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VEREITCharter Hall
Group
Annual
Report
2018
Charter Hall Group Annual Report 2018
About Us
We use our property expertise to
access, deploy, manage and invest
equity in our core real estate sectors —
office, retail and industrial — to create
value and generate superior returns
for our customers.
Contents
01
Our
Strategy
12
Sustainability
Shared Value
To view our Corporate
Governance Statement,
go to charterhall.com.
au/About-Us/Corporate-
Governance
HIGHLIGHTS
02
Sector
Highlights
LETTERS
04
Chair’s
Report
03
Group Performance
Highlights
08
Managing Director
& Group CEO Letter
OUR BOARD AND MANAGEMENT
18
Executive
Committee
19
Board of
Directors
FINANCIAL REPORT
20
Financial Report
and Other
Information
112Investor
Information
113
Corporate
Directory
Charter Hall Group Annual Report 2018
Our Strategy
Access
Accessing equity
from listed,
wholesale and
retail investors.
Deploy
Creating value
through attractive
investment
opportunities.
Manage
Funds management,
asset management,
leasing and
development
services.
Invest
Investing
alongside our
capital partners.
FY18
GROSS EQUITY RAISED
GROSS TRANSACTIONS
FUM GROWTH
INCREASE IN PI TO $1.7B
$1.7b
$3.5b
ACQUISITIONS
$2.5b
DIVESTMENTS
$1.0b
$3.4b
ASSETS
330
WEIGHTED AVERAGE
LEASE EXPIRY
7.7years
5 YEAR
GROSS EQUITY RAISED
GROSS TRANSACTIONS
FUM GROWTH
$8.7b
$17.9b
$13.3b
ACQUISITIONS
$12.1b
ADDITIONAL PROPERTIES
131
DIVESTMENTS
$5.8b
$179m
11.7%
TOTAL PROPERTY
INVESTMENT RETURN1
12.3%
INCREASE IN PI
$1.2b
211.4%
TOTAL PROPERTY
INVESTMENT RETURN1
14.0%
1. Total Property Investment Return is calculated as distributions received from funds plus growth in investment value divided by the opening investment value of the
PI portfolio. This excludes investments held for less than a year and investments in Direct Funds.
01
Charter Hall Group Annual Report 2018
Sector Highlights
Office
FUM
$11.1b
Industrial
FUM
$6.1b
Retail
FUM
$6.1b
Direct
FUM
$3.0b
PORTFOLIO
49
OCCUPANCY
98.2%
WALE YRS
6.3
PORTFOLIO
116
OCCUPANCY
98.0%
WALE YRS
9.7
PORTFOLIO
165
OCCUPANCY
97.9%
WALE YRS
8.1
PORTFOLIO
54
OCCUPANCY
99.6%
WALE YRS
9.3
0202
Diversification
by Equity Source
Wholesale Equity
Listed Fund
Retail Equity
$2.9b
12%
$4.4b
19%
$23.2b
$15.9b
69%
Charter Hall Group Annual Report 2018
Group Performance Highlights
OPERATING EARNINGS
(POST TAX)
PROPERTY
INVESTMENTS
$175.8m
$1.7b
16.2%
FUNDS UNDER
MANAGEMENT
(FUM)
$23.2b
17.0%
INVESTMENT
CAPACITY
$3.4b
11.7%
NTA PER SECURITY
GROWTH
6.1%
TOTAL PLATFORM
RETURN1
15.0%
1. Total Platform Return is calculated as growth in net tangible assets (NTA) per security plus distributions per security divided by the opening NTA per security.
03
Chair’s Report
Welcome to the
Charter Hall Group
2018 Annual Report
Dear Securityholders,
Shared growth is the foundation of the
Charter Hall business; we invest alongside
our capital partners so that our interests
are aligned. At a time when confidence in
the institutions who manage your wealth is
paramount, your Board understands that
our role is to serve investors – and this is
something we never forget.
I am pleased to report that the Group
has executed well on our strategy in the
2018 financial year, growing Funds Under
Management (FUM) by 17% to $23.2 billion
as well increasing Property Investments
by 11.7% to deliver a 12.3% total property
investment return.
This sound performance has delivered
6% growth in full year distributions to
securityholders, to 31.8 cps for the 2018
financial year. This is consistent with our
sustained long-term performance which
over five years has seen Charter Hall deliver
operating earnings per security post tax
growth (OEPS) of 10.5% per annum (p.a.)
and distribution per security compound
annual growth of 9.5% p.a.
This performance is consistent with
our purpose to grow investor wealth by
providing access to institutional quality
property investments.
High quality property investment offerings
continue to attract capital
This year has been a record year for equity
inflows into Charter Hall’s property funds
management platform – wholesale, direct
and listed equity inflows have all contributed.
We believe this ongoing investment support
is the result of our strong performance
history, our proven ability to deliver and our
diversified sector offerings across office,
retail and industrial property in Australia.
04
Charter Hall Group Annual Report 2018 Welcome to the
Charter Hall Group
2018 Annual Report
We accessed $1.7 billion of gross equity
over the year, taking gross equity flows
to $8.7 billion over the past five years.
The $23.2 billion property portfolio that
we invest in and manage now comprises
330 office, retail and industrial properties
with nearly 2,500 tenant customers. Our
Managing Director and Chief Executive
Officer, David Harrison, provides more
details on page 8 of this report.
Growing our investable universe
Post balance date, the Group announced
a Scheme Implementation Agreement
to acquire the ASX-listed Folkestone
Property Group (ASX:FLK). The acquisition
of Folkestone expands Charter Hall’s
investable universe into the social
infrastructure and early learning sector.
The proposed acquisition would result
in Charter Hall becoming the largest
unitholder in the ASX-listed Folkestone
Education Trust (FET), with a 12% stake,
delivering Charter Hall an attractive 6.3%
investment yield from a $1 billion, 9.9-year
Weighted Average Lease Expiry (WALE)
portfolio of 410 properties.
