summary of significant accounting policies
2 Financial risk management
3 Critical accounting estimates and judgements
4 Parent entity financial information
5 Segment information
6 Revenue
7 Expenses
8 Fair value adjustments
9
Income tax benefit
10 Distributions paid and payable
11 Current assets – cash and cash equivalents
12 Current assets – trade and other receivables
13 Current assets – investment property held for sale
14 Non-current assets – investments in associates at fair value through profit or loss
15 Derivative financial instruments
16 Inventories
17 Non-current assets – investments accounted for using the equity method
18 Non-current assets – intangible assets
19 Non-current assets – property, plant and equipment
20 Non-current assets – investment properties
21 Non-current assets – deferred tax assets
22 Trade and other payables
23 Current liabilities – provisions
24 Non-current liabilities – borrowings
25 Non-current liabilities – deferred tax liabilities
26 Non-current liabilities – provisions
27 Contributed equity
28 Reserves and accumulated losses
29 Non-controlling interest
30 Key management personnel
31 Remuneration of auditors
32 Commitments
33 Related parties
34 Controlled entities
35 Investments in associates
36 Investments in joint ventures
37 Events occurring after the reporting date
38 Reconciliation of profit/(loss) after tax to net cash inflow from operating activities
39 Earnings per security
40 Security-based benefits
41 Deed of cross guarantee
Directors’ declaration
Independent auditor’s report
Unitholder analysis
Investor relations
Corporate directory
11068_CHC_AR_Financial_PPv2.indd 33
34
68
69
70
71
72
73
74
74
81
84
84
85
87
88
88
88
90
90
91
93
93
94
94
95
95
96
96
97
98
98
99
102
102
103
104
105
106
110
111
111
112
114
118
121
122
123
124
126
128
129
131
132
133
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AnnuAl report 2011 Directors’ report
for the year ended 30 June 2011
Your directors present their report on the consolidated entity (referred to hereafter as the Group or Charter Hall Group) consisting of Charter Hall Limited
(Company or CHL) and the entities it controlled at the end of, or during, the year ended 30 June 2011. Charter Hall Group is a stapled entity comprising CHL
and its controlled entities and Charter Hall Property Trust (Trust or CHPT) and its controlled entities.
The Group includes Charter Hall Funds Management Limited (CHFML) as the responsible entity of CHPT. CHL and CHFML 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 the Group during the whole of the year and up to the date of this report, unless noted otherwise:
ww Kerry Roxburgh – Chairman and Non-Executive Independent Director
ww Roy Woodhouse – Deputy Chairman and Non-Executive Independent Director
ww Anne Brennan – Non-Executive Independent Director (appointed 6 October 2010)
ww Patrice Derrington – Non-Executive Independent Director (resigned 10 November 2010)
ww Glenn Fraser – Non-Executive Independent Director
ww Cedric Fuchs – Executive Director
ww David Harrison – Joint Managing Director
ww Peter Kahan – Non-Executive Director
ww Colin McGowan – Non-Executive Independent Director
ww David Southon – Joint Managing Director
Principal activities
During the year the principal continuing activities of the Group consisted of:
(a) Property investment
(b) Property funds management
(c) Development investment
No significant changes in the nature of the activities of the Group occurred during the year.
Distributions – Charter Hall Group
Distributions paid/declared to members during the year were as follows:
Interim ordinary distribution for the six months ended 31 December 2010 of 8.00 cents per security paid on
28 February 2011
2011
$’000
23,500
Final ordinary distribution for the six months ended 30 June 2011 of 8.50 cents per security paid on 25 August 2011
24,969
Interim ordinary distribution for the six months ended 31 December 2009 of 6.40 cents per security* paid on
26 February 2010
Final ordinary distribution for the six months ended 30 June 2010 of 6.40 cents per security* paid on 27 August 2010
–
–
48,469
* Six monthly distributions of 1.60 cents per security restated to reflect the one for four security consolidation.
2010
$’000
–
–
11,204
18,598
29,802
3 4
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Charter hall Group Distribution Re-Investment Plan (DRP)
The DRP was not in operation during the year.
Earnings per security and operating earnings
Earnings per security per note 39 (cents)
Operating earnings per security per note 5 (cents)
Earnings used in the calculation of operating earnings per security ($‘000s)
Weighted average number of ordinary securities used in the calculation
of operating earnings per security (‘000s) (note 39)
Statutory profit after tax attributable to stapled security holders of Charter Hall Group
Fair value adjustments
Net gain on re-measurement of equity interests
(Gain)/loss on sale of investments, property and derivatives
Impairment of management rights
Impairment of goodwill
Business combination transaction costs
Non-operating losses from equity accounted investments
Security-based benefits expense
Amortisation
Income tax benefit
Finance costs due to unwinding of discount on contingent consideration
Foreign exchange loss
Operating earnings
The adjustments above exclude the non-controlling interest in DRF.
Results
2011
2010
17.85
20.60
3.22
16.83
60,422
35,781
293,254
212,540
$’000
52,338
3,896
(16,726)
(3,350)
19,171
–
–
1,773
4,090
950
(2,556)
836
–
$’000
6,840
37,413
(59,725)
5,476
–
15,328
6,636
22,573
1,317
734
(950)
–
139
60,422
35,781
The Group recorded a statutory profit after tax attributable to stapled security holders for the financial year of $52.3 million compared to a profit of
$6.8 million in 2010. After adding back fair value adjustments, impairment of assets, gains on sale and other non-cash items including the security-based
benefit expense, the Group generated Operating earnings of $60.4 million compared to $35.8 million in 2010.
Operating earnings per security (OEPS) of 20.60 cents rose from 16.83 cents in 2010, largely due to the improved earnings within the Group’s property
investment and property funds management segments, following the acquisition in March 2010 of the management rights of the majority of the Macquarie
Group Limited’s core real estate management platform and the co-investment in funds, primarily Charter Hall Office REIT (CQO) and Charter Hall Retail REIT
(CQR). As a result, the distribution per security (DPS) increased from 12.80 cents to 16.50 cents.
Net Tangible Assets per Security (NTA) has remained consistent with 30 June 2010 at $2.21 per security.
Funds Under Management (FUM) has increased from $10.2 billion at 30 June 2010 to $10.7 billion at year end as a result of organic growth and acquisitions
during the year, including CQR’s acquisition of a portfolio of eight Woolworths properties.
Gearing has increased from 6.63% at 30 June 2010 to 8.12% at 30 June 2011, largely due to borrowings used to fund the acquisition of additional CQO
units in March 2011.
11068_CHC_AR_Financial_PPv2.indd 35
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AnnuAl report 2011 Directors’ report continued
The 30 June 2011 financial results with comparatives are summarised as follows:
Revenue including minority interests ($ million)
Profit after tax attributable to stapled securityholders ($ million)
Operating earnings attributable to stapled securityholders($ million)1
Distributions to stapled securityholders ($ million)
Operating earnings per stapled security (OEPS) (cents)1, 2
Statutory earnings per stapled security (EPS) (cents)
Distribution per stapled security (cents)2
Total assets ($ million)
Total liabilities ($ million)
Net assets ($ million)
Net assets attributable to stapled securityholders ($ million)
Net tangible assets attributable to stapled securityholders ($ million)
Securities on issue ($ million)2
NTA per stapled security ($)2
Gearing – borrowings to total assets3
Funds under management ($ billion)
2011
109.6
52.3
60.4
48.5
20.60
17.85
16.50
957.6
175.6
781.9
749.8
649.8
293.8
2.21
8.12%
10.7
2010
68.3
6.8
35.8
29.8
16.83
3.22
12.80
976.2
165.2
811.0
760.4
641.4
290.6
2.21
6.63%
10.2
1 Excludes fair value adjustments, impairment of assets, gains on sale of investments and non-cash items such as security-based benefits expense, amortisation, tax
benefit and acquisition costs
2 Calculation excludes stapled securities issued under the Executive Loan Security Plan in accordance with AASB 2 Share-based Payments
3 Calculation is net of cash
Review of operations
Charter Hall Group is a diversified property group with a fully integrated
business model. The Group has three business activities that contribute to
overall performance: property investment, property funds management and
development investment.
The Group has delivered a strong result for the year, with its funds and
business activities continuing to deliver on stated strategies and taking
advantage of the improving Australian market. The Group delivered
$60.4 million (FY10: $35.8 million) of operating earnings, with property
investment contributing $36.1 million (FY10: $27.0 million), property
funds management contributing $20.5 million (FY10: $7.7 million) and
development investment contributing $3.8 million (FY10: $1.1 million).
Property investment
Together with its investment partners, the Group has acquired
approximately $1.1 billion of property in Australia this year, ensuring its
investors have the opportunity to benefit from improving commercial
property fundamentals. This includes the Group’s recent purchase of a 50%
interest in an office development site at 685 La Trobe Street, Melbourne
and CQR’s acquisition, in partnership with Telstra Super, of eight shopping
centres from Woolworths Limited for $266 million.
Property funds management
The property funds management business has three sources of equity:
listed, wholesale and retail investors.
Charter Hall Office REIT (CQO) and Charter Hall Retail REIT (CQR) have
made positive progress on their strategies of reweighting to Australia
and together have refinanced almost $2.1 billion of debt during the year,
extending their debt maturity profiles. Unitholders are benefiting from the
proactive management approach and improving property fundamentals
through solid growth in distributions, with CQO and CQR having increased
their distributions by 19% and 6.7% respectively on the prior period.
Development investment
The Group’s development investments comprise a 50% interest in
Commercial and Industrial Property Pty Ltd (CIP), an industrial development
business, together with an investment in CHOFs 4 and 5. CIP contributed
$4.0 million (FY10: $1.5 million) of operating earnings to the Group and
CHOFs 4 and 5 incurred a loss of $0.2 million (FY10: loss $0.4 million),
resulting in a combined contribution to operating earnings of $3.8 million
(FY10: $1.1 million).
The development team has made progress on the delivery of its $1.8 billion
development pipeline, proceeding on two office developments and one
retail redevelopment. The team has also commenced construction at the
$600 million Little Bay Cove residential project in Sydney, being undertaken
with TA Global Berhad, a listed Malaysian residential development and
investment group.
Following is an update of the managed funds in which the Group has a
co-investment:
Charter Hall Office REIT (CQO) – $3.6 billion FUM, CHPT interest
10.0% (13.3% including interest to be acquired under Fir Tree
Capital unit transfer agreement, subject to satisfaction of
conditions precedent)
The CQO portfolio comprises 33 high grade office assets located in major
business districts in Australia and the United States. With a 30 June 2011
valuation of $3.4 billion and a blended average capitalisation rate of 7.67%,
CQO’s Australian portfolio of 19 assets recorded a $50 million increase in
value over the year to $1.9 billion at 30 June 2011. For the US portfolio, the
contracted net sale price of $1.57 billion has been adopted for the portfolio
book value at 30 June 2011.
Consistent with the ongoing strategy of reweighting to Australia, on
3 August 2011 CQO announced that it had executed a contract for the
sale of its entire US portfolio (closing being subject to satisfaction of
customary conditions precedent and third party consents).
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Charter hall Group CQO finalised its exit from its non-core offshore markets with the sale of
the Japanese portfolio in February 2011 and Berlin post balance date,
CQO also exchanged contracts to sell NCR House, North Sydney in
July 2011 for $57.3 million with settlement due in September 2011.
CQO executed new leases across almost 218,000 sqm or 18% of the
portfolio during the year, with robust demand seeing terms agreed over
27% of the Australian portfolio, the strongest in the last 6 years. Major new
deals included Telstra at the Argus Centre, Melbourne (23,482 sqm), the
Australian Taxation Office at Moonee Ponds (22,000 sqm approx.) and
Gilbert & Tobin at 2 Park St, Sydney (9,280 sqm).
Other key results for the year include Australian occupancy of 96% and
United States occupancy of 82%, and a portfolio weighted average lease
expiry of 5.1 years.
Charter Hall Retail REIT (CQR) – $2.0 billion FUM, CHPT interest 8.2%
CQR’s investment strategy is to invest in predominantly grocery anchored
neighbourhood and sub-regional shopping centres. The REIT’s portfolio
comprises assets across Australia and offshore, predominantly anchored
by the dominant national grocery businesses in Australia.
Asset revaluations of CQR’s portfolio at 30 June 2011 saw its value increase
by 0.6% to $1.9 billion, with the overall weighted average capitalisation rate
decreasing by seven basis points. The occupancy of the Australian portfolio
at 30 June 2011 was 98.8%, with same property net operating income
growth of 3.8%, highlighting the non-discretionary nature of CQR’s portfolio.
Since March 2010, CQR has acquired or contracted to acquire
15 Australian properties valued at $571 million, utilising proceeds from
the sale of its non-core, offshore holdings, in the US and New Zealand.
Core Plus Office Fund (CPOF) – $1.4 billion FUM, CHPT interest 16%
CPOF has continued to focus on investment fundamentals and strengthen
its balance sheet throughout the 2011 financial year. With occupancy of
98% and a long lease expiry profile of six years, CPOF is positioned to take
advantage of an improving commercial real estate market.
Continued tenant demand coupled with an upswing in demand from
private, institutional and international investors for quality assets across
the Australian market is a positive sign for a sustained recovery across the
majority of office markets. Following independent valuation of the entire
portfolio across December and June quarters of this financial year, CPOF
has a current weighted average capitalisation rate of 7.73%.
Core Plus Industrial Fund (CPIF) – $0.5 billion FUM, CHPT interest 21%
CPIF has undertaken independent valuations on the entire portfolio over
the December and June half year periods. The current weighted average
capitalisation rate of the portfolio is 8.24%, with a WALE of 11.5 years,
underpinned by strong tenant covenants with, for example, 25, 16 and
13 year leases to Woolworths, Coles, and Volkswagen respectively.
CPIF has demonstrated a solid performance in what has been a challenging
market environment, by outperforming the IPD Industrial index by 3.2% over
three years. On 22 September 2010, CPIF purchased a prominent 200,000
sqm industrial site, which will be developed to provide a new 46,000 square
metre facility for Woolworths.
The above performance, acquisitions such as the new Volkswagen and
Woolworths facilities and overall quality of the portfolio have enabled
management to raise an additional $73 million of equity with a further
$65 million in due diligence during the year.
Charter Hall Direct Retail Fund (DRF) – $0.2 billion FUM,
CHPT interest 49% and CHH interest 16%
DRF is an unlisted property fund which invests directly in quality retail properties
with a current portfolio of six retail shopping centres located in established
markets in New South Wales, Victoria, Queensland and New Zealand.
At 30 June 2011, this portfolio benefited from an occupancy rate of 99%
and a weighted average lease expiry of 6.7 years.
A product disclosure statement was issued in December 2010, opening the
fund for investment by retail investors following a restructure which included
renaming the fund from its former name, Charter Hall Core Plus Retail
Fund (CPRF).
As part of the restructure, the fund’s existing finance facilities were
successfully refinanced for a further duration of three years and Charter
Hall Group assumed 100% economic ownership of two assets located in
Mentone. One of these assets, the Mentone development site jointly owned
with Harvey Norman, was then sold for $44 million ($22 million – 50%
Charter Hall Group interest), with Charter Hall Group retaining ownership
of the Mentone Showrooms investment, valued at $15.8 million.
Charter Hall Diversified Property Fund (DPF) – $0.2 billion FUM,
CHPT interest 36%
DPF is an unlisted property fund with rolling seven year review events that
primarily invests in a diversified portfolio of Australian direct properties.
At 30 June 2011, excluding the Coles Distribution Centre, the fund is
anchored by five quality office and three quality industrial properties located
in established markets throughout Sydney, Melbourne and Perth, which
benefited from an occupancy rate of 91% and a weighted average lease
expiry of 4.1 years.
Ahead of the fund’s first review event to be held on or around 14 October
2012, ordinary investors approved the sale of the fund’s 25% interest
in the Coles Distribution Centre, Perth Airport property at a unitholder
meeting held in May 2011. The sale will be settled progressively prior to
31 December 2011, with the proceeds being used to reduce gearing and
provide a capital return to equity investors.
Charter Hall Direct Property Fund (CHDPF) – $0.5 billion FUM,
CHPT interest 4%
CHDPF is an open-ended unlisted property fund that primarily invests
in a diversified portfolio of Australian direct properties.
At 30 June 2011, the fund is anchored by nine quality office properties
located in established markets throughout Sydney, Melbourne and
Brisbane, which benefited from an occupancy rate of 96% and a weighted
average lease expiry of 4.3 years with leases to over 120 tenants. In the
year to 30 June 2011, all of the fund’s direct properties were assessed by
independent valuations. The weighted average cap rate was 8.5%.
During the year, the fund refinanced its debt facilities, consolidating its
existing two debt facilities, into a new $240 million loan facility expiring
in September 2013. The new debt facility was provided by two major
Australian banks and an international bank. This positioned the fund
to reopen for investor applications with the issue of a new product
disclosure statement in December 2010 and provide ongoing six-monthly
withdrawal offers.
Charter Hall Umbrella Fund (CHUF) – $0.2 billion FUM,
CHPT interest 25%
CHUF is an unlisted fund with investments predominantly in Charter Hall
Group managed funds. CHUF provides exposure to a portfolio of 55 office,
industrial and retail properties across Australia and New Zealand, with a
WALE of 8.1 years and a current occupancy of 95%.
Opportunity funds update
Property market conditions have improved for development projects that
are positioned to capitalise on reduced supply and growing demand
from both tenants and institutional investors. While positive property
fundamentals remain in place, a range of global risk factors are providing
headwinds for financial markets. Positive progress is being made on the
CHOF projects.
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AnnuAl report 2011 Directors’ report continued
Charter Hall Opportunity Fund 4 (CHOF4) – $0.1 billion FUM,
CHL interest 3%
CHOF4 is fully allocated with diversity across eight projects. This fund’s
mandate is to identify, acquire and deliver property development and
value-add opportunities across various sectors, including commercial,
industrial, household retail and infill residential sectors located primarily in
the major cities on the eastern seaboard of Australia.
Home HQ North Shore is now 100% leased and has been recognised as
a market leading Household Retail Centre with the following awards:
ww
ww
ww
2010 Urban Taskforce Development Excellence Award – Winner of Best
Adaptive Reuse.
2010 UDIA NSW Austral Bricks Awards for Excellence – Winner of Best
Retail/Commercial Development.
2010 Master Builders Association Excellence in Construction Awards –
Winner of Best Adaptive Reuse.
ww
2011 Property Council of Australia Finalist – Adaptive Reuse.
An agreement for Lease (AFL) is awaiting execution with Bunnings for a
2,200 sqm trade store on part of the Gepps X Trade Centre Site in Adelaide.
Agents have been appointed to work on the exit from this project through a
sale of the balance of the site.
Charter Hall Opportunity Fund 5 (CHOF5) – $0.9 billion FUM,
CHL interest 15%
CHOF5 was launched in early 2007. The fund’s mandate is to identify,
acquire and deliver property development and value-add opportunities
across various sectors, including commercial, industrial, retail, bulky goods
retail and infill residential sectors located primarily in capital cities and
metropolitan markets across Australia and New Zealand.
Construction is nearing completion for The Warehouse Group facility
(6,300 sqm) and Mitre 10 Mega facility (11,000 sqm) at Home HQ Hastings,
New Zealand. An Agreement for Lease (AFL) has been signed with Fishing
Camping Outdoors for a 1,400 sqm facility and discussions with other
potential tenants continue.
Little Bay Cove secured a joint development sponsorship arrangement
with TA Global Berhad, a listed Malaysian residential development and
investment group during the year. The Stage 1 Works, which includes
remediation, earthworks and creation of the estate, are progressing well.
Development applications on super-lots 2, 4 and 5 have been lodged with
Council. Marketing and sales agents have been appointed and are working
towards a October 2011 sales launch.
Construction of the Aquilo townhouse development in Mentone, Victoria
is progressing well, with the first seven townhouses in stage 1 scheduled
for settlement in September 2011. 100 out of 119 townhouses have been
exchanged (84%).
Construction of the Lacrosse Apartments in Docklands, Melbourne is
progressing, with nine levels of the 21 level building structure completed.
308 of the 312 apartments have been exchanged (99%).
AFL documentation has been executed with Leighton Contractors for 76%
of the Work Zone project in Perth. A Guaranteed Maximum Price, Design
and Construct construction contract has been agreed within the feasibility
allowance. Construction finance is progressing, with the project scheduled
for completion in August 2013.
Environmental regulation
The principal activities of the Group are property investment, property
funds management and development investment. Funds management
involves minimal environmental impact. The Group ensures compliance
with applicable environmental standards and regulations in its property
investment and development management activities.
This year, the Group is required to report its annual greenhouse
gas emissions and energy use under the National Greenhouse and
Energy Reporting Act 2007. The measurement period is 1 July 2010 to
30 June 2011. The Group has implemented systems and processes to
calculate emissions and report to the Greenhouse and Energy Data Officer
by 31 October 2011. The Group is assessing the Australian Government’s
Clean Energy Plan 2011, however the Group does not anticipate a material
impact to its operations from the carbon price.
To the best of the directors’ knowledge, the operations of the Group
have been undertaken in compliance with the applicable environmental
regulations that apply to the Group’s activities.
Significant changes in the state of affairs
Significant changes in the state of affairs of the Group during the year,
in addition to the review of operations above, were as follows:
ww On 25 November 2010, the Group completed a security consolidation
on a one for four basis. Where the consolidation of a holding
resulted in a fractional security, that fraction was rounded up to the
next whole security. The consolidation of securities resulted in the
reduction of securities on issue from 1,225,365,088 to approximately
306,341,272 securities, resulting in a corresponding increase in
pre-consolidation metrics including price and NTA per security by a
factor of four. As the security consolidation did not involve a return of
capital to securityholders, there have been no direct impacts on the
Group’s market capitalisation or net assets. Prior period comparative
information, where shown on a per security basis, has been restated
to a post consolidation basis, unless otherwise stated.
ww On 11 March 2011, the Group increased its ownership in CQO to 10%,
by exercising its first right of refusal to acquire a portion of Macquarie
Bank Limited group’s holding in CQO. The Group acquired 1.3%
of CQO units at a price of $3.18 per unit, a total acquisition price
of $19.7 million. This acquisition was funded from cash reserves and
undrawn debt capacity.
ww On 16 May 2011, the Group executed a $75 million corporate debt
facility with Westpac Banking Corporation, which was subsequently
extended to $100 million on 29 June 2011. This facility has a three
year term, and has enabled the repayment of existing drawn debt,
the cancellation of an undrawn $50 million debt facility with Macquarie
Bank, enhanced liquidity and added additional flexibility to pursue
opportunities to grow the business and capitalise on the property
market recovery.
ww On 25 May 2011, the Group announced the acquisition of a 50%
interest in an office development at 685 La Trobe Street, Melbourne
from Flagship (La Trobe) Pty Ltd for $5 million and has entered into
a development agreement with Flagship to jointly undertake the
development of this project once a substantial leasing pre-commitment
is secured. The proposed development will include 35,000 sqm of
prime office space over 12 levels. It will also include 1,000 sqm of retail
space and 151 car parks. The building is targeting a 5 Star Green Star
As-Built and 4.5 Star NABERS energy ratings.
ww On 21 June 2011, the Group entered into an agreement to increase
its stake in CQO by 3.3%, taking its total holding to 13.3%, through
a Unit Transfer Agreement (UTA) with Fir Tree Capital. Under the UTA,
completion will be effected when at least 80% of the proceeds from
the CQO US asset sale program are returned to unitholders. The
acquisition price of the units under the UTA will represent a 5.64%
discount to CQO’s proforma Australian net tangible assets as at
30 June 2011. The Group will fund the acquisition through existing
liquidity or proceeds received from the CQO US asset sale and
subsequent special distribution.
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Charter hall Group ww At 30 June 2011, the Group applied a write-down of $19.2 million to
the carrying value of its intangible management rights. The lower value
reflects management’s current assessment of the recoverable amount
of these assets taking into account the present value of future expected
cash flows following CQO’s announced disposal of its US assets,
discounted using a risk weighted discount rate. As a result, the carrying
value of the intangible management rights in CQO has decreased to
$47.0 million (2010: $66.2 million).
Matters subsequent to the end of the period
Since 30 June 2011, the Group has completed the following:
ww On 26 June 2011, Orange Capital, Luxor and Point Lobos issued
a notice calling a CQO unitholder meeting for 27 July 2011, with a
resolution to change the Responsible Entity of the CQO from Charter
Hall Office Management Limited (CHOML) to Moss Capital Funds
Management Limited. The resolution was voted upon at the unitholder
meeting and the unitholders voted against the resolution, retaining
CHOML as the responsible entity of the REIT.
ww On 18 July 2011, CHOML announced a corporate governance review.
The review will examine the existing governance framework between
Charter Hall Group and the Responsible Entity and will provide
recommendations on appropriate corporate governance arrangements
and a fee structure for the REIT that is consistent with current best
practice models for ASX listed trusts, including unitholders voting on
the appointment of non-executive directors of the Responsible Entity. The
recommendations will be considered at the Annual General Meeting.
ww On 3 August 2011, CQO announced it had exchanged contracts to sell
The Group remains focused on leveraging its fully integrated property
services capabilities through initiating acquisition and developments,
undertaking capital raisings for unlisted funds, external mandates and
partnerships, while also recycling capital to improve the return on equity
from the co-investment portfolio. For its listed funds, which are now primarily
Australian asset owning REITs, the Group will continue to implement
strategies to increase earnings per share and to de-risk the funds.
As volatility continues in listed markets, Charter Hall has seen equity flows
increasing to unlisted real estate and the Group is well positioned to benefit from
these equity flows as wholesale investors further invest in low volatility direct
property portfolios. Retail investor flows are expected to increase over time as
investors seek a high quality manager with an integrated capability that delivers
stable property investment returns from rental income and capital growth.
The Group has sought to de-risk and stabilise the listed REITs by
reweighting their portfolios to Australia. These strategies are expected to
improve earnings visibility and stability, improving confidence for investors.
At this stage in the cycle, Charter Hall considers that appropriate risk
adjusted returns can be obtained from investing into select development
projects. Charter Hall is incubating high quality development opportunities
with a view to raising third party capital to partner in the development and
delivery of these projects. The in-house specialist property skills are being
utilised to enhance value across the Group’s managed fund platform.
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.
100% of the US portfolio for a gross price of $1.71 billion. The closing
of the sale of each US property (or CQO’s interest in each property)
is subject to customary closing conditions including receipt of lender
consents and other third party consents. CQO expects to provide a
return of capital via a pro-rata special distribution to unitholders of net
sales proceeds.
Information on Directors
Kerry Roxburgh Chairman – Independent Non-Executive Director
Experience and expertise
Kerry is a Practitioner Member of the Stockbrokers Association of Australia.
He holds positions on the Boards of several listed and unlisted companies.
ww On 26 August 2011, the Independent directors of CHOML received an
indicative, highly conditional, non-binding and confidential proposal from
Macquarie Capital Group Limited on behalf of a consortium including
itself and a number of global institutional investors (the Consortium) to
acquire for cash all of the CQO issued units, other than those held by
Charter Hall Group. The proposal is subject to a number of conditions,
including that the Group does not divest its existing investment in
CQO and that CHOML is retained as the responsible entity for CQO.
The Group is not a member of the Consortium and any decision to
engage the Consortium will only be taken following a decision by the
independent directors of CHOML to support the further exploration of
this potential transaction with the Consortium.
Except for the matters discussed above, no other matter or circumstance
has arisen since 30 June 2011 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
As a fully integrated property group with diversified sources of equity
invested across the office, retail and industrial sectors, Charter Hall is well
placed to benefit from a projected growth of superannuation inflows in
Australia and offshore markets. The Group derives property income returns
and capital growth through its co-investments in its managed funds and its
vertically integrated business model will allow Charter Hall to continue to
provide specialist property services across its platform generating fees from
its managed funds.
He is the non-executive Chairman of Tasman Cargo Airlines and of
Tyro Payments Limited. He is also a non-executive director of Ramsay
Health Care, the Medical Indemnity Protection Society Group and of
Marshall Investments Pty Limited. Until it was acquired by ANZ in June
2007, 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
Everest Financial Group, Climax Mining and Eircom Holdings Limited.
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.
Kerry holds a Bachelor of Commerce, and also an MBA.
Other current listed company directorships
Non-executive director of Ramsay Health Care Ltd (since 1997)
Former listed company directorships in last three years
Non-executive Chairman of Eircom Holdings Limited (from 2006 to
January 2010)
Non-executive Deputy Chairman of the LawCover Group (from 2003 to
June 2011)
Special responsibilities
Chairman of the Board
Chairman of the Nomination Committee
Member of the Audit, Risk and Compliance Committee
Interests in securities
31,250 securities in Charter Hall Group.
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AnnuAl report 2011 Directors’ report continued
Roy Woodhouse Deputy Chairman – Independent Non-Executive Director
Glenn Fraser – Independent Non-Executive Director
Experience and expertise
Roy has been the Deputy Chairman of Charter Hall since July 2004.
Roy worked for the Baillieu family for 30 years in various senior executive
capacities including Director of L.J.Hooker, Managing Director of Knight
Frank Australia and Chairman of Knight Frank Asia Pacific. Roy co-founded
KFPW, a joint venture with PricewaterhouseCoopers specialising
in outsourcing.
Roy is Chairman of National Recycling Group, a member of Transfield
Holding Advisory Board and a principal shareholder of The Stephenson
Mansell Group, an Executive Leadership Development company. Roy was a
Fellow of the Australian Institute of Valuers and is a Fellow of the Institute of
Company Directors.
Other current listed company directorships
Nil
Former listed company directorships in last three years
Nil
Special responsibilities
Deputy Chairman of the Board
Member of the Remuneration and HR Committee
Member of the Nomination Committee
Interests in securities
21,429 securities in Charter Hall Group
Experience and expertise
A member of Transfield Holdings Advisory Board, Glenn was instrumental
in Transfield Holdings’ acquisition of its interest in Charter Hall and its
expansion and listing in 2005.
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 three years
Nil
Special responsibilities
Chair of the Audit, Risk and Compliance Committee
Interests in securities
156,934 securities in Charter Hall Group via indirect interests.
Anne Brennan – Independent Non Executive Director
Cedric Fuchs – Executive Director
Experience and expertise
Anne joined the Board of Charter Hall Group in October 2010 and she is on
the board of a number of other companies.
Experience and expertise
Cedric is a co-founder of Charter Hall with over 40 years of experience
in the fields of property investment, development and financial services.
Anne is an experienced executive and she has held senior management
roles in both large corporates and professional services firms.
During Anne’s executive career she was the Chief Financial Officer of CSR
and the Finance Director of Coates Group. Prior to her executive roles, Anne
was a partner in three professional service firms; KPMG, Arthur Andersen
and Ernst & Young. She has more than 20 years’ experience in audit,
corporate finance and transactions services. Anne was also a member
of the national executive team and a board member of Ernst & Young.
Anne holds a Bachelor of Commerce (Honours) degree and is a Fellow
of the Institute of Chartered Accountants in Australia and a Fellow of the
Australian Institute of Company Directors. Anne resides in New South Wales
and is 50 years of age.
Other current listed company directorships
Director of Argo Investments Limited
Director of Myer Holdings Limited
Director of Nufarm Limited
Former listed company directorships in last three years
Nil
Special responsibilities
Member of Audit, Risk and Compliance Committee
Chairman of Remuneration and HR Committee
Interests in securities
30,000 securities in Charter Hall Group via direct and indirect interests.
He 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. Cedric holds a degree in
Business Management.
Other current listed company directorships
Nil
Former listed company directorships in last three years
Nil
Special responsibilities
Member of the Valuation Committee
Interests in securities
1,358,649 securities in Charter Hall Group via indirect interests. 312,156
securities in the Charter Hall Executive Loan Security Plan; securities in the
Plan vest upon the satisfaction of performance and service criteria. 117,909
Performance Rights and 310,253 Options in the Charter Hall Performance
Rights and Options Plan; options and performance rights also vest after
performance and service conditions are met.
4 0
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Charter hall Group David Harrison – Joint Managing Director
Colin McGowan – Independent Non-Executive Director
Experience and expertise
As Charter Hall Group’s Joint Managing Director, David Harrison is jointly
responsible for all aspects of the Charter Hall business, with specific
focus on Funds, Asset and Property Management operations. David
also substantially contributes to investment sourcing, capital raisings and
structuring of transactions. In addition to his responsibilities on the various
unlisted Fund Boards and Investment Committees, David is an Executive
Director on the responsible entity boards of Charter Hall Retail REIT
and Charter Hall Office REIT and is Chairman of the Charter Hall Direct
Responsible Entity Board.
David has more than 25 years of experience in the Australian commercial
property market and has jointly overseen the growth of the Charter Hall
Group from $500 million to $10 billion of assets under management in six
years. David has been principally responsible for transactions exceeding
$13 billion of commercial, retail and industrial property assets across all
property sectors.
Other current listed company directorships
Charter Hall Office REIT
Charter Hall Retail REIT
Former listed company directorships in last three years
Nil
Special responsibilities
Member of the Valuation Sub Committee
Interests in securities
2,009,521 securities in Charter Hall Group via direct and indirect interests.
2,150,788 securities in the Charter Hall Executive Loan Securities Plan;
securities in the Plan will vest upon the satisfaction of performance and
service criteria. 490,385 Performance Rights and 1,175,121 Options in the
Charter Hall Performance Rights and Options Plan; performance rights and
options also vest after performance and service criteria are met.
Peter Kahan – Non-Executive Director
Experience and expertise
Peter Kahan joined the Charter Hall Board in October 2009, following an
investment in the Charter Hall Group by the Gandel Group. Peter Kahan
is the CEO of The Gandel Group and has over 15 years of property and
funds management experience. He joined The Gandel Group in 1994 and
became the Group’s Finance Director in 2001, prior to his appointment as
the Group’s CEO in 2007.