We see this as an attractive area for future
growth, with highly fragmented ownership
and low institutional participation, but with
high quality covenants and long WALE triple
net leases.
Robust balance sheet
Charter Hall continues to have a conservative
zero geared balance sheet and look-through
gearing based on co-investments in funds
and partnerships of 27.3%.
We remain active in our approach to capital
management, deepening our relationships
with both the debt capital markets and
banks. Post balance date, the Group
undertook a US 10-year term Private
Placement which raised A$231.5 million,
whilst we also refinanced an undrawn
$200 million five-year corporate facility in
the period. Combined, the Group’s average
debt term maturity exceeds 7.5 years.
This prudent capital management
approach has seen the Group assigned
a corporate investment grade rating of
Baa1 from Moody’s and places the Group
in an excellent position to capitalise on
opportunities across our investment
portfolio with investment capacity
exceeding $500 million prior to the
Folkestone acquisition expected to
complete in November 2018. Across the
Group’s funds management platform, more
than $3.4 billion of investment capacity
existed at 30 June 2018 to fund the
development pipeline and new acquisitions.
A high performing, diverse culture
We have a highly experienced team of
500 people working for us right across
Australia, and your Board is committed to
creating a culture at Charter Hall where our
people are focused on delivering property
solutions for our tenant customers.
Innovation is a mainstay in our culture
and we continue to work on driving
improvements and encouraging innovation
through the support of initiatives such
as the Cedric Fuchs Scholarship and
the first Australian PropTech Accelerator
program. This year we were honoured to
be included in the Top 20 most innovative
companies in the ASX 200, as authored
by Collective Campus.
To ensure that we are building our talent
pipeline, and that our people see clear
pathways for themselves in the business,
we look at transferrable skills and provide
employees the opportunity to work in
multiple areas of the business.
During the year we provided our people
and teams the opportunities to share ideas
and develop new skills, with over 10% of
our people being either promoted or
seconded/transferred to different parts
of the business to develop new skills,
career opportunities and pathways.
Our commitment also extends to attracting
young people to grow our talent pipeline and
facilitate greater innovation and diversity
of thought. Our continued partnership
with Western Sydney University and the
University of Technology Sydney as part
of the Charter Hall Scholarship Program is
testament to this.
Embedding sustainability and community
Over the past five years, sustainability
and community have become embedded
in everything we do at Charter Hall. We
have become increasingly focused on the
wellbeing of the people who work in and
visit our buildings.
We now have Australia’s largest Green Star
footprint, with 178 of our office, retail and
industrial assets achieving a Green Star
Performance rating; and 18 Green Star
ratings for development achieving 5 Star
Green Star or above.
And, in the past year, we have:
•
•
increased our Office portfolio NABERS
Energy ratings to a 4.71 Star weighted
average and maintained our 3.5 Star
NABERS Energy weighted average rating
in retail assets;
increased our renewable footprint, with
our portfolio now containing 2,456kW of
solar PV, generating over 3,670MWh of
electricity per year; and
For more information, please visit
charterhall.reportonline.com.au/
fy18/chc/
05
Charter Hall Group Annual Report 2018 Charter Hall Group Annual Report 2018
• achieved a Silver WELL Interiors
rating in our Melbourne and Perth
office tenancies.
We support the Australian community in
various ways, including our partnership
with the international movement, Pledge 1%,
which integrates our business commitment
towards investment in our communities,
through our people, our places and
our partnerships.
This year, more than 80% of our people
collectively volunteered 330 days of their
time in the community and along with
our people we donated $600,000 for
community-based programs. One of the
initiatives we supported this year was a
partnership with Two Good Co in support
of domestic violence shelters and the women
in them – by providing nutritious meals,
training and return to work opportunities.
More information on our Shared Value and
Sustainability initiatives can be found on
page 12 of this report.
A strong Board with a diverse skill set
The Charter Hall Board continues to
comprise a majority of independent
Directors, in line with best practice. There
were no changes to the Board composition
during the 2018 financial year.
I encourage all securityholders to familiarise
themselves with your Directors – our
biographies can be found on page 27 of
the Directors’ Report.
Farewell to one of our founders
During the year we announced the
retirement of one of our founders, and a key
custodian of the Charter Hall way of doing
business, Cedric Fuchs.
His significant role in helping us build
Charter Hall into one of Australia’s
leading property groups is reflected in
the exceptional growth and consistent
solid performance of the Direct Property
business, which has over $3.0 billion under
management and is the largest unlisted
property fund manager for retail investors
in Australia.
I would like to congratulate Cedric on his
outstanding career, and thank him for his
leadership and the knowledge and insights
he has bestowed upon many of our people
over the years. Most importantly, I thank
Cedric and the co-founders for the courage
it must have taken to establish Charter Hall
in 1991.
Cedric’s legacy will survive at Charter Hall
through the Cedric Fuchs Scholarship which
will ensure our people continue to innovate
and drive improvements for our customers.
Outlook
Charter Hall remains in a strong financial
position, supported by a high quality team
focused on delivering outstanding results for
our securityholders and capital partners.
The Board remains equally focused on
providing the Group with clear governance
and oversight to assist management in
continuing to deliver exceptional results, and
to enhance a culture that builds meaningful
careers while delivering growth for our
investors.
As we continue to build on the Group’s solid
foundations, I take this opportunity to thank
our customers, investors and securityholders
for their support; and the team for their
diligent delivery of the Group strategy.
David Clarke
Chair
06
Charter Hall Group Annual Report 2018
Charter Hall Group Annual Report 2018
The $23.2 billion property portfolio
that we invest in and manage now
comprises 330 office, retail and
industrial properties with nearly
2,500 tenant customers.
07
Managing Director
& Group CEO Letter
Year-on-year
growth and strong
equity flows
We have delivered a
high quality result for
our investors, growing
earnings and distributions,
and with $3.4 billion of
investment capacity,
we are growing scale in
our funds management
and property asset base
across Australia.
Charter Hall has continued the momentum
delivered in previous years, posting 5%
post tax growth in operating earnings per
security, with record net equity inflows and
FUM growth, whilst continuing to improve
customer satisfaction with our solution-
based focus on investors and tenants.
Performance highlights
Charter Hall Group (CHC) continues to
strengthen, increasing our investment reach
across Australia – through new funds, capital
partners, tenant customers, asset acquisitions
and development activity. At the same time
we continue to maintain underlying portfolio
metrics to deliver sustainable growth for
our investors, building on the momentum
of previous years.
In this our 28th year of operation,
Charter Hall has produced another solid
full year financial result, delivering
year-on-year growth across all key metrics
to once again provide shared value to our
securityholders and investors, our tenant
customers, our people and the communities
in which we operate.
The Group’s total platform return, or the gain
in net tangible assets plus distributions, was
15% for the 2018 financial year – a key focus
08
Charter Hall Group Annual Report 2018 of the Group as this is commensurate with
the total return objectives of our managed
funds and partnerships. Charter Hall’s
Property Investments, which reflect our
balance sheet co-investments, delivered
a 12.3% total return, exceeding the IPD
Unlisted wholesale index. Over the last five
years this key metric has delivered 14%
p.a., generating a 26% excess return to the
comparable IPD Index return of 11.1% p.a. for
the same five-year period.
Over the past five years the Group has
delivered compound average growth of
10.5% p.a. (post tax) in operating earnings per
security and compound average growth of
9.5% p.a. in distributions per security, rising
to 12.8% p.a. when the benefits of franking
credits are included.
Delivering sustainable returns
Our portfolios are carefully curated with
a risk-adjusted focus to optimise returns,
while delivering resilience and durable
cash flows by enhancing tenant quality,
extending our weighted average lease
expiries and driving income growth.
Central to this growth is our ability to
transact. Our leading market share in
transactions (both acquisitions and
divestments) along with our dedicated
teams in each major metropolitan market
nationally, provides invaluable insight into
the local property markets.
We undertook $3.5 billion of gross
transactions as our investment
management, transaction, property
services and support teams worked
collaboratively to buy and sell assets for
the benefit of our funds and partnership
investors, and Charter Hall securityholders.
We continue to do this with a
comprehensive set of risk filters. The Group
continues to maintain strong balance
sheets across its funds and partnerships,
as demonstrated by the average gearing of
our co-investment portfolio at 27.3% and
$3.4 billion of investment capacity.
Delivering on strategy
We accessed $1.7 billion of gross equity
over the year, taking gross equity flows
to $8.7 billion over the past five years.
We continue to drive investment returns
by deploying this equity into the ongoing
curation of the portfolios we manage via
developments and acquisitions, net of
divestments.
Of the $3.5 billion of gross transactions
this year, we divested a further $1 billion
of assets. Over the last five years we have
now realised $5.8 billion of divestments.
Our focus remains on ensuring we manage
portfolios to preserve capital and drive
resilient income returns, optimising the
earnings growth from the assets we manage.
With a property portfolio of 330 properties,
leased to nearly 2,500 tenants, Charter
Hall’s market penetration and opportunities
to provide cross-sector solutions to
tenant customers, gives us a competitive
advantage to secure multiple asset
long-term leases from these customers
who appreciate the scale and diversity of
our market reach.
Maintaining a strong balance sheet
With a strong balance sheet, we have
considerable financial flexibility with a
further $3.4 billion of investment growth
capacity across the Group and our platform
as at 30 June 2018.
We continue to diversify our sources of
debt, increasing our exposure to alternative
sources to bank funding where we can
secure longer tenor on favourable terms.
In June 2018, the Group was assigned a
first-time Baa1 issuer rating with a stable
outlook. The rating was also assigned to the
Group’s US Private Placement. This is the
first time that Moody’s has assigned ratings
to the Group.
Importantly, combined access to debt and
available cash at hand provides significant
investment capacity to support the growth
of our $23.2 billion platform. We never take
09
for granted the importance of liquidity,
access to debt and the need to constantly
maintain and extend debt maturities, where
we have a dual focus of spreading debt and
lease expiries across all portfolios we own
and manage.
Growth in property investment earnings
Our Property Investments are well
diversified across sectors and funds, and
importantly characterised by long WALE,
high occupancy and an average annual
rent review excluding market reviews of
3.6% p.a. (some 1.6% above current inflation
levels) delivering real income growth to
our investors.
During the period, our Property Investment
Portfolio grew significantly by 11.7%
to $1.7 billion, a $179 million increase
that provides an attractive 6.3% property
investment yield. This reflects growth
in underlying asset values and our
additional co-investments alongside
our investment partners.
The diversification benefits of our portfolio
are obvious, with a bias towards strongly
performing office markets, a growing
exposure and weighting to both logistics
and long WALE retail, whilst our Group-
wide focus on tenant resilience and
industry diversification provides an insight
into our risk management philosophy. Asset
concentration is limited, with no one asset
providing more than 2.3% of the Group’s
Property Investment earnings, with the top
10 assets combining to only represent 15%
of total Property Investment earnings.
Occupancy has improved slightly,
and through active asset management
the portfolio WALE sits at an attractive
7.2 years. Our Weighted Average Rent
Review remains strong at 3.6% and the
number of properties within the Property
Investment Portfolio has increased to 298.
Charter Hall Group Annual Report 2018 “ As a fund manager, performance
is everything. We have continued
to outperform the MSCI IPD Index
over 1, 3 and 5 years.”
Outperformance over 1, 3 and 5 years (% p.a.)
1 Year
CHC Total Return
MSCI/IPD Benchmark
3 Years
CHC Total Return
12.3%
12.0%
MSCI/IPD Benchmark
12.2%
5 Years
CHC Total Return
MSCI/IPD Benchmark
11.1%
15.7%
14.0%
A robust development pipeline
Charter Hall’s development pipeline
enables us to add value to existing assets
while producing potential new product
for our funds to limit the need of buying
assets in a competitive on-market
environment. Almost 50% of our $3.6 billion
development pipeline is pre-leased and
under construction.