Prior to joining The Gandel Group, Peter worked as a Chartered Accountant
and has held senior financial roles in various industry sectors. Between
2002 and 2006, Peter was a Director of Gandel Retail Management Pty Ltd
and Colonial First State Property Retail Pty Ltd, a leading property and fund
manager, managing a portfolio of approximately $8 billion of retail assets
in Australia.
Peter is a member of the Institute of Chartered Accountants in Australia
and the Australian Institute of Company Directors and holds a Bachelor
of Commerce and Bachelor of Accountancy degree from the University
of The Witwatersrand Johannesburg, South Africa.
Other current listed company directorships
Nil
Former listed company directorships in last three years
Nil
Special responsibilities
Nil
Interests in securities
Nil
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 he held for 11 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
Former listed company directorships in last three years
Nil
Special responsibilities
Chair of the Valuation Committee
Member of the Remuneration Committee
Member of the Nomination Committee
Interests in securities
Nil
David Southon – Joint Managing Director
Experience and expertise
David is Charter Hall Group’s Joint Managing Director and a co-founder,
with over 25 years of property industry experience. He is primarily
responsible for overseeing wholesale opportunistic funds, the operation
of the development services division, project origination, project strategy
and the formulisation and implementation of Group strategy together with
the other Joint Managing Director, David Harrison, the CHC Executive
Committee and the Board. In addition, David is involved in the procurement
and divestment of investment properties for the various Funds managed by
the Group.
He is an Executive Director on the Boards of Charter Hall Retail REIT and
Charter Hall Office REIT as well as the Responsible Entity Board of Charter
Hall Direct Funds. He is also a member on the Investment Committees of
the Group’s series of opportunity funds.
David holds a Bachelor of Business Degree (Land Economy) from the
University of Western Sydney and is a Fellow Member of the Australian
Property Institute (FAPI).
Other current listed company directorships
Charter Hall Retail REIT
Charter Hall Office REIT
Former listed company directorships in last three years
Nil
Special responsibilities
Member of the Valuation Sub Committee
Interests in securities
2,048,360 securities in Charter Hall Group via direct interests. 2,143,570
securities in the Charter Hall Executive Loan Security Plan; securities in
the Plan will vest upon the satisfaction of performance and service criteria.
1,175,121 Options and 490,385 Performance Rights in the Charter Hall
Performance Rights and Options Plan; options and performance rights also
vest after performance and service conditions are met.
11068_CHC_AR_Financial_PPv2.indd 41
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AnnuAl report 2011 Directors’ report continued
Company Secretary – Nathan Francis
The company secretary is Mr Nathan Francis, a member of the Institute of Chartered Accountants in Australia and Chartered Secretaries Australia.
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. He also holds a Bachelor of Business degree from the University of Technology, Sydney.
Meetings of directors
The numbers of meetings of the Group’s board of directors and of each board committee held during the year ended 30 June 2011, and the numbers of
meetings attended by each director were:
Full meetings
of the
Board of Directors
A
14
13
4
10
12
13
14
13
14
13
B
14
14
5
10
14
14
14
14
14
14
Audit, Risk and
Compliance
Committee
A
B
7
*
2
5
6
*
*
*
*
*
7
*
2
5
7
*
*
*
*
*
Nomination Committee
Remuneration and
HR Committee
Valuation Committee
A
2
2
*
*
*
*
*
*
2
*
B
2
2
*
*
*
*
*
*
2
*
A
2
5
*
4
*
*
*
*
5
*
B
2
5
*
4
*
*
*
*
5
*
A
*
*
*
*
*
2
2
*
3
0
B
*
*
*
*
*
3
3
*
3
3
K Roxburgh
R Woodhouse
P Derrington
A Brennan
G Fraser
C Fuchs
D Harrison
P Kahan
C McGowan
D Southon
A = Number of meetings attended.
B = Number of meetings held during the time the director held office or was a member of the committee during the year.
* = Not a member of the relevant committee.
Remuneration report
Remuneration Report in Brief
Charter Hall’s Board is committed to clear and transparent disclosure of the Company’s remuneration structure and details of the value that Directors
and key executives have derived from the various remuneration components.
This Remuneration Report is presented in seven sections:
1.
Introduction – this section provides key metrics and highlights the relationship between key management personnel (KMP) remuneration and
Charter Hall’s performance;
2. Executive Remuneration Policy – this section summarises the guiding principles and objectives that underpin the Group’s executive remuneration
arrangements;
3. Executive Remuneration Framework Changes – this section provides details about changes that are being implemented for FY12 and FY13;
4. Key management personnel – this section identifies the KMP of Charter Hall Group;
5. Remuneration governance – this section explains how remuneration decisions are made within the Group and outlines the measures in place to guard
against conflicts of interest;
6. Remuneration of executives – this section provides more information regarding remuneration arrangements for executives who are KMP (including
Executive Directors, as well as the five highest remunerated executives in FY11) (Reported Executives). This section includes the statutory disclosures
required by the Corporations Act 2001 (Act); and
7. Non-Executive Director remuneration – this section outlines the remuneration policy and arrangements for Non-Executive Directors in FY11.
1.
Introduction
1.1. About this report
The Directors’ Remuneration Report provides securityholders with an understanding of:
ww Charter Hall’s remuneration policies as they relate to KMP as defined under the Act;
ww
The link between remuneration and Charter Hall’s performance; and
ww Remuneration strategy changes and components for Charter Hall’s Reported Executives.
4 2
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Charter hall Group The report is prepared in accordance with Section 300A of the Act for the Company and its controlled entities (the Group) for the year ended 30 June 2011.
The information provided in the Remuneration Report has been audited as required by section 308(3C) of the Act.
For the purposes of this report, KMP of the Group are defined as those persons having authority and responsibility for planning, directing and controlling
the activities of the Group, directly or indirectly, and includes the Directors (executive and non-executive) and the Senior Executive Team (listed in Section 4),
including the five highest paid executives within the Group.
1.2. Charter Hall Group key metrics, remuneration and performance
In FY11, the stapled entity (ASX Code: CHC) reported revenue of $109.6 million, operating earnings of $60.4 million and equity attributable to securityholders
of $749.8 million.
These metrics do not to convey the scale and diversity that is now the Charter Hall Group.
In aggregate, the Charter Hall Group currently has 7 offices, employing 264 people, whose employee benefits and expenses in FY11 amounted to $57.6 million.
These people were responsible for managing 19 unlisted and two listed property funds, that at 30 June 2011:
ww
ww
ww
ww
had an aggregate asset value of $10.7 billion;
had aggregate net equity of $5.2 billion;
own 198 properties, with an aggregate net lettable area of 2.46 million sqm; and
had generated $943 million gross annual rental income.
The table below provides information on Charter Hall’s performance over the last 5 years and its relationship to Reported Executive remuneration, both fixed
and “at risk”. Charter Hall’s remuneration policy is weighted towards growth in operating earnings per security (EPS), as the Board considers the Reported
Executives have greater scope to influence earnings rather than movements in the CHC security price. However, the long term incentive plan (LTI) provides
an important link between remuneration and Total Securityholder Return.
CHC 5 Year Performance
(all adjusted for FY11 1 for 4 security consolidation)
Statutory Net Profit/(Loss) after Tax ($000s)
Operating Profit ($000s)
Statutory Earnings/(Loss) per Security (cps)
Operating Earnings per Security (cps)
Growth/(Decline) in Operating Earnings per Security (eps) on prior year (%)
Total Distribution per Security (cps)
Security price at 30 June ($)1
FY071
43,168
34,233
48.05
38.04
47.0%
41.76
10.62
FY081
67,498
52,742
65.23
50.96
34.0%
50.40
3.94
Total Securityholder Return/(Loss) – Jul–Jun %
118.1%
(58.4%)
(44.6%)
Funds under management ($’bn)
2.8
3.9
3.4
FY091
(82,222)
34,828
(71.90)
30.44
FY101
6,840
35,781
3.22
16.83
(40.3%)
(46.0%)
19.84
2.00
12.80
2.40
26.4%
10.2
FY111
52,338
60,422
17.85
20.60
22.4%
16.50
2.15
(3.5%)
10.7
Reported Executives
Remuneration summary
Fixed payments ($)2
STI accounting expense ($)3
LTI accounting expense ($)4
Earned remuneration ($)5
Target remuneration ($)6
FY07
FY08
FY09
FY10
FY11
2,169,443
2,334,122
3,415,610
3,991,129
6,236,089
120,000
1,295,000
105,000
3,194,100
1,640,944
487,493
1,746,376
137,247
794,115
1,866,842
2,776,936
5,375,498
3,657,857
7,979,344
9,743,875
3,542,777
4,049,474
6,074,372
7,268,548
11,238,415
Earned remuneration relative to target remuneration – Over/(Under) (%)
(22%)
33%
(40%)
10%
(13%)
Notes:
1 On 25 November 2010, the Group completed a security consolidation on a one for four basis. The consolidation of securities resulted in a reduction of securities on issue
of 1,225,365,088 to approximately 306,341,272 securities. This security consolidation has resulted in all pre-consolidation metrics, including price and NTA per unit,
being adjusted by a factor of four (unless noted otherwise). The price of securities on 1 July 2006 was $5.11 (adjusted for the one for four security consolidation).
2 The $2.2 million increase in fixed payments from FY10 to FY11 is largely due to FY11 reporting a full years remuneration for the former-Macquarie Reported Executives.
3
4
The Macquarie Funds Management acquisition completed in March 2010, therefore three months remuneration was reported in FY10.
The high short term incentive (STI) in FY10 granted to Reported Executives followed acquisition of the Macquarie real estate funds management business, resulting in a
22.4% increase in operating EPS in FY11.
LTI expense attributed to the Reported Executives reflects the statutory accounting expense measured under AASB 2. Up until 30 June 2011, none of the LTI schemes
resulted in any benefit vesting for Reported Executives. Vesting is dependent on the market-based performance hurdles being met in future.
Earned remuneration – For the Reported Executives, the sum of their Fixed Payments, their STI Accounting Expense and their LTI Accounting Expense.
5
6 Target remuneration for FY11 – is calculated based on the following split of remuneration for the Joint Managing Directors (JMD’s) of fixed payments – 50%; STI – 25%;
LTI – 25% and for other Senior Executives fixed payments – 60%; STI – 20% and LTI – 20%. (Refer Section 2.7 below).
11068_CHC_AR_Financial_PPv2.indd 43
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AnnuAl report 2011 350
300
250
200
150
100
50
0
Directors’ report continued
350
300
250
200
150
100
50
0
50
40
Jul
’05
Jan
’06
CHC (adjusted)
S&P / ASX 200 A-REIT
Accumulation Index (rebased)
Jul
’06
Jan
’07
Jul
’07
Jan
’08
Jul
’08
Jan
’09
Jul
’09
Jan
’10
Jul
’10
Jan
’11
Jul
’11
(30.0)%
(30.9)%
Figure 1: Charter Hall’s 6 year (since listing) cumulative Total Securityholder Return performance
The above graph illustrates that overall since listing, CHC performed generally in line with the A-REIT sector. From listing to June 2008, CHC outperformed
the market. In FY09 CHC underperformed for most of the year then recovered to perform generally in line with the A-REIT Index.
30
20
Since acquisition of the majority of the Macquarie real estate funds management platform in March 2010, Charter Hall initially performed ahead of, and more
recently in line with, the A-REIT Index.
10
Since listing, the overall total securityholder loss is 30%. In the current financial year, total CHC securityholder wealth declined by 3.5%.
The LTI vesting conditions for the Reported Executive provide a clear link to long term total securityholder returns of CHC, thereby aligning their remuneration
to securityholder wealth.
0
There is a direct correlation between the absolute underperformance of CHC and the fact that until 30 June 2011, no LTI benefit had vested for any
executive. The table above shows the aggregate LTI expense in respect of the Reported Executives disclosed in the financial statements in the last 5 years
was just over $5 million, reflecting the statutory accounting expense calculated in accordance with AASB 2. On 1 July 2011, 704,912 performance rights
and 2,520,082 options with an exercise price of $1.94, vested under the PROP scheme of which, 765,445 options from the 2009 LTI award were exercised
in July 2011 at $1.94.
CHC earnings yield
S&P / ASX 200 A-REIT
Accumulation Index (rebased)
%
50
40
30
20
10
0
Jul
’05
Nov
’05
Mar
’06
Jul
’06
Nov
’06
Mar
’07
Jul
’07
Nov
’07
Mar
’08
Jul
’08
Nov
’08
Mar
’09
Jul
’09
Nov
’09
Mar
’10
Jul
’10
Nov
’10
Mar
’11
Figure 2: Charter Hall’s 5 year earnings yield relative to the S&P/ASX 200 A-REIT Index (rebased)*
*
The CHC earnings yield is based on the Operating EPS in each period divided by the security price at the relevant date. The S&P/ASX 200 A-REIT Index Earnings Yield
has been calculated by weighting the consensus forecast EPS by the market capitalisation for A-REIT members, divided by price.
Figure 2 graphs the Group’s earnings yield history since listing in 2005. Overall since listing, CHC distributions have generally been in line with the A REIT
sector apart from the strong outperformance in FY09.
Charter Hall is a dynamic integrated property business which has historically been able to generate an earnings yield in excess of rental yields, on both its
NTA and Net Assets per security. The excess is earned from its active property funds management business.
4 4
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Charter hall Group In assessing the total market remuneration of the Reported Executive, the Board benchmarked their remuneration against other relevant entities. As a result,
over the past 5 years, the target remuneration expense for these executives has been weighted in the range of 40–50% “at risk” in the form of STI and LTI
remuneration. For example, in FY09 when EPS declined 40.3%, the STI expense of these executives was just $105,000.
Financial KPIs represent a high proportion of the performance measures for STI awards, particularly for the Joint Managing Directors. Other Reported Executives
have financial criteria linked to the funds or REITs that they manage. Their KPIs also link their divisional profit contribution to overall CHC profitability.
STI vesting conditions link KPIs with profitability and above target profitability in each year together with non-financial KPIs directed towards the overall
development of the CHC business. For example, KPIs for some executives include capital raising success within managed funds in any one year, that
will contribute to earnings growth in future years. Another measure is operational excellence improving the efficiency and scalability of the business to
accommodate growth in future years.
The principles and framework governing the STI are provided in Sections 1.6 and 2.7 below. In summary, the STI pool is established when the targeted EPS
is achieved. The pool increases with performance in excess of the target. In FY11, the EPS of 20.6 cents exceeded the target and it was 22.4% up on the
previous year.
Whilst Charter Hall’s STI remuneration policy is weighted towards growth in EPS, it is not perfectly correlated with that single measure. In FY11, when the
Charter Hall earnings yield improved from below to above the relative S&P/ASX 200 A-REIT Index, the aggregated STI for the Reported Executives totalling
$1.64 million (26.3% of their aggregated fixed payments), was in line with the 5 year Group average of 27.1%.
The STI principle introduced in FY11 for the JMDs, that 50% of their STI awards be deferred, is designed to further align remuneration with long term
securityholder interests as well as provide an effective retention incentive.
1.3. Review of remuneration strategy
Since our last report, we have met with institutional investors and with their proxy advisors to understand their views on remuneration strategy. We have also
referenced the increasing external focus on executive remuneration and the changing legislative environment. This has resulted in some important changes
this year, with further changes to be phased in over the next two years.
During the year, Charter Hall undertook a comprehensive review of the Group’s remuneration strategy. Other elements considered in this review, which also
influenced Charter Hall’s FY11 remuneration structure and outcomes, were:
ww
FY11 was the first full year following the Macquarie platform acquisition that resulted in changes to management roles, reflecting the substantial increase
in scale of Charter Hall’s business; and
ww Organisational and individual performance.
Going forward, Charter Hall will continue to regularly review its remuneration policies to ensure that its policies remain appropriate and enable the Group to
attract, motivate and retain the services of highly qualified employees and executives necessary for the Group to be able to achieve its strategic objectives
and maximise securityholder value.
1.4. Significant changes in remuneration
As a result of this review of the Group’s remuneration strategy, Charter Hall Group:
ww
Introduced deferral into the Joint Managing Directors’ FY11 STI;
ww Will be deferring 50% of the FY12 STI for a number of other executive team members;
ww Has reduced the levels of employee participation in the LTI plan;
ww Replaced options with performance rights for LTI participants in FY12;
ww Will be further extending the vesting period for any LTI awards made after 30 June 2011 to three years; and
ww
Effective from 1 July 2012, will move away from the current 50:50 “Absolute” and “Relative” securityholder return vesting measures to relative
securityholder return and the Board will likely consider a cumulative operating eps growth target.
Recognising the need to reach agreement with senior executives, these changes needed to be introduced progressively. They are designed to improve the
link between Group’s performance and remuneration outcomes, whilst meeting the key objective of aligning compensation with securityholders’ interests.
1.5. Fixed remuneration
The FY11 Fixed Remuneration increases for the Joint Managing Directors recognise the substantial increase in the scale of the Charter Hall Group operations,
described in Section 1.2 above. For FY12 there is no increase in the either of the JMD’s Fixed Remuneration, which remains at $1.05 million each.
Fixed remuneration increases in FY11 for other executives were mostly modest, recognising that their responsibilities did not change. Many employees joined
the Group from Macquarie, with their remuneration having been agreed for a period of 15 months from March 2010.
1.6. STI
STI has been aligned with securityholder interests by linking the size of the STI pool to the achievement of a targeted EPS. The size of the pool increases as
performance exceeds the target.
This year the Board ensured that any STI entitlement for the JMDs was aligned to longer term securityholder interests by introducing a 12 month deferral
(with a service condition) of half of their STI, to be taken in the form of Charter Hall securities instead of cash, subject to the approval of securityholders.
Also, effective in FY11, the JMD’s maximum STI was halved as a proportion of Fixed Remuneration from 100% to 50%.
Charter Hall’s operating EPS in FY11 of 20.6 cents exceeded the target and it was 22.4% up on the previous year. However this year, the JMDs have each
been awarded an STI of 25% of the value of their fixed remuneration ($262,500), of which $131,250 is deferred in CHC securities with a 12 month service
condition, subject to the approval of securityholders, otherwise the deferred component would be payable in cash.
This compares with the $1 million STI cash payment to each of the JMDs in respect of last year that was linked to the transformational acquisition of the Macquarie
Group Limited core real estate platform. This acquisition generated significant returns for securityholders in FY11 as evidenced by the 22.4% increase in operating EPS.
From 1 July 2012, a similar deferral of 50% of any STI awarded will apply to most senior executives.
11068_CHC_AR_Financial_PPv2.indd 45
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AnnuAl report 2011 Directors’ report continued
1.7. JMD loans
In June 2011 a three year extension was granted, on arms length terms, for loans of $2.5 million to each of the JMDs granted at the time of the Charter Hall
Group IPO in 2005. The benefit from these loans is included in Table 6.2 of this report and circumstances surrounding these loans are described in Section
2.10 of this report and in Note 30 in the Financial Statements.
2. Executive remuneration policy
Charter Hall’s remuneration policy takes into account corporate performance and objectives, stakeholder interests and the regulatory environment.
2.1. Regulatory environment
The impact of government and regulatory change following the Global Financial Crisis has been reflected in changes to remuneration strategy and practice.
This is evidenced by:
ww
Improving the balance between risk and return, including:
− An increase in the deferred proportion of “at risk” remuneration, cascading down through the organisation, thereby increasing alignment to
securityholder interests and retaining key employees;
−
−
−
Introducing the use of equity as the instrument for deferral of performance-based and service based STI remuneration;
Eliminating the use of options; and
From FY13 onwards, changing the 50:50 LTI “Absolute” and “Relative” securityholder return vesting measures to relative securityholder return and
the Board will likely consider a cumulative operating eps growth target.
ww
Elimination of conflicts of interest and allowing greater securityholder scrutiny around governance, by:
− Adopting strict protocols for engagement of remuneration consultants and advisers; and
−
Limiting the amount of executive termination benefits payable without obtaining securityholder approval.
2.2. Impact of our business model
Charter Hall Group has over $10.7 billion in assets under management (AUM) managed on behalf of institutional, wholesale and retail clients. The Group
co-invests in the majority of its managed funds while leveraging off its in-house property management skills that generate a higher return than pure rental
income. This allows Charter Hall investors to benefit from both the returns on the Group’s co-invested capital and from the fee streams generated from its
managed funds platform.
The Group requires active funds management, asset management and capital management capabilities to maximise its return on equity. Compared to the
Australian A-REIT industry which mostly comprises core real estate trust funds, Charter Hall’s managed funds cover all key property asset classes (retail,
office and industrial) and the risk/return spectrum including:
Opportunistic – Charter Hall manages a series of opportunistic funds with the objective of the development of assets generating a return on equity of greater than
20% per annum. These funds require an experienced team of property fund management and development executives to generate high returns for securityholders.
Wholesale Investment – Core and Core Active – Charter Hall’s Core Plus Office Fund and Core Plus Industrial Fund are focused on generating an
enhanced total return over the long term for investors of greater than 12% and 11% respectively (average annual return on equity). The assets held in the
funds tend to require some form of enhancement (re-development, refurbishment or repositioning) to generate a higher return thereby requiring a focused
team of fund management, asset management and development executives.
Listed – Listed funds by their nature are generally more volatile, demanding additional management attention. This, combined with some inherited issues,
has meant significant management attention was required during FY11. Under Charter Hall’s management, both Charter Hall Retail REIT (CQR) and Charter
Hall Office REIT (CQO) have made good progress in reweighting their portfolios to Australia and undertaken capital management initiatives. Additionally,
Charter Hall successfully addressed the issues associated with activist hedge funds in CQO which required significant senior management, fund
management, asset management, capital transaction, finance and legal resources.
The majority of Charter Hall’s 264 employees are devoted to managing assets that are owned by Charter Hall’s clients via their investments in Charter Hall
managed funds. As such, any assessment of Charter Hall’s total costs, as a percentage of its own balance sheet assets, is not comparable to A-REIT peers
where the majority of their assets under management are their balance sheet assets.
A more comparable measure of Charter Hall’s total employee benefits and expenses of $57.6 million, as a percentage of assets, is to consider these costs
as a percentage (0.54%) of total funds under management ($10.7 billion). The additional income generated from the funds management services that
complement the income returns from the Group’s balance sheet investments combine to provide an operating earnings yield on Net Tangible Assets
superior to most A-REITs.
The scale of the business is measured by the following statistics:
ww
$943 million of gross rental income was generated and collected in FY11;
ww Manages 198 properties leased to over 3,150 tenants;
ww
The total net lettable floor space is 2.46 million square metres, more than the A and Premium grade office supply of Melbourne CBD;
ww Charter Hall has one of the largest office portfolios in Australia with a total value of CBD office buildings equivalent to approximately 5% of the total
Premium and A grade office supply within Australian CBD office markets;
ww A retail investor base exceeding 50,000 investors many of whom are serviced by more than 5,000 financial planners and advisers; and
ww Over 40 institutional wholesale clients comprising many of Australia’s largest Superannuation funds, together with several international institutional investors.
4 6
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Charter hall Group 2.3. Remuneration philosophy – driving outperformance
The performance of the Charter Hall Group is driven by the quality of the directors and executives it is able to attract and retain.
2.4. Guiding principles
The strategies and conduct of the Group are consistent with the following guiding principles:
ww Drive and reward superior performance (this includes living the values and delivering results);
ww Create sustainable securityholder value (by linking a significant portion of the reward to this outcome);
ww Be competitive in terms of talent attraction, motivation and retention;
ww Be transparent and simple (easy to understand internally and externally); and
ww Drive consistency in behaviour.
2.5. Linking remuneration arrangements and guiding principles
Guiding principle
Remuneration Arrangement
Drive and reward superior performance Remuneration mixes reflect the appropriate mix of fixed vs. at risk components.
Fixed Remuneration is reviewed annually in line with market conditions.
The size of the STI pool is dependent on the achievement of a target EPS number. The size of the pool is
increased when target EPS is exceeded.
Create sustainable securityholder value
LTI Plans are directly aligned with CHC securityholders’ interests through performance rights.
Be competitive in terms of talent
attraction, motivation and retention
Be transparent and simple
The Board reviews remuneration at least annually to ensure they are both equitable and competitive.
Comparator groups include competitors for both capital and talent.
Significant work has been done to ensure that executives and employees understand what they need to achieve
to be rewarded for their performance. This includes articulation of the remuneration strategy as well as a robust
process for KPI development and assessment.
Drive consistency in behaviour
Remuneration changes are made incrementally over time, to ensure policies and practices that are both
competitive and appropriate are able to be incorporated into individual employment contracts.
2.6. Remuneration structure overview
The key aspects of Charter Hall’s FY11 remuneration structure for its reported executives are set out below. Changes to this structure for FY12 and FY13
were provided earlier in Section 1.4.
Create Sustainable Securityholder
Value
Drive and Reward Superior
Performance
Attract, Motivate and Retain
Talent
Pay for Performance
Fixed
At Risk
Fixed Remuneration
Short Term Incentive (STI)
Long Term Incentive (LTI)
ww Set at the median of the market
using external benchmarking
data.
ww Comprises cash salary,
superannuation and packaged
benefits.
ww Reflects responsibilities,
performance, qualifications and
experience.
ww Consideration is given to
external and internal relativities.
ww STI targets are linked to KPIs
which include performance
targets of the Group, Division
and individual.
ww
LTI targets have direct links to
securityholder value creation.
ww Performance measures based
on relative & absolute TSR.
ww Performance Rights.
11068_CHC_AR_Financial_PPv2.indd 47
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AnnuAl report 2011 Directors’ report continued
2.7. Remuneration components
The Group remuneration policies are designed to achieve a balance between fixed and at-risk components of remuneration that respond to both the
objectives of the Charter Hall Group and the market conditions for each seniority level. The reward mix is determined such that there is an increasing
proportion of pay at risk with increasing level of responsibility. The table below represents the target remuneration mix between fixed and variable
components (STI and LTI).
The variable STI is a target whilst the LTI is a fixed accounting expense set at the start of each accounting period.
JMDs
Senior Executives
Fixed Remuneration
50%
60%
STI
25%
20%
LTI
25%
20%
2.8. Benchmarking and peer group comparisons
Charter Hall needs to attract and retain experienced property personnel, in a highly competitive environment.
Benchmarking is quite a challenge, as there are few companies that replicate the integrated nature of Charter Hall. Consistent with last year, the Board has
used three comparator groups for both executive remuneration and for non-executive director fee benchmarking.
These comparator groups are our competitors for capital or for talent, as follows:
ww Companies of similar market capitalisation to that of the CHC stapled entity, taken as approximately $0.84 billion;
ww Companies of similar aggregate ASX listed market capitalisation, being a sum of CHC, CQO and CQR, taken as approximately $3.1 billion; and
ww
Industry related companies i.e. property groups that manage a similar value of gross assets, diversity of portfolios, number of tenants and active vs.
passive nature of the assets. In essence, companies that own $10 billion of assets on balance sheet with similar diversity across sectors, would have
similar demands to Charter Hall for their executive talent, without the associated need to service different types and numbers of investors.
2.9. Joint Managing Director remuneration
The components of the JMDs’ remuneration packages are substantially the same as the other executives, however there are differences in the quantum,
delivery and timing for the JMDs. Their specific arrangements are set out below.
Remuneration
component
Fixed Remuneration
Detail
The level of fixed pay for the JMDs was increased from $750,000 to $1,050,000 from 1 July 2010. Their fixed pay has not been
increased for FY12.
In determining the appropriate level of increase for the JMDs in FY11, the Board recognised:
A. The significant increase in business size
ww
FUM: AUM had grown from $3.0bn to $10.7bn;
ww Assets managed: Number of properties managed has grown from 65 to peak at 333;
ww Number of funds managed: Increased from 13 funds to 19 funds; and
ww
Employees: Increased from 65 to 264 staff.
B. Additional business lines/complexity
ww
Introduced two additional listed funds into the CHC business, requiring management of three listed entities and a substantial
increase in the number of investors and the aggregate listed market capitalisation;
ww A significantly enhanced retail unlisted management platform/capability; and
ww
Introduction of retail property management capability to CHC.
C. Market information
In determining the appropriate level of increase the Board sought external comparisons from PricewaterhouseCoopers (for all
benchmarking) and advice from Godfrey Remuneration Group (for recommendations about the JMDs and the Chief Financial Officer).
D. Unique nature of the JMD roles
A single CEO/MD is the predominant model in the market that makes benchmarking remuneration difficult. CHC chooses to share
a number of senior management accountabilities jointly between its JMDs. Adoption of this model reduces the need for CHC to
have a Chief Investment Officer, a Chief Operating Officer and/or some other senior executive responsibilities.
To establish reasonable pay, from both an executive perspective and that of securityholders, CHC used the following approach:
ww
ww
For Fixed Remuneration, the Board took into account the diversity of skills and experience required in a number of key
corporate roles within an integrated property company (including a CEO role). This information was then used to develop a
remuneration range for these two roles.
The Board also reviewed STI and LTI design including the formulation of KPIs for the JMDs so as to provide a sound basis
for its assessment.
E. Fixed remuneration over the previous years:
The JMDs Fixed Remuneration had remained at the same level for 2 years, FY09 and FY10 at $750,000. In FY09 the JMDs had
offered to forfeit any entitlement to an STI. Their offer was accepted.
4 8
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Charter hall Group Remuneration
component
Detail
Short Term Incentive
The JMDs have an annual “at target” opportunity to receive 50% of their Fixed Remuneration as an STI.
Trigger
The STI amount is subject to achieving a gateway of greater than 95% of the target EPS for the year. The STI amount for FY11
related to the Group’s achievement of a target EPS of 20.00 cps. This was exceeded by 0.60 cps or 3% outperformance.
KPI achievement
If the EPS condition is reached, individual performance against performance measures then becomes the basis for determining
what STI payments are to be made to individuals, if any.
Individual performance objectives for the JMDs were based on a number of quantitative and qualitative measures under three
main headings, as follows:
ww
ww
Financial measures comprising EPS at each of CHC; CQO & CQR & development investment earnings weighted at 50%;
Integration, risk management, governance and business improvement and people management measures weighted at 20%;
and
ww Additional equity targets and business development measures weighted at 30%.
These performance objectives were adopted as they ensure a strong and definite link between executive reward and
Group performance.
The Board, in consultation with its Remuneration and Human Resources Committee, assesses the performance of the JMDs
against the individual performance objectives. The Board also retains the discretion to increase or decrease the STI amount
available based on its own assessment of overall performance.
FY11 achievement
The Board determined that the JMDs achieved 50% of their target STI amount being $262,500 or 25% of their Fixed
remuneration. This was a substantial reduction from the 133% “stretch” award in FY10 which predominantly reflected securing
the Macquarie real estate platform in that year. This acquisition resulted in a significant absolute TSR outperformance by CHC
during FY10 of 26.4%.
Deferral of 50% of their FY11 STI
50% of the STI entitlement for FY11 ($131,250) will be deferred into 12 month service rights. If approved by securityholders, these
rights will be converted into CHC securities with vesting on 29 August 2012. The number of rights to be issued will be determined
by dividing the $131,250 by the independently valued fair value of CHC securities based on the volume-weighted average price
(VWAP) over the 5 working days prior to 29 August 2011, being the day all staff were paid their STI entitlements. If not approved
by securityholders, the deferred STI entitlement would vest on 1 July 2012 as a cash payment.
If a JMD ceases employment prior to expiry of the relevant 12 month period, the equity rights (or cash pay) would be forfeited.
Long Term Incentive
The LTI allocation for FY11 granted on 1 July 2010 to each JMD was 100% of their target, valued for accounting purposes at
$525,000 each.
LTI is delivered to the Group’s Executives under the Performance Rights and Options Plan (PROP). On 1 July 2010, PROP
participants were granted their FY11 allocation of Performance Rights and Options in equal 50:50 proportions (by their
accounting value).
From 1 July 2011, only Performance Rights will be granted in respect of FY12 and beyond.
The performance hurdles that have been applied for vesting over a three year period from 1 July 2011 in two equal tranches will be:
Absolute TSR – the percentage that may vest on 1 July 2014 if the TSR since 1 July 2011 is between 10% and 12% per annum
as determined on a linear basis starting at 50% vesting at the lower end of the range and 100% vesting at the higher end of
the range.
Relative Return – the percentage that may vest on 1 July 2014 if the total compounded return is between the total compounded
return of the S&P/ASX 200 A-REIT Accumulation Index (XPJAI) and 1.10 times the total compounded return of XPJAI, as
determined on a linear basis. Vesting will start at 50% at the lower end of the range and 100% will vest at the higher end of
the range.
Any Performance Rights and Options that fail to vest on 1 July 2013 are forfeited.
Each Performance Right that vests entitles the JMDs to one security in the Charter Hall Group and no amount is payable by
them upon vesting. Each option that vests entitles the JMDs to one security in the Charter Hall Group upon payment of the
exercise price.
The Board considered TSR an appropriate performance hurdle because it ensures that a proportion of each participant’s
remuneration is linked to securityholder value and it ensures that participants only receive a benefit where there is a corresponding
absolute benefit to securityholders. TSR is the most widely used LTI hurdle adopted in Australia.
However, effective from 1 July 2012, Charter Hall Group will move away from the current 50:50 “Absolute” and “Relative”
securityholder return vesting measures to a combination of relative return and the Board will likely consider a cumulative operating
eps growth target.
11068_CHC_AR_Financial_PPv2.indd 49
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AnnuAl report 2011 Directors’ report continued
2.10. Joint Managing Director Loans & Securities
Loans
When Charter Hall Group listed in 2005, the Product Disclosure Statement dated 11 May 2005 disclosed that related parties of
the JMDs, David Harrison and David Southon, had entered into loan agreements with Charter Hall Limited. Loans of $2.5 million
each were provided to fund the purchase of 2,500,000 (now 625,000 following the one-for-four security consolidation) listed
securities in Charter Hall Group.
At that time, these loans were made to align the JMDs’ interests with those of the Group and securityholders. Each loan is
to a related party of the Joint Managing Directors, namely the Harrison Family Trust and the Southon Family Trust.