The Group currently has $1.7 billion
of committed development projects
underway, de-risked through leases
to high quality tenants and fixed price
building contracts. During the period, the
$230 million 105 Phillip Street, Parramatta
and $190 million 900 Ann Street, Brisbane
office developments were completed,
adding to the previous year’s completions
such as the $355 million 333 George Street,
Sydney project.
For the first time, developments in the
industrial sector now exceed those in
the office sector with committed and
uncommitted industrial projects at
$1.7 billion, reflecting the increased
industrial landbank which now exceeds
150 hectares.
Development activity generally takes place
in our managed funds which have mandates
that permit development refurbishment and
repositioning of assets to enhance value
and expand their core investment holdings.
These developments will generate high
quality long-leased commercial property
for our funds, at yields above current
transaction pricing. This also provides
attractive incremental FUM growth for
Charter Hall and enhances our credentials
to attract capital.
Post balance date bid to acquire Folkestone
Post balance date, the Group announced
a Scheme Implementation Agreement to
acquire the ASX-listed Folkestone Property
10
Group (FLK), a diversified real estate fund
manager and developer. Like Charter Hall
Group’s business model, the Folkestone
funds management platform comprises
listed, unlisted and direct retail funds, with
both private clients and institutional capital.
Folkestone’s largest fund is the ASX-listed
Folkestone Education Trust (FET), which is
the largest landlord within the early learning
sector, owning and managing a $1 billion
portfolio of 410 childcare properties across
Australia and New Zealand.
The acquisition of Folkestone expands
Charter Hall’s investable universe into the
social infrastructure and early learning
sector and would result in Charter Hall
becoming the largest shareholder in FET
with a 12% stake, delivering Charter Hall
an attractive 6.3% passing yield from a
$1 billion 9.9-year WALE portfolio
of properties.
We see this as an attractive area for future
growth, as well as complementing and
building on our existing focus on the
education sector as an area for future
growth in our funds – which has been
highlighted by an excellent relationship
with Western Sydney University.
The acquisition of Folkestone will add
$1.6 billion of additional FUM to the
Charter Hall platform and it will be
earnings accretive for FY19.
Outlook and guidance
Looking forward, we remain confident in
the underlying strength of our Australian
portfolio which is strategically diversified
to position us for resilient growth through
market cycles.
Institutional fund managers with
demonstrated track records of delivering
innovative funds growth and sustained
outperformance for investors are expected
to continue to attract equity inflows, as
evidenced by continued equity inflows
into financial year 2019.
Charter Hall Group Annual Report 2018 In the early parts of the 2019 financial
year we have continued to see strong
market dynamics with excess demand for
good quality investments, rental growth
and improving occupancy levels. These
conditions suggest support exists for
current cap rates to continue and further
firming in some sectors is apparent.
With another active year ahead of us, we
will be as focused as ever on delivering
our strategy to access, deploy, manage
and invest alongside our listed, retail and
wholesale investors for shared growth.
Based on no material change in current
market conditions, our FY19 guidance is
for 5% to 7% growth in post-tax operating
earnings per security over financial
year 2018.
On the basis that the FLK transaction is
completed, our FY19 guidance is for 8% to
10% growth in post-tax operating earnings
per security, whilst the distribution payout
ratio is expected to be between 85% and 95%
of operating earnings per security post tax.
A dedicated and committed team
Finally, I would like to thank Charter Hall’s
exceptional team based right across
Australia for their continued hard work
and dedication to achieve these results.
On behalf of our senior executive
management team, I thank you, our
securityholders, for your continued trust
and support as we deliver for you.
David Harrison
Managing Director &
CEO Charter Hall Group
Operating Earnings
per Security Growth
CAGR (Pre-tax)
13.7%
50
40
CAGR (Post-tax)
10.5%
30
20
10
0
Pre-tax OEPS
Post-tax OEPS
Post-tax CAGR (%)
Pre-tax CAGR (%)
40.5cps
30.4cps
27.5cps
35.9cps
43.5cps
37.7cps
25.3cps
22.9cps
FY13
FY14
FY15
FY16
FY17
FY18
10.4%
8.5%
10.5%
18.1%
5.0%
Property Investment Portfolio
$1,706m
$1,527m
$1,098m
$944m
$720m
$548m
Jun 13
Jun 14
Jun 15
Jun 16
Jun 17
Jun 18
2000
1500
1000
Property Investment
Portfolio ($m)
500
0
11
Charter Hall Group Annual Report 2018
Charter Hall Group Annual Report 2018
Sustainability
Shared Value
Generating sustainable
returns that have a
long-term impact
12
v Deliverable/
Issue
FY18 Progress towards FY20 Targets
FY20
Target
FY25
Target
Aspiration
Eco Innovation
Environmental Performance
Draft pathway developed
using Science Based Targets
methodology.
Pathway to an equivalent
2-degree reduction in
emissions.
Achieve the equivalent
of a 2-degree
reduction in emissions.
Net Zero
Emissions.
Reduce our
impact on the
planet
Invest in
renewable
technologies
Improve our
Green footprint
Improve
our waste
management
Resilience
Address
climate
change risk
250kW solar system
commissioned at Singleton
Square. Feasibility studies
underway on solar installations
across 16 shopping centres.
Implementation
of solar projects
across applicable
Charter Hall managed
shopping centres.
2.5MW of solar has been installed
across the entire Charter Hall
portfolio, with our tenants,
generating 3,976MWh per
annum in green energy.
Maintained and expanded our
Green Star footprint, continuing
to have Australia’s largest Green
Star footprint, with the addition
of 5 and 6 Star Green Star Design
and As Built ratings achieved on
office developments.
Achieved 4.66 Star NABERS
Energy Weighted Average Rating
for Office Assets.