The loans, which were initially for a three year period, were extended in 2008 for three years to 6 June 2011, under the same
terms and conditions. Until 6 June 2011, interest on the loans was equivalent to the Charter Hall Group distribution paid in
respect of the securities purchased using the loan proceeds. At the time of the roll-over in June 2008, distributions received on
these securities exceeded an arms length interest rate.
In FY11 however, the distributions received were below an arms length interest rate by $209,375 on each loan. This has not been
charged to each of the borrowers. It is included in Table 6.2 of this report, “Gross remuneration receipts in FY11”.
Further detail about these loans is included in Note 30 of the financial statements.
On 7 June 2011, the loans were extended on amended terms for a further three year period to 31 July 2014, with repayment,
interest, security and LVR conditions that are at arms length terms and conditions, as follows:
Repayment
Minimum repayments of $300,000 each on or before 31 July 2011, $500,000 each on or before 31 July 2012 and 31 July 2013
respectively, with the remaining principal balance due at the end of the term.
Interest
An interest rate of 12.5% p.a. for a loan to value ratio (LVR) greater than 50%, 10.5% p.a. for an LVR less than or equal to 50%,
9% p.a. for an LVR less than or equal to 40%, with interest payable in arrears upon each distribution date of the Charter Hall
Group, commencing February 2012.
Additional Security
Security over these loans is by way of a first ranking mortgage over all CHC securities held by the Harrison Family Trust and the
Southon Family Trust, with the borrowers having the right to release CHC securities if the LVR is less than 40%. At 30 June 2011,
the number of CHC securities held by the Harrison Family Trust was 2,009,521 and the number held by the Southon Family Trust
was 2,048,521.
LVR covenant
Loans are not to exceed an LVR of 60% at bi-annual testing dates, with the borrowers obligated to provide either additional
security or repay such amount of the loan within 30 days, to ensure compliance with the LVR covenant.
Security received as
vendors
The securities purchased using the loans are not reflected in the LTI amounts for the JMDs. These securities were not issued as
part of any remuneration arrangements.
2.11. Executive remuneration (excluding the JMDs)
Fixed remuneration
2.11.1.
Fixed remuneration is targeted at the median of the market and is reviewed annually, effective 1 July, against equivalent roles in the market taking into
account:
ww An assessment of individual performance;
ww
ww
The competitive market environment for each individual’s skills and capabilities;
Internal relativities; and
ww Gender pay equality.
The amount of fixed remuneration is expressed as a total dollar amount, consisting of a cash base salary, statutory superannuation contributions and other
nominated benefits (e.g. car parking, novated leases and superannuation contributions). It excludes deemed interest on any entitlement under the executive
loan securities plan (ELSP) suspended on 1 July 2009 (see Table 6.9) and long service leave accruals (if applicable).
5 0
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Charter hall Group 2.11.2.
Variable remuneration
Short term incentives
Details of the FY11 STI payments for the Reported Executives are provided in the tables in the section below:
Detail
Purpose
The STI is designed to reward executives subject to:
ww Performance of the Group overall against pre-determined targets;
ww
ww
The individual’s contribution to the Group’s performance; and
The individual’s achievement of performance targets measured during the performance review process.
Determining STI pools
The size of the overall pool is determined by the Board, in consultation with the Remuneration and Human Resources Committee,
based on achieving a targeted EPS of 20.00 cents for FY11. The pool is then distributed between the Divisions based on relative
performance against a number of measures.
Performance targets
STI payments for FY11 related to the Group achievement of a target EPS of 20.00 cents. This was exceeded by 0.60 cps.
The STI measures were set to ensure appropriate focus on achievement of Group, divisional and individual performance targets
that are aligned with Charter Hall’s overall strategy.
Individual performance objectives for Executives (other than the JMDs), were based on a number of quantitative and qualitative
measures including:
ww
Financial measures such as EPS, closing unit price gap to NTA and development fund returns;
ww Business development measures such as equity raisings and new product launches; and
ww People management measures including structural change objectives, integration and leadership.
The performance of the relevant executives against these objectives was reviewed at the end of the year by the Remuneration
and Human Resources Committee and approved by the Board. The Board also retains a discretion to increase or decrease the
overall STI pool available, based on its assessment of overall performance.
Determining individual
incentive targets
Each Executive has a target STI percentage which is determined according to market relativities and remuneration mix.
Rewarding performance
The STI targets that have been set are designed to motivate and reward superior performance. The size of the actual STI
payment made after the end of each financial year will be based on performance as detailed above.
Within the overall incentive pool approved by the Board, Executives who out-perform relative to their peers and significantly
exceed targets may be rewarded with an STI award that might be above their target STI. Conversely, the poorest performers
relative to their peers, may not receive any STI award.
Long term incentives
Detail
Purpose
The LTI is designed to be a reward where there is sustainable growth in the value of the business over time. It aligns key employee
remuneration with securityholder interests and assist with the retention of Senior Executives.
Type of equity awarded
LTI participants are covered by the Performance Rights and Options Plan (PROP).
Each Performance Right that vests entitles the JMDs to one security in the Charter Hall Group and no amount is payable by
them upon vesting. Each option that vests entitles the JMDs to one security in the Charter Hall Group upon payment of the
exercise price.
In order to limit the number of participants in the LTI plan, a one off allocation of 316,377 service rights was made to a number of
employees to transition them out of the scheme. These were employees who had previously participated in the plan, but who do
not contribute to Group Strategy.
50% of this allocation of service rights vest on 1 July 2012 and the balance on 1 July 2013.
Performance hurdles
(equally weighted)
Same as Section 2.9 above.
Vesting schedule
Same as section 2.9 above.
Time restrictions
Up to 5 years from date of issues to exercise Options, providing vesting has previously occurred.
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AnnuAl report 2011 Directors’ report continued
Detail
Overall size limitation
The aggregate number of offers that can be made under the PROP and the discontinued ELSP schemes, excluding those issued
to Executive Directors, is limited to 10% of issued stapled securities of the Group. At 30 June 2011, LTI schemes accounted for
4.9% of the issued securities (note 27 in the financial statements) made up of:
ww
ww
ww
ww
3,873,383 performance rights;
10,395,883 options;
316,377 service rights; and
12,585,899 securities in the ELSP.
These include securityholder approved issues of securities to Executive Directors.
LTI vesting in FY12
On 1 July 2011, 704,912 performance rights and 2,520,082 options with an exercise price of $1.94, vested under the PROP
scheme of which 765,445 options from the 2009 LTI award were exercised in July 2011 at $1.94.
Cessation of employment
provisions
The following provisions apply in the case of cessation of employment:
ww
ww
ww
ww
In case of dismissal for misconduct, all Rights and Options are forfeited;
In case of resignation, all unvested Rights and Options are forfeited at the time notice is given;
In case of termination on notice, unless the Board determines otherwise, only Rights and Options that are vested may be
exercised and all unvested Rights and Options are forfeited; and
In case of death or total and permanent disablement, any performance hurdle is waived and a grace period is provided in
which to exercise all Rights and Options.
Conditions of grant
The service and performance conditions under which any Rights and Options are granted require approval by the Board in
accordance with the rules of the PROP.
Why were the
performance conditions
chosen
Charter Hall’s approach to linking individual executive performance and Group performance to the vesting of equity rights is
standard market practice.
The conditions are aimed at linking the retention and performance of the executives directly to rewards, but only where
securityholder returns are evident. The focus on employee-held equity is also part of a deliberate policy to strengthen engagement
and direct personal interest to the provision of returns for securityholders.
As noted in Section 2.9, the Board considered TSR an appropriate performance hurdle, however, effective from 1 July 2012,
Charter Hall Group will move away from the 50:50 “Absolute” and “Relative” securityholder return vesting measures, to a
combination of relative return and the Board will likely consider a cumulative operating eps growth target.
Hedging and margin
lending prohibitions
Prohibited for unvested securities. Up to 30 June 2011 Directors and employees were permitted to buy a derivative position for
vested securities. From 1 July 2011 hedging is not permitted at all.
2.11.3.
The LTI is currently provided by participation in the PROP. Some personnel still also have an interest in the ELSP that was suspended from 1 July 2009.
Legacy LTI programs
Participants in the ELSP were offered limited recourse loans to acquire securities within that plan. The interest charge on any such loan is equal to the
Charter Hall Group distribution yield on the related securities held in that plan. If performance and service conditions are satisfied, securities will only become
available for release to plan participants when any loan obligations outstanding have been repaid. Whilst 12.6 million ELSP securities remain in the plan, no
further issues are proposed.
Of the 12.6 million ELSP securities on issue, 11.8 million will be forfeited by 30 September 2011. ELSP securities are forfeited by participants when either the
vesting conditions are not met or the related loans have matured. It is therefore intended that this plan be wound down, as 94% of the securities have been
forfeited and of the 0.8 million active (un-forfeited) securities within the ELSP, where the vesting conditions have been met, the exercise prices range from
$10.90 to $11.76 compared to the CHC security price at 30 June of $2.15. The loans attached to these 0.8 million securities mature in July 2012.
In principle approval has been received from ASIC which will allow, subject to securityholder approval at the November AGM, cancellation of ELSP securities by
way of an off-market selective buyback. The consideration for the proposed buyback will be the limited recourse loans receivable to CHL from the ELSP Trustee.
Under AASB 2 Security-Based Payments the ELSP securities, and any associated loans whilst being legally issued, are not recognised for accounting
purposes or in any calculation of EPS, distributions per security and NTA per security.
5 2
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Charter hall Group 3. Executive remuneration framework changes for FY12 and FY13
Further to the comments in Section 1.4, the following changes are being implemented for FY12 and FY13.
Remuneration
Component
Current
FY12
STI
Currently KPIs are predominantly financial.
Balanced Scorecard Approach with the following categories:
ww Strategy;
ww
Finance;
ww Stakeholder;
ww Operational excellence; and
ww People.
Size of Bonus Pool is determined by Group performance.
Separate plans for the JMDs and for Executives.
Paid in cash effective 1 July, (noting that for the JMDs it is
intended that 50% of their STI entitlement for FY11 will be
deferred into 12 month service rights, which will convert into
CHC securities – see section 2.9 above)
LTI
Participant population is currently widely dispersed.
JMDs continue to have a gateway of greater than 95% of
target EPS.
Individual executive STI amount has a stronger link to group
financial outcomes.
Deferral of 50% of the STI amount.
Two phase implementation:
ww Phase 1 (FY12) : Vesting of 50% at 12 months into service
rights or cash; and
ww Phase 2 (FY13 and beyond): Staggered vesting into
service rights of 25% after year 1 and 25% after year 2.
Participant population to include roles that effect long term
performance and strategic outcomes i.e. JMDs, Executive
Team and Key Investment Managers only.
Split at two and three years.
Full vesting at three years.
50% Options; and
50% Performance Rights.
50% Absolute TSR.
50% Relative TSR.
100% Performance Rights.
From 1 July 2012:
Relative TSR; and
The Board is considering a cumulative operating eps
growth target.
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AnnuAl report 2011 Directors’ report continued
4. Key management personnel (KMP)
This report details the remuneration of the directors (executive and non-executive) and those persons who have authority and responsibility for planning,
directing and controlling the activities of the consolidated entity, either directly or indirectly as well as the five most highly paid executives for FY11.
KMP (including the five most highly paid executives for FY11) are listed in the tables below. The executives included in the table below are considered to be
members of the KMP because they are members of the Senior Executive Team which is responsible for the Group’s strategy and its operations.
Name
Role
Non-Executive Directors
Anne Brennan
Glenn Fraser
Peter Kahan
Colin McGowan
Kerry Roxburgh
Roy Woodhouse
Director (appointed 6 October 2010)
Director (appointed 6 April 2005)
Director (appointed 1 October 2009)
Director (appointed 6 April 2005)
Chairman (appointed 12 April 2005)
Director (Deputy Chairman appointed 6 April 2005)
Patrice Derrington
Director (resigned 10 November 2010)
Executive Directors
David Harrison
David Southon
Cedric Fuchs
Executives
Jelte Bakker*
Andrew Glass
Nick Kelly
Steven Sewell
Richard Stacker
Adrian Taylor
Michael Winnem
Joint Managing Director
Joint Managing Director
Executive Director
Chief Financial Officer
Head of Wholesale Investment Funds Management
Head of Investor Relations
CEO, Charter Hall Retail REIT
CEO, Charter Hall Direct Property
CEO Charter Hall Office REIT
Head of Wholesale Opportunistic Funds Management
*
Jelte Bakker ceased to be a KMP as at 30 June 2011 and he left the Group on 31 July 2011.
5. Governance
5.1. Role of the Remuneration and Human Resources Committee
The role of the Remuneration and Human Resources Committee is:
ww
ww
ww
To review, advise and formulate recommendations to the Board in relation to matters within its Charter;
To refer these to the Board for determination; and
To monitor implementation by management of the Board’s decisions on remuneration and related matters.
5.2. Duties and responsibilities
The Committee’s Charter was reviewed in November 2010 with key changes incorporated providing further clarity about the Committee’s purpose and
responsibilities.
The duties and responsibilities are set out in the Remuneration and Human Resources Committee Charter which is available on the Company’s website at
www.charterhall.com.au.
The key duties and responsibilities of the Committee are to assist the Board in the discharge of its responsibilities for oversight and approval of the human
resources and remuneration policies and practices of the Group. The Committee does this by considering and making recommendations to the Board to
ensure that:
ww
ww
The Group implements an appropriate Human Resources strategy to enable it to deliver on its business strategy;
The remuneration policies and practices are in line with strategic goals and enable the Group to attract and retain high calibre executives and Directors
who will create value for securityholders;
ww Directors and executives are fairly and responsibly remunerated having regard to the performance of the Group, the performance of the executives and
the general remuneration environment;
ww
The Group has effective policies and procedures to attract, motivate and retain talented individuals to meet its needs; and
ww HR policies and practices are designed to align with the Group’s vision, values and overall objectives as well as comply with the relevant legislation,
reflect current governance and mitigate against operational, financial and reputation risk.
5 4
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Charter hall Group 5.3. Composition
The Committee is appointed by the Board and comprises three Non-Executive Directors:
ww Anne Brennan (appointed as Chair of the Committee on 24 March 2011);
ww Roy Woodhouse;
ww Colin McGowan; and
ww Kerry Roxburgh (who resigned as Chair and a member of the Committee on 24 March 2011).
The Joint Managing Directors and the Head of People attend Committee meetings by invitation. Specialist external consultants attend as required.
A minimum of two Committee members are required for a quorum. The member’s attendance is set out at page 14.
5.4. Use of external advisors and remuneration consultants
Where necessary, the Board seeks advice from independent experts and advisors including remuneration consultants. Remuneration consultants are used
to ensure that remuneration packages are appropriately structured and are consistent with comparable roles in the market. Other external advisors (including
legal practitioners) assist with administration of the Group’s performance remuneration plans and ensuring that the appropriate legal parameters are
understood and employment contracts are appropriately executed.
Remuneration consultants are engaged by and report directly to the Remuneration and Human Resources Committee. When remuneration consultants are
engaged, the Committee ensures that the appropriate level of independence exists from the Company’s management that is required depending upon the
particular assignment. As required by the Act, where the consultant’s engagement requires a recommendation, the recommendation is provided to, and
discussed directly with the Chairman of the Remuneration and Human Resources Committee to ensure management cannot unduly influence the outcome.
During the period, the following external advisors provided advice to the Committee – Ernst and Young, PricewaterhouseCoopers, Godfrey Remuneration
Group, Alceon, Allens Arthur Robinson and Freehills.
Of these advisors, only Godfrey’s provided the Company with a ‘remuneration recommendation’ in relation to the quantum or elements of the remuneration
packages of the JMDs and the former CFO and is therefore deemed to be a ‘remuneration consultant’ under recent amendments to the Act.
5.5. Decision making
The advice and recommendations of external advisors are used as a guide, but do not serve as a substitute for thorough consideration of the issues by the
Directors. All decisions relating to remuneration strategy and approach are made independently by the Board with careful regard to the Remuneration and
Human Resources Committee’s recommendations, Charter Hall’s position, strategic objectives and current requirements.
6. Remuneration of Executives
Details of the FY11 remuneration of KMP (including executive directors) are provided in the following tables.
Table 6.1: Reported Executives of the Group and Company (statutory accounting)
2011
Short-term benefits
Post-
employment
benefits
Salary and
fees
Short-term
incentive
Super-
annuation
Share-based
payment
Securities,
options and
performance
rights
Other
Annual Leave
& Long
service leave
$
$
$
$
$
% of Total
Remuneration
consisting of
options/rights
Total
$
Name
Executive directors
C Fuchs
D Harrison *
D Southon *
Other key management personnel
J Bakker **
A Glass
N Kelly
S Sewell
R Stacker
A Taylor
M Winnem
Totals
384,801
1,034,801
1,034,801
634,801
509,801
434,801
584,801
384,801
584,801
434,801
86,425
262,500
262,500
158,700
126,000
90,000
220,000
150,000
220,000
64,819
49,999
15,199
15,199
15,199
15,199
25,000
18,999
27,886
15,199
15,199
109,944
412,387
412,387
262,909
146,663
120,699
108,124
64,906
108,124
120,699
18,206
649,375
26,017
1,750,904
(31,247)
1,693,640
(5,000)
1,066,609
(4,039)
12,116
(10,776)
(6,497)
6,532
(18,463)
793,625
682,615
921,148
621,096
934,656
617,055
6,023,010
1,640,944
213,079
1,866,842
(13,151)
9,730,725
*
**
For FY11 the JMDs STI is split into 50% cash and 50% rights. The rights are into CHC securities vesting in 12 months.
Jelte Bakker left group on 31 July 2011 and received a severance payment of $366,254.
17%
24%
24%
25%
18%
18%
12%
10%
12%
20%
5 5
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AnnuAl report 2011
Directors’ report continued
Table 6.2: Reported Executives of the Group and Company (gross remuneration receipts in FY11)
2011
Short-term benefits
Post-
employment
benefits
Salary and
fees
Short-term
incentive
Super-
annuation
Name
$
$
$
Share-based
payment
Securities,
options and
performance
rights
Other
Interest
Annual Leave
& Long
service leave
Interest
benefit on
JMD Loans
Executive directors
C Fuchs
D Harrison
D Southon
384,801
150,000
1,034,801
1,000,000
1,034,801
1,000,000
Other key management personnel
49,999
15,199
15,199
15,199
15,199
25,000
18,999
27,886
15,199
15,199
634,801
509,801
434,801
584,801
384,801
584,801
434,801
650,000
70,000
100,000
67,000
40,100
67,000
50,000
6,023,010
3,194,100
213,079
J Bakker
A Glass
N Kelly
S Sewell
R Stacker
A Taylor
M Winnem
Totals
% of Total
Remuneration
consisting of
options/rights
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
Total
$
584,800
$
–
209,375
2,259,375
209,375
2,259,375
–
–
–
–
–
–
–
1,300,000
595,000
559,801
670,800
452,787
667,000
500,000
418,750
9,848,939
$
–
–
–
–
–
–
–
–
–
–
–
$
–
–
–
–
–
–
–
–
–
–
–
*
Refer 2.10 – Joint Managing Director Loans. In FY11, interest on JMD loans was considered by the Board to be less than an arms length rate. As noted in 2.10, the
interest rate on the JMD loans has been renegotiated on arms length terms with effect from 1 July 2011.
Other than the interest on the JMD loan referred to above, the key difference between the statutory accounting table (Table 6.1) and the gross remuneration
receipts table (Table 6.2) is that the FY10 STI was paid in FY11, and no LTI has vested during the year.
Table 6.3: Reported Executives of the Group and Company 2010 (statutory accounting)
2010
Short-term benefits
Post-
employment
benefits
Salary and
fees
Short-term
incentive
Super-
annuation
Share-based
payment
Long-term
benefits
Securities,
options and
performance
rights
Long service
leave
$
$
$
$
300,000
150,000
735,539
1,000,000
735,539
1,000,000
410,539
486,255
360,171
163,645
102,233
163,645
371,403
650,000
70,000
100,000
67,000
40,100
67,000
50,000
50,000
14,461
14,461
14,461
14,461
25,000
5,143
4,569
5,143
47,087
251,720
251,492
82,385
41,577
55,623
3,372
2,024
3,372
3,828,969
3,194,100
162,160
794,115
14,136
7,993,480
14,461
55,463
14,136
% of Total
Remuneration
consisting of
options/rights
9%
13%
13%
7%
7%
10%
1%
1%
1%
11%
Total
$
547,087
2,001,720
2,001,492
1,157,385
612,293
540,794
239,160
148,926
239,160
505,463
$
–
–
–
–
–
–
–
–
–
Name
Executive directors
C Fuchs
D Harrison
D Southon
Other key management personnel
J Bakker
A Glass
N Kelly
S Sewell
R Stacker
A Taylor
M Winnem
Totals
5 6
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Charter hall Group
Table 6.4: Reported Executives STI outcomes 2011 (statutory accounting)
2011
Name
Executive directors
C Fuchs
D Harrison
D Southon
Other key management personnel
J Bakker
A Glass
N Kelly
S Sewell
R Stacker
A Taylor
M Winnem
Totals
$
$
86,425
262,500
262,500
158,700
126,000
90,000
220,000
150,000
220,000
64,819
86,425
131,250
131,250
158,700
126,000
90,000
220,000
150,000
220,000
64,819
$
–
131,250
131,250
–
–
–
–
–
–
–
1,640,944
1,378,444
262,500
Target STI %
of Fixed Pay
% STI earned
of Target
% STI not
earned
%
%
%
50%
50%
50%
33%
33%
33%
33%
33%
33%
33%
40%
50%
50%
74%
73%
59%
110%
110%
111%
44%
60%
50%
50%
26%
27%
41%
0%
0%
0%
56%
Notes:
1 A minimum level of performance must be achieved before any STI is awarded (refer section 3 for discussion on the basis for determination of STI amounts). Therefore, the
minimum potential value of the STI is nil. The maximum potential value of grants under the STI is the actual amount of STI paid. The STI cash components were paid on
29 August 2011.
2 D Harrison and D Southon will receive 50% of their 2011 STI in the form of Deferred Securities (refer section 2.9 – Short Term Incentives – Deferral above). The issue of
these Deferred Securities is subject to receipt of Securityholder approval at the 2011 AGM. Each will receive Deferred Securities to the value disclosed in the table above.
Further information is set out in the Notice of Meeting for the 2011 AGM.
The STI pool for the Reported Executives in FY11 was $2,033,200 of which $1,640,944 was allocated to them, as noted in Table 6.4 above.
Table 6.5: Performance rights and options issued under the PROP
Performance Rights
Year of issue
FY09
FY10
FY11
Securities
Exercise price
Vesting conditions
407,242
2,137,408
1,328,733
Nil
Nil
Nil
OEPS must increase by 5% in each year from FY08 or have achieved 5%
compound annual growth on FY08
Absolute and relative performance criteria described above
Absolute and relative performance criteria described above
Total performance rights issued
3,873,383
Options
Year of issue
FY10
FY10
FY11
FY11
Total options issued
Service Rights
Year of issue
FY11
Total service rights issued
Securities
Exercise price
Vesting conditions
5,585,114
1,611,656
3,199,113
123,397
10,395,883
$1.94
$2.80
$2.44
$2.35
Absolute and relative performance criteria described above
Absolute and relative performance criteria described above
Absolute and relative performance criteria described above
Absolute and relative performance criteria described above
Securities
Exercise price
Vesting conditions
316,377
316,377
Nil
Service conditions
11068_CHC_AR_Financial_PPv2.indd 57
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AnnuAl report 2011
Directors’ report continued
The Black-Scholes or Monte Carlo method, as applicable, is utilised for valuation and accounting purposes. The model inputs for the PROP performance
rights and options plan issued during FY09, FY10 and FY11 and to assess the fair value are as follows:
Valuation model inputs
Grant date
Security price at grant date
Loan value per security
Expiry of loan
Expected price volatility
Risk-free interest rate
7/8/08
10/10/08
19/11/08
22/12/08
13/11/09
18/6/10
6/9/10
11/11/10
$3.46
$4.16
$2.64
$4.16
$1.64
$4.16
$1.20
$4.16
$2.40
$1.94
$2.80
$2.80
$2.44
$2.44
$2.44
$2.44
6/8/13
9/8/13
18/11/13
21/12/13
1/7/14
18/6/15
6/9/15
6/9/15
23.68%
22.75%
58.06%
59.49%
5.85%
4.28%
3.72%
3.19%
40%
5.5%
40%
5.5%
40%
5.5%
Table 6.6: Operating earnings per security (OEPS) since the inception of the Group
OEPS
OEPS growth on previous year
FY06
(cps)
25.88
N/A
FY07
(cps)
38.04
47%
FY08
(cps)
50.96
34%
FY09
(cps)
30.44
(40%)
Table 6.7: Reported Executives security based payment analysis – PROP
Rights
granted
during
the year
Rights
held at
30 June
2011
Fair value
per right
at grant
date
Grant
Date1
Option
exercise
price
Vested
during
the year
Vesting
Date
Option
Expiry
Date
June 2011
Type of Equity
Executive Directors
C Fuchs
LTI Performance Rights
LTI Performance Rights
LTI Performance Rights
–
–
–
12,621 22–Dec–08
21,876 13–Nov–09
21,876 13–Nov–09
LTI Performance Rights
30,770
30,770 19–Nov–10
LTI Performance Rights
30,770
30,770 19–Nov–10
LTI Options
LTI Options
LTI Options
LTI Options
D Harrison
LTI Performance Rights
LTI Performance Rights
LTI Performance Rights
–
–
78,204 13–Nov–09
78,204 13–Nov–09
76,924
76,924 11–Nov–10
76,924
76,924 11–Nov–10
–
–
–
100,962 22–Dec–08
93,750 13–Nov–09
93,750 13–Nov–09
LTI Performance Rights
100,962
100,962 19–Nov–10
LTI Performance Rights
100,962
100,962 19–Nov–10
LTI Options
LTI Options
LTI Options
LTI Options
–
–
335,157 13–Nov–09
335,157 13–Nov–09
252,404
252,404 11–Nov–10
252,404
252,404 11–Nov–10
$0.99
$1.70
$1.58
$2.13
$1.98
$0.41
$0.41
$0.54
$0.54
$0.99
$1.70
$1.58
$2.13
$1.98
$0.41
$0.41
$0.54
$0.54
–
–
–
–
–
$1.94
$1.94
$2.44
$2.44
–
–
–
–
–
$1.94
$1.94
$2.44
$2.44
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
40%
5.5%
FY11
(cps)
20.60
FY10
(cps)
16.83
(44.7%)
22.4%
Maximum
total
value of
grant
yet to
vest ($)2
–
–
7,802
26,093
30,092
30–Sep–11
01–Jul–11
01–Jul–12
01–Jul–12
01–Jul–13
–
–
–
–
–
01–Jul–11 13–Nov–14
–
01–Jul–12 13–Nov–14
11,736
01–Jul–12 06–Sep–15
19,639
01–Jul–13 06–Sep–15
26,149
30–Sep–11
01–Jul–11
01–Jul–12
01–Jul–12
01–Jul–13
–
–
–
–
–
–
–
33,433
85,615
98,737
01–Jul–11 13–Nov–14
–
01–Jul–12 13–Nov–14
50,296
01–Jul–12 06–Sep–15
64,438
01–Jul–13 06–Sep–15
85,800
5 8
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Charter hall Group
Rights
granted
during
the year
Rights
held at
30 June
2011
Fair value
per right
at grant
date
Grant
Date1
Option
exercise
price
Vested
during
the year
June 2011
Type of Equity
D Southon
LTI Performance Rights
LTI Performance Rights
LTI Performance Rights
–
–
–
100,962 22–Dec–08
93,750 13–Nov–09
93,750 13–Nov–09
LTI Performance Rights
100,962
100,962 19–Nov–10
LTI Performance Rights
100,962
100,962 19–Nov–10
LTI Options
LTI Options
LTI Options
LTI Options
Key management personnel
J Bakker
LTI Performance Rights
LTI Performance Rights
LTI Performance Rights
–
–
335,157 13–Nov–09
335,157 13–Nov–09
252,404
252,404 11–Nov–10
252,404
252,404 11–Nov–10
–
–
–
12,621 22–Dec–08
50,000 13–Nov–09
50,000 13–Nov–09
LTI Performance Rights
62,500
62,500 06–Sep–10
LTI Performance Rights
62,500
62,500 06–Sep–10
LTI Options
LTI Options
LTI Options
LTI Options
A Glass
LTI Performance Rights
LTI Performance Rights
–
–
178,750 04–Nov–09
178,750 04–Nov–09
156,250
156,250 06–Sep–10
156,250
156,250 06–Sep–10
–
–
37,500 13–Nov–09
37,500 13–Nov–09
LTI Performance Rights
25,242
25,242 06–Sep–10
LTI Performance Rights
25,241
25,241 06–Sep–10
LTI Options
LTI Options
LTI Options
LTI Options
N Kelly
LTI Performance Rights
LTI Performance Rights
LTI Performance Rights
–
–
134,064 04–Nov–09
134,064 04–Nov–09
63,102
63,102 06–Sep–10
63,102
63,102 06–Sep–10
–
–
–
12,621 22–Dec–08
30,000 13–Nov–09
30,000 13–Nov–09
LTI Performance Rights
21,636
21,636 06–Sep–10
LTI Performance Rights
21,636
21,636 06–Sep–10
LTI Options
LTI Options
LTI Options
LTI Options
–
–
107,250 04–Nov–09
107,250 04–Nov–09
54,088
54,088 06–Sep–10
54,088
54,088 06–Sep–10
$0.99
$1.70
$1.58
$2.13
$1.98
$0.41
$0.41
$0.54
$0.54
$0.99
$1.70
$1.58
$2.43
$2.24
$0.41
$0.41
$0.54
$0.54
$1.70
$1.58
$2.43
$2.24
$0.41
$0.41
$0.54
$0.54
$0.99
$1.70
$1.58
$2.43
$2.24
$0.41
$0.41
$0.54
$0.54
–
–
–
–
–
$1.94
$1.94
$2.44
$2.44
–
–
–
–
–
$1.94
$1.94
$2.44
$2.44
–
–
–
–
$1.94
$1.94
$2.44
$2.44
–
–
–
–
–
$1.94
$1.94
$2.44
$2.44
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Maximum
total
value of
grant
yet to
vest ($)2
Option
Expiry
Date
–
–
–
–
–
–
–
33,433
85,615
98,737
Vesting
Date
30–Sep–11
01–Jul–11
01–Jul–12
01–Jul–12
01–Jul–13
01–Jul–11 13–Nov–14
–
01–Jul–12 13–Nov–14
50,296
01–Jul–12 06–Sep–15
64,438
01–Jul–13 06–Sep–15
85,800
30–Sep–11
01–Jul–11
01–Jul–12
01–Jul–12
01–Jul–13
–
–
–
–
–
–
–
17,831
42,285
52,425
01–Jul–11 13–Nov–14
–
01–Jul–12 13–Nov–14
26,891
01–Jul–12 06–Sep–15
39,965
01–Jul–13 06–Sep–15
53,213
01–Jul–11
01–Jul–12
01–Jul–12
01–Jul–13
–
–
–
–
–
13,373
17,078
21,172
01–Jul–11 13–Nov–14
–
01–Jul–12 13–Nov–14
20,168
01–Jul–12 06–Sep–15
16,140
01–Jul–13 06–Sep–15
21,490
30–Sep–11
01–Jul–11
01–Jul–12
01–Jul–12
01–Jul–13
–
–
–
–
–
–
–
10,699
14,638
18,148
01–Jul–11 13–Nov–14
–
01–Jul–12 13–Nov–14
16,134
01–Jul–12 06–Sep–15
13,834
01–Jul–13 06–Sep–15
18,421
11068_CHC_AR_Financial_PPv2.indd 59
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AnnuAl report 2011
Directors’ report continued
Rights
granted
during
the year
Rights
held at
30 June
2011
Fair value
per right
at grant
date
Grant
Date1
Option
exercise
price
Vested
during
the year
Vesting
Date
Option
Expiry
Date
Maximum
total
value of
grant
yet to
vest ($)2
June 2011
Type of Equity
S Sewell
LTI Performance Rights
LTI Performance Rights
LTI Options
LTI Options
R Stacker
LTI Performance Rights
LTI Performance Rights
LTI Options
LTI Options
A Taylor
LTI Performance Rights
LTI Performance Rights
LTI Options
LTI Options
M Winnem LTI Performance Rights
LTI Performance Rights
LTI Performance Rights
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
44,626 18–Jun–10
44,626 18–Jun–10
111,626 18–Jun–10
111,626 18–Jun–10
26,814 18–Jun–10
26,814 18–Jun–10
66,938 18–Jun–10
66,938 18–Jun–10
44,626 18–Jun–10
44,626 18–Jun–10
111,626 18–Jun–10
111,626 18–Jun–10
12,621 22–Dec–08
30,000 13–Nov–09
30,000 13–Nov–09
LTI Performance Rights
21,636
21,636 06–Sep–10
LTI Performance Rights
21,636
21,636 06–Sep–10
LTI Options
LTI Options
LTI Options
LTI Options
–
–
107,250 04–Nov–09
107,250 04–Nov–09
54,088
54,088 06–Sep–10
54,088
54,088 06–Sep–10
$2.43
$2.24
$0.59
$0.59
$2.43
$2.24
$0.59
$0.59
$2.43
$2.24
$0.59
$0.59
$0.99
$1.70
$1.58
$2.43
$2.24
$0.41
$0.41
$0.54
$0.54
–
–
$1.94
$1.94
–
–
$1.94
$1.94
–
–
$1.94
$1.94
–
–
–
–
–
$1.94
$1.94
$2.44
$2.44
– 01–Jul–12
– 01–Jul–13
–
–
34,650
42,944
– 01–Jul–12 13–Nov–14
30,716
– 01–Jul–13 13–Nov–14
41,138
– 01–Jul–12
– 01–Jul–13
–
–
20,820
25,803
– 01–Jul–12 13–Nov–14
18,419
– 01–Jul–13 13–Nov–14
24,669
– 01–Jul–12
– 01–Jul–13
–
–
34,650
42,944
– 01–Jul–12 13–Nov–14
30,716
– 01–Jul–13 13–Nov–14
41,138
– 30–Sep–11
– 01–Jul–11
– 01–Jul–12
– 01–Jul–12
– 01–Jul–13
–
–
–
–
–
–
–
10,699
14,638
18,148
– 01–Jul–11 13–Nov–14
–
– 01–Jul–12 13–Nov–14
16,134
– 01–Jul–12 06–Sep–15
13,834
– 01–Jul–13 06–Sep–15
18,421
1
2
Tranche 1 of the 2009 issue Performance Rights and Option Plan vested on 1st July 2011. Of the vesting conditions for this tranche, the TSR hurdle vested 100% and
the EPS hurdle at 94.1%, deriving a combined vesting rate of 97.05%
The maximum value of the grants yet to vest is the amount at the grant date fair value yet to be reflected in the Group’s consolidated income statement. The minimum
future value of unvested securities is $nil as future performance and service conditions may not be met
6 0
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Charter hall Group
Table 6.8: Performance rights and options issued to Reported Executives
Performance
rights 2009
Performance
rights 2010
Performance
rights 2011
Total
Performance
rights Options 2010 Options 2011 Total Options
Executive Directors
C Fuchs
D Harrison
D Southon
Key management personnel
J Bakker
A Glass
N Kelly
S Sewell
R Stacker
A Taylor
M Winnem
12,621
43,752
61,540
117,913
156,408
153,848
310,256
100,962
187,500
201,924
490,386
670,314
504,808
1,175,122
100,962
187,500
201,924
490,386
670,314
504,808
1,175,122
12,621
100,000
125,000
237,621
357,500
312,500
670,000
–
12,621
–
–
–
12,621
75,000
60,000
89,252
53,628
89,252
60,000
50,483
125,483
268,128
126,204
394,332
43,272
115,893
214,500
108,176
322,676
–
–
–
89,252
223,252
53,628
133,876
89,252
223,252
–
–
–
223,252
133,876
223,252
43,272
115,893
214,500
108,176
322,676
Performance rights and options issued to the ex–Macquarie KMP who joined Charter Hall in 2010 were issued in June 2010, in respect of the 2011 financial
year, and were included in the Remuneration Report in FY10.
Table 6.9: Executive loan securities plan – suspended from 1 July 2009
Year of issue
Securities
Transferred,
sold or
forfeited1
Retained in
plan
On issue2
Issue Price
Vesting conditions applicable on securities
remaining within the plan
FY06
FY07
1,550,000
(1,550,000)
1,125,000
1,125,000
$4.00 to $4.28
1,883,555
(912,059)
542,966
1,514,462
$5.08 to $8.00
FY08
2,682,326
(1,916,633)
1,682,996
2,448,689 $9.88 to $11.76
FY09
7,944,260
(1,168,495)
721,984
7,497,749
$4.16 to $6.68
Meet the PDS forecast DPS of 6.56 cents in
FY06 and 5% growth in FY07. All vested.
OEPS must increase by 5% in each year from
FY06 or have achieved 5% compound annual
growth on FY06. The first two tranches vested
with the third no meeting the conditions.
OEPS must increase by 5% in each year from
FY07 or have achieved 5% compound annual
growth on FY07. First tranche vested with the
second and third not meeting the conditions.
OEPS must increase by 5% in each year from
FY08 or have achieved 5% compound annual
growth on FY08. First tranche not vested with the
compound annual return required it is unlikely to
result in any vesting.
Total
14,060,142
(5,547,188)
4,072,945
12,585,899
1 Securities can be sold direct from the plan or transferred to members once securities vest. Unvested securities are forfeited when an employee ceases employment.
2 Whilst the securities are legally issued and are quoted securities they are not recognised for accounting (OEPS/DPS/NTA) purposes until they are exercised (per AASB 2
Security–based Payments). The in substance options are exercised when executives pay the exercise price of the option (i.e. repay the loan that is recognised for tax and
legal purposes). This is consistent with the fact that unvested and vested securities continue to be held by the employee security trust until the employee loan is repaid.
The performance condition under the ELSP was initially set at 5% growth per annum in Operating EPS. This performance condition was amended at the 2008 AGM. For
the 2008 ELSP offer, the base year for the Operating EPS measure is 30 June 2008 resulting in base Operating EPS of 12.74 cps.
3
4 Whilst 12.6 million ELSP securities remain in the plan no further issues are proposed.
5 Management has sought relief from ASIC in relation to cancelling ELSP related Charter Hall Property Trust securities. Subject to the waiver being received it is proposed
that a resolution be put to securityholders at the November 2011 Annual General Meeting.
11068_CHC_AR_Financial_PPv2.indd 61
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AnnuAl report 2011
Directors’ report continued
Table 6.10: Reported Executives security based payment analysis – ELSP – June 2011
June 2011
Type of
Equity
Securities
Issued
Grant
Date1,2 ,3
Last Vesting
Issue Price
Date Loan Expiry
Percentage
Vesting1
Securities
in ELSP at
June 2010
Securities
forfeited
in current
year5
Securities
vested in
current year
Securities
in ELSP at
June 2011
Maximum
total value
of grant yet
to vest ($)4
Executive Directors
C Fuchs
ELSP
ELSP
98,425 30-Jun-06
$5.08
30-Sep-08 01-Jul-11
90,580 03-Jul-07
$11.04 30-Sep-08 23-Jul-12
67%
33%
65,616
30,194
–
–
ELSP
216,346 19-Nov-08
$4.16
30-Sep-11 18-Nov-13
0% 144,232
72,115
D Harrison
ELSP
290,354 30-Jun-06
$5.08
30-Sep-08 01-Jul-11
67% 193,570
ELSP
679,348 03-Jul-07
$11.04 30-Sep-08 23-Jul-12
33% 226,449
–
–
ELSP 1,730,769 19-Nov-08
$4.16
30-Sep-11 18-Nov-13
0% 1,153,846
576,923
D Southon
ELSP
279,528 30-Jun-06
$5.08
30-Sep-08 01-Jul-11
67% 186,352
ELSP
679,348 03-Jul-07
$11.04 30-Sep-08 23-Jul-12
33% 226,449
–
–
ELSP 1,730,769 19-Nov-08
$4.16
30-Sep-11 18-Nov-13
0% 1,153,846
576,923
Key management personnel
J Bakker
ELSP
155,280 16-Oct-06
$6.44
30-Sep-08 01-Jul-11
67% 103,520
ELSP
90,580 03-Jul-07
$11.04 30-Sep-08 23-Jul-12
33%
30,193
–
–
ELSP
216,346 07-Aug-08
$4.16
30-Sep-11 18-Nov-13
0% 144,232
72,115
A Glass
N Kelly
ELSP
ELSP
ELSP
–
46,584 16-Oct-06
$6.44
30-Sep-08 01-Jul-11
72,464 03-Jul-07
$11.04 30-Sep-08 23-Jul-12
–
31,056
24,155
67%
33%
–
–
–
ELSP
216,346 07-Aug-08
$4.16
30-Sep-11 18-Nov-13
0% 144,232
72,115
S Sewell
R Stacker
A Taylor
M Winnem
ELSP
ELSP
ELSP
ELSP
ELSP
–
–
–
–
–
–
59,055 30-Jun-06
$5.08
30-Sep-08 01-Jul-11
72,464 03-Jul-07
$11.04 30-Sep-08 23-Jul-12
67%
33%
19,685
24,155
–
–
–
–
–
ELSP
216,346 07-Aug-08
$4.16
30-Sep-11 18-Nov-13
0% 144,232
72,115
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
65,616
30,194
72,116
193,570
226,449
576,923
186,352
226,449
576,923
103,520
30,193
72,116
–
31,056
24,155
72,116
–
–
–
19,685
24,155
72,116
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1
2
3
4
5
For the ELSPs granted on 30 June 2006 and 16 October 2006, the loans associated with these grants expired on 1 July 2011. As these plans were out of the money on
this date, all securities attaching to these loans were forfeited.
For the ELSPs granted on 3 July 2007, the loans associated with these grants expire on 23 July 2012. This plan requires each employee to repay the loan per security of
$11.04, hence it is highly likely that these securities will be forfeited at the time of the loan expiry.
The percentage vesting of the ELSPs granted on 7 August 2008 and 19 November 2008 is currently 0% for the first two tranches. The final tranche is due to vest on 30
September 2011 and is also highly unlikely to vest, as performance conditions will not be met.
The maximum value of securities yet to vest in the ELSP is $nil. All security based payment expenses in relation to the ELSP have been fully expensed in prior years. The
minimum future value of unvested securities is $nil as future performance and service conditions may not be met.
For the tranches issued 2008, one third of these securities was forfeited during the year.
6 2
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Charter hall Group
6.11 KMP security holdings
2011
Name
Ordinary securities
Directors of Charter Hall Limited
K Roxburgh
R Woodhouse
A Brennan
P Derrington
G Fraser
C Fuchs
D Harrison
P Kahan
C McGowan
D Southon
Other key management personnel of the Group
J Bakker
A Glass
N Kelly
S Sewell
R Stacker
A Taylor
M Winnem
2010
Name
Ordinary securities
Directors of Charter Hall Limited
K Roxburgh
R Woodhouse
P Derrington
G Fraser
C Fuchs
D Harrison
P Kahan
C McGowan
D Southon
Other key management personnel of the Group
J Bakker
A Glass
N Kelly
S Sewell
R Stacker
A Taylor
M Winnem
Opening balance
Purchased/(sold)
during the year
LTI securities
vesting/(forfeited)
during the year
Closing balance
31,250
21,429
–
–
156,934
1,454,459
2,429,540
–
–
2,461,161
136,952
–
55,343
–
–
–
–
–
30,000
–
–
–
–
–
–
–
–
–
–
–
–
–
138,929
(31,305)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
31,250
21,429
30,000
–
156,934
1,454,459
2,429,540
–
–
2,461,161
136,952
–
55,343
–
–
–
107,624
Opening balance
Purchased/(sold)
during the year
LTI securities
vesting/(forfeited)
during the year
Closing balance
16,072
21,429
–
205,948
1,716,959
2,743,350
–
–
2,829,911
136,952
–
55,343
–
–
–
15,178
–
–
(49,014)
–
54,940
–
–
–
–
–
–
–
–
–
152,434
(13,505)
–
–
–
–
(262,500)
(368,750)
–
–
31,250
21,429
–
156,934
1,454,459
2,429,540
–
–
(368,750)
2,461,161
–
–
–
–
–
–
–
136,952
–
55,343
–
–
–
138,929
11068_CHC_AR_Financial_PPv2.indd 63
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AnnuAl report 2011
Directors’ report continued
6.12. Key terms of employment
The remuneration and other terms of employment for JMDs and Senior Executives are formalised in employment contracts. Each of these agreements
provide for payment of performance-related bonuses under the STI program (as discussed above), other benefits (including car allowances) and participation
in the Group’s LTI Plan (also discussed above).
The terms and conditions of employment of each executive reflect market conditions at the time of their contract negotiation and appointment. The material
terms of the employment agreements for the JMDs and Senior Executives are summarised in the table below:
Contractual Term
Duration of contract
Notice to be provided by executive or
Charter Hall (excluding redundancy and
serious & wilful misconduct)
Termination Payments (provided where
specified only)
Persons Affected
Conditions
JMDs and other Senior Executives.
JMDs and other Senior Executives.
Adrian Taylor*
Steven Sewell*
Richard Stacker*
Permanent full-time contract until notice given by
either party.
Written notice varies from 4 weeks to 6 months.
All contracts allow for payment in lieu of notice.
9 months base salary (if terminated between
1 July 2011 and 31 December 2011).
9 months base salary plus 1 month per year
of service post 31 December 2011 to a maximum
of 12 months base salary (if terminated after
1 January 2012).
Pro rata STI plus vested LTI.
9 months base salary (if terminated between
1 July 2011 and 31 December 2011).
6 months base salary plus 1 month per year of
service post 31 December 2011 to a maximum of
12 months base salary (if terminated after
1 January 2012).
Pro rata STI plus vested LTI.
7. Non-Executive Director (NED) remuneration
7.1. Philosophy
NED remuneration reflects Charter Hall’s desire to attract, motivate and retain high quality directors and to ensure their active participation in the Group’s
affairs for the purposes of corporate governance, regulatory compliance and other matters. Charter Hall aims to provide a level of remuneration for NEDS
that is comparable with its peers.
7.2. Non-Executive Directors’ fee pool
Currently there are 5 non-executive independent directors and one representing a substantial securityholder, who becomes entitled to earn a directors fee in
September 2011.
The base director’s fee is currently $100,000 with a loading of 100% for the Chairman. The Deputy Chairman currently has no loading. Fees are also paid to
committee members.
A tranche of one off payments for additional work relating to the Macquarie acquisition was paid in September 2010. $17,500 was paid to Kerry Roxburgh
and $8,750 was paid to each of Roy Woodhouse, Patrice Derrington, Colin McGowan and Glen Fraser.
The aggregate amount approved by securityholders at the 2010 Annual Meeting was $800,000 per annum. This was the first of a two year program to bring
NED fees in line with market rates.
To facilitate payment in FY12 of six and possibly seven non-executive Board members, with appropriate loadings for the Chairman and the Deputy, at the
2011 Annual Meeting, securityholders will be invited to consider approving an increase in the fee pool to $1,000,000 per annum. Further details are set out
in the Notice of Meeting for the 2011 AGM.
7.3. Fee framework
Fees are set by reference to the following considerations:
ww
Industry practice and best principles of corporate governance;
ww Responsibilities and risks attaching to the role of NED;
ww
The time commitment expected of NEDs on Group matters; and
ww Reference to fees paid to NEDs of other comparable companies.
Under the current fee framework, NEDs receive a base fee. In addition, the NEDs may receive further fees for membership or chairmanship of a
board committee.
NEDs do not receive any benefits upon retirement under any retirement benefits schemes and NEDs are not eligible to participate in any of Charter Hall
group’s employee incentive schemes.
6 4
11068_CHC_AR_Financial_PPv2.indd 64
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Charter hall Group Table 7.3.1: Summary of fee framework
Board
Chair
Non Chair
Audit Risk and Compliance Committee
Chair
Non Chair
Remuneration and Human Resources Committee
Chair
Non Chair
Nomination Committee
Chair
Non Chair
Valuation Committee2
FY11
$
FY10
$
200,000
100,000
20,210
13,475
140,000
70,000
16,500
11,000
20,210
13,475
See Note 1
See Note 1
2,000
2,000
8,800
See Note 1
See Note 1
8,000
Note
1
2
In 2010 the Remuneration & Nomination Committee members were paid a fee of $12,500 each for the combined role
Valuation Committee comprises one Non-Executive Director
7.4 Non-Executive Director base and committee fees
2011
Name
Non-executive directors
K Roxburgh – Chairman
R Woodhouse – Deputy Chairman
A Brennan
P Derrington
G Fraser
P Kahan
C McGowan
Total
Short-term benefits
Post-employment
benefits
Salary and fees* Short-term incentive
Superannuation
$
224,550
111,701
80,472
34,648
97,737
–
83,725
633,103
$
–
–
–
–
–
–
–
–
$
14,769
11,024
7,242
3,906
29,678
–
47,000
113,474
*
Fees paid include a one off payment for additional work relating to the Macquarie acquisition.
2010
Name
Non-executive directors
K Roxburgh – Chairman
R Woodhouse – Deputy Chairman
P Derrington
G Fraser
P Kahan
C McGowan
Total
Short-term benefits
Post-employment
benefits
Salary and fees Short-term incentive
Superannuation
$
167,270
84,209
78,097
100,379
–
91,548
521,503
$
–
–
–
–
–
–
–
$
13,479
6,791
7,029
8,246
–
7,452
42,997
11068_CHC_AR_Financial_PPv2.indd 65
Total
$
239,319
122,725
87,714
38,554
127,415
–
130,725
746,452
Total
$
180,749
91,000
85,126
108,625
–
99,000
564,500
6 5
5/10/11 10:35 AM
AnnuAl report 2011
Directors’ report continued
Insurance of officers
During the year, Charter Hall Group, paid a premium for a contract insuring all directors, secretaries, executive officers and officers of the Group and of each
of its related entities. The insurance does not provide cover for the independent auditors of the Group or of its related entities. In accordance with usual
commercial practice, the insurance contract prohibits disclosure of details of the nature of the liabilities covered by the insurance, the limit of indemnity and
the amount of the premium paid under the contract.
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 Group are important.
Details of the amounts paid or payable to the auditor (PricewaterhouseCoopers) for audit and non audit services provided during the year 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:
ww
ww
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; and
none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional
Accountants.
During the year, the following fees were paid or payable for services provided by the auditor of the Group and other non related audit firms:
(a) Audit services
PricewaterhouseCoopers Australian firm
Audit and review of financial reports
Non-PricewaterhouseCoopers audit firms for audit services
Ernst & Young
W F White & Co
Total remuneration for audit services
(b) Taxation services
PricewaterhouseCoopers Australian firm
2011
$
2010
$
387,791
257,849
–
1,940
59,035
5,510
389,731
322,394
Tax compliance services, including review of company income tax returns
55,050
25,920
Non-PricewaterhouseCoopers firms for taxation services
Ernst & Young
Total remuneration for taxation services
(c) Advisory services
PricewaterhouseCoopers Australian firm
Long-term incentive plan structure
Due diligence for equity raising and acquisition
Non-PricewaterhouseCoopers firms for advisory services
Ernst & Young
Total remuneration for advisory services
163,659
218,709
130,920
156,840
53,525
9,000
–
380,000
5,200
33,269
58,725
422,269
6 6
11068_CHC_AR_Financial_PPv2.indd 66
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Charter hall Group Auditor’s independence declaration
A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 68.
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 the directors.
K Roxburgh
Chairman
Sydney
29 September 2011
11068_CHC_AR_Financial_PPv2.indd 67
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AnnuAl report 2011 Auditor’s independence declaration
6 8
11068_CHC_AR_Financial_PPv2.indd 68
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Charter hall Group Consolidated income statement for the year ended 30 June 2011
Revenue
Net gain on remeasurement of equity interests
Investment property expenses
Depreciation
Employee benefits expense
Finance costs
Business combination transaction costs
Foreign exchange gain/(loss)
Share of net gain/(loss) of associates accounted for using the equity method
Gain/(loss) on sale of investments, property and derivatives
Impairment of management rights
Impairment of goodwill
Fair value adjustments
Occupancy costs
Legal and consulting costs
Other expenses
Profit/(loss) before income tax
Income tax benefit
Profit/(loss) after income tax
Profit/(loss) after tax attributable to:
Stapled securityholders of Charter Hall Group
Non-controlling interest in Direct Retail Fund (DRF)
Profit/(loss) after tax attributable to stapled securityholders of Charter Hall Group
Equity holders of Charter Hall Limited
Equity holders of Charter Hall Property Trust (non-controlling interest)
Profit after tax attributable to stapled securityholders of Charter Hall Group
Charter Hall Group earnings per stapled security
Basic earnings per security
Diluted earnings per security
2011
$’000
109,594
16,726
(4,795)
(1,545)
2010
(restated)
$’000
68,262
59,725
(4,703)
(672)
(57,593)
(29,648)
(8,111)
–
29
30,396
3,350
(19,171)
–
(3,213)
(2,491)
(1,864)
(8,741)
52,571
2,666
55,237
52,338
2,899
55,237
(5,493)
57,831
52,338
Cents
17.85
17.06
(6,471)
(6,636)
(174)
(6,209)
(5,827)
–
(15,328)
(50,762)
(1,300)
(358)
(4,438)
(4,539)
950
(3,589)
6,840
(10,429)
(3,589)
(25,169)
32,009
6,840
Restated
Cents
3.22
3.67
Note
6
35(b)
7
7
7
7
8
9
39
39
The 30 June 2010 earnings per stapled security have been restated for the change in accounting policy and security consolidation which occurred during
the year.
The above consolidated income statement should be read in conjunction with the accompanying notes.
11068_CHC_AR_Financial_PPv2.indd 69
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AnnuAl report 2011
Consolidated statement of comprehensive income for the year ended 30 June 2011
Profit/(loss) after income tax for the year
Other comprehensive income for the year:
Exchange differences on translation of foreign operations
Total comprehensive income for the year
Attributable to:
Equity holders of Charter Hall Limited
Equity holders of Charter Hall Property Trust (non-controlling interest)
Comprehensive income attributable to stapled securityholders of Charter Hall Group
Net comprehensive gain/(loss) attributable to non-controlling interests in DRF
Total comprehensive income for the year
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.
2011
$’000
2010
(restated)
$’000
55,237
(3,589)
(19,677)
35,560
(6,123)
38,743
32,620
2,940
35,560
4,650
1,061
(25,146)
36,637
11,491
(10,430)
1,061
7 0
11068_CHC_AR_Financial_PPv2.indd 70
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Charter hall Group Consolidated balance sheet for the year ended 30 June 2011
Note
2011
$’000
2010
(restated)
$’000
1 July 2009
(restated)
$’000
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Investment properties held for sale
Total current assets
Non-current assets
Trade and other receivables
Investment in associates at fair value through profit or loss
Inventories
Investments accounted for using the equity method
Property, plant and equipment
Investment properties
Intangible assets
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
Trade and other payables
Borrowings
Deferred tax liabilities
Derivative financial instruments
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Equity holders of Charter Hall Limited
Contributed equity
Reserves
Accumulated losses
Parent entity interest
Equity holders of Charter Hall Property Trust (non-controlling interest)
Interest attributable to stapled securityholders of Charter Hall Group
Non-controlling interest in DRF
Total equity
The above consolidated balance sheet should be read in conjunction with the accompanying notes.
11
12
13
12
14
16
17
19
20
18
21
22
23
22
24
25
15
26
27
28(a)
28(b)
28
29
29
26,266
43,438
921
28,380
48,361
45,000
1,923
17,082
–
70,625
121,741
19,005
9,400
78,445
7,450
3,750
5,307
73,739
210,256
–
–
517,707
446,336
247,875
3,167
159,518
99,994
11,255
–
886,936
957,561
3,592
202,118
119,164
5,721
–
2,304
15,770
–
3,946
295
854,420
485,753
976,161
504,758
58,061
55,018
14,221
834
749
222
58,895
55,767
14,443
12,106
101,862
1,129
407
1,217
116,721
175,616
781,945
9,503
(47,547)
(62,329)
(100,373)
11,270
91,228
1,273
4,754
879
109,404
165,171
–
14,220
852
–
25
15,097
29,540
810,990
475,218
9,427
(44,658)
(61,698)
(96,929)
6,383
(45,997)
(36,530)
(76,144)
850,191
857,290
551,362
749,818
760,361
475,218
32,127
50,629
–
781,945
810,990
475,218
11068_CHC_AR_Financial_PPv2.indd 71
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5/10/11 10:35 AM
AnnuAl report 2011 Consolidated statement of changes in equity for the year ended 30 June 2011
Attributable to owners of Charter Hall Group
Contributed
equity
$’000
Reserves
$’000
Accumulated
losses
$’000
Non-
controlling
interest
$’000
Total
$’000
Total equity
$’000
Balance at 1 July 2009 (restated)
634,308
(45,997)
(113,093)
475,218
–
475,218
Profit/(loss) for the year
Other comprehensive income
Total comprehensive income for the year
Transactions with equity holders in their capacity as
equity holders:
Non-controlling interest in DRF
–
–
–
–
Contributions of equity, net of transaction costs
302,137
Distribution paid and payable
Security-based benefits reserve
Balance at 1 July 2010 (restated)
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Transactions with equity holders in their capacity
as equity holders:
–
–
302,137
936,445
–
–
–
Contributions of equity, net of transaction costs
7,516
Transactions with non-controlling interests
Distribution paid and payable
Transfer to accumulated losses
Security-based benefits reserve
–
–
–
–
7,516
–
4,651
4,651
–
–
–
1,317
1,317
6,840
–
6,840
4,651
(10,429)
(1)
6,840
11,491
(10,430)
(3,589)
4,650
1,061
–
–
–
64,825
64,825
302,137
–
302,137
(29,802)
(29,802)
(3,766)
(33,568)
–
1,317
(29,802)
273,652
(40,029)
(136,055)
760,361
–
52,338
(19,718)
(19,718)
–
52,338
52,338
(19,718)
32,620
–
(6,300)
–
–
7,516
(6,300)
–
(48,469)
(48,469)
(4,663)
–
–
4,090
4,663
4,090
2,453
–
61,059
50,629
2,899
41
2,940
–
(18,939)
(2,503)
–
–
1,317
334,711
810,990
55,237
(19,677)
35,560
7,516
(25,239)
(50,972)
–
4,090
(53,132)
(43,163)
(21,442)
(64,605)
Balance at 30 June 2011
943,961
(57,294)
(136,849)
749,818
32,127
781,945
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
7 2
11068_CHC_AR_Financial_PPv2.indd 72
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Charter hall Group Consolidated cash flow statement for the year ended 30 June 2011
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Interest received
Interest paid
Distributions and dividends from investments
Net cash inflow from operating activities
Cash flows from investing activities
Payments for property, plant and equipment
Proceeds on disposal of investment property
Payment for inventory
Payments for investment properties
Payments for business combination
Investments in associates
Proceeds on disposal of investments in associates
Loans to associates
Payments for acquisition of non-controlling interests
Cash from DRF reconsolidated
Net cash outflow from investing activities
Cash flows from financing activities
Proceeds from issues of securities and other equity securities
Payment on settlement of derivative financial instruments
Proceeds from borrowings
Repayment of borrowings
Security issue transaction costs
Distributions paid to securityholders
Net cash (outflow)/inflow from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effect of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at the end of the year
The above consolidated cash flow statement should be read in conjunction with the accompanying notes.
Note
2011
$’000
2010
$’000
38
107,836
(72,932)
34,904
2,901
(7,494)
28,471
58,782
(1,128)
97,548
(7,450)
(14,778)
60,105
(34,714)
25,391
4,965
(6,135)
14,622
38,843
(1,999)
97,653
–
–
(280)
(100,193)
(75,670)
(218,562)
439
(1,250)
(30,076)
–
29,700
(2,000)
–
5,983
(32,645)
(189,418)
–
304,982
(4,388)
48,510
(37,658)
–
(35,030)
(28,566)
(2,429)
28,380
315
(9,826)
–
(91,549)
(7,250)
(19,325)
177,032
26,457
1,923
–
11
26,266
28,380
11068_CHC_AR_Financial_PPv2.indd 73
7 3
5/10/11 10:35 AM
AnnuAl report 2011 Notes to the consolidated financial statements
for the year ended 30 June 2011
1 Summary of significant accounting policies
(a) Basis of preparation
This general purpose financial report has been prepared in accordance
with Australian Accounting Standards, other authoritative pronouncements
of the Australian Accounting Standards Board, Urgent Issues Group
Interpretations and the Corporations Act 2001.
The principal accounting policies adopted in the preparation of the
consolidated financial statements for the year ended 30 June 2011 are
set out below. These policies have been consistently applied to the years
presented, unless otherwise stated. The financial statements are for the
consolidated entity consisting of Charter Hall Limited (CHL or the Company)
and its controlled entities, including Charter Hall Funds Management Limited
(Responsible Entity) as responsible entity for Charter Hall Property Trust
(CHPT) (together the Group). 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). The results and equity, not directly owned
by CHL, of CHPT have been treated and disclosed as a non-controlling
interest. Whilst the results and equity of CHPT are disclosed as a
non-controlling interest, the stapled securityholders of CHL are the same as
the stapled securityholders of CHPT. The results and equity of the Charter
Hall Direct Retail Fund (DRF) not directly owned by the Group have been
treated and disclosed as a non-controlling interest.
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 the Group 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.
Compliance with IFRSs
Compliance with Australian Accounting Standards ensures that the financial
statements comply with International Financial Reporting Standards
(IFRSs) as issued by the International Accounting Standards Board (IASB).
Consequently, these financial statements have been prepared in accordance
with and comply with IFRS as issued by the IASB.
Historical cost convention
These financial statements have been prepared under the historical cost
convention, as modified by the revaluation of investment properties, financial
assets and liabilities (including derivative financial instruments) held at fair
value through profit or loss.
Critical accounting estimates
The preparation of the financial statements in conformity with Australian
Accounting Standards requires the use of certain critical accounting
estimates and 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.
Change in accounting policy
The Board resolved to equity account the investments in Charter Hall
Core Plus Office Fund and Charter Hall Core Plus Industrial Fund from
1 July 2010. Previously, an election had been made to fair value these
investments in accordance with AASB 128 Investments in Associates
and AASB 139 Financial Instruments: Recognition and Measurement.
The change in accounting policy was in response to recent sales of units
in these funds transacted on the basis of the net tangible assets of the
investments rather than their unit price. Equity accounting provides a more
reliable and more relevant valuation of these investments.
The new policy has been applied retrospectively and comparative information in relation to the 2010 financial year has been restated accordingly.
The following adjustments were made:
Consolidated balance sheet (extract)
Non-current assets
Investments accounted for using the equity method
Investment in associates at fair value through profit or loss
Net assets
Equity
Equity holders of Charter Hall Property Trust (non-controlling interest)
Retained earnings impact
Total equity
Consolidated balance sheet (extract)
Non-current assets
Investments accounted for using the equity method
Investment in associates at fair value through profit or loss
Net assets
Equity
20 June 2010
$’000
Restatements
$’000
30 June 2010
(restated)
$’000
290,033
156,303
446,336
242,157
(168,418)
73,739
823,105
(12,115)
810,990
869,405
823,105
(12,115)
(12,115)
1 July 2009
$’000
Restatements
$’000
857,290
810,990
1 July 2009
(restated)
$’000
43,258
204,617
247,875
433,621
(223,365)
493,966
(18,748)
210,256
475,218
Equity holders of Charter Hall Property Trust (non-controlling interest)
570,110
(18,748)
551,362
Retained earnings impact
Total equity
7 4
493,966
(18,748)
475,218
11068_CHC_AR_Financial_PPv2.indd 74
5/10/11 10:35 AM
Charter hall Group Consolidated income statement (extract)
Revenue
Share of net loss of associates and joint venture accounted for using the equity method
Loss on sale of investments, property and derivatives
Fair value adjustments
Loss before income tax
Net loss after income tax
Profit for the year
Attributable to:
Equity holders of Charter Hall Property Trust
Group earnings per stapled security
Basic earnings per security on profit attributable to stapled securityholders
Diluted earnings per security on profit attributable to stapled securityholders
20 June 2010
$’000
Restatements
$’000
30 June 2010
(restated)
$’000
77,333
(1,426)
(10,880)
(66,196)
(11,172)
(10,222)
(9,071)
(4,783)
5,053
68,262
(6,209)
(5,827)
15,434
(50,762)
6,633
6,633
(4,539)
(3,589)
25,376
6,633
32,009
2010
Cents
0.08
0.80
Restatements
Cents
3.14
2.87
2010
(restated)
Cents
3.22
3.67
The earnings per unit have been restated for the change in accounting policy and the one for four unit consolidation.
(b) Principles of consolidation
(i) Controlled entities
The consolidated financial statements incorporate the assets and liabilities
of controlled entities of Charter Hall Limited, including CHPT, as at
30 June 2011 and their results for the year then ended.
Controlled entities 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.
Controlled entities are fully consolidated from the date on which control
is transferred to the Group. They are deconsolidated from the date that
control ceases.
The acquisition method of accounting is used to account for acquisition of
controlled entities by the Group (refer to note 1(g)).
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 controlled entities have been changed where
necessary to ensure consistency with the policies adopted by the Group.
Non-controlling interests in the results and equity of controlled entities are
shown separately in the consolidated income statement, consolidated
statement of comprehensive income, consolidated balance sheet and
consolidated statement of changes in equity respectively.
(ii) Associates
Associates are 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
consolidated financial statements using the equity method of accounting
after initially being recognised at cost, or as financial assets at fair value
through profit or loss.
Where the equity method of accounting is used, 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 consolidated financial
statements as a reduction in 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.
For investments in associates accounted for as financial assets at fair value
through profit or loss, investments are carried at fair value with gains or losses
arising from changes in the fair value being presented in the income statement
within ‘fair value adjustments’ in the year in which they arise. Distribution
income from investments in associates accounted at fair value through profit
or loss is recognised in the income statement as part of revenue.
(iii) Joint ventures
Joint venture entities
Investment in joint venture entities over which the Group exercised
joint control are accounted for in the consolidated financial statements
using the equity method after initially being recognised at cost. Under
the equity method, the Group’s share of the profits or losses of each
relevant joint venture entity is recognised in the income statement, and the
share of post-acquisition movements in reserves is recognised in other
comprehensive income. Details relating to the joint venture entities are set
out in note 36.
11068_CHC_AR_Financial_PPv2.indd 75
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AnnuAl report 2011 Notes to the consolidated financial statements continued
1 Summary of significant accounting policies continued
Profit and losses on transactions establishing the joint venture entity and
transactions with the joint venture are eliminated to the extent of the
Group’s ownership interest until such time as they are realised by the joint
venture entity on consumption or sale. However, a loss on the transaction
is recognised immediately if the loss provides evidence of a reduction in the
net realisable value of assets, or an impairment loss.
Jointly controlled assets
The proportionate interests in the assets, liabilities, income and expenses
of a joint venture activity have been incorporated in the financial statements
under the appropriate headings. Details of the joint venture are set out
in note 36.
(c) Segment reporting
Segment information is presented on the same basis as that used for
internal reporting purposes.
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision maker. The chief operating
decision maker, who is responsible for allocating resources and assessing
performance of the operating segments, has been identified as the Board.