Maintained 3.75 Star NABERS
Energy Weighted Average Rating
for Retail Assets.
Renewable energy on
all new large retail and
industrial developments.
3 Star average Green Star
Performance rating across
the Group.
5 Star Green Star Design
and As Built ratings
sought on all new large
developments.
4.75 Star NABERS Energy
Weighted Average rating
for office assets.
3.75 Star NABERS Energy
Weighted Average rating
for retail assets.
35% Waste Diversion achieved
in Office Assets.
50% Waste Diversion in
retail and office assets.
22% Waste Diversion achieved
in Retail Assets.
Climate change adaptation
planning workshops held across
office, retail and industrial; and
adaptation plans commenced.
All assets have climate
change adaptation plans.
Renewable energy
creation in portfolio.
5 Star Green Star
Design and As
Built ratings sought
on all new large
developments.
5 Star NABERS
Energy Weighted
Average rating for
office assets.
4 Star NABERS
Energy Weighted
Average rating for
retail assets.
70% Waste
Diversion in retail
and office assets.
Capital
improvements in
portfolio in line with
climate change
adaptation plans.
Resilient
communities
and future
proofed
assets.
Maintain certified
EMS to ISO 14001.
Address
environmental
risk
Draft Environmental
Management Plan developed for
roll-out in FY19. Pre-certification
audits conducted across 10 office
and industrial properties.
All assets have
environmental
management plans
to AS 14001.
13
Charter Hall Group Annual Report 2018 Deliverable/
Issue
2018
Progress
FY20
Target
FY25
Target
Aspiration
Building Community
Community and Social Cohesion
Invest in our
communities
Our Pledge made a difference
in our communities through:
• Our People: 81% of
our people undertook
330 Volunteer Days;
• Our Places: contributed
$1.3 million or 46,054sqm
in space for the community;
and
• Our Partnerships donated
$600,000 towards services
and programs through our
community partners.
Stakeholder engagement plans
prepared for 100% of new office
and retail developments.
Tenant Customer surveys
across office, retail and
industrial sectors.
Employment strategy
developed and implemented
at two office developments,
resulting in 16 participants
trained in construction with
81% employment rate.
Engage our
stakeholders
Build capacity
in our
communities
Continued Pledge 1%
Our People: Our Places:
Our Partnerships.
Continued Pledge 1%
Our People:
Our Places:
Our Partnerships.
Creation of
the largest
community
hub network
in Australia.
Stakeholder
engagement plans
prepared for 100%
of developments.
100% of developments
and assets have
stakeholder
engagement plans.
Employment strategy
developed for all
developments.
Employment
projects in all new
developments.
100% of large retail centres
have a community space.
Community hubs in all
large retail assets.
Community spaces piloted
in office assets.
National programs
with communities and
partners to curate
creative and community
programs in all
large assets.
Create a national
network of
innovation
enterprises.
14
Charter Hall Group Annual Report 2018 Deliverable/
Issue
2018
Progress
FY20
Target
FY25
Target
Aspiration
Building Community
Inclusive Places
Create great
customer
experiences
Retail place experience under
implementation.
Industrial and Office
commenced place presentation
projects and approach.
Create great
employee
experiences
School holiday programs for
Charter Hall employees in
Melbourne and Sydney.
Benojo Community Giving Portal
established, which manages
our Pledge 1% giving and
volunteering.
Build
our diversity
40% female participation on
CHC Board (Non-Executive
Directors only).
20% female participation in
senior executive positions.
54.2% female participation
in the workplace.
Place Index
implemented across
the portfolio.
Ongoing place
experience ratings
across our portfolio.
Leader in
innovative
place
creation
in our
communities.
Provision of a menu of
benefits and programs
for our buildings and
our communities.
Shape the way we
acquire and develop
talent to align with a
future of work.
Connect employee
and customer value
propositions to
enhance the customer
experience.
> 35% female
participation on CHC.
25%-35% female
participation in senior
executive positions.
50% female
participation in the
workplace.
> 40% female
participation
on CHC Board
(Non-Executive
Directors only).
> 40% female
participation in
senior executive
positions.
50% female
participation in
the workplace.
15
Charter Hall Group Annual Report 2018 Charter Hall Group Annual Report 2018
Deliverable/
Issue
2018
Progress
FY20
Target
FY25
Target
Aspiration
Enabling Wellbeing
Creating Healthy Spaces and Environments
Charter Hall Melbourne and
Perth tenancies achieved Silver
WELL Interiors Certification.
4 WELL Core and Shell
registrations.
WELL Portfolio rating
underway for CHOT portfolio.
WELL building
accreditation sought for
all large Charter Hall
state offices and in new
office developments.
WELL building
accreditation sought
for all large Charter
Hall state offices
and in new office
developments.
Leader in
health and
wellbeing
in our
communities.
Comfy installed across
Charter Hall tenancies and
four buildings.
Expansion of new
technologies across
the portfolio.
Charter Hall Human Rights
Policy developed as part of
the Human Rights Framework.
Supplier human rights risk
assessment commenced.
Social procurement integrated
into national contracts.
Ritualise Wellbeing program
undertaken by 48% of
Charter Hall employees.
Significant progress
made in implementation
of the Human Rights
framework.
Development of social
procurement strategy
and expansion across
our supply chain.
Wellbeing strategy for
our people and our
places developed and
implemented.
Enhanced customer
satisfaction
experience in our
assets.
Integrated
sustainable and
equitable supply
chain into assets
and developments.
Green, social
and Indigenous
enterprises in the
Charter Hall supply
chain.
Wellbeing
programs/facilities
available to all
large assets and
employees.
16
Charter Hall Group Annual Report 2018
‘Rise’ on the Mezzanine at No.1 Martin Place
is a collaboration between our tenant
customers, our community arts partner
Project 504 and Pure Collective, a 100%
“to cause” hospitality operator.
Space creation that
delivers prosperity
for our customers
17
Executive Committee
1
3
5
7
9
1. David Harrison
Managing Director & Group CEO
BBus (Land Economics), FAPI, GDipAppFin
4. Richard Stacker
Industrial CEO
BBA (Accounting and Finance)
Richard has over 25 years of experience in
real estate funds management, real estate
finance, accounting and risk management.
With experience across all sectors, he has
lead the establishment and structuring of
new funds, management of these funds,
overseeing the transactional, development,
asset and property management.
In July 2018 Richard became CEO of
Charter Hall’s Industrial real estate business
following his role as Head of Global Investor
Relations. In this role, Richard leads a team
of 50 industrial property specialists, including
investment management, development,
asset and property management
professionals. Richard is also a Board
member of Charter Hall’s unlisted retail
investor business, Charter Hall Direct.
Prior to joining Charter Hall, Richard was a
Division Director of Macquarie Group and
Chief Executive Officer of Macquarie Direct
Property Management Limited. Previously
to that, Richard was a General Manager with
Lend Lease Corporation Limited and a senior
manager with PricewaterhouseCoopers.
He is a member of the Institute of Chartered
Accountants in Australia.
5. Adrian Taylor
Office CEO
BBus, CPA, GDipAppFin, FRICS
Adrian Taylor is Charter Hall’s Office CEO
with 26 years industry experience and eight
years with Charter Hall.
Adrian leads the A$11.1 billion office sector
from end to end including Investment
Management, Asset Management,
Development and Property Management
teams. He also helps develop the overall
strategy and objectives for the office funds
in conjunction with the Charter Hall Fund
Managers and our Investors and helps
guide the portfolio management, capital
transactions, treasury and trust management
teams to execute strategy.
Adrian has extensive capital management
experience including debt and equity raising.
Prior to the Charter Hall Office REIT’s
privatisation, he was its Chief Executive
Officer and has deep capital transaction
and extensive joint venture experience in
Australia and the US.
2
4
6
8
See page 28.
2. Sean McMahon
Chief Investment Officer
BBus (Property)
Sean has 30 years of property and investment
banking experience in the real estate sector
and has been active in the listed, wholesale
and direct capital markets. Sean is responsible
for the Group’s strategy and balance sheet
investments, mergers and acquisitions,
with oversight for multi sector disciplines
including property transactions, together with
corporate development.
He brings a wealth of experience across
investment markets, diversified across office,
industrial and retail sectors, and has been
responsible for driving the development of
corporate strategies, capital allocation and
reinvestment programs.
Prior to joining Charter Hall, Sean worked at
national diversified property group Australand
(now known as Frasers) as Chief Investment
Officer and was previously responsible
for investment and development for all
commercial, industrial and retail property.
Prior to joining Frasers, Sean spent seven
years at Macquarie Bank as a senior executive
in the Property Investment Banking division
undertaking property finance, structured
finance, funds management and joint
venture transactions.
3. Russell Proutt
Chief Financial Officer
BCom, CPA
Russell joined Charter Hall in August 2017 and
brings over 25 years’ finance experience to the
Group. His experience has included property
and infrastructure investment management in
North America, Australia and broader Asia as
well as extensive M&A and financing capability
across global markets.
Prior to joining Charter Hall, Russell was
with Brookfield Asset Management for
12 years and a Managing Partner based in
Canada and most recently, Australia where
he worked in property and infrastructure
sectors throughout the Asian region. Prior to
joining Brookfield, Russell spent 15 years in
investment banking and the financial services
sector in North America.
He has a breadth of knowledge across
commercial property markets and broad
experience across infrastructure and private
equity investments, mergers and acquisitions,
transactions and finance functions.
18
Charter Hall Group Annual Report 2018 Board of Directors
1
3
5
2
4
6
1. David Clarke
Chair/Independent Non-Executive Director
2. Anne Brennan
Independent Non-Executive Director
3. Philip Garling
Independent Non-Executive Director
4. David Ross
Independent Non-Executive Director
5. Karen Moses
Independent Non-Executive Director
6. David Harrison
Managing Director & Group CEO
See pages 27–29 for Director bios.
Adrian graduated with a Bachelor of
Business from Monash University, is a
Certified Practising Accountant, is Fellow
of the Financial Services Institute of
Australasia, a fellow Of the Royal Institute
of Chartered Surveyors and is involved
in numerous property industry groups
including sitting on the Division Council
of the Capital Markets Division of the
Property Council of Australia.
6. Greg Chubb
Retail CEO
BBus (Land Economics), FAPI
Greg is Fund Manager of the Charter
Hall Retail REIT and Charter Hall’s Retail
CEO, joining the Group in 2014 with
more than 29 years property market
experience. Greg is responsible for all
management aspects of the Retail Funds
Management platform to deliver value
creation within the retail portfolio and
optimise returns for our investors.
Prior to joining Charter Hall, Greg
was the Property Director at Coles
Supermarkets Australia and Managing
Director and Head of Retail for
Sandalwood/Jones Lang LaSalle in
Greater China. Greg has also held
executive leadership roles at Mirvac
and Lend Lease.
Greg holds a Bachelor of Business
Degree (Land Economy) from the
University of Western Sydney, is a Fellow
of the Australian Property Institute
(FAPI) and is Joint Deputy Chair of the
shopping Centre Council of Australia.
7. Natalie Devlin
Group Executive – People, Brand
and Community
BA, Postgrad Dip in MR Management
(Dean’s List Award)
Natalie is responsible for culture, internal
and external brand, organisational
capability, sustainability and community
investment. She is focused on achieving
our aspiration to be ‘the place for people
in property’ by creating an authentic and
differentiated employee, customer and
community experience for the Group.
Natalie’s previous roles include Head
of People and Development at Valad
Property Group, where she established
the human resources function during its
rapid growth period, and Head of HR,
Asia Pacific for a multinational publishing
company, where she transformed their
operating model.