(d) Foreign currency translation
(i) Functional and presentation currency
Items included in the financial statements are measured using the currency
of the primary economic environment in which the Group operates (the
functional currency). The financial statements are presented in Australian
Dollars which is the Group’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:
(i) Rental income
Rental income from operating leases represents income earned from the
rental of properties (inclusive of outgoings recovered from tenants) and is
recognised on a straight-line basis over the lease term. Rental income relating
to straightlining is included as a component of the net gain from fair value
adjustments on investment properties. The portion of operating lease income
in a reporting period relating to fixed increases in operating lease rentals in
future years is recognised as a separate component of investment properties.
(ii) Management fees
Management fees are brought to account on an accruals basis and, if
not received at the reporting date, are reflected in the balance sheet as a
receivable.
Where management fees are derived in respect of an acquisition or disposal
of property, the fees are recognised where it is probable that criteria for
entitlement will be met.
(iii) Performance fees
Performance fees are only recognised when it is probable that a fee will be
received. Detailed calculations are completed and the risks associated with
the fee are assessed when deciding when it is appropriate to recognise
revenue. Further information is provided in the critical accounting estimates.
(iv) Interest income
Interest income is recognised on a time proportion basis using the effective
interest method. 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.
(v) Dividends/distributions
Dividends/distributions are recognised as revenue when the right to receive
payment is established.
ww Assets and liabilities for each balance sheet presented are translated at
(f)
Income tax
the closing rate at the date of that balance sheet;
ww
Income and expenses for each income statement are translated at
average exchange rates; and
ww All resulting exchange differences are recognised in other
comprehensive income. If an entity is sold, the proportionate share of
exchange differences would be transferred out of equity and recognised
in the income statement.
Functional currencies and the relevant exchange rates are as follows:
2011
2010
Spot rate
US Dollar
NZ Dollar
Euro
British Pounds
Average rate
US Dollar
NZ Dollar
Euro
British Pounds
1.0713
1.2965
0.7401
0.6692
0.9856
1.3041
0.7242
0.6205
0.8532
1.2362
0.6943
0.5679
0.8804
1.2255
0.6329
0.5565
(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:
7 6
The year’s income tax expense or benefit is the tax payable on the current
year’s taxable income based on the applicable income tax rate for each
jurisdiction 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.
The current income tax charge is calculated on the basis of the tax laws
enacted or substantively enacted at the end of the reporting period in the
countries where the Company’s controlled entities and associates operate
and generate taxable income. Management periodically evaluates positions
taken in tax returns with respect to situations in which applicable tax regulation
is subject to interpretation. It establishes provision where appropriate on the
basis of amounts expected to be paid to the tax authorities.
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.
11068_CHC_AR_Financial_PPv2.indd 76
5/10/11 10:35 AM
Charter hall Group 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 is recognised in profit or loss, except to the extent
that it related to items recognised in other comprehensive income or directly
in equity. In this case, the tax is also recognised in other comprehensive
income or directly in equity, respectively.
(g) Business combinations
The acquisition method of accounting is used to account for all business
combinations, including business combinations involving entities or
businesses under common control, regardless of whether equity
instruments or other assets are acquired. The consideration transferred
for the acquisition of a subsidiary comprises the fair values of the assets
transferred, the liabilities incurred and the equity interests issued by the
Group. The consideration transferred also includes the fair value of any
contingent consideration arrangement and the fair value of any pre-existing
equity interest in the subsidiary. Acquisition-related costs are expensed as
incurred. Identifiable assets acquired and liabilities and contingent liabilities
assumed in a business combination are, with limited exceptions, measured
initially at their fair values at the acquisition date. On an acquisition-by-
acquisition basis, the Group recognises any non-controlling interest in the
acquiree either at fair value or at the non-controlling interest’s proportionate
share of the acquiree’s net identifiable assets.
The excess of the consideration transferred, the amount of any
non-controlling interest in the acquiree and the acquisition-date fair value of
any previous equity interest in the acquiree over the fair value of the Group’s
share of the net identifiable assets acquired is recorded as goodwill. If those
amounts are less than the fair value of the net identifiable assets of the
subsidiary acquired and the measurement of all amounts has been reviewed,
the difference is recognised directly in profit or loss as a bargain purchase.
Where settlement of any part of cash consideration is deferred, the amounts
payable in the future are discounted to their present value as at the date
of exchange. The discount rate used is the entity’s incremental borrowing
rate, being the rate at which a similar borrowing could be obtained from an
independent financier under comparable terms and conditions.
Contingent consideration is classified either as equity or a financial liability.
Amounts classified as a financial liability are subsequently remeasured to fair
value with changes in fair value recognised in profit or loss.
(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
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.
Collectability of trade receivables is reviewed on an ongoing basis. Debts
which are known to be uncollectable 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
Classification
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 included 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 reporting
date, which are classified as non current assets. Loans and receivables are
included in receivables in the balance sheet (note 12).
(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 reporting date.
Recognition and derecognition
Regular purchases and sales of investments are recognised at 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.
Subsequent measurement
Available for sale financial assets and financial assets at fair value through profit
or 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 financial
assets at fair value through profit or loss, excluding interest and dividend
income, are presented in the income statement in the year in which they arise.
11068_CHC_AR_Financial_PPv2.indd 77
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5/10/11 10:35 AM
AnnuAl report 2011 Notes to the consolidated financial statements continued
1 Summary of significant accounting policies continued
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. Further details on how the fair value of
financial instruments is determined are disclosed in note 1(m) and note 2.
Impairment
The Group assesses at each reporting 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 the income
statement – 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 method of recognising the resulting gain or loss
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 fair values of various derivative financial instruments used for hedging
purposes are disclosed in note 15.
(i) 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 reporting 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 reporting 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 reporting date.
7 8
The nominal value less estimated credit adjustments of trade receivables
and payables 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) Inventories
Inventories are stated at the lower of cost and net realisable value. Net
realisable value is the estimated selling price in the ordinary course of
business less the estimated costs of completion and the estimated costs
necessary to make the sale.
(o) 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
plant and equipment.
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 year 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
ww
ww
Fixtures
ww Software
6 – 8 years
3 – 5 years
The assets’ residual values and useful lives are reviewed, and adjusted if
appropriate, at each reporting 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.
(p) Investment properties
Investment properties comprise investment interests in land and buildings
(including integral plant and equipment) held for long term rental yields and not
occupied by the Group. This includes properties that are under construction
for future use as investment properties. Investment properties are 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 years. Changes in fair values
are recorded in the income statement as part of fair value adjustments.
(q) Intangibles
(i) Management rights
Management rights are not amortised as they have an indefinite life.
Management rights are tested for impairment annually, or more frequently if
events or changes in circumstances indicate that they might be impaired, and
are carried at cost less accumulated impairment losses. Management rights
are allocated to cash-generating units for the purpose of impairment testing.
(r) Trade and other payables
These amounts represent liabilities for goods and services provided to
the Group prior to the end of year which are unpaid. The amounts are
unsecured and are usually paid within 30 days of recognition.
11068_CHC_AR_Financial_PPv2.indd 78
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Charter hall Group (s) 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 a reduction in the
borrowings 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 reporting date.
(t) Borrowing costs
Borrowing costs associated with the construction of a qualifying asset,
including interest expense, are capitalised as part of the cost of that asset
during the year of time that is required to complete and prepare the asset
for its intended use or sale. Other borrowing costs are expensed.
Upon the vesting of securities and repayment of the loan, the balance of the
security-based benefits 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 for amounts payable to
employees. The Group recognises a provision where contractually obliged
or where there is a past practice that has created a constructive obligation.
(vi) Termination benefits
Termination benefits are payable when employment is terminated before the
normal retirement date, or when an employee accepts voluntary redundancy
in exchange for these benefits. The Group recognises termination benefits
when it is demonstrably committed to either terminating the employment of
current employees according to a detailed formal plan without possibility of
withdrawal or providing termination benefits as a result of an offer made to
encourage voluntary redundancy. Benefits falling due more than 12 months
after the reporting date are discounted to present value.
(u) Provisions
(w) Contributed equity
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.
(v) Employee benefits
(i) Wages and salaries and annual leave
Liabilities for wages and salaries, including non monetary benefits and
annual 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 reporting 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 benefits
Security based compensation benefits are provided to employees via the
Charter Hall Limited Executive Loan Security Plan (ELSP) and the Charter
Hall Performance Rights and Options Plan (PROP). Information relating to
these schemes is set out in note 40.
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 reporting date, the entity revises its estimate
of the number of securities that are expected to vest. The employee benefit
expense recognised each year takes into account the most recent estimate.
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.
(x) Distributions
Provision is made for the amount of any distribution declared, being
appropriately authorised and no longer at the discretion of the entity,
on or before the end of the year but not distributed at reporting date.
(y) Earnings per security
(i) Basic earnings per security
Basic earnings per security is calculated by dividing the profit attributable
to equity holders of the Group, excluding any costs of servicing equity
other than ordinary stapled securities, by the weighted average number of
ordinary securities outstanding during the year, 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 effect of interest
and other financing costs after income tax 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.
Following the consolidation of securities during the year, the comparative
information for basic earnings per security and diluted earnings per security
has been restated to a post security consolidated basis.
(z) Goods and Services Tax (GST)
Revenues, expenses and assets (with the exception of receivables) 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.
Receivables and payables are stated inclusive of the amount of GST
receivable or payable. The net amount of GST recoverable from, or payable
to, the taxation authority is included with other receivables or payables in
the balance sheet.
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 flows.
11068_CHC_AR_Financial_PPv2.indd 79
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5/10/11 10:35 AM
AnnuAl report 2011 Notes to the consolidated financial statements continued
1 Summary of significant accounting policies continued
(aa) Rounding of amounts
The Company is of a kind referred to in Class Order 98/100 (as amended),
issued by the Australian Securities and Investments Commission, relating
to the ‘rounding off’ of amounts in the financial statements. Amounts in the
financial statements have been rounded to the nearest thousand dollars in
accordance with that Class Order, unless otherwise indicated.
(ab) New accounting standards and UIG interpretations
Certain new accounting standards and interpretations have been published
that are not mandatory for year ended 30 June 2011 reporting periods. The
impact of these new standards and interpretations (to the extent relevant to
the Group) is set out below.
(iv) AASB 2010-8 Amendments to Australian Accounting Standards –
Deferred Tax: Recovery of Underlying Assets (effective from
1 January 2012)
In December 2010, the AASB amended AASB 112 Income Taxes to
provide a practical approach for measuring deferred tax liabilities and
deferred tax assets when investment property is measured using the
fair value model. AASB 112 requires the measurement of deferred tax
assets or liabilities to reflect the tax consequences that would follow
from the way management expects to recover or settle the carrying
amount of the relevant assets or liabilities, that is through use or
through sale. The amendment introduces a rebuttable presumption
that investment property which is measured at fair value is recovered
entirely by sale. The Group will apply the amendment from 1 July 2012.
Management is currently evaluating the impact of the amendments.
(i) AASB 9 Financial Instruments & AASB 2009-11 Amendments to
(ac) Leases
Australian Accounting Standards arising from AASB 9 and AASB 2010-
7 Amendments to Australian Accounting Standards arising from AASB
9 (effective from 1 January 2013)
AASB 9 Financial Instruments addresses the classification and
measurement of financial assets. The standard is not applicable until
1 January 2013 but is available for early adoption. AASB 9 only permits
the recognition of fair value gains and losses in other comprehensive
income if they relate to equity investments that are not traded. Fair
value gains and losses on available-for-sale debt investments, for
example, will therefore have to be recognised directly in the statement
of comprehensive income. The Group has not yet decided when to
adopt AASB 9. However, management does not expect this will have a
significant impact on the Group’s consolidated financial statements as
the Group does not hold any available-for-sale investments.
(ii) Revised AASB 124 Related Party Disclosures and AASB 2009-12
Amendments to Australian Accounting Standards (effective from
1 January 2011)
In December 2009, the AASB issued a revised AASB 124 Related
Party Disclosures. It is effective for accounting periods beginning on
or after 1 January 2011 and must be applied retrospectively. The
amendment clarifies and simplifies the definition of a related party and
removes the requirement for government-related entities to disclose
details of all transactions with the government and other government-
related entities. The Group will apply the amended standard from
1 July 2011. When the amendments are applied, the Group will need
to disclose information about transactions between its subsidiaries and
its associates. However, there will be no impact on any of the amounts
recognised in the consolidated financial statements.
(iii) AASB 2010-6 Amendments to Australian Accounting Standards –
Disclosures on Transfers of Financial Assets (effective from 1 July 2011)
Amendments made to AASB 7 Financial Instruments: Disclosures
in November 2010 introduce additional disclosures in respect of risk
exposures arising from transferred financial assets. The amendments
will affect particularly entities that sell, factor, securitise, lend or otherwise
transfer financial assets to other parties. These amendments are not
expected to have any significant impact on the Group’s disclosures.
The Group intends to apply the amendment from 1 July 2011.
Leases in which a significant portion of the risks and rewards of ownership
are retained by the lessor are classified as operating leases (note 32).
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.
(ad) Parent entity financial information
The financial information for the parent entity, Charter Hall Limited, disclosed
in note 4, has been prepared on the same basis as the consolidated
financial statements, except as set out below.
(i)
Investments in controlled entities, associates and joint venture entities
Investments in controlled entities, associates and joint venture entities are
accounted for at cost in the financial statements of Charter Hall Limited.
Dividends received from controlled entities, associates and joint venture
entities are recognised in the parent entity’s profit or loss, rather than
deducted from the carrying amount of these investments.
(ii) 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 9.
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.
(iii) Receivables and payables
Trade amounts receivable from controlled entities in the normal course of
business and other amounts advanced on commercial terms and conditions
are included in receivables. Similarly, amounts payable to controlled entities
are included in payables.
8 0
11068_CHC_AR_Financial_PPv2.indd 80
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Charter hall Group 2 Financial risk management
The Group’s activities expose it to a variety of financial risks; market risk (price risk, interest rate risk, and foreign exchange risk), credit risk and liquidity 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 Group Treasury and the Joint Managing Directors in consultation with senior management, the Audit, Risk and
Compliance Committee and 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 price, interest rate and credit
risks, the use of derivative financial instruments and investing excess liquidity.
(a) Market risk
(i) Unlisted units price risk
The Group is exposed to unlisted units price risk. This arises from investments in unlisted property funds managed by the Group. These funds invest in direct
property. Charter Hall manages all the funds that the Group invests in and its staff have a sound understanding of the underlying property values and trends
that give rise to price risk. The carrying value of investments in associates at fair value through profit or loss is measured with reference to the funds’ unit
prices which are determined in accordance with the funds’ respective constitutions. The key determinant of the unit price is the underlying property values
which are approved by the Board and the Valuation Sub-Committee of the Board.
The table below illustrates the potential impact a change in unlisted unit prices by +/-10% would have on the Group’s profit and equity. The movement in
the price variable has been determined based on management’s best estimate, having regard to a number of factors, including historical levels of price
movement, historical correlation of the Group’s investments with the relevant benchmark and market volatility. However, actual movements in the price may
be greater or less than anticipated due to a number of factors. As a result, historic price variations are not a definitive indicator of future price variations.
2011
Assets
-10%
+10%
Carrying
amount
$’000
Profit
$’000
Equity
$’000
Profit
$’000
Equity
$’000
Investment in associates at fair value through profit or loss
78,445
(7,845)
(7,845)
7,845
7,845
2010
Assets
-10%
+10%
Carrying
amount
$’000
Profit
$’000
Equity
$’000
Profit
$’000
Equity
$’000
Investment in associates at fair value through profit or loss
73,739
(7,374)
(7,374)
7,374
7,374
(ii) 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 receipts are not materially exposed to changes in
market interest rates.
The Group’s interest rate risk arises from borrowings of $101,861,453 (2010: $91,228,056). Borrowings drawn at variable rates expose the Group to cash
flow interest rate risk. Borrowings drawn at fixed rates expose the Group to fair value interest rate risk. The Group’s policy is to fix the rates for between
50–100% of core borrowings over the next three years and up to 100% thereafter and to fix up to 100% of its non-core borrowings. Core borrowings are
defined as being the level of borrowings that are expected to be held for a period of more than two years. At year end 38% (2010: 44%) of total borrowings
had fixed interest rates through the use of derivatives.
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. Refer to note 12(d) for interest rate sensitivity analysis on assets and note 24(c) for sensitivity analysis for liabilities.
(iii) Foreign exchange risk
The Group is exposed to foreign exchange risk arising principally from its equity accounted investments in Charter Hall Retail REIT and Charter Hall Office REIT.
These investments have offshore operations in the US, Europe and New Zealand and manage their foreign exchange exposures principally through the use
of offsetting borrowings in related foreign currencies and through the use of derivative financial instruments. Any residual unhedged risk remains in the foreign
currency translation reserve of these funds and the Group’s equity accounted share of movements in these reserves are recognised in the foreign currency
translation reserve of the Group.
11068_CHC_AR_Financial_PPv2.indd 81
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AnnuAl report 2011 Notes to the consolidated financial statements continued
2 Financial risk management continued
The table below illustrates the potential impact a change in foreign exchange rates of +/-10% would have on the Group’s profit and equity:
US dollars
+ 10.0%
- 10.0%
Euros
+ 10.0%
- 10.0%
NZ dollars
+ 10.0%
- 10.0%
(b) Credit risk
2011
Profit
$’000
324
(394)
58
(66)
26
(32)
Equity
$’000
(6,448)
6,554
(566)
699
(23)
26
2010
Profit
$’000
1,048
(1,738)
82
(327)
(214)
236
Equity
$’000
(365)
(14)
(260)
89
(896)
1,067
The Group has policies in place to ensure that sales of services are made to customers with an appropriate credit history.
Over half of the Group’s income is derived from management fees and performance fees from related parties.
Approximately 16% (2010: 27%) of the Group’s income is derived from rental properties; all tenants are assessed for credit worthiness, taking into account
their financial position, past experience and other factors.
Refer to note 12(c) for more information on credit risk.
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, the Group aims at maintaining flexibility in funding by
keeping committed credit lines available.
Maturities of financial liabilities
The table below analyses the contracted maturity of the Group’s financial liabilities at 30 June 2011. The amounts disclosed in the table are the contractual
undiscounted cash flows, except for interest rate swaps:
Carrying
amount
$’000
58,061
12,106
101,862
407
Less than
1 year
$’000
Between 1
and 2 years
$’000
Between 2
and 5 years
$’000
Over
5 years
$’000
Total cash
flows
58,061
–
–
13,841
–
–
4,739
–
4,739
224
104,446
183
–
–
–
–
–
58,061
13,841
113,924
407
186,233
172,436
62,800
18,804
104,629
Carrying
amount
$’000
Less than
1 year
$’000
Between 1
and 2 years
$’000
Between 2
and 5 years
$’000
Over
5 years
$’000
Total cash
flows
$’000
55,018
11,270
91,228
4,754
55,018
–
4,992
1,273
162,270
61,283
–
–
92,527
1,313
93,840
–
15,000
–
3,801
18,801
–
–
–
2,523
2,523
55,018
15,000
97,519
8,910
176,447
2011
Trade and other payables
Contingent consideration payable
Borrowings
Interest rate swaps
2010
Trade and other payables
Contingent consideration payable
Borrowings
Interest rate swaps
8 2
11068_CHC_AR_Financial_PPv2.indd 82
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Charter hall Group (d) Fair value measurements
The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes.
AASB 7 Financial Instruments: Disclosures requires disclosure of fair value measurements by level of the following fair value measurement hierarchy:
(i) Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities;
(ii) Level 2 – Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived
from prices); and
(iii) Level 3 – Inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The following tables present the Group’s financial assets and financial liabilities measured and recognised at fair value.
2011
Assets
Investment in associates at fair value through profit or loss
Total assets
Liabilities
Derivative financial instruments
Contingent consideration payable
Total liabilities
2010
Assets
Investment in associates at fair value through profit or loss
Total assets
Liabilities
Derivative financial instruments
Contingent consideration payable
Total liabilities
The following tables present the changes in level 3 instruments for the year:
2011
Opening balance
Additions
Disposals
Gain/(loss) recognised in profit and loss
Closing balance
2010
Opening balance
DRF consolidated
Purchases
Losses recognised in profit and loss
Liability recognised during year
Closing balance
Level 1
$’000
Level 2
$’000
Level 3
$’000
Total
$’000
–
–
–
–
–
–
–
407
–
407
Level 1
$’000
Level 2
$’000
–
–
–
–
–
–
–
4,754
–
4,754
78,445
78,445
–
12,106
12,106
Level 3
$’000
73,739
73,739
–
11,270
11,270
78,445
78,445
407
12,106
12,513
Total
$’000
73,739
73,739
4,754
11,270
16,024
Investment in associates
at fair value through
profit or loss
$’000
Contingent
consideration
payable
$’000
73,739
5,454
(439)
(309)
11,270
–
–
836
78,445
12,106
Investment in associates
at fair value through
profit or loss
$’000
Contingent
consideration
payable
$’000
210,256
(139,888)
14,824
(11,453)
–
73,739
–
–
–
–
11,270
11,270
Note
35
The carrying amounts of current trade receivables and payables approximate their fair values due to their short-term nature. 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. The fair value of current borrowings approximates the carrying amount, as the impact of discounting is not significant.
11068_CHC_AR_Financial_PPv2.indd 83
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5/10/11 10:35 AM
AnnuAl report 2011 Notes to the consolidated financial statements continued
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 35) and investment properties (note 20). These investments
are reviewed regularly for impairment by reference to external independent property valuations and market conditions, using generally accepted market practices.
The reported fair values of investment properties reflects market conditions at the end of the reporting period. While this represents best estimates as at the
reporting date, actual sales prices may be higher or lower than the most recent valuations. This is particularly relevant in periods of market illiquidity or uncertainty.
(ii) Estimated performance fees
Critical judgements are made by the Group in respect of recognising performance fee revenue. Performance fees are only recognised when it is probable that a fee
will be received. Detailed calculations are completed and the risks associated with the fee are assessed when deciding when it is appropriate to recognise revenue.
(iii) Tax losses
The Group has not recognised tax losses from previous years as it does not currently consider these to be probable of recovery against future taxable income of
the tax consolidated group. In prior years, the Group has only recognised losses to the extent to which it believed these were recoverable at each reporting date.
(iv) Impairment testing
Critical judgements are made by the Group in assessing the carrying value of management rights acquired. The management rights are considered to having
an indefinite useful life if there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the entity.
(v) Classification of investments in associates
The Group has determined that it is appropriate for investments in wholesale and listed funds to be equity accounted and investments in unlisted retail funds
to be recognised at fair value through profit or loss.
4 Parent entity financial information
(a) Summary financial information
The individual financial statements for the parent entity, Charter Hall Limited, show the following aggregate amounts:
2011
$’000
2010
$’000
2,585
5,932
307,519
256,790
–
–
355,874
282,709
9,503
9,427
1,717
18
(59,593)
(46,893)
(20,517)
(20,517)
1,717
18
(37,081)
(25,919)
(18,428)
(18,410)
Balance sheet
Current assets
Total assets
Current liabilities
Total liabilities
Shareholders’ equity
Issued capital
Reserves
Security-based benefits reserve
Foreign currency translation reserve
Accumulated losses
Loss for the year
Total comprehensive loss
(b) Contingent liabilities of the parent entity
As at 30 June 2011, the parent entity had no contingent liabilities (2010: $nil).
(c) Contractual commitments
As at 30 June 2011, the parent entity had no contractual commitments (2010: $nil).
8 4
11068_CHC_AR_Financial_PPv2.indd 84
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Charter hall Group (d) 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. CHL has loan
facilities provided by CHPT which has significant net assets and which, together with CHL, forms part of the Charter Hall Group stapled entity. At 30 June 2011,
the amounts drawn under these facilities totals $355.9 million and are not repayable until 31 July 2018.
Charter Hall Group is proposing to reallocate capital from CHPT to CHL which would result in the capital being more appropriately balanced between CHL
and CHPT. Any such proposal will require approval at a general meeting of securityholders.
(e) Deed of cross guarantee
CHL and Charter Hall Holdings Pty Ltd are parties to a deed of cross guarantee under which each company guarantees the debts for the other.
A consolidated income statement, statement of comprehensive income and balance sheet are disclosed in note 41.
5 Segment information
(a) Description of segments
Management has determined the operating segments based on the reports reviewed by the Board that are used to make strategic decisions.
The Board has identified the following three reportable segments, the performance of which it monitors separately.
Property investment
This segment comprises interests in investment properties and listed/unlisted property funds. The property investment division has the profit result of the
DRF investment identified separately for management.
Funds management and corporate
The segment comprises funds management services, development management services and other property services.
Development investment
The segment comprises property development activities of the Group.
(b) Segment information provided to the Board
The operating segments identified by the Board for the reportable segments for the year ended 30 June 2011 are as follows:
2011
Total net rental income
Total investment income
Total rental and property income
Net development income
Total corporate income
Total income
Operating expenses
Funds
management
and
corporate
$’000
Property
investment
$’000
Development
investment
$’000
–
31,599
31,599
–
–
31,599
–
–
–
–
85,497
85,497
–
–
–
3,769
–
DRF
(100%)
$’000
15,052
–
15,052
–
–
Combined
Group
$’000
15,052
31,599
46,651
3,769
85,497
(472)
(64,806)
–
(796)
(66,074)
3,769
15,052
135,917
Earnings before interest, tax, depreciation and amortisation (EBITDA)
31,127
Depreciation
Earnings before interest and tax (EBIT)
Interest income
Interest expense
Operating earnings (including 100% of DRF)
Non-controlling interest
Operating earnings
Number of securities (‘000)
Operating earnings per security (EPS)
Number of securities for dividend per security (DPS) (‘000)
DPS
–
31,127
192
(1,451)
29,868
–
20,691
(1,545)
19,146
1,339
–
20,485
–
29,868
20,485
3,769
14,256
–
–
3,769
14,256
–
–
3,769
–
3,769
996
(6,665)
8,587
(2,288)
6,299
69,843
(1,545)
68,298
2,527
(8,116)
62,710
(2,288)
60,422
293,254
20.60cps
293,756
16.50cps
Geographical segments are immaterial as the vast majority of the Group’s income is from Australian sources.
The Group does not derive income of more than 10% from any one source.
11068_CHC_AR_Financial_PPv2.indd 85
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AnnuAl report 2011 Notes to the consolidated financial statements continued
5 Segment information continued
The reportable segments for the year ended 30 June 2010 are as follows:
2010 (restated)
Total net rental income
Total investment income
Total rental and property income
Net development income
Total corporate income
Total income
Operating expenses
EBITDA
Depreciation
EBIT
Interest income
Interest expense
Operating earnings (including 100% of DRF)
Non-controlling interest
Operating earnings
Number of securities (‘000)
Operating EPS
Number of securities for DPS (‘000)
DPS
Funds
management
and
corporate
$’000
Property
investment
$’000
Development
investment
$’000
422
18,965
19,387
–
120
19,507
242
(402)
(160)
–
41,193
41,033
–
–
–
1,130
–
DRF
(100%)
$’000
13,420
–
13,420
–
–
1,130
13,420
(219)
(33,100)
–
(624)
19,288
–
19,288
627
(731)
19,184
–
19,184
7,933
(672)
7,261
438
–
7,699
–
7,699
1,130
12,796
–
1,130
–
–
1,130
–
1,130
–
12,796
3,692
(5,414)
11,074
(3,306)
7,768
Combined
Group
$’000
14,084
18,563
32,647
1,130
41,313
75,090
(33,943)
41,147
(672)
40,475
4,757
(6,145)
39,087
(3,306)
35,781
212,540
16.83cps
290,595
12.80cps
Comparatives have been restated in accordance with AASB 133 Earnings Per Share to reflect the change in accounting policy and security consolidation
during the year.
The reconciliation of income per the segment notes for 2011 and 2010 to the income statement is below:
Total income per segment note
Add: investment property expenses
Add: interest income
Less: equity accounted profit in funds management segment
Less: equity accounted profit in property investment segment
Add: other
Revenue per income statement
2011
$’000
2010
(restated)
$’000
135,917
75,090
4,084
1,675
(3,763)
4,703
4,757
(1,130)
(28,354)
(15,232)
35
74
109,594
68,262
Operating earnings is used by management to measure the profitability of the Group. It represents the profit under Australian Accounting Standards adjusted
for fair value adjustments, impairment of assets, gains or losses on sale of investments, acquisition costs and non-cash items such as security-based
benefits expense, amortisation and tax benefit.
8 6
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Charter hall Group The calculation of operating earnings by adjusting for amounts in the income statement excluding the non-controlling interest in DRF is shown below:
Statutory profit after tax attributable to stapled
securityholders of Charter Hall Group
Fair value adjustments (note 8)
Excluding
non-
controlling
interest
Including
non-
controlling
interest
2011
$’000
52,338
3,896
2011
$’000
55,237
3,213
Net gain on re-measurement of equity interests
(16,726)
(16,726)
(Gain)/loss on sale of investments, property and derivatives
Impairment of management rights
Impairment of goodwill
Business combination transaction costs
Non-operating (income)/losses from equity accounted investments
Security-based benefits expense
Amortisation
Income tax benefit
Finance costs due to unwinding of discount on contingent consideration
Foreign exchange loss
Operating earnings
(3,350)
19,171
–
–
1,773
4,090
950
(3,350)
19,171
–
–
1,722
4,090
1,183
(2,556)
(2,666)
836
–
836
–
Excluding
non-
controlling
interest
2010
(restated)
$’000
Including
non-
controlled
interest
2010
(restated)
$’000
6,840
37,413
(59,725)
5,476
–
15,328
6,636
22,573
1,317
734
(950)
–
139
(3,589)
50,762
(59,725)
5,827
–
15,328
6,636
22,573
1,317
734
(950)
–
174
60,422
62,710
35,781
39,087
Basic weighted average number of securities per note 39
Operating earnings per security (excluding non-controlling interest)
293,253,621
20.60 cents
212,540,278
16.83 cents
Assets and liabilities have not been reported on a separate basis as the chief operating decision maker is provided with consolidated information.
6 Revenue
Sales revenue
Gross rental income
Management and performance fees
Other revenue
Interest
Distributions/dividends*
Total revenue
2011
$’000
2010
$’000
17,716
85,491
103,207
2,862
3,525
6,387
18,768
40,951
59,719
4,804
3,739
8,543
109,594
68,262
*
The Group owns 36.4% (2010: 31.9%) of Charter Hall Diversified Property Fund, 24.9% (2010: 24.9%) of Charter Hall Umbrella Fund and 3.5% (2010: 3.5%) of
Charter Hall Direct Property Fund, which are all accounted for at fair value. This represents the distribution of income from these Funds.
11068_CHC_AR_Financial_PPv2.indd 87
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AnnuAl report 2011 Notes to the consolidated financial statements continued
7 Expenses
Profit before income tax includes the following specific expenses:
Depreciation
Plant and equipment
Amortisation
Finance costs
Interest and finance charges paid/payable
Finance costs due to unwinding of discount on contingent consideration
Defined contribution superannuation expense
Rent expense relating to operating leases
Minimum lease payments
Impairment of management rights
Impairment of goodwill
8 Fair value adjustments
Investment properties
Investment in associates at fair value through profit or loss
Derivative financial instruments
9
Income tax benefit
(a) Income tax benefit
Current tax expense
Deferred income tax benefit
Over provided in prior years
Deferred income tax benefit comprises:
Increase in deferred tax assets
Decrease in deferred tax liabilities
Note
2011
$’000
2010
$’000
1,545
1,183
7,275
836
2,023
1,483
19,171
18
672
734
6,471
–
1,218
771
–
–
15,328
2011
$’000
(2,518)
(309)
(386)
2010
$’000
(38,592)
(11,453)
(717)
(3,213)
(50,762)
2011
$’000
218
(3,341)
457
(2,666)
(3,231)
(110)
(3,341)
2010
$’000
442
(1,354)
(38)
(950)
(1,775)
421
(1,354)
Note
20
14,35(b)
Note
21
25
8 8
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Charter hall Group (b) Numerical reconciliation of income tax benefit to prima facie tax payable
Profit/(loss) before income tax expense
Prima facie tax expense/(benefit) at the Australian tax rate of 30%
Tax effect of amounts which are not deductible/(taxable) in calculating taxable income:
Note
Charter Hall Property Trust income
Non assessable income
Entertainment
Share-based payments expense
Impairment loss
Losses not recognised
Movement in deferred tax benefits due to acquisition
Sundry items
Tax on LTI interest
Non-taxable dividends
Over provided in prior years
Difference in overseas tax rates
Income tax benefit
(c) Tax consolidation legislation
2011
$’000
52,571
15,771
(18,932)
(5,164)
45
1,227
–
2,437
–
222
623
711
457
(63)
(2,666)
2010
$’000
(4,539)
(1,362)
(5,030)
–
42
395
89
4,082
212
5
483
172
(38)
–
(950)
Charter Hall Limited and its wholly owned Australian controlled entities have implemented the tax consolidation legislation with effect from 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.
(d) Tax losses
Unused tax losses for which no deferred tax asset has been recognised
Potential tax benefit @ 30%
2011
$’000
12,071
3,621
2010
$’000
13,607
4,082
Based upon the completion of the June 2010 income tax return, the actual carried forward tax losses (unbooked) was calculated to be $1,184,000. This
was a reduction of $2,898,000 on the previously disclosed carried forward losses (unbooked) in the 30 June 2010 financial statements of $4,082,000.
11068_CHC_AR_Financial_PPv2.indd 89
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AnnuAl report 2011 Notes to the consolidated financial statements continued
10 Distributions paid and payable
(a) Ordinary securities
Interim ordinary distribution for the six months ended 31 December 2010
of 8.00 cents per security paid on 28 February 2011
Final ordinary distribution for the six months ended 30 June 2011
of 8.50 cents per security expected to be paid on 25 August 2011
Interim ordinary distribution for the six months ended 31 December 2009
of 6.40 cents * per security paid on 26 February 2010
Final ordinary distribution for the six months ended 30 June 2010
of 6.40 cents * per security paid on 27 August 2010
Total distributions paid and payable
Less: distributions paid to holders of LTI securities
2011
$’000
2010
$’000
24,507
26,039
–
–
50,546
(2,077)
48,469
–
–
12,009
19,404
31,413
(1,611)
29,802
* Six monthly distributions of 1.60 cents per security restated to reflect the one for four security consolidation.