8. Aidan Coleman
Chief Technology Officer
BTech, MBT
Aidan is a key member of the executive
team at Charter Hall, providing
leadership and direction for all strategic
and operational technology activities.
Aidan is a technology thought leader
with a track record for delivering
technology-enabled change that has
contributed directly to commercial
outcomes in the property industry.
With over 20 years in IT, the last seven
in Property and Real Estate, Aidan has
brought together the capabilities of
enterprise IT and ‘prop-tech’ to lead
the digital transform at both Charter Hall
and previously at the Stockland Group.
Aidan is on the advisory board for the
‘Realcomm’ global real estate innovation
think-tank, is a stream-lead on the BCA
sponsored ‘Innovation Nation’ initiative
and is a key contributor to a number of
Property Council of Australia initiatives
such as the ‘Women in Property’
mentorship program and ‘CIO Cyber
Security Roundtable’.
9. Steven Bennett
Head of Direct Property
BBA
Steven oversees more than $3 billion
of assets under management across
multiple award winning, unlisted property
products supported by retail, SMSF and
high net worth investors.
Steven’s key responsibilities include all
aspects of investment management from
identifying and sourcing property assets,
structuring, debt financing, creation and
launching of new property funds, capital
raising, investor relations, stakeholder
engagement and the ongoing
management of the property portfolio.
Prior to joining Charter Hall, Steven
worked for Macquarie Bank for seven
years in Sydney and London. Steven
has 18 years of experience in funds
management, banking, property,
accounting and consultancy and
is a member of The Institute of
Chartered Accountants in Australia
and New Zealand.
19
Charter Hall Group Annual Report 2018
Charter Hall Group Annual Report 2018
FINANCIAL REPORT AND OTHER INFORMATION
FOR THE YEAR ENDED 30 JUNE 2018
Contents
Directors’ Report
Auditor’s Independence Declaration
Consolidated Statements of Comprehensive income
Consolidated Balance Sheets
Consolidated Statement of Changes in Equity – Charter Hall Group
Consolidated Statement of Changes in Equity – Charter Hall Property Trust Group
Consolidated Cash Flow Statements
Notes to the consolidated financial statements
1 Summary of significant accounting policies
2 Critical accounting estimates and judgements
3 Segment information
4 Revenue
5 Expenses
6
Income tax expense
7 Distributions/Dividends paid and payable
8 Earnings per stapled security
9 Cash and cash equivalents
10 Receivables and other assets
11 Assets classified as held for sale
12 Derivative financial instruments
13 Investments accounted for using the equity method
14 Investment properties
15 Intangible assets
16 Property, plant and equipment
17 Deferred tax assets and liabilities
18 Trade and other payables
19 Provisions
20 Borrowings
Directors’ declaration to securityholders
Independent Auditor’s Report
Contact details
Corporate directory
54
62
62
65
65
66
67
68
68
69
69
70
70
70
71
72
72
73
74
74
21 Contributed equity
22 Non-controlling interests
23 Reserves
24 Accumulated profits/(losses)
25 Remuneration of auditors
26 Reconciliation of profit after tax to net cash inflow
from operating activities
27 Capital and financial risk management
28 Fair value measurement
29 Related parties
30 Controlled entities
31 Investments in associates
32 Investments in joint ventures
33 Interests in unconsolidated structured entities
34 Commitments
35 Contingent liabilities
36 Security-based benefits expense
37 Parent entity financial information
38 Deed of cross guarantee
39 Events occurring after the reporting date
21
47
48
50
51
52
53
54
76
77
77
79
79
80
80
84
86
89
91
96
98
98
99
99
100
101
103
104
105
113
113
20
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2018
The Directors of Charter Hall Limited and the Directors of Charter Hall Funds Management Limited, the Responsible Entity (RE) of Charter
Hall Property Trust, present their report together with the consolidated financial report of the Charter Hall Group (Group or CHC) and the
consolidated financial report of the Charter Hall Property Trust Group (CHPT) for the year ended 30 June 2018, and the Independent Auditor’s
Report thereon. The financial report of the Group comprises Charter Hall Limited (Company or CHL) and its controlled entities, which include
Charter Hall Funds Management Limited as the RE of Charter Hall Property Trust (Trust). The financial report of the Charter Hall Property Trust
Group comprises the Trust and its controlled entities.
Charter Hall Limited and Charter Hall Funds Management Limited have identical Boards of Directors. The term Board hereafter should be read
as a reference to both these Boards.
The units in the Trust are ‘stapled’ to the shares in the Company. A stapled security comprises one Company share and one Trust unit.
The stapled securities cannot be traded or dealt with separately.
Directors
The following persons were Directors of the Group during the year and up to the date of this report.
– Chair and Non-Executive Independent Director
• David Clarke
• Anne Brennan – Non-Executive Independent Director
• Philip Garling
– Non-Executive Independent Director
• David Harrison – Managing Director and Group CEO
• Karen Moses
• David Ross
– Non-Executive Independent Director
– Non-Executive Independent Director
Principal activities
During the year, the principal activities of the Group consisted of:
(a) Investment in property funds; and
(b) Property funds management.
No significant changes in the nature of the activities of the Group occurred during the year.
Distributions/Dividends – Charter Hall Group
Distributions/dividends paid/declared to stapled securityholders during the year were as follows:
Final ordinary dividend of 5.5 cents and ordinary distribution of 10.7 cents per stapled
security for the six months ended 30 June 2018 payable on 31 August 2018
Interim ordinary dividend of 6.2 cents and interim ordinary distribution of 9.4 cents per stapled
security for the six months ended 31 December 2017 paid on 28 February 2018
Final ordinary distribution for the six months ended 30 June 2017 of 15.6 cents per stapled
security paid on 31 August 2017
Interim ordinary distribution for the six months ended 31 December 2016 of 14.4 cents per stapled
security paid on 28 February 2017
Total distributions/dividends paid and payable to stapled securityholders
2018
$’m
75.5
72.6
–
–
148.1
2017
$’m
–
–
72.7
59.4
132.1
21
Charter Hall Group Annual Report 2018 Review and results of operations
The Group recorded a statutory profit after tax attributable to stapled securityholders for the year to 30 June 2018 of $250.2 million compared
to a profit of $257.6 million for the year ended 30 June 2017.