Distributions paid in cash or satisfied by the issue of securities under the Distribution Re-Investment Plan for the year ended 30 June were as follows:
Paid in cash
Satisfied by issue of securities
2011
$’000
50,546
–
2010
$’000
20,552
10,861
Franking credits available in the parent entity for subsequent financial years based on a tax rate of 30% (2010: 30%) are $3,339,951 (2010: $3,285,368).
11 Current assets – cash and cash equivalents
Cash at bank and on hand
Deposits at call
(a) Cash at bank and on hand
These amounts earn floating interest rates of between nil and 4.7% (2010: 4.0% and 4.4%).
(b) Deposits at call
These amounts earned floating interest rates of between 4.2% and 4.8% (2010: 4.2% and 4.8%).
2011
$’000
26,266
–
26,266
2010
$’000
23,896
4,484
28,380
9 0
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Charter hall Group 12 Current assets – trade and other receivables
Current
Trade receivables
Loans to key management personnel
Distributions receivable
Other receivables
Prepayments
Non-current
Loans to key management personnel
Loans to joint ventures
Note
2011
$’000
2010
$’000
22,035
22,035
706
11,556
7,922
1,219
19,970
19,970
5,145
8,955
13,705
586
43,438
48,361
33
4,400
5,000
9,400
–
3,750
3,750
Further information relating to loans to key management personnel is set out in note 30.
(a) Bad and doubtful trade receivables
In the year, the Group incurred nil expense/benefit (2010: $nil) in respect of provisioning for bad and doubtful trade receivables.
(b) Fair values
The fair values and carrying values of non current receivables of the Group are as follows:
Loans to key management personnel
Loans to joint ventures
2011
2010
Carrying
amount
$’000
5,106
5,000
Fair value
$’000
5,106
5,000
Carrying
amount
$’000
5,145
3,750
Fair value
$’000
5,145
3,750
11068_CHC_AR_Financial_PPv2.indd 91
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AnnuAl report 2011 Notes to the consolidated financial statements continued
12 Current assets – trade and other receivables continued
(c) Interest rate risk
The Group’s exposure to interest rate risk and the effective weighted average interest rate by maturity period is set out in the following tables:
Weighted average interest rate
3.36%
12.50%
12.50%
12.00%
26,266
706
2011
Cash and cash equivalents
Trade receivables
Loans to key management personnel
Loans to joint ventures
Distributions receivable
Other receivables
Floating
interest
rate
$’000
26,266
–
–
–
–
–
2010
Cash and cash equivalents
Trade receivables
Loans to key management personnel
Loans to joint ventures
Distributions receivable
Other receivables
Floating
interest
rate
$’000
28,380
–
–
–
–
–
Weighted average interest rate
4.00%
3.20%
28,380
5,145
Fixed interest maturing in:
1 year
or less
$’000
Over 1 to
2 years
$’000
Over 2 to
3 years
$’000
Over 3 to
4 years
$’000
Over 4 to
5 years
$’000
Over
5 years
$’000
–
–
–
–
–
–
–
–
–
4,400
–
–
–
–
–
–
5,000
–
–
4,400
5,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Fixed interest maturing in:
1 year
or less
$’000
Over 1 to
2 years
$’000
Over 2 to
3 years
$’000
Over 3 to
4 years
$’000
Over 4 to
5 years
$’000
Over 5
years
$’000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3,750
–
–
3,750
12.00%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
706
–
–
–
–
–
5,145
–
–
–
Non-
interest
bearing
$’000
Total
$’000
–
26,266
22,035
22,035
–
–
5,106
5,000
11,556
11,556
7,922
7,922
41,513
77,885
Non-
interest
bearing
$’000
Total
$’000
–
28,380
12,831
12,831
–
–
8,955
5,145
3,750
8,955
20,844
20,844
42,630
79,905
(d) Interest rate sensitivity analysis
The following table illustrates the potential impact a change in interest rates of +/-1% would have on the Group’s profit after tax and equity.
Carrying
amount
$’000
26,266
26,266
28,380
28,380
-1%
+1%
Profit
$’000
Equity
$’000
Profit
$’000
Equity
$’000
(263)
(263)
(284)
(284)
(263)
(263)
(284)
(284)
263
263
284
284
263
263
284
284
2011
Assets
Cash and cash equivalents
Total (decrease)/increase
2010
Assets
Cash and cash equivalents
Total (decrease)/increase
9 2
11068_CHC_AR_Financial_PPv2.indd 92
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Charter hall Group (e) Credit risk
There is a limited 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.
The ageing of trade receivables at the reporting date was as follows:
1 to 3 months
3 to 6 months
More than 6 months
The receivables are considered past due but not impaired.
The carrying value approximates fair value.
13 Current assets – investment property held for sale
Mentone residential properties*
Bluewater Square, Redcliffe
*
The properties held for sale at 30 June 2011 were sold in July 2011 at book value.
14 Non-current assets – investments in associates at fair value through profit or loss
Investments in associates
Opening balance
Additions
Disposals
Devaluations
DRF consolidated
Closing balance
Note
35
8
2011
$’000
19,856
348
1,831
22,035
2011
$’000
921
–
921
2011
$’000
78,445
73,739
5,454
(439)
(309)
2010
$’000
9,719
1,237
1,875
12,831
2010
$’000
–
45,000
45,000
2010
(restated)
$’000
73,739
210,256
14,824
–
(11,453)
–
(139,888)
78,445
73,739
Changes in fair values of investments in associates at fair value through profit or loss are recorded in fair value adjustments in the income statement.
These investments comprise units in certain unlisted Charter Hall managed funds which have been designated at fair value through profit or loss.
Information about the Group’s material exposure to share and unit price risk is provided in note 2(a)(i).
11068_CHC_AR_Financial_PPv2.indd 93
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AnnuAl report 2011
Notes to the consolidated financial statements continued
15 Derivative financial instruments
Non-current liabilities
Interest rate swap contracts
(a) Instruments used by the Group
2011
$’000
407
407
2010
$’000
4,754
4,754
The Group utilises derivative financial instruments 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 previously entered into interest rate
swap contracts under which it is obliged to receive interest at variable rates and to pay interest at fixed rates. All swaps have been entered into by DRF,
which is consolidated.
Swaps currently in place cover 38% (2010: 44%) of the loan principal outstanding. The fixed interest rates in 2011 ranged between 6.84% and 7.48%
(2010: between 6.46% and 7.5%) for AUD swaps (including margin and line fees). There is one NZD swap which has a rate of 3.9% (2010: 7.5%).
At reporting date, the notional principal amounts and periods of expiry of the interest rate swap contracts are as follows:
1 – 2 years
2 – 3 years
4 – 5 years
7 – 8 years
2011
$’000
18,203
20,000
–
–
38,203
2010
$’000
–
–
20,000
20,223
40,223
The contracts require settlement of net interest receivable or payable every 90 days. 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 amount of fair value adjustments on hedges recorded directly in the income statement was a loss of $386,000 (2010: loss of $716,265).
(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 its transactions in interest rate contracts only with investment grade financial institutions.
(c) Interest rate risk exposures
Refer to note 24(c) for the Group’s exposure to interest rate risk on interest rate swaps.
Interest rate swaps with a notional principal amount of $40.2 million (2010: $138.50 million) were terminated during the year, resulting in a realised gain of
$345,323 (2010: $391,064).
16 Inventories
Non-current
685 La Trobe property development
Type
Office
2011
$’000
7,450
7,450
2010
$’000
–
–
9 4
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Charter hall Group 17 Non current assets – investments accounted for using the equity method
Investments in associates
Investments in joint venture entities
(a) Investments in associates
Note
35
36
2011
$’000
2010
(restated)
$’000
470,083
419,702
47,624
26,634
517,707
446,336
These investments represent units in listed and unlisted Charter Hall managed funds which are accounted for in the consolidated financial statements using
the equity method of accounting, excluding commitments to acquire units disclosed in note 32.
(b) Investments in joint venture entities
These investments represent joint venture interests in Australian and overseas joint ventures which are accounted for in the consolidated financial statements
using the equity method of accounting.
18 Non current assets – intangible assets
In the prior year, the Group completed a transaction to acquire the majority of Macquarie Group’s core real estate management platform in March 2010.
This transaction was structured to secure the management rights (i.e. future management fee revenue) of Macquarie Office Trust (renamed Charter Hall
Office REIT), Macquarie CountryWide Trust (renamed Charter Hall Retail REIT) and Macquarie Direct Property Fund (renamed Charter Hall Direct Property
Fund). The excess of consideration paid over net tangible assets acquired represents the value of these management rights. Management considers that the
management rights have an indefinite life as there are no finite terms in the underlying agreements and the Group has no intention to cease managing these
Funds. As a result, the management rights are not being amortised.
Management rights
2011
$’000
2010
$’000
99,994
119,164
The carrying value of the management rights is supported by value-in-use calculations. These calculations use cash flow projections based on financial
budgets approved by management covering a five-year period. Cash flows beyond the five-year period are extrapolated using estimated growth rates
appropriate for the business. Impairment is tested at the cash-generating unit (CGU) level for each CGU. Each individual CGU is considered to be a fund
which generates management fee income.
Key assumptions used for value-in-use calculations are as follows:
ww Discount rate range of 13–18% (2010: 12.5%) which is in excess of the Group’s weighted average cost of capital as a result of the management
platform carrying more risk than the return on property investment cash flows;
ww Growth over the next five years of 3% (2010: 5%) per annum; and
ww
Terminal value multiple of 7.0 times earnings (2010: 7.0 times) which is slightly lower than the acquisition multiple of 7.7 times earnings.
At 30 June 2011, the Group applied a write-down of $19.2 million to the carrying value of its intangible management rights. The lower value reflects
management’s current assessment of the recoverable amount of these assets taking into account the present value of future expected cash flows following
CQO’s announced disposal of its US assets discounted using a risk weighted discount rate. As a result, the carrying value of the intangible management
rights in CQO has decreased to $47.0 million (2010: $66.2 million).
The sensitivity of management’s value-in-use calculations to potential adverse movements in the key assumptions is as follows:
ww A 1% increase in discount rates would result in a further $2.0 million impairment in CQO management rights;
ww A 1% decrease in growth rate would result in a further $1.6 million impairment in CQO management rights; and
ww A 1.0 times decrease in terminal value multiple would result in a further $1.4 million impairment in CQO management rights.
Applying the above sensitivities to management rights values of Charter Hall Retail REIT and other unlisted funds would not result in any impairment to the
carrying value of these rights.
11068_CHC_AR_Financial_PPv2.indd 95
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AnnuAl report 2011 Notes to the consolidated financial statements continued
19 Non current assets – property, plant and equipment
Year ended 30 June 2010
Opening net book amount
Additions
Depreciation charge
Closing net book amount
At 30 June 2010
Cost
Accumulated depreciation
Net book amount
Year ended 30 June 2011
Opening net book amount
Additions
Disposals
Depreciation charge
Closing net book amount
At 30 June 2011
Cost
Accumulated depreciation
Net book amount
Furniture,
fittings and
equipment
$’000
Fixtures
$’000
Software
$’000
705
907
(395)
1,217
2,365
(1,148)
1,217
1,217
662
(15)
(367)
1,497
2,993
(1,496)
1,497
833
–
(65)
768
1,073
(305)
768
766
1,058
(217)
1,607
1,824
(217)
1,607
768
1,607
–
–
(52)
716
1,073
(357)
716
473
–
(1,126)
954
2,300
(1,346)
954
Total
$’000
2,304
1,965
(677)
3,592
5,262
(1,670)
3,592
3,592
1,135
(15)
(1,545)
3,167
6,366
(3,199)
3,167
20 Non current assets – investment properties
Property
Type
%
Owned
Date
acquired
Independent
valuation
date
Independent
valuation
amount
$’000
Book value
2011
$’000
Book value
2010
$’000
61 Nepean Hwy, Mentone1
Residential
50
15/06/2005
N/A
N/A
Mentone Showrooms, Mentone Bulky retail
100
03/07/2008
30/09/2009
18,300
DRF properties
Home HQ, Nunawading2
Bunnings, Stafford
Foodtown, Auckland, NZ
Home HQ, Ipswich
Menai Central, Menai
Bulky retail
Bulky retail
Retail
Retail
Retail
50
03/07/2008
30/06/2011
100
20/06/2007
30/06/2011
100
06/07/2007
30/06/2011
100
14/08/2007
30/06/2011
100
22/02/2008
30/06/2011
Mentone Centre, Mentone
Property sold during the year
N/A
31,000
18,750
18,203
27,000
37,000
N/A
–
15,800
15,800
31,000
18,750
18,203
27,065
37,000
–
33 Windorah St, Stafford
Bulky retail
100
20/07/2010
30/06/2011
11,700
11,700
770
18,300
19,070
62,000
18,500
19,617
27,000
34,700
21,210
21
143,718
183,048
159,518
202,118
1 Property reclassified as held for sale during the year (refer note 13). It has not had an independent valuation as the value was determined by Directors based on the
contracted disposal value.
2 A 50% interest in this property was sold during the year.
9 6
11068_CHC_AR_Financial_PPv2.indd 96
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Charter hall Group A reconciliation of the carrying amount at the beginning and end of the current and previous years is set out below:
At fair value
Opening balance
Assets reconsolidated – DRF
Acquisitions and additions
Lease incentives paid
Lease incentives amortised
Disposals
Transferred to held for sale
Net loss from fair value adjustment
Foreign currency exchange (loss)/gain
Closing balance
(a) Amounts recognised in the income statement for investment properties
Rental income
Direct operating expenses from property that generated rental income
Note
2011
$’000
2010
$’000
8
202,118
15,770
–
277,516
15,610
34
(682)
(53,205)
(921)
(2,518)
(918)
4,597
3,020
(292)
(15,000)
(45,000)
(38,592)
99
159,518
202,118
2011
$’000
17,716
(4,795)
12,921
2010
$’000
18,768
(4,703)
14,065
(b) 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 valuations
had a weighted average capitalisation rate of 8.46% (2010: 8.35%), a weighted average vacancy rate of 1.5% (2010: 4%) and a weighted average rent
review of 3.37% (2010: 3.64%).
21 Non current assets – deferred tax assets
Deferred tax assets comprises temporary differences attributable to:
Employee benefits
Investments in associates
Tax losses
Management rights
Other
A reconciliation of the carrying amount of deferred tax assets at the beginning and end of the
current and previous years is set out below:
Opening balance
Deferred tax benefit
Charged to income statement
Charged to other comprehensive income
Charged directly to equity reserves
Closing balance
Deferred tax assets to be recovered within 12 months
Deferred tax assets to be recovered after more than 12 months
Note
9
2011
$’000
3,256
4,221
–
2,842
936
2010
$’000
1,022
–
4,699
–
–
11,255
5,721
5,721
3,946
3,231
8
2,295
11,255
4,192
7,063
11,255
1,775
–
–
5,721
–
5,721
5,721
9 7
11068_CHC_AR_Financial_PPv2.indd 97
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AnnuAl report 2011 Notes to the consolidated financial statements continued
22 Trade and other payables
Current liabilities
Trade payables
Accruals
Distribution payable
GST payable
Annual leave payable
Deferred consideration payable for business combination
Employee benefits payable
Other payables
All current liabilities are expected to be settled within 12 months.
Non-current liabilities
Contingent consideration payable
2011
$’000
1,926
4,337
2010
$’000
7,508
542
25,458
19,535
1,681
2,209
1,316
2,252
14,300
14,580
7,345
805
5,313
3,972
58,061
55,018
2011
$’000
2010
$’000
12,106
11,270
(i) Contingent consideration payable
On 1 March 2010, the Group completed a transaction to acquire the majority of Macquarie Group’s core real estate management platform comprising the
management of two listed and three unlisted real estate funds and co-investments in Macquarie Office Trust (renamed Charter Hall Office REIT), Macquarie
Country Wide Trust (renamed Charter Hall Retail REIT) and Macquarie Direct Property Fund (renamed Charter Hall Direct Property Fund).
In the event that certain cumulative revenue targets are achieved by the offshore platform (being the people, entities and businesses that generate revenue
outside of Australia, New Zealand and Japan) between 1 March 2010 and 28 February 2013, additional purchase consideration of up to $15,000,000 may
be payable in cash.
The potential undiscounted amount payable under the agreement is between $0 (for cumulative revenues below $21,425,000), and $15,000,000
(for cumulative revenues above $42,850,000).
The fair value of the contingent consideration at 30 June 2011 of $12,105,593 was estimated by applying a 13% discount rate to expected payments of
$13,840,189 payable from July 2012 onwards.
(ii) Deferred consideration payable for business combination
The sale to Charter Hall by Macquarie Group of all shares in Macquarie Countrywide Management Limited (renamed Charter Hall Retail Management Limited)
and Macquarie Direct Property Management Limited (renamed Charter Hall Direct Property Management Limited) is expected to complete during the quarter
ending 30 September 2011 once all consents have been received.
23 Current liabilities – provisions
Employee benefits – long service leave
(a) Movements in provisions
Refer to note 26 for the movement in provisions and split between current and non-current.
2011
$’000
834
834
2010
$’000
749
749
9 8
11068_CHC_AR_Financial_PPv2.indd 98
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Charter hall Group 24 Non-current liabilities – borrowings
Secured
Bank loans drawn
DRF
Charter Hall Property Trust
Unamortised borrowing costs
Total non-current borrowings
2011
$’000
2010
$’000
69,953
33,010
(1,101)
92,111
–
(883)
101,862
91,228
The DRF loan comprises a $55.0 million NAB facility and a $15.5 million share of a $64.0 million joint venture Westpac facility. Amounts drawn under the
NAB facility are potentially repayable if the Fund defaults on payments of interest or principal or allows:
ww
ww
The ratio of total liabilities to total assets to exceed 55% or the ratio of debt to secured property values to exceed 50%; or
The ratio of EBIT to interest expense to fall below 1.75 times or the ratio of net rental income to interest to fall below 1.65 times.
Amounts drawn under the Westpac facility are potentially repayable if the Fund defaults on payments of interest or principal or allows:
ww
ww
The ratio of debt to secured property assets to exceed 60%; or
The ratio of net rental income to interest to fall below 1.6 times.
Amounts drawn under the $100.0 million Charter Hall Property Trust loan are potentially repayable if the Trust defaults on payments of interest or principal
or allows:
ww
ww
ww
The ratio of debt to total assets to exceed 35%;
The ratio of debt to EBITDA to exceed 4 times; or
The ratio of EBIT to gross interest to fall below 3 times.
The DRF bank loan is secured by a floating charge over all the assets of DRF and by a mortgage over the investment properties held by DRF. The
Charter Hall Property Trust loan is secured over the Trust’s investment in listed and unlisted funds, excluding 22,500,000 units of the Trust’s investment in
Charter Hall Core Plus Office Fund.
The carrying amounts of assets pledged as security for borrowings are:
Current
Floating charge
Cash and cash equivalents
Receivables
First mortgage
Investment property held for sale
Total current assets pledged as security
Non-current
First mortgage
Investment properties
Investment in associates
Investment in jointly controlled entities
Total non-current assets pledged as security
Total assets pledged as security
2011
$’000
2010
$’000
2,324
1,831
–
4,155
143,718
478,412
18,700
640,830
644,985
1,456
4,692
45,000
51,148
201,348
–
–
201,348
252,496
11068_CHC_AR_Financial_PPv2.indd 99
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AnnuAl report 2011 Notes to the consolidated financial statements continued
24 Non–current liabilities – borrowings continued
(a) Financing arrangements
The Group had unrestricted access at reporting date to the following lines of credit:
Total facilities
Used at reporting date
Unused at reporting date
2011
$’000
170,500
102,963
2010
$’000
300,000
92,111
67,537
207,889
The Group’s $50 million NAB debt facility was due to expire in July 2011. This was refinanced with a new $75 million Westpac facility in May 2011 and
increased to $100 million in June 2011. This facility expires in May 2014.
DRF had a facility of $250 million with NAB which was due to expire in July 2011. This debt facility was refinanced in December 2010. Under the terms of
the refinance, the facility has a limit of $55 million and an expiry date of 30 November 2013. A second debt facility in DRF was financed in December 2010.
The facility was entered into with the Charter Hall Retail Joint Venture Trust, Lake Macquarie Trust, Mount Hutton Trust and DRF. This facility expires on
30 November 2013. Under the terms of the facility, DRF’s share of the debt is $15.5 million.
(b) 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 period.
Exposures arise predominantly from liabilities bearing variable interest rates as the Group intends to hold fixed rate liabilities to maturity.
2011
Trade and other payables
Contingent consideration payable
Borrowings
Interest rate swaps
Weighted average interest rate
Floating
interest
rate
$’000
–
–
101,862
(38,203)
63,659
4.63%
Floating
interest
rate
Fixed interest maturing in:
1 year or
less
$’000
Over 1 to
2 years
$’000
Over 2 to
3 years
$’000
Over 3 to
4 years
$’000
Over 4 to
5 years
$’000
Over
5 years
$’000
Non-
interest
bearing
$’000
Total
$’000
–
–
–
–
–
–
–
–
–
–
–
18,203
20,000
18,203
20,000
4.71%
4.71%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
58,061
58,061
12,106
12,106
–
–
101,862
–
70,167
172,029
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
Non-
interest
bearing
Total
$’000
2010
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
Trade and other payables
Contingent consideration payable
Borrowings
Interest rate swaps
Weighted average interest rate
–
–
91,228
(40,223)
51,005
3.99%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
20,000
20,223
55,018
55,018
11,270
11,270
–
–
91,228
–
20,000
20,223
66,288
157,516
7.04%
7.84%
1 0 0
11068_CHC_AR_Financial_PPv2.indd 100
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Charter hall Group (c) Interest rate sensitivity analysis
The following table illustrates the potential impact a change in interest rates of +/-1% would have on the Group’s profit after tax and equity.
2011
Liabilities
Trade and other payables
Contingent consideration payable
Borrowings
Derivative financial instruments
Total (decrease)/increase
2010
Liabilities
Trade and other payables
Contingent consideration payable
Borrowings
Derivative financial instruments
Total (decrease)/increase
(d) Fair value
The carrying amounts and fair values of borrowings at reporting date are:
On-balance sheet
Non-traded financial liabilities
Bank loans
Carrying
amount
$’000
58,061
12,106
101,862
407
172,436
Carrying
amount
$’000
55,018
11,270
91,228
4,754
162,270
-1%
+1%
Profit
$’000
Equity
$’000
Profit
$’000
Equity
$’000
–
–
1,019
(1,771)
(752)
–
–
1,019
(1,771)
(752)
-1%
–
–
–
–
(1,019)
(1,019)
469
(550)
469
(550)
+1%
Profit
$’000
Equity
$’000
Profit
$’000
Equity
$’000
–
–
912
(2,617)
(1,705)
–
–
912
(2,617)
(1,705)
–
–
(912)
1,766
854
–
–
(912)
1,766
854
2011
Carrying
amount
$’000
Fair value
$’000
2010
Carrying
amount
$’000
Fair value
$’000
101,862
102,963
91,228
92,111
The fair value of borrowings is inclusive of costs which would be incurred on settlement of a liability and 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.
(e) Capital risk management
Gearing is a measure used to monitor levels of debt capital used by the business to fund its operations. This ratio is calculated as interest bearing debt
divided by tangible assets with both net of cash and cash equivalents.
The gearing ratio at 30 June 2011 was 8.12% (2010: 6.63%). Debt covenants are monitored regularly to ensure compliance and reported to the debt
provider on a six monthly basis. The Group Treasurer is responsible for negotiating new debt facilities and compliance with covenants.
11068_CHC_AR_Financial_PPv2.indd 101
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AnnuAl report 2011 Notes to the consolidated financial statements continued
25 Non-current liabilities – deferred tax liabilities
Deferred tax liabilities comprises temporary differences attributable to:
Prepayments
Accrued revenue
Depreciation on New Zealand property, plant and equipment
Contingent consideration payable
Investment in associates
Other
A reconcilation of the carrying amount of deferred tax liabilities at the beginning and end of the
current and previous years is set out below:
Opening balance
Deferred tax benefit
Charged to income statement
Charged to other comprehensive income
Closing balance
Deferred tax liabilities to be settled within 12 months
Deferred tax liabilities to be settled after more than 12 months
26 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
Closing balance
Current
Non-current
Total
9
Note
2011
$’000
2010
$’000
–
4
–
868
198
59
296
316
661
–
–
–
1,129
1,273
1,273
852
(110)
(34)
1,129
931
198
1,129
2011
$’000
1,217
2011
$’000
1,628
423
2,051
834
1,217
2,051
421
–
1,273
–
1,273
1,273
2010
$’000
879
2010
$’000
247
1,381
1,628
749
879
1,628
1 0 2
11068_CHC_AR_Financial_PPv2.indd 102
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Charter hall Group 27 Contributed equity
(a) Security capital 1
Ordinary securities – fully paid
(b) Movements in ordinary security capital
Details
Opening balance
Add back LTI securities reversed in prior year 2
Distribution Re-Investment plan issue August 2009
Distribution Re-Investment plan issue February 2010
Institutional placement
Entitlement offer
Macquarie placement
Balance at 30 June 2010
Less: Transaction costs on security issues
Less: LTI securities reversed 2
Balance per accounts at 30 June 2010
Add back LTI securities reversed last year 2
Note
2011
Securities
2010
Securities
2011
$’000
2010
$’000
(b),(c),(h)
293,755,894
290,595,601
293,755,894
290,595,601
943,961
943,961
936,445
936,445
Issue
price3
2011
$’000
2010
$’000
Notes
(d)
(d)
(e)
(f)
(g)
Number of
securities
698,040,044
50,343,595
2,210,371
4,995,460
35,624,778
300,237,026
121,272,558
1,212,723,832
(50,343,595)
1,162,380,237
50,343,595
$0.47
$0.67
$0.70
$0.65
$0.70
634,308
73,179
1,044
3,342
24,937
195,154
84,891
1,016,855
(7,231)
(73,179)
936,445
936,445
73,179
7,516
1,017,140
1,017,140
(73,179)
943,961
936,445
9,503
934,458
943,961
9,427
927,018
936,445
Distribution Re-Investment plan issue August 2010
(d)
12,641,256
$0.59
Balance before consolidation
Consolidation at one for four
Balance at 30 June 2011
Less: LTI securities reversed 2
Balance per accounts at 30 June 2011
Charter Hall Limited
Charter Hall Property Trust
1,225,365,088
(h)
(919,023,274)
306,341,814
(12,585,920)
293,755,894
1 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.
2 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
AASB 2: Share-based Payments, the loan, interest received on the loan, securities and the distribution paid and payable are derecognised for the preparation of the
financial statements.
3 Security issue prices for transactions occurring pre October 2010 are stated on a pre security consolidation basis.
(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 in the previous year were fully paid with no entitlement to the
distribution at 30 June 2010.
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 Re-Investment plan
The Company has established a Distribution Re-Investment 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 31 December 2009 and 30 June 2010 distributions. After these dates, the DRP became inactive.
11068_CHC_AR_Financial_PPv2.indd 103
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AnnuAl report 2011 Notes to the consolidated financial statements continued
27 Contributed equity continued
(e) Institutional placement
On 1 March 2010, 35,624,778 securities were issued at $0.70 as part of an institutional placement.
(f) Entitlement offer
On 1 March 2010, 227,913,824 securities and on 16 March 2010, 72,323,202 securities were issued as part of a 2 for 5 entitlement offer. The price was
$0.65 per security.
(g) Placement
On 1 March 2010, 121,272,558 securities were issued at $0.70 as part of an institutional placement.
(h) Consolidation
In October 2010, the Group completed a consolidation of its securities on the basis of one new security for every four pre-consolidation securities. Where
the consolidation of a holding resulted in a fractional security, that fraction was rounded up to the next whole security. The consolidation of securities resulted
in the Group reducing its total securities on issue from 1,225,365,088 to 306,341,814 units. Accordingly, there has been a corresponding increase in pre-
consolidation metrics including price, earnings and net tangible assets per security by a factor of four.
Prior year comparative information, where shown on a per security basis, has been restated to a post security consolidation basis, unless stated otherwise.
28 Reserves and accumulated losses
(a) Reserves
Business combination reserve
Security-based benefits reserve
Transactions with non-controlling interests
Foreign currency reserve
Charter Hall Limited and controlled entities
Charter Hall Property Trust
Movements:
Business combination reserve
Opening and closing balance
Security-based benefits reserve
Opening balance
Expense relating to LTI scheme
Closing balance
Transactions with non-controlling interests
Opening balance
DRF acquisition premium
Closing balance
Foreign currency reserve
Opening balance
Exchange differences on translation of foreign operations
Transfer to accumulated losses
Closing balance
2011
$’000
2010
$’000
(52,000)
(52,000)
11,457
(6,300)
(10,451)
(57,294)
(47,547)
(9,747)
7,367
–
4,604
(40,029)
(44,658)
4,629
(57,294)
(40,029)
(52,000)
(52,000)
7,367
4,090
11,457
–
(6,300)
(6,300)
4,604
(19,718)
4,663
(10,451)
6,050
1,317
7,367
–
–
–
(47)
4,651
–
4,604
1 0 4
11068_CHC_AR_Financial_PPv2.indd 104
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Charter hall Group (i) Business combination reserve
This reserve relates to the reverse acquisition at IPO in 2005. 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.
(ii) Security based payments reserve
The security based payments reserve is used to recognise the fair value of securities issued under the ELSP and rights and options issued under the PROP.
(iii) Transactions with non-controlling interests
Transactions with non-controlling interests that do not result in loss of control are treated as transactions with equity owners of the Group.
A change in ownership interest results in an adjustment between the carrying amounts of controlling and non-controlling interests to reflect their relative
interests in the controlled entity. Any difference between the amount of the adjustment to non-controlling interests and any consideration paid or received
is recognised within this reserve.
(iv) Foreign currency reserve
Exchange differences arising on translation of foreign controlled entities and the Group’s share of foreign exchange differences arising from its equity
accounted investments are recognised in other comprehensive income as described in note 1(d) and accumulated in a separate reserve within equity.
The cumulative amount is reclassified to profit or loss when the net investment is disposed of.
(b) Accumulated losses
Movements in accumulated losses were as follows:
Opening balance
Net profit for the year
Distributions
Transfer from foreign currency reserve
Closing balance
Charter Hall Limited and controlled entities
Charter Hall Property Trust
2011
$’000
2010
(restated)
$’000
(136,055)
(113,093)
52,338
(48,469)
(4,663)
6,840
(29,802)
–
(136,849)
(136,055)
(62,329)
(74,520)
(61,698)
(74,357)
(136,849)
(136,055)
29 Non-controlling interest
The financial statements include the financial statements for the consolidated entity consisting of Charter Hall Limited and its controlled entities including
Charter Hall Property Trust (CHPT). Charter Hall Limited has been identified as the parent entity in relation to the stapling. The results and equity, not
directly owned by CHL, of CHPT have been treated and disclosed as a non-controlling interest. Whilst the results and equity of CHPT are disclosed as
non-controlling interest, the stapled securityholders of CHL are the same as the stapled securityholders of CHPT.
Interest in:
Contributed equity
Reserves
Accumulated losses
Equity holders of CHPT (non-controlling interest)
Note
27(b)
28(a)
28(b)
2011
$’000
2010
$’000
934,458
927,018
(9,747)
4,629
(74,520)
(74,357)
850,191
857,290
The Group has consolidated 100% of the net assets and results of DRF. However, 34.63% (2010: 33.96%) of DRF is owned by non-controlling unitholders.
Their non-controlling interest in the total equity of DRF is as follows:
Contributed equity
Reserves
Accumulated losses
Other non-controlling interest in DRF
11068_CHC_AR_Financial_PPv2.indd 105
68,056
86,995
(330)
(35,599)
32,127
(371)
(35,995)
50,629
1 0 5
5/10/11 10:35 AM
AnnuAl report 2011 Notes to the consolidated financial statements continued
30 Key management personnel
(a) Directors
The following persons were Directors of Charter Hall Limited during the year:
Kerry Roxburgh
Chairman and Non-Executive Independent Director
Roy Woodhouse
Deputy Chairman and Non-Executive Independent Director
Anne Brennan
Non-Executive Independent Director (appointed 6 October 2010)
Patrice Derrington
Non-Executive Independent Director (resigned 10 November 2010)
Glenn Fraser
Non-Executive Independent Director
Cedric Fuchs
Executive Director
David Harrison
Joint Managing Director
Peter Kahan
Non-Executive Director
Colin McGowan
Non-Executive Independent Director
David Southon
Joint Managing Director
(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
year. The number of other key management personnel in the year ended 30 June 2011 was seven (2010: seven).
Name
J Bakker
A Glass
N Kelly
S Sewell
R Stacker
A Taylor
Position
Employer
Group Chief Financial Officer
Charter Hall Holdings Pty Ltd
Head of Wholesale Investment Funds Management
Charter Hall Holdings Pty Ltd
Head of Investor Relations
Charter Hall Holdings Pty Ltd
Chief Executive Officer – Charter Hall Retail REIT
Charter Hall Holdings Pty Ltd
Chief Executive Officer – Charter Hall Direct Property
Charter Hall Holdings Pty Ltd
Chief Executive Officer – Charter Hall Office REIT
Charter Hall Holdings Pty Ltd
M Winnem
Head of Wholesale Opportunistic Funds Management
Charter Hall Holdings Pty Ltd
(c) Key management personnel compensation (including non-executive Directors)
Short-term employee benefits
Post-employment benefits
Security-based benefits
Long-term employee benefits
2011
$
2010
$
8,296,788
7,544,572
326,698
1,866,842
(13,151)
205,157
794,115
14,136
10,477,177
8,557,980
1 0 6
11068_CHC_AR_Financial_PPv2.indd 106
5/10/11 10:35 AM
Charter hall Group (d) Equity instrument disclosures relating to key management personnel
(i) Security holdings
The numbers of securities in the Group held during the year by each Director of Charter Hall Limited and other key management personnel of the Group,
including their personally related parties, are set out below.
2011
Name
Directors of Charter Hall Limited
Ordinary securities
K Roxburgh
R Woodhouse
A Brennan
P Derrington
G Fraser
C Fuchs
D Harrison
P Kahan
C McGowan
D Southon
Other key management personnel of the Group
Ordinary securities
J Bakker
A Glass
N Kelly
S Sewell
R Stacker
A Taylor
M Winnem
Opening
balance1
Purchased/
(sold) during
the year
LTI securities
vesting/
(forfeited)
during the
year
31,250
21,429
–
–
156,934
1,454,459
2,429,540
–
–
2,461,161
136,952
–
55,343
–
–
–
–
–
30,000
–
–
–
–
–
–
–
–
–
–
–
–
–
138,929
(31,305)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Closing
balance1
31,250
21,429
30,000
–
156,934
1,454,459
2,429,540
–
–
2,461,161
136,952
–
55,343
–
–
–
107,624
1
This total includes securities that have vested but have not been exercised by repayment of the loan and removal from the LTI plan. Unvested securities are excluded from
the balance. The vested securities were issued with loans varying from $4.00 to $11.04 per security which are significantly higher than the security price at 30 June 2011
of $2.15.
11068_CHC_AR_Financial_PPv2.indd 107
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5/10/11 10:35 AM
AnnuAl report 2011 Notes to the consolidated financial statements continued
30 Key management personnel continued
2010
Name
Directors of Charter Hall Limited
Ordinary securities
K Roxburgh
R Woodhouse
P Derrington
G Fraser
C Fuchs
D Harrison
P Kahan
C McGowan
D Southon
Other key management personnel of the Group
Ordinary securities
J Bakker
A Glass
N Kelly
S Sewell
R Stacker
A Taylor
M Winnem
Opening
balance1
Purchased/
(sold) during
the year
LTI securities
vesting/
(forfeited)
during the
year
Closing
balance1
16,072
21,429
–
15,178
–
–
205,948
(49,014)
–
–
–
–
31,250
21,429
–
156,934
1,716,959
–
(262,500)
1,454,459
2,743,350
54,940
(368,750)
2,429,540
–
–
2,829,911
136,952
–
55,343
–
–
–
–
–
–
–
–
–
–
–
–
152,434
(13,505)
–
–
–
–
(368,750)
2,461,161
–
–
–
–
–
–
–
136,952
–
55,343
–
–
–
138,929
The Executive Directors of Charter Hall Group and other key management personnel of the Group were allocated the following performance rights during the
year from the Company’s PROP:
2009
2010
2011
Total
12,621
43,752
61,540
117,913
100,962
187,500
201,924
490,386
100,962
187,500
201,924
490,386
12,621
100,000
125,000
237,621
–
12,621
–
–
–
12,621
75,000
60,000
89,252
53,628
89,252
60,000
50,483
43,272
–
–
–
125,483
115,893
89,252
53,628
89,252
43,272
115,893
Executive Directors
C Fuchs
D Harrison
D Southon
Key management personnel
J Bakker
A Glass
N Kelly
S Sewell
R Stacker
A Taylor
M Winnem
1 0 8
11068_CHC_AR_Financial_PPv2.indd 108
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Charter hall Group The Executive Directors of Charter Hall Group and other key management personnel of the Group were allocated the following options during the year from
the Company’s PROP:
Executive Directors
C Fuchs
D Harrison
D Southon
Key management personnel
J Bakker
A Glass
N Kelly
S Sewell
R Stacker
A Taylor
M Winnem
2010
2011
Total
156,408
670,314
670,314
357,500
268,128
214,500
223,252
133,876
223,252
214,500
153,848
310,256
504,808
1,175,122
504,808
1,175,122
312,500
670,000
126,204
394,332
108,176
322,676
–
–
–
223,252
133,876
223,252
108,176
322,676
(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
2011
2010
(ii) Individuals with loans above $100,000 during the period
2011
D Harrison
D Southon
2010
D Harrison
D Southon
Balance at
start of the
year
$
Interest
charged in
the year
$
Interest paid
during the
year
$
Balance at
end of the
year
$
5,145,000
206,250
(245,000)
5,106,250
5,306,500
160,000
(321,500)
5,145,000
Balance at
start of the
year
$
Interest
charged in
the year
$
Interest paid
during the
year
$
Balance at
end of the
year
$
Number in
Group at the
end of the
year
$
2
2
Highest
indebtedness
during the
year
$
2,605,000
103,125
(155,000)
2,553,125
2,685,411
2,540,000
103,125
(90,000)
2,553,125
2,620,411
2,781,500
2,525,000
80,000
80,000
(256,500)
2,605,000
2,781,500
(65,000)
2,540,000
2,540,000
When Charter Hall Group listed in 2005, the Product Disclosure Statement dated 11 May 2005 disclosed that related parties of the Joint Managing Directors,
David Harrison and David Southon, had entered into loan agreements with CHL. Loans of $2.5 million each were provided to fund the purchase
of 2,500,000 (now 625,000 following the one-for-four security consolidation) listed securities in the Charter Hall Group.
At that time, these loans were made to align the Joint Managing Directors’ interests with those of the Group and securityholders. Each loan is to a related
party of the Joint Managing Directors, being the Harrison Family Trust and Southon Family Trust.
The loans, which were initially for a three year period, were extended in 2008 for three years to 6 June 2011 under the same terms and conditions. Until
6 June 2011, interest on the loans was equivalent to the Charter Hall Group distribution paid in respect of the securities purchased using the loan proceeds.
At the time of the roll-over in June 2008, distributions received on these securities exceeded an arms length interest rate.
In FY11, however, the distributions received were below an arms length interest rate $209,375 on each loan. This has not been charged to each of the borrowers.
11068_CHC_AR_Financial_PPv2.indd 109
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5/10/11 10:35 AM
AnnuAl report 2011 Notes to the consolidated financial statements continued
30 Key management personnel continued
On 7 June 2011, the loans were extended for a further three year period to 31 July 2014, with repayment, interest, security and LVR conditions that are at
arms length terms and conditions as follows:
Repayment
Minimum repayments of $300,000 each on or before 31 July 2011, $500,000 each on or before 31 July 2012 and 31 July 2013 respectively, with the
remaining principal balance at the end of the term.
Interest
An interest rate of 12.5% p.a. for a loan to value ratio (LVR) greater than 50%, 10.5% p.a. for an LVR less than or equal to 50%; 9% p.a. for an LVR less than
or equal to 40%, with interest payable in arrears upon each distribution date of the Charter Hall Group, commencing February 2012.
Additional Security
Security over these loans is by way of a first ranking mortgage over all CHC securities held by the Harrison Family Trust and Southon Family Trust, with the
borrowers having the right to release CHC securities if the LVR is less than 40%. At 30 June 2011, the number of CHC securities held by the Harrison Family
Trust was 2,009,521 and the number held by the Southon Family Trust was 2,048,521.
LVR covenant
Loans are not to exceed an LVR of 60%, at bi-annual testing dates, with the borrowers obligated to provide either additional security or repay such amount
of the loan within 30 days, to ensure compliance with the LVR covenant.
31 Remuneration of auditors
During the year, the following fees were paid or payable for services provided by the auditor of the Group, its related practices and non related audit firms:
(a) Audit services
PricewaterhouseCoopers Australian firm
Audit and review of financial reports
Non-PricewaterhouseCoopers audit firms for audit services
Ernst & Young
W F White & Co
Total remuneration for audit services
(b) Taxation services
PricewaterhouseCoopers Australian firm
2011
$
2010
$
387,791
257,849
–
1,940
59,035
5,510
389,731
322,394
Tax compliance services, including review of company income tax returns
55,050
25,920
Non-PricewaterhouseCoopers firms for taxation services
Ernst & Young
Total remuneration for taxation services
(c) Advisory services
PricewaterhouseCoopers Australian firm
Long-term incentive plan structure
Due diligence for equity raising and acquisition
Non-PricewaterhouseCoopers firms for advisory services
Ernst & Young
Total remuneration for advisory services
163,659
218,709
130,920
156,840
53,525
9,000
–
380,000
5,200
33,269
58,725
422,269
The Group’s policy is to employ PricewaterhouseCoopers (PwC) on assignments additional to statutory audit duties where PwC’s expertise and experience
with the Group are important. These assignments are principally tax advice and investigating accountant’s 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.
1 1 0
11068_CHC_AR_Financial_PPv2.indd 110
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Charter hall Group 32 Commitments
(a) Lease commitments: Group as lessee
Commitments in relation to leases contracted for at the reporting date but not recognised as liabilities, payable:
Within one year
Later than one year but not later than five years
Commitment fees from associates
(b) Capital commitments
Expenditure contracted for at the reporting date but not recognised as liabilities is as follows:
Investment property
Payable:
Within one year
2011
$’000
1,476
8,088
9,564
2010
$’000
1,311
8,966
10,277
2011
$’000
2010
$’000
–
1,550
(c) Commitments: Investment in associates
On 21 June 2011, Charter Hall Group entered into a Unit Transfer Agreement (UTA) to acquire an additional 3.3% stake in CQO from New York based hedge
fund Fir Tree Capital. The stake acquired under the UTA and the Group’s existing stake will bring total Group ownership in CQO to 13.3%.
Under the UTA, settlement and completion of the transfer of the CQO sale units will be effected when at least 80% of the proceeds from the Charter Hall
Office Management Limited announced CQO US asset sale program are returned to CQO unit holders. Fir Tree Capital will receive any return of capital
implemented by CQO prior to settlement under the UTA. In the event that up to 20% of the US assets by value have not been sold and the net proceeds
from the assets sold have been returned to unit holders, Fir Tree Capital will receive its pro rate share of the 30 June 2011 net book value of the unsold
assets together with any subsequent adjustment based on the realised value of those assets.
The acquisition of the CQO sale units under the UTA will represent a 5.64% discount to CQO’s proforma Australian NTA as at 30 June 2011. On 3 August
2011, CQO provided a proforma Australian NTA per unit of $2.62. Assuming this NTA per unit, the commitment to acquire Fir Tree Capital’s 3.3% stake is
approximately $40.0 million. This will be funded from the proceeds of the return of capital by CQO of approximately $53.0 million.
33 Related parties
(a) Parent entity
The parent entity within the Group is Charter Hall Limited.
(b) Controlled entities
Interests in controlled entities are set out in note 34.
(c) Key management personnel
Disclosures relating to key management personnel are set out in note 30.
(d) Transactions with related parties
The following income was earned from related parties during the year:
Accounting fees
Marketing fees
Management and performance fees from associates
Transaction fees from associates
Commitment fees from associates
Property management fees from associates
Transactions with associates and joint ventures are disclosed in note 35 and note 36 respectively.
11068_CHC_AR_Financial_PPv2.indd 111
2011
$
2010
$
4,155,000
1,567,000
113
–
39,208,306
24,078,267
17,389,370
4,509,418
–
119,775
20,806,449
3,037,846
1 1 1
5/10/11 10:35 AM
AnnuAl report 2011 Notes to the consolidated financial statements continued
33 Related parties continued
(e) Loans to/from related parties
Loans to joint ventures
Opening balance
Loans advanced
Interest charged
Interest received
Closing balance
2011
$
2010
$
3,750,000
1,750,000
1,250,000
2,000,000
594,658
221,342
(594,658)
(221,342)
5,000,000
3,750,000
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.
34 Controlled entities
The consolidated financial statements incorporate the assets, liabilities and results of the following controlled entities in accordance with the accounting
policy described in note 1(b):
Country of
incorporation
Class of
securities
2011
%
2010
%
Equity holding
(a) Details of controlled entities
Name of entity
Controlled entities of Charter Hall Limited
Charter Hall Holdings Pty Limited
Charter Hall CUB Pty Ltd
CH La Trobe Trust
Controlled entities of Charter Hall Holdings Pty Ltd
Charter Hall (NZ) 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 Real Estate Inc
Charter Hall Office Management Limited
Charter Hall Asset Services Limited
Charter Hall Real Estate Europe Limited
Charter Hall Asset Services Europe Sp z.o.o
Charter Hall Retail Management Limited1
Charter Hall Direct Property Management Limited1
Controlled entities of Charter Hall Holdings Real Estate Pty Ltd
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
USA
Australia
Australia
UK
Poland
Australia
Australia
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
–
–
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
100
100
100
100
100
100
100
100
100
100
100
–
–
–
100
100
100
100
Charter Hall Holdings Real Estate (Vic) Pty Limited
Australia
Ordinary
Controlled entities of Charter Hall Asset Services Limited
Charter Hall Real Estate Management Services Pty Limited
Charter Hall Real Estate Management Services (WA) Pty Limited
Charter Hall Real Estate Management Services (VIC) Pty Limited
Australia
Australia
Australia
Ordinary
Ordinary
Ordinary
1 1 2
11068_CHC_AR_Financial_PPv2.indd 112
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Charter hall Group Name of entity
Charter Hall Real Estate Management Services (TAS) Pty Limited
Charter Hall Real Estate Management Services (SA) Pty Limited
Charter Hall Real Estate Management Services (ACT) Pty Limited
Charter Hall Real Estate Management Services (NSW) Pty Limited
Charter Hall Real Estate Management Services (QLD) Pty Limited
Controlled entities of Charter Hall Real Estate Inc
CHREI US Office LLC
CHREI US Retail LLC
Country of
incorporation
Class of
securities
Australia
Australia
Australia
Australia
Australia
USA
USA
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Equity holding
2011
%
100
100
100
100
100
100
100
2010
%
100
100
100
100
100
100
100
1
The purchase of all shares of these is expected to complete during the quarter ending 30 September 2011. Although Charter Hall does not own the shares of these
entities, Charter Hall has economic control of these entities and hence they are consolidated.
Name of entity
Controlled entities of Charter Hall Property Trust
Charter Hall Direct Retail Fund1
(formerly Charter Hall Core Plus Retail Fund)
Charter Hall Co-Investment Trust2
Charter Hall Special Situations Office Fund3
Country of
incorporation
Class of
securities
2011
%
2010
%
Equity holding
Australia
Australia
Australia
Ordinary
Ordinary
Ordinary
66
100
100
66
100
100
1
In 2008, CHPT sold down its interest in DRF from 100% to 62% (current interest is 66%). At that time it was considered that CHPT did not control the fund and therefore
did not consolidate DRF into its financial statements. However, on 8 December 2009, Charter Hall announced that based on discussions with ASIC the Group would
consolidate its interest in DRF from 1 July 2009. Subsequently, the Group has announced its intention to sell down its interest in DRF.
2 Charter Hall Co-Investment Trust is an entity which was set up by Charter Hall Property Trust to hold its investments in Charter Hall Office REIT (CQO), Charter Hall Retail
REIT (CQR) and Charter Hall Direct Property Fund (CHDPF).
3 Special Situations Office Fund is currently inactive, but will likely be used for Charter Hall’s next unlisted fund.
Name of entity
Controlled entities of Charter Hall Direct Retail Fund
Core Plus Retail Fund New Zealand
Redcliffe Retail Property Trust
Belconnen Retail Warehouse Trust
Box Hill Retail Warehouse Trust
Nerang Retail Warehouse Trust
Nowra Retail Warehouse Trust
Penrith Retail Warehouse Trust
Stafford Retail Warehouse Trust
Ipswich Retail Property Trust
Rothwell Retail Property Trust
Mentone Property Trust
Charter Hall MMN Property Trust
CPRF Gepps X Trust
CPRF Gepps 109 Trust
CPRF MSN Property Trust
Country of
incorporation
Class of
securities
2011
%
2010
%
Equity holding
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
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
100
100
100
100
100
11068_CHC_AR_Financial_PPv2.indd 113
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5/10/11 10:35 AM
AnnuAl report 2011 Notes to the consolidated financial statements continued
35 Investments in associates
(a) Carrying amounts
Information relating to associates is set out below.
Name of entity
Principal activity
Accounted for at fair value through profit or loss
Unlisted
Charter Hall Diversified Property Fund
Property investment
Charter Hall Umbrella Fund
Charter Hall Direct Property Fund
Macquarie Property Income Fund
Property investment
Property investment
Property investment
Charter Hall Property Securities Fund
REIT securities investment
Equity accounted:
Unlisted
Charter Hall Opportunity Fund 4
Charter Hall Opportunity Fund 5
Property development
Property development
Charter Hall Core Plus Office Fund
Property investment
Charter Hall Core Plus Industrial Fund
Property investment
Listed
Charter Hall Office REIT
Charter Hall Retail REIT
Property investment
Property investment
Total investments in associates
The above associates are incorporated in Australia.
Ownership interest
2011
%
2010
%
2011
$’000
2010
$’000
36.4%
24.9%
3.5%
–
1.4%
3.0%
15.0%
16.2%
21.3%
10.0%
8.2%
31.9%
24.9%
3.5%
4.6%
–
3.0%
15.0%
16.8%
25.0%
7.5%
7.4%
26,964
40,612
10,438
–
431
22,068
41,578
9,787
306
–
78,445
73,739
1,218
31,286
1,254
24,670
110,428
104,314
53,281
51,989
185,681
155,149
88,189
82,326
470,083
419,702
548,528
493,441
The investments in Charter Hall Diversified Property Fund, Charter Hall Umbrella Fund and Charter Hall Direct Property Fund are held by Charter Hall
Property Trust and are accounted for at fair value through the profit or loss (note 14). The investment in Charter Hall Diversified Property Fund consists of
units which represent a 19.6% (2010: 19.6%) interest but also an additional investment in the form of bridging equity of $19.9 million (2010: $15.0 million),
which is 16.8% (2010: 12.3%).
The investments in Macquarie Property Income Fund and Charter Hall Property Securities Fund are held by controlled entities of Charter Hall Limited and are
accounted for at fair value through the profit or loss (note 14).
The investments in Charter Hall Opportunity Funds 4 and 5 held by Charter Hall Limited are equity accounted in the consolidated financial statements (note
17). The investments in Charter Hall Core Plus Office Fund, Charter Hall Core Plus Industrial Fund, Charter Hall Office REIT and Charter Hall Retail REIT are
held by Charter Hall Property Trust and are equity accounted (note 17). The carrying value of these investments is supported by value in use calculations.
Refer to note 32 for details of commitments relating to acquisition of further units in Charter Hall Office REIT.
1 1 4
11068_CHC_AR_Financial_PPv2.indd 114
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Charter hall Group (b) Movements in carrying amounts
(i)
Investments at fair value through profit or loss
Charter Hall Diversified Property Fund
Opening balance
Investment
Fair value adjustment
Closing balance
Charter Hall Umbrella Fund
Opening balance
Investment
Fair value adjustment
Closing balance
Charter Hall Direct Property Fund
Opening balance
Investment
Fair value adjustment
Closing balance
Macquarie Property Income Fund
Opening balance
Investment
Fair value adjustment
Disposal of units
Closing balance
Charter Hall Property Securities Fund
Opening balance
Investment
Fair value adjustment
Closing balance
Charter Hall Direct Retail Fund (formerly Charter Hall Core Plus Retail Fund)
Opening balance
Eliminated on consolidation
Closing balance
Total investments at fair value through profit or loss
Opening balance
Investment
Fair value adjustment
Disposal of units
Eliminated on consolidation
Closing balance
2011
$’000
2010
$’000
22,068
4,900
(4)
26,964
22,319
5,989
(6,240)
22,068
41,578
48,049
–
(966)
40,612
9,787
–
651
10,438
306
119
14
(439)
–
–
435
(4)
431
76
(6,547)
41,578
–
8,454
1,333
9,787
–
307
(1)
–
306
–
–
–
–
–
–
–
139,888
(139,888)
–
73,739
210,256
5,454
(309)
(439)
14,824
(11,453)
–
–
(139,888)
78,445
73,739
11068_CHC_AR_Financial_PPv2.indd 115
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AnnuAl report 2011 Notes to the consolidated financial statements continued
35 Investments in associates continued
(ii) Equity accounted investments
Charter Hall Opportunity Fund 4
Opening balance
Investment
Share of (loss)/profit after income tax
Distributions received/receivable
Closing balance
Charter Hall Opportunity Fund 5
Opening balance
Investment
Share of loss after income tax
Reserves
Closing balance
Charter Hall Core Plus Office Fund
Opening balance
Share of profit/(loss) after income tax
Distributions received/receivable
Disposal of units
Gain on remeasurement of equity interest
Closing balance
Charter Hall Core Plus Industrial Fund
Opening balance
Share of profit/(loss) after income tax
Distributions received/receivable
Gain on remeasurement of equity interest
Closing balance
Charter Hall Office REIT
Opening balance
Investment
Gain on remeasurement of equity interest
Share of profit/(loss) after income tax
Distributions received/receivable
Reserves
Closing balance
2011
$’000
2010
$’000
1,254
2,951
–
(26)
(10)
1,218
24,670
7,605
(989)
–
714
150
(2,561)
1,254
15,328
10,440
(1,116)
18
31,286
24,670
104,314
146,702
11,415
(5,516)
–
215
(2,599)
(5,329)
(34,460)
–
110,428
104,314
51,989
3,770
(2,935)
457
57,915
(2,184)
(3,742)
–
53,281
51,989
155,149
37,031
14,239
5,688
(9,424)
(17,002)
–
111,458
48,353
(5,613)
(3,105)
4,056
185,681
155,149
1 1 6
11068_CHC_AR_Financial_PPv2.indd 116
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Charter hall Group Charter Hall Retail REIT
Opening balance
Investment
Gain on remeasurement of equity interest
Share of profit after income tax
Distributions received/receivable
Reserves
Closing balance
Total equity accounted investments
Opening balance
Investment
Share of (loss)/profit after income tax
Distributions received/receivable
Reserves
Disposal of units
Gain on remeasurement of equity interests
Closing balance
(c) Fair value of listed investments in associates
Charter Hall Office REIT
Charter Hall Retail REIT
Fair value represents market value of CQO and CQR units as at 30 June 2011 and 2010.
(d) Share of equity accounted associates’ profits or losses
Profit before income tax
Income tax expense
Profit after income tax
2011
$’000
2010
$’000
82,326
7,425
1,815
4,928
(6,177)
(2,128)
88,189
419,702
52,061
24,786
(24,062)
(19,130)
–
16,726
–
69,335
11,372
3,615
(2,568)
572
82,326
222,896
191,947
(7,747)
(17,305)
4,646
(34,460)
59,725
470,083
419,702
2011
$’000
165,397
79,705
2011
$’000
32,083
(1,748)
30,335
2010
$’000
91,359
61,408
2010
$’000
13,607
(1,431)
12,176
11068_CHC_AR_Financial_PPv2.indd 117
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AnnuAl report 2011 Notes to the consolidated financial statements continued
35 Investments in associates continued
(e) Summarised financial information of associates
2011
Charter Hall Diversified Property Fund
Charter Hall Umbrella Fund
Charter Hall Direct Property Fund
Charter Hall Opportunity Fund 4
Charter Hall Opportunity Fund 5
Charter Hall Core Plus Office Fund
Charter Hall Core Plus Industrial Fund
Charter Hall Office REIT
Charter Hall Retail REIT
2010
Charter Hall Diversified Property Fund
Charter Hall Umbrella Fund
Charter Hall Direct Property Fund
Macquarie Property Income Fund
Charter Hall Opportunity Fund 4
Charter Hall Opportunity Fund 5
Charter Hall Core Plus Office Fund
Charter Hall Core Plus Industrial Fund
Charter Hall Office REIT
Charter Hall Retail REIT
36 Investments in joint ventures
(a) Carrying amounts
Information relating to joint ventures is set out below and at note 17.
Name of company
Unlisted
Principal activity
Commercial and Industrial Property Pty Ltd
Property development
Maguire Macquarie Management LLC
Asset management
Macquarie-Regency Management LLC
Asset management
Reliance Investment Management Pty Limited
Investment management
Charter Hall Retail JV Trust
Property investment
Group’s share of:
Assets
$’000
Liabilities
$’000
Revenues
$’000
Profit/(loss)
$’000
55,979
37,957
18,320
3,756
46,964
30,009
648
7,800
2,538
15,678
220,889
110,461
94,925
41,644
322,713
137,032
157,069
68,880
958,572
414,691
49,506
37,896
15,850
644
3,942
45,402
197,601
101,729
28,909
617
7,279
284
2,653
20,769
93,287
45,668
272,535
117,420
145,068
62,721
5,332
1,982
1,834
201
2,844
15,739
10,801
23,055
17,388
79,176
5,171
2,257
578
15
3,982
211
19,238
10,932
7,082
4,812
1,979
2,226
1,344
(26)
(989)
11,415
3,770
5,688
4,928
30,335
(3,884)
(3,880)
16
29
150
1,116
(1,252)
(2,473)
(5,613)
3,615
870,173
379,607
54,278
(12,176)
Ownership interest
Consolidated
2011
%
50%
50%
50%
50%
50%
2010
%
50%
50%
50%
–
–
2011
$’000
2010
$’000
28,843
26,517
–
26
55
18,700
47,624
–
117
–
–
26,634
1 1 8
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Charter hall Group (b) Movements in carrying amounts
Commercial and Industrial Property Pty Limited
Opening balance
Investment
Share of profit after income tax
Dividends received/receivable
Closing balance
Maguire Macquarie Management LLC
Opening balance
Closing balance
Macquarie-Regency Management LLC
Opening balance
Investment
Share of profit after income tax
Dividends received/receivable
Closing balance
Reliance Investment Management Pty Limited
Opening balance
Investment
Share of profit after income tax
Closing balance
Charter Hall Retail JV Trust
Opening balance
Investment
Share of profit after income tax
Distribution received/receivable
Closing balance
2011
$’000
2010
$’000
26,517
24,979
–
3,984
(1,658)
28,843
–
1,538
–
26,517
–
–
117
–
221
(312)
26
–
281
(226)
55
–
18,534
1,631
(1,465)
18,700
–
–
–
117
–
–
117
–
–
–
–
–
–
–
–
–
11068_CHC_AR_Financial_PPv2.indd 119
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AnnuAl report 2011 Notes to the consolidated financial statements continued
36 Investments in joint ventures continued
(c) Carrying value of joint venture entity
Commercial and Industrial Property Pty Limited
2011
$’000
2010
$’000
28,843
26,517
External valuers were engaged to provide an indicative estimate of Charter Hall Limited’s 50% equity investment in Commercial and Industrial Property
Pty Ltd as at 30 June 2009. The valuation methodology used was Value In Use (VIU) (in accordance with the requirements of AASB 136) and three
different scenarios in relation to growth prospects were considered. Management adopted the base case scenario which had a value in use at that time of
$24,979,044.
In accordance with our accounting policy (note 1(h)), consideration was given to the fair value less cost to sell (FVLCTS) method but management believe
VIU gives the most accurate recoverable amount and resulted in a higher recoverable amount.
The base case scenario for assessing value in use has been updated by management at 30 June 2011 and includes an expected gross profit in line with
forecast FY12 gross profit of $6 million with a growth factor of 5% and discount rate of 15% through to the end of the forecast period.
There has been no impairment or reversal of impairment in the year ended 30 June 2011 (2010: nil).
(d) Share of joint venture’s revenue, expenses and results
Revenues
Expenses
Profit before income tax
(e) Share of joint venture’s assets and liabilities
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
2011
$’000
83,055
(75,732)
7,323
2011
$’000
19,775
35,809
55,584
8,985
21,726
30,711
24,873
2010
$’000
43,079
(40,873)
2,206
2010
$’000
11,256
3,799
15,055
2,328
6,605
8,933
6,122
1 2 0
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Charter hall Group 37 Events occurring after the reporting date
Since 30 June 2011, the following matters have arisen:
ww On 26 June 2011, Orange Capital, Luxor and Point Lobos issued a notice calling a CQO unitholder meeting for 27 July 2011, with a resolution to
change the Responsible Entity of CQO from Charter Hall Office Management Limited (CHOML) to Moss Capital Funds Management Limited. The
resolution was voted upon at the unitholder meeting and the unitholders voted against the resolution, retaining CHOML as the responsible entity of
the REIT.
ww On 18 July 2011, the Responsible Entity of CQO (CHOML) announced a corporate governance review. The review will examine the existing governance
framework between Charter Hall Group and the Responsible Entity and will provide recommendations on appropriate corporate governance
arrangements and a fee structure for the REIT that is consistent with current best practice models for ASX-listed trusts, including unitholders voting on
the appointment of non-executive Directors of the Responsible Entity. The recommendations will be considered at the Annual General Meeting.
ww On 3 August 2011, CQO announced it had exchanged contracts to sell 100% of the US portfolio for a gross price of US$1.71 billion. The closing of the
sale of each US property (or CQO’s interest in each property) is subject to customary closing conditions including receipt of lender consents and other
third party consents. The Board expects to provide a return of capital via a pro-rata special distribution to unitholders of net sales proceeds.
ww On 26 August 2011, the Independent directors of CHOML received an indicative, highly conditional, non-binding and confidential proposal from
Macquarie Capital Group Limited on behalf of a consortium including itself and a number of global institutional investors (the Consortium) to acquire
for cash all of the CQO issued units, other than those held by Charter Hall Group. The proposal is subject to a number of conditions, including that the
Group does not divest its existing investment in CQO and that CHOML is retained as the responsible entity for CQO. The Group is not a member of the
Consortium and any decision to engage the Consortium will only be taken following a decision by the independent directors of CHOML to support the
further exploration of this potential transaction with the Consortium.
Except for the matters discussed above, no other matter or circumstance has arisen since 30 June 2011 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.
11068_CHC_AR_Financial_PPv2.indd 121
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AnnuAl report 2011 Notes to the consolidated financial statements continued
38 Reconciliation of profit/(loss) after tax to net cash inflow from operating activities
Profit/(loss) after tax for the year
Depreciation and amortisation
Non-cash employee benefits expense – security-based benefits
(Gain)/loss on sale of investments, property and derivatives
Net gain on remeasurement of equity interests
Fair value adjustments
Impairment of goodwill
Impairment of management rights
Change in operating assets and liabilities, net of effects from purchase of controlled entity
(Increase)/decrease in trade debtors
Increase in accrued revenue
Decrease in other operating assets
(Decrease)/increase in trade creditors
Increase in accrued expenses
Net income receivable from investment in associates and joint venture entities
Increase in other operating liabilities
Decrease in provision for deferred income tax
Net cash inflow from operating activities
Dividend and interest income received on investments has been classified as cash flow from operating activities.
2011
$’000
55,237
1,545
4,090
(3,350)
2010
$’000
(3,589)
1,406
1,317
5,827
(16,726)
(59,725)
3,213
–
19,171
(1,565)
(661)
5,205
(3,992)
3,798
(4,789)
276
(2,670)
58,782
50,762
15,328
–
1,390
(3,975)
10,948
8,693
45
8,180
3,186
(950)
38,843
1 2 2
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Charter hall Group 39 Earnings per security
(a) Basic earnings per stapled security
2011
Cents
2010
(restated)
Cents
Basic earnings attributable to the stapled securityholders of Charter Hall Group
17.85
3.22
(b) Diluted earnings per security
Diluted earnings attributable to the stapled securityholders of Charter Hall Group
(c) Reconciliations of earnings used in calculating earnings per security
Profit attributable to the ordinary equity holders of the Group used in calculating basic earnings per security
Interest received from LTI securities
Profit attributable to the ordinary equity holders of the Group used in calculating diluted earnings per security
(d) Weighted average number of securities used as the denominator
17.06
2011
$’000
52,338
2,077
54,415
3.67
2010
$’000
6,840
1,611
8,451
2011
Number
2010
Number
Weighted average number of ordinary securities used as the denominator in calculating basic earnings per security
293,253,621
212,540,278
Adjustments for calculation of diluted earnings per security:
Performance rights
Service rights
Options
Securities issued under the Charter Hall Limited Executive Loan Security Plan (ELSP)
3,480,731
1,408,542
206,340
–
9,482,030
3,657,826
12,585,920
12,585,920
Weighted average number of ordinary securities and potential ordinary securities used as the denominator in calculating
diluted earnings per security
319,008,642
230,192,566
The comparatives have been restated in accordance with AASB 133 Earnings Per Share for the change in accounting policy and security consolidation.
(e) Information concerning the classification of securities
(i) Performance rights and options issued under the Charter Hall Performance Rights and Options Plan
The performance rights and options are unquoted securities and conversion to stapled securities, and vesting to executives, is subject to service and
performance conditions.
(ii) 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 corresponding loans granted to
employees. Under AASB 2 Share-based Payments, the loan, interest received on the loan, securities and the distribution paid and payable are derecognised
for the preparation of the financial statements but recognised for the calculation of diluted earnings per security.
11068_CHC_AR_Financial_PPv2.indd 123
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AnnuAl report 2011 Notes to the consolidated financial statements continued
40 Security-based benefits
(a) Charter Hall – Executive Loan Security Plan (ELSP) (legacy plan)
The ELSP was suspended on 1 July 2009.
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
were eligible to participate in the plan were determined by the Joint Managing Directors in discussion with the Board.
Securities were granted under the plan at market value and were 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 subject to performance and service conditions. The amount of
interest due on the loan is equivalent to the amount of the distribution receivable on the underlying securities.
Distributions on the loan securities are paid to Charter Hall Limited as interest receivable on the loan provided to employees.
As ELSP members do not hold securities in their own name, the plan manager seeks instructions from plan members on their voting intentions. The plan
manager distributes a voting instruction form to collate responses and completes the ELSP’s proxy form for lodgement with the share registry.
Set out below are summaries of securities granted under the plan:
Opening balance (number of securities)
Other
Impact of consolidation at one for four
2011
Number
2010
Number
50,343,597
50,343,595
–
(37,757,677)
2
–
12,585,920
50,343,597
During the year, nil (2010: 4,500,000) securities were forfeited by ELSP members but have been retained in the plan.
(b) Charter Hall – Performance Rights and Options Plan (PROP)
In 2008, the Board engaged external advisers to gain a market perspective on long term incentive (LTI) arrangements. The Board, in consultation with the
independent remuneration consultants, resolved in the prior year to replace the ELSP and utilise the PROP as the Group’s LTI.
The performance rights and options are unquoted securities and conversion to stapled securities, and vesting to executives, is subject to service and
performance conditions which are discussed in the Remuneration Report.
2009
Number
2010
Number
2011
Number
Total
Number
Performance rights
Rights issued on 22/12/08
Rights issued on 13/11/09
Rights issued on 18/6/10
Rights issued on 6/9/10
Rights issued on 11/11/10
Rights issued
Number rights forfeited/lapsed in prior years
Number rights forfeited/lapsed in current year
Number rights vested in prior year
Number rights vested in current year
Closing balance
407,242
–
1,562,250
644,625
–
–
–
407,242
1,562,250
644,625
–
–
863,345
863,345
465,388
465,388
–
–
–
–
407,242
2,206,875
1,328,733
3,942,850
–
(27,094)
(69,467)
(40,000)
–
–
–
–
–
(7,693)
–
–
(69,467)
(74,787)
–
–
380,148
2,097,408
1,321,040
3,798,596
1 2 4
11068_CHC_AR_Financial_PPv2.indd 124
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Charter hall Group Service rights
Rights issued on 6/9/10
Rights issued
Number rights forfeited/lapsed in prior years
Number rights forfeited/lapsed in current year
Number rights vested in prior year
Number rights vested in current year
Closing balance
Options
Options issued on 4/11/09 at $1.94
Options issued on 13/11/09 at $1.94
Options issued on 18/6/10 at $2.80
Options issued on 6/9/10 at $2.44
Options issued on 11/11/10 at $2.44
Options issued on 19/1/11 at $2.35
Options issued
Number options forfeited/lapsed in prior years
Number options forfeited/lapsed in current year
Number options vested in prior year
Number options vested in current year
Closing balance
2009
Number
2010
Number
2011
Number
Total
Number
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
316,377
316,377
316,377
316,377
–
–
(51,096)
(51,096)
–
–
–
–
265,281
265,281
4,088,078
1,497,036
1,611,656
–
–
–
4,088,078
1,497,036
1,611,656
–
–
–
2,035,649
2,035,649
1,163,464
1,163,464
123,397
123,397
7,196,770
3,322,510
10,519,280
–
–
–
(391,472)
(19,232)
(410,704)
–
–
–
–
–
–
6,805,298
3,303,278
10,108,576
(c) Expenses arising from security-based benefits transactions
Total expenses arising from security-based benefits transactions recognised during the year as part of employee benefit expense were as follows:
Performance rights and options plan
2011
$’000
4,090
2010
$’000
1,317
The model inputs for the Black-Scholes method for assessing the fair value at loan date for the ELSP securities and PROP rights and options issued during
the year ended 30 June 2011 include the following:
Grant date
07/08/08
10/10/08
19/11/08
22/12/08
13/11/09
18/06/10
06/09/10
11/11/10
11/01/11
Security price at grant date *
Loan value per security *
$3.46
$4.16
$2.64
$4.16
$1.64
$4.16
$1.20
$4.16
$2.40
$1.94
$2.80
$2.80
$2.44
$2.44
$2.44
$2.44
$2.35
$2.35
Expiry of loan
06/08/13
09/08/13
18/11/13
21/12/13
01/07/14
18/06/15
06/09/15
06/09/15
06/09/16
Expected price volatility
23.68%
22.75%
58.06%
59.49%
40.00%
40.00%
40.00%
40.00%
40.00%
Risk-free interest rate
5.85%
4.28%
3.72%
3.19%
5.50%
5.50%
5.50%
5.50%
5.50%
* Security prices for prior years have been restated for the unit consolidation during the year.
11068_CHC_AR_Financial_PPv2.indd 125
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AnnuAl report 2011 Notes to the consolidated financial statements continued
41 Deed of cross guarantee
Charter Hall Limited and Charter Hall Holdings Pty Ltd are parties to a deed of cross guarantee under which each company guarantees the debts of the
other. By entering into the deed, the wholly owned entities have been relieved from the requirement to prepare financial statements and directors’ report
under Class Order 98/1418 (as amended) issued by the Australian Securities and Investments Commission.
(a) Consolidated income statement, statement of comprehensive income and summary of movements in consolidated accumulated losses
The above companies represent a ‘closed group’ for the purposes of the Class Order and, as there are no other parties to the deed of cross guarantee that
are controlled by Charter Hall Limited, they also represent the ‘extended closed group’.
Set out below is a consolidated income statement, a consolidated statement of comprehensive income and a summary of movements in consolidated
accumulated losses for the year of the closed group consisting of Charter Hall Limited and Charter Hall Holdings Pty Ltd.
Income statement
Revenue from continuing operations
Revenue
Depreciation
Employee benefits expense
Finance costs
Business combination transaction costs
Foreign exchange (loss)/gain
Share of net loss of associates accounted for using the equity method
Gain on sale of investments, property and derivatives
Impairment of goodwill
Fair value adjustments
Occupancy costs
Legal and consulting costs
Other expenses
Loss before income tax
Statement of comprehensive income
Loss after income tax for the year
Other comprehensive income for the year:
Exchange differences on translation of foreign operations
Total comprehensive income for the year
Summary of movements in consolidated accumulated losses
Accumulated losses at the beginning of the financial year
Loss for the year
Accumulated losses at the end of the financial year
2011
$’000
2010
$’000
60,783
(1,506)
(43,899)
(16,565)
–
(407)
2,742
793
(19,171)
(10,742)
(1,934)
(1,195)
(4,687)
(35,788)
2011
$’000
40,250
(666)
(25,949)
(26,377)
(6,636)
1
572
–
–
(295)
–
–
(4,267)
(23,367)
2010
$’000
(28,541)
(20,376)
(18)
18
(28,559)
(20,358)
(52,721)
(28,541)
(81,262)
(32,345)
(20,376)
(52,721)
1 2 6
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Charter hall Group (b) Balance sheet
Set out below is a consolidated balance sheet of the closed group consisting of Charter Hall Limited and Charter Hall Holdings Pty Ltd.
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Total current assets
Non-current assets
Trade and other receivables
Investments accounted for using the equity method
Investment in associates at fair value through profit or loss
Investments in controlled entities
Property, plant and equipment
Investment property
Intangible assets
Deferred tax assets
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Provisions
Total current liabilities
Non-current liabilities
Trade and other payables
Loans from Charter Hall Property Trust
Deferred tax liabilities
Provisions
Total non-current liabilities
Total liabilities
Net liabilities
Equity
Contributed equity
Reserves
Accumulated losses
Total equity
2011
$’000
2010
$’000
12,501
39,011
51,512
5,000
61,402
15,461
75,455
3,159
15,800
99,994
10,767
287,038
338,550
11,610
32,937
44,547
5,145
52,559
–
47,305
3,561
–
119,164
21,500
249,234
293,781
77,786
28,529
816
749
78,602
29,278
12,106
11,270
355,874
324,933
872
1,086
369,938
448,540
15,330
879
352,412
381,690
(109,990)
(87,909)
9,503
(38,231)
(81,262)
(109,990)
9,427
(44,615)
(52,721)
(87,909)
11068_CHC_AR_Financial_PPv2.indd 127
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AnnuAl report 2011 Directors’ declaration
for the year ended 30 June 2011
The closed group has net liabilities but has access to debt facilities provided by Charter Hall Property Trust (CHPT) which, together with CHL, forms part of the
Charter Hall Group stapled entity. At 30 June 2011, the amounts drawn under these facilities totals $355.9 million and are not repayable until 31 July 2018.
Charter Hall Group is proposing to reallocate capital from CHPT to CHL which would result in the capital being more appropriately balanced between CHL
and CHPT. Any such proposal will require approval at a general meeting of securityholders.
In the Directors’ opinion:
(a) the financial statements and notes set out on pages 51 to 119 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 Group’s financial position as at 30 June 2011 and of its performance for the financial year ended on that date;
(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) at the date of this declaration, there are reasonable grounds to believe that the members of the extended closed group identified in note 41 will be able
to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee described in note 41.
Note 1(a) confirms that the financial statements also comply with International Financial Reporting Standards as issued by the International Accounting
Standards Board.
The Directors have been given the declarations by the Joint Managing Directors 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
26 September 2011
1 2 8
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Charter hall Group Independent auditor’s report
to the members of Charter Hall Limited
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AnnuAl report 2011 Independent auditor’s report continued
1 3 0
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Charter hall Group Unitholder analysis
Securityholder information 31 August 2011
The securityholder information set out below was applicable as at 31 August 2011.
A Distribution of equity securities as at 31 August 2011
Analysis of numbers of equity securityholders by size of holding:
Number of securities held by security holders
Ordinary securities held per band
1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 50,000
50,001 to 100,000
100,001 and Over
Total
161,456
1,776,511
2,045,043
7,434,131
3,113,058
293,510,084
308,040,283
B Registered equity securityholders as at 31 August 2011
Twenty largest quoted equity securityholders
The names of the twenty largest registered holders of quoted equity securities are listed below:
Ordinary securities
Number held
Percentage of issued securities
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA LIMITED
BUTTONWOOD NOMINEES PTY LTD
CITICORP NOMINEES PTY LIMITED
NATIONAL NOMINEES LIMITED
CITICORP NOMINEES PTY LIMITED
CHL EXECUTIVE LOAN SECURITY PLAN MANAGERS PTY LTD
ARJON PTY LTD
ARJON PTY LTD
ARJON PTY LTD
ARJON PTY LTD
AMP LIFE LIMITED
COGENT NOMINEES PTY LIMITED
J P MORGAN NOMINEES AUSTRALIA LIMITED
COGENT NOMINEES PTY LIMITED
WYLLIE GROUP PTY LTD
EQUITY TRUSTEES LIMITED
MR DAVID JOHN SOUTHON
MR DAVID WILLIAM HARRISON
BOND STREET CUSTODIANS LIMITED
RBC DEXIA INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED
CEDAYU PTY LTD
C Substantial holders as at 31 August 2011
Substantial holders in the Group are set out below:
Ordinary securities
Arjon Pty Ltd
Commonwealth Bank of Australia
Macquarie Group
AMP Limited
D Voting rights as at 31 August 2011
52,353,225
33,535,802
28,979,275
26,355,361
24,100,462
16,223,171
12,585,899
12,553,988
12,553,988
12,553,987
12,553,987
7,282,996
5,765,849
4,707,498
3,764,901
2,500,000
2,461,198
2,048,360
2,009,521
1,510,907
1,358,886
1,119,334
17.00%
10.89%
9.41%
8.56%
7.82%
5.27%
4.09%
4.08%
4.08%
4.08%
4.08%
2.36%
1.87%
1.53%
1.22%
0.81%
0.80%
0.66%
0.65%
0.49%
0.44%
0.36%
Number held
Percentage
50,215,950
35,684,098
31,793,385
24,116,875
16.30%
11.58%
10.48%
7.83%
The voting rights attaching to ordinary shares are based 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.
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AnnuAl report 2011 Investor relations
Information relating to Charter Hall Group can be found at http://www.charterhall.com.au
The website is a useful source of information about the Group and its managed funds. The site contains a variety of investor information, including
presentations, webcasts, newsletters, annual reports, half year updates and announcements to the ASX.
Investor complaints
What to do if you have a complaint
Please contact us so that we can address your complaint:
Compliance Manager
Charter Hall Group
GPO Box 2704
Sydney NSW 2001
Email:
Telephone:
Facsimile:
reits@charterhall.com.au
1300 365 585 (local call cost)
+61 2 8908 4040
External dispute resolution
In the event that a complaint cannot be resolved within a reasonable period of time (usually 45 days) or you are not satisfied with our response, you can seek
assistance from the Financial Ombudsman Service (FOS) Limited. FOS provides a free and independent dispute resolution service to our investors who have
first raised their complaint with us and who remain dissatisfied. FOS’s contact details are below:
Financial Ombudsman Service
GPO Box 3
Melbourne, Victoria, 3001
Email:
Telephone:
Facsimile:
Website:
info@fos.org.au
1300 565 562 (local call cost)
+61 3 9614 7066
www.fos.org.au
Contact details
Registry
To access information on your holding or to update/change your details contact:
Link Market Services Limited
Locked Bag A14
Sydney South NSW 1235
Telephone:
1300 303 063 (within Australia)
+61 2 8280 7134 (outside Australia)
+61 2 9287 0303
www.linkmarketservices.com.au
charterhall.reits@linkmarketservices.com.au
Facsimile:
Website:
Email:
Investor relations
All other enquiries related to Charter Hall Group can be directed to Investor relations:
Charter Hall Group
GPO Box 2704
Sydney NSW 2001
Call :
1300 365 585 (local call cost)
+61 2 8908 4000 (outside Australia)
+61 2 8908 4040
reits@charterhall.com.au
Fax :
Email:
1 3 2
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Charter hall Group
This year Charter Hall celebrates its 20th anniversary.1991Charter Hall is launched focusing on the provision of property services, with two of its founding partners (David Southon and Cedric Fuchs) continuing to be directly involved with the business today.2004Transfield Holdings acquires 50% of Charter Hall and David Harrison, the ex-Managing Director of Savills, joins the company as Joint Managing Director alongside David Southon.2008Charter Hall launches the Core Plus Retail Fund, now known as the Direct Retail Fund and available for investment by retail investors.1991–94Charter Hall focuses on commercial property advisory work, acquiring office, industrial and retail investments in Sydney and Melbourne in addition to financial and development workout advice to many of Australia’s major banks.2005Charter Hall lists on the Australian Securities Exchange and launches Charter Hall Opportunity Fund No.4 and the Charter Hall Diversified Property Fund.2009The Gandel Group acquires a strategic 12% interest in Charter Hall as part of the company’s capital raising and in addition invests significant capital in the unlisted Core Plus Office Fund.Charter Hall acquires the management rights to Macquarie Group’s real estate funds management platform, increasing its funds under management to over $10 billion across listed and unlisted equity sources. The acquisition is funded via a capital raising in which Macquarie takes a 10% interest in Charter Hall and Gandel raises its interest to 16%.1995Charter Hall Investment Fund No.1 (CHIF) is launched, the first in a series of seven, focusing on high quality single and multi-asset property syndicates.2006Charter Hall launches the Core Plus Office Fund, the first in the Group’s series of long-term open ended core investment vehicles.20101996Australia’s first institutional opportunistic property fund, the AMP/Charter Hall Property Development Portfolio No.1, is launched with AMP Capital; the first in a series of five opportunistic funds by Charter Hall.2007Charter Hall launches the Core Plus Industrial Fund, Charter Hall Opportunity Fund No.5 and the Charter Hall Umbrella Fund.2011Charter Hall celebrates its 20 year anniversary and through its managed funds and third party mandates acquires over $1 billion in real estate, increasing funds under management to $10.7 billion.For further details on Charter Hall’s history, please visit www.charterhall.com.auANNUAl REPORT 2011133Corporate directoryDirectorsKerry Roxburgh Roy Woodhouse Cedric Fuchs Colin McGowan David Harrison David Southon Anne BrennanGlenn Fraser Peter Kahan Company SecretaryNathan FrancisASX CodeCharter Hall Group stapled securities are listed on the Australian Securities Exchange (code CHC).Principal registered office in Australialevel 11, 333 George StreetSydney NSW 2000+61 2 8908 4000AuditorPricewaterhouseCoopersDarling Park Tower 2201 Sussex StreetSydney NSW 1171SolicitorsAllens Arthur Robinsonlevel 28, Deutsche Bank PlaceCnr of Hunter & Phillip StreetsSydney NSW 2000BankersWestpac Banking Corporation level 3, Westpac Place, 275 Kent Street Sydney NSW 2000Annual General MeetingThe Annual General Meeting for Charter Hall Group will be held on 9 November 2011 at 2.30pm at:The Hiltonlevel 2, Room 2488 George StreetSYDNEYWebsite addresswww.charterhall.com.auDisclaimer:This Annual Report has been prepared and issued by Charter Hall limited (ABN 57 113 531 150) and Charter Hall Funds Management limited (ABN 31 082 991 786, AFSl 262861) (CHFMl) as Responsible Entity of the Charter Hall Property Trust (together, the Charter Hall Group or Group). The information contained in this report has been compiled to comply with legal and regulatory requirements and to assist the recipient in assessing the performance of the Group independently and does not relate to, and is not relevant for, any other purpose. This report is not intended to be and does not constitute an offer or a recommendation to acquire any securities in the Charter Hall Group. The receipt of this report by any person and any information contained herein or subsequently communicated to any person in connection with the Charter Hall Group is not to be taken as constituting the giving of investment, legal, or tax advice by the Charter Hall Group, their related bodies corporate, their directors or employees to any such person. Each recipient should consult their own counsel, accountant, and other advisers as to legal, tax, business, financial and other considerations in relation to the Charter Hall Group.Historical performance is not a reliable indicator of future performance. Due care and attention has been exercised in the preparation of forecast information, however, forecasts, by their very nature, are subject to uncertainty and contingencies, many of which are outside the control of the Group. Actual results may vary from any forecasts and any variation may be materially positive or negative.Neither the Charter Hall Group, their related bodies corporate, directors, employees nor any other person who may be taken to have been involved in the preparation of this financial report represents or warrants that the information contained in this report, provided either orally or in writing to a recipient in the course of its evaluation of the Charter Hall Group or the matters contained in this financial report, is accurate or complete.CHFMl does not receive fees in respect of the general financial product advice it may provide; however, entities within the Charter Hall Group receive fees for operating the Trust in accordance with its constitution. Entities within the Group may also receive fees for managing the assets of, and providing resources to the Trust. For more detail on fees, see this annual report. To contact us, call +61 2 8908 4000 (local call cost). All information herein is current as at 30 June 2011 unless otherwise stated. All references to dollars ($) or A$ are Australian Dollars unless otherwise status. Exchange rates in this report are A$1.00/US$1.0713/€0.7401 CQO US sale proceedsIn determining the net sale proceeds from the sale of the US portfolio and the pro-rata special distribution to CQO unitholders, it is assumed that the conditions for closing are met for the entire US portfolio, thereby achieving closing of the sale of all properties. To the extent that conditions to closing are not satisfied for certain properties or all properties this may materially impact the proceeds received by CQO and the amount of proceeds available for the pro-rata special distribution to CQO unitholders. In addition, various other factors may vary the quantum of the net sales proceeds and the size of the pro-rata special distribution to CQO unitholders, including movements in working capital, timing of properties sold, debt transfer or termination costs. Because satisfaction of these assumptions is not within the control of CHOMl as a member of the Charter Hall Group, neither CHOMl nor the Charter Hall Group is in a position to give, and does not give, any assurance as to the quantum or timing of receipt of net sale proceeds. Information regarding U.S. Investors / U.S. Persons:Each person that holds Charter Hall Group securities that is in the United States (U.S.) or is a U.S. person is required to be a Qualified Institutional Buyer / Qualified Purchaser (QIB/QP) at the time of the acquisition of any Charter Hall Group securities, and is required to make the representations in a subscription agreement as of the time it acquired the applicable securities. The securities can only be resold or transferred in a regular brokered transaction on the ASX in accordance with Rule 903 or 904 of Regulation S, where neither it nor any person acting on its behalf knows or has reason to know, that the sale has been prearranged with, or that the purchaser is, in the United States or a U.S. person (e.g. no prearranged trades (‘special crossing’) with U.S. Persons or other off-market transactions).To the maximum extent permitted by law, the Charter Hall Group reserve the right to (i) request any person that they deem to be in the United States or a U.S. Person, who was not at the time of acquisition of the securities a QIB/QP, to sell its securities, (ii) refuse to record any subsequent sale or transfer of securities to a person in the United States or a U.S. Person, and (iii) take such other action as they deem necessary or appropriate to enable the Charter Hall Group to maintain the exception from registration under Section 3(c)(7) of the Investment Company Act. If you are not the beneficial owner of securities in the Charter Hall Group, you must pass this information to the beneficial owner of the securities.Complaints handlingA formal complaints handling procedure is in place for the Group. CHFMl is a member of the Financial Ombudsman Service (“FOS”). Complaints should in the first instance be directed to CHFMl. If you have any enquiries or complaints, please contact the Compliance Manager on +61 2 8908 4000 (local call cost).CReAteD BY DeSIgnAte{ Group }Cover and pages 1-24: Printed on environmentally friendly stock (55% recycled and 45% oxygen bleached pulp) using vegetable based inks. Pages 25-132: Printed on a stock sourced from suppliers who practise sustainable management of forests in line with strict international standards. All suppliers operate under ISO 14001 or FSC accredited environmental systems.11068_CHC_AR_Cover_PPv1.indd 5-15/10/11 10:49 AMANNUAl REPORT 2011133Corporate directoryDirectorsKerry Roxburgh Roy Woodhouse Cedric Fuchs Colin McGowan David Harrison David Southon Anne BrennanGlenn Fraser Peter Kahan Company SecretaryNathan FrancisASX CodeCharter Hall Group stapled securities are listed on the Australian Securities Exchange (code CHC).Principal registered office in Australialevel 11, 333 George StreetSydney NSW 2000+61 2 8908 4000AuditorPricewaterhouseCoopersDarling Park Tower 2201 Sussex StreetSydney NSW 1171SolicitorsAllens Arthur Robinsonlevel 28, Deutsche Bank PlaceCnr of Hunter & Phillip StreetsSydney NSW 2000BankersWestpac Banking Corporation level 3, Westpac Place, 275 Kent Street Sydney NSW 2000Website addresswww.charterhall.com.auDisclaimer:This Annual Report has been prepared and issued by Charter Hall limited (ABN 57 113 531 150) and Charter Hall Funds Management limited (ABN 31 082 991 786, AFSl 262861) (CHFMl) as Responsible Entity of the Charter Hall Property Trust (together, the Charter Hall Group or Group). The information contained in this report has been compiled to comply with legal and regulatory requirements and to assist the recipient in assessing the performance of the Group independently and does not relate to, and is not relevant for, any other purpose. This report is not intended to be and does not constitute an offer or a recommendation to acquire any securities in the Charter Hall Group. The receipt of this report by any person and any information contained herein or subsequently communicated to any person in connection with the Charter Hall Group is not to be taken as constituting the giving of investment, legal, or tax advice by the Charter Hall Group, their related bodies corporate, their directors or employees to any such person. Each recipient should consult their own counsel, accountant, and other advisers as to legal, tax, business, financial and other considerations in relation to the Charter Hall Group.Historical performance is not a reliable indicator of future performance. Due care and attention has been exercised in the preparation of forecast information, however, forecasts, by their very nature, are subject to uncertainty and contingencies, many of which are outside the control of the Group. Actual results may vary from any forecasts and any variation may be materially positive or negative.Neither the Charter Hall Group, their related bodies corporate, directors, employees nor any other person who may be taken to have been involved in the preparation of this financial report represents or warrants that the information contained in this report, provided either orally or in writing to a recipient in the course of its evaluation of the Charter Hall Group or the matters contained in this financial report, is accurate or complete.CHFMl does not receive fees in respect of the general financial product advice it may provide; however, entities within the Charter Hall Group receive fees for operating the Trust in accordance with its constitution. Entities within the Group may also receive fees for managing the assets of, and providing resources to the Trust. For more detail on fees, see this annual report. To contact us, call +61 2 8908 4000 (local call cost). All information herein is current as at 30 June 2011 unless otherwise stated. All references to dollars ($) or A$ are Australian Dollars unless otherwise status. Exchange rates in this report are A$1.00/US$1.0713/€0.7401 CQO US sale proceedsIn determining the net sale proceeds from the sale of the US portfolio and the pro-rata special distribution to CQO unitholders, it is assumed that the conditions for closing are met for the entire US portfolio, thereby achieving closing of the sale of all properties. To the extent that conditions to closing are not satisfied for certain properties or all properties this may materially impact the proceeds received by CQO and the amount of proceeds available for the pro-rata special distribution to CQO unitholders. In addition, various other factors may vary the quantum of the net sales proceeds and the size of the pro-rata special distribution to CQO unitholders, including movements in working capital, timing of properties sold, debt transfer or termination costs. Because satisfaction of these assumptions is not within the control of CHOMl as a member of the Charter Hall Group, neither CHOMl nor the Charter Hall Group is in a position to give, and does not give, any assurance as to the quantum or timing of receipt of net sale proceeds. Information regarding U.S. Investors / U.S. Persons:Each person that holds Charter Hall Group securities that is in the United States (U.S.) or is a U.S. person is required to be a Qualified Institutional Buyer / Qualified Purchaser (QIB/QP) at the time of the acquisition of any Charter Hall Group securities, and is required to make the representations in a subscription agreement as of the time it acquired the applicable securities. The securities can only be resold or transferred in a regular brokered transaction on the ASX in accordance with Rule 903 or 904 of Regulation S, where neither it nor any person acting on its behalf knows or has reason to know, that the sale has been prearranged with, or that the purchaser is, in the United States or a U.S. person (e.g. no prearranged trades (‘special crossing’) with U.S. Persons or other off-market transactions).To the maximum extent permitted by law, the Charter Hall Group reserve the right to (i) request any person that they deem to be in the United States or a U.S. Person, who was not at the time of acquisition of the securities a QIB/QP, to sell its securities, (ii) refuse to record any subsequent sale or transfer of securities to a person in the United States or a U.S. Person, and (iii) take such other action as they deem necessary or appropriate to enable the Charter Hall Group to maintain the exception from registration under Section 3(c)(7) of the Investment Company Act. If you are not the beneficial owner of securities in the Charter Hall Group, you must pass this information to the beneficial owner of the securities.Complaints handlingA formal complaints handling procedure is in place for the Group. CHFMl is a member of the Financial Ombudsman Service (“FOS”). Complaints should in the first instance be directed to CHFMl. If you have any enquiries or complaints, please contact the Compliance Manager on +61 2 8908 4000 (local call cost).CReAteD BY DeSIgnAte{ Group }Cover and pages 1-24: Printed on environmentally friendly stock (55% recycled and 45% oxygen bleached pulp) using vegetable based inks. Pages 25-132: Printed on a stock sourced from suppliers who practise sustainable management of forests in line with strict international standards. All suppliers operate under ISO 14001 or FSC accredited environmental systems.This year Charter Hall celebrates its 20th anniversary.1991Charter Hall is launched focusing on the provision of property services, with two of its founding partners (David Southon and Cedric Fuchs) continuing to be directly involved with the business today.2004Transfield Holdings acquires 50% of Charter Hall and David Harrison, the ex-Managing Director of Savills, joins the company as Joint Managing Director alongside David Southon.2008Charter Hall launches the Core Plus Retail Fund, now known as the Direct Retail Fund and available for investment by retail investors.1991–94Charter Hall focuses on commercial property advisory work, acquiring office, industrial and retail investments in Sydney and Melbourne in addition to financial and development workout advice to many of Australia’s major banks.2005Charter Hall lists on the Australian Securities Exchange and launches Charter Hall Opportunity Fund No.4 and the Charter Hall Diversified Property Fund.2009The Gandel Group acquires a strategic 12% interest in Charter Hall as part of the company’s capital raising and in addition invests significant capital in the unlisted Core Plus Office Fund.Charter Hall acquires the management rights to Macquarie Group’s real estate funds management platform, increasing its funds under management to over $10 billion across listed and unlisted equity sources. The acquisition is funded via a capital raising in which Macquarie takes a 10% interest in Charter Hall and Gandel raises its interest to 16%.1995Charter Hall Investment Fund No.1 (CHIF) is launched, the first in a series of seven, focusing on high quality single and multi-asset property syndicates.2006Charter Hall launches the Core Plus Office Fund, the first in the Group’s series of long-term open ended core investment vehicles.20101996Australia’s first institutional opportunistic property fund, the AMP/Charter Hall Property Development Portfolio No.1, is launched with AMP Capital; the first in a series of five opportunistic funds by Charter Hall.2007Charter Hall launches the Core Plus Industrial Fund, Charter Hall Opportunity Fund No.5 and the Charter Hall Umbrella Fund.2011Charter Hall celebrates its 20 year anniversary and through its managed funds and third party mandates acquires over $1 billion in real estate, increasing funds under management to $10.7 billion.For further details on Charter Hall’s history, please visit www.charterhall.com.auANNUAl REPORT 2011133Corporate directoryDirectorsKerry Roxburgh Roy Woodhouse Cedric Fuchs Colin McGowan David Harrison David Southon Anne BrennanGlenn Fraser Peter Kahan Company SecretaryNathan FrancisASX CodeCharter Hall Group stapled securities are listed on the Australian Securities Exchange (code CHC).Principal registered office in Australialevel 11, 333 George StreetSydney NSW 2000+61 2 8908 4000AuditorPricewaterhouseCoopersDarling Park Tower 2201 Sussex StreetSydney NSW 1171SolicitorsAllens Arthur Robinsonlevel 28, Deutsche Bank PlaceCnr of Hunter & Phillip StreetsSydney NSW 2000BankersWestpac Banking Corporation level 3, Westpac Place, 275 Kent Street Sydney NSW 2000Annual General MeetingThe Annual General Meeting for Charter Hall Group will be held on 9 November 2011 at 2.30pm at:The Hiltonlevel 2, Room 2488 George StreetSYDNEYWebsite addresswww.charterhall.com.auDisclaimer:This Annual Report has been prepared and issued by Charter Hall limited (ABN 57 113 531 150) and Charter Hall Funds Management limited (ABN 31 082 991 786, AFSl 262861) (CHFMl) as Responsible Entity of the Charter Hall Property Trust (together, the Charter Hall Group or Group). The information contained in this report has been compiled to comply with legal and regulatory requirements and to assist the recipient in assessing the performance of the Group independently and does not relate to, and is not relevant for, any other purpose. This report is not intended to be and does not constitute an offer or a recommendation to acquire any securities in the Charter Hall Group. The receipt of this report by any person and any information contained herein or subsequently communicated to any person in connection with the Charter Hall Group is not to be taken as constituting the giving of investment, legal, or tax advice by the Charter Hall Group, their related bodies corporate, their directors or employees to any such person. Each recipient should consult their own counsel, accountant, and other advisers as to legal, tax, business, financial and other considerations in relation to the Charter Hall Group.Historical performance is not a reliable indicator of future performance. Due care and attention has been exercised in the preparation of forecast information, however, forecasts, by their very nature, are subject to uncertainty and contingencies, many of which are outside the control of the Group. Actual results may vary from any forecasts and any variation may be materially positive or negative.Neither the Charter Hall Group, their related bodies corporate, directors, employees nor any other person who may be taken to have been involved in the preparation of this financial report represents or warrants that the information contained in this report, provided either orally or in writing to a recipient in the course of its evaluation of the Charter Hall Group or the matters contained in this financial report, is accurate or complete.CHFMl does not receive fees in respect of the general financial product advice it may provide; however, entities within the Charter Hall Group receive fees for operating the Trust in accordance with its constitution. Entities within the Group may also receive fees for managing the assets of, and providing resources to the Trust. For more detail on fees, see this annual report. To contact us, call +61 2 8908 4000 (local call cost). All information herein is current as at 30 June 2011 unless otherwise stated. All references to dollars ($) or A$ are Australian Dollars unless otherwise status. Exchange rates in this report are A$1.00/US$1.0713/€0.7401 CQO US sale proceedsIn determining the net sale proceeds from the sale of the US portfolio and the pro-rata special distribution to CQO unitholders, it is assumed that the conditions for closing are met for the entire US portfolio, thereby achieving closing of the sale of all properties. To the extent that conditions to closing are not satisfied for certain properties or all properties this may materially impact the proceeds received by CQO and the amount of proceeds available for the pro-rata special distribution to CQO unitholders. In addition, various other factors may vary the quantum of the net sales proceeds and the size of the pro-rata special distribution to CQO unitholders, including movements in working capital, timing of properties sold, debt transfer or termination costs. Because satisfaction of these assumptions is not within the control of CHOMl as a member of the Charter Hall Group, neither CHOMl nor the Charter Hall Group is in a position to give, and does not give, any assurance as to the quantum or timing of receipt of net sale proceeds. Information regarding U.S. Investors / U.S. Persons:Each person that holds Charter Hall Group securities that is in the United States (U.S.) or is a U.S. person is required to be a Qualified Institutional Buyer / Qualified Purchaser (QIB/QP) at the time of the acquisition of any Charter Hall Group securities, and is required to make the representations in a subscription agreement as of the time it acquired the applicable securities. The securities can only be resold or transferred in a regular brokered transaction on the ASX in accordance with Rule 903 or 904 of Regulation S, where neither it nor any person acting on its behalf knows or has reason to know, that the sale has been prearranged with, or that the purchaser is, in the United States or a U.S. person (e.g. no prearranged trades (‘special crossing’) with U.S. Persons or other off-market transactions).To the maximum extent permitted by law, the Charter Hall Group reserve the right to (i) request any person that they deem to be in the United States or a U.S. Person, who was not at the time of acquisition of the securities a QIB/QP, to sell its securities, (ii) refuse to record any subsequent sale or transfer of securities to a person in the United States or a U.S. Person, and (iii) take such other action as they deem necessary or appropriate to enable the Charter Hall Group to maintain the exception from registration under Section 3(c)(7) of the Investment Company Act. If you are not the beneficial owner of securities in the Charter Hall Group, you must pass this information to the beneficial owner of the securities.Complaints handlingA formal complaints handling procedure is in place for the Group. CHFMl is a member of the Financial Ombudsman Service (“FOS”). Complaints should in the first instance be directed to CHFMl. If you have any enquiries or complaints, please contact the Compliance Manager on +61 2 8908 4000 (local call cost).CReAteD BY DeSIgnAte{ Group }Cover and pages 1-24: Printed on environmentally friendly stock (55% recycled and 45% oxygen bleached pulp) using vegetable based inks. Pages 25-132: Printed on a stock sourced from suppliers who practise sustainable management of forests in line with strict international standards. All suppliers operate under ISO 14001 or FSC accredited environmental systems.11068_CHC_AR_Cover_PPv1.indd 5-15/10/11 10:49 AM C
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