Operating earnings amounted to $175.8 million for the year to 30 June 2018, compared to $151.2 million for the year ended 30 June 2017, an
increase of 16.3%. Operating earnings is split between property investments of $103.9 million (30 June 2017: $85.0 million) and property funds
management of $71.9 million (30 June 2017: $66.2 million).
The operating earnings information included in the table below has not been subject to any specific audit procedures but has been extracted
from Note 3: Segment information of the accompanying financial report.
Operating earnings attributable to stapled securityholders
Realised and unrealised gains on derivatives1
Net fair value movements on investments and property1
Amortisation of intangibles
Reversal/(impairment) of investment in joint venture
Non-operating deferred income tax benefit/(expense)
Gain/(loss) on disposal of property investments1
Performance fees expense1
Other1
Statutory profit after tax attributable to stapled securityholders
Statutory profit attributable to Charter Hall Direct Diversified Consumer Staples Fund (non-controlling interest)
Statutory profit after tax
1 Includes the Group’s proportionate share of non-operating items of equity accounted investments on a look through basis.
Basic weighted average number of stapled securities per Note 8 (‘000s)
Basic earnings per stapled security per Note 8 (cents)
Operating earnings per stapled security (OEPS) per Note 3 (cents)
2018
$’m
175.8
(2.5)
98.4
(2.7)
7.3
0.5
(1.5)
(16.5)
(8.6)
250.2
1.0
251.2
2017
$’m
151.2
8.2
118.3
(4.3)
(10.5)
(4.1)
3.9
–
(5.1)
257.6
–
257.6
2018
465,777
53.7
37.7
2017
420,838
61.2
35.9
22
DIRECTORS’ REPORTFOR THE YEAR ENDED 30 JUNE 2018Charter Hall Group Annual Report 2018 The 30 June 2018 financial results with comparatives are summarised as follows:
Revenue ($ million)1
Statutory profit after tax for stapled securityholders ($ million)
Statutory earnings per stapled security (EPS) (cents)
Operating earnings for stapled securityholders ($ million)2
Operating earnings per stapled security (cents)2
Distributions/dividends to stapled securityholders ($ million)
Distribution/dividend per stapled security (cents)
Total assets ($ million)
Total liabilities ($ million)
Total net assets ($ million)
Net assets attributable to non-controlling interest ($ million)3
Net assets attributable to stapled securityholders ($ million)
Stapled securities on issue (million)
Net assets per stapled security ($)
Net tangible assets (NTA) attributable to stapled securityholders ($ million)4
NTA per stapled security ($)4
Balance sheet gearing5
Funds under management (FUM) ($ billion)
Charter Hall Group
2018
246.2
250.2
53.7
175.8
37.7
148.1
31.8
2,013.6
155.4
1,858.2
35.6
1,822.6
465.8
3.91
1,777.1
3.82
0.00%
23.2
2017
213.4
257.6
61.2
151.2
35.9
132.1
30.0
1,873.1
150.8
1,722.3
–
1,722.3
465.8
3.70
1,674.9
3.60
0.00%
19.8
Charter Hall Property
Trust Group
2018
2017
24.3
175.2
37.6
n/a
n/a
93.6
20.1
1,724.5
73.3
1,651.2
35.6
1,615.6
465.8
3.47
1,615.6
3.47
0.00%
n/a
19.7
218.0
51.8
n/a
n/a
132.1
30.0
1,612.9
76.9
1,536.0
–
1,536.0
465.8
3.30
1,536.0
3.30
0.00%
n/a
1 Gross revenue does not include share of net profits of associates and joint ventures of $169.1 million (30 June 2017: $207.2 million).
2 Excludes fair value adjustments, gains or losses on the sale of investments, amortisation and/or impairment of intangible assets, performance fees expense, non-operating
deferred tax expense and other unrealised or one-off items.
3 Represents the 38.7% (30 June 2017: 0.0%) non-controlling interest share of the Charter Hall Direct Diversified Consumer Staples Fund.
4 Net tangible assets (NTA) attributable to stapled securityholders and NTA per stapled security ($) are calculated using assets less liabilities, net of intangible assets and
related deferred tax.
5 Gearing is calculated by using debt drawn net of cash divided by total assets net of cash.
Operating earnings per stapled security (OEPS) has increased 5.0% from 35.9 cents for the year ended 30 June 2017 to 37.7 cents for the year
ended 30 June 2018.
Annual distribution per stapled security (DPS) has increased 6.0% from 30.0 cents for the year ended 30 June 2017 to 31.8 cents for the year
ended 30 June 2018.
Net Tangible Assets per stapled security (NTA) at 30 June 2018 is $3.82, an increase of 6.1% over $3.60 at 30 June 2017.
Funds Under Management (FUM) increased from $19.8 billion at 30 June 2017 to $23.2 billion at 30 June 2018 due to the establishment of a new
fund, Charter Hall Direct Diversified Consumer Staples Fund, significant valuation uplifts, property acquisitions and developments in Charter Hall Office
Trust, Charter Hall Prime Office Fund, Charter Hall Prime Industrial Fund, Core Logistics Partnership Trust and Charter Hall Counter Cyclical Trust.
23
Charter Hall Group Annual Report 2018 Review and results of operations continued
Property Investment
Property Investment provides the Group with yields from its co-investments in Group funds. Property Investment contributed $103.9 million in
operating earnings to the Group.
The Group’s property investments are classified into the following real estate sectors:
• Office;
•
Industrial;
• Retail; and
• Diversified.
The following table summarises the key metrics for the property investments of the Group:
Ownership
stake
(%)
Charter Hall
investment
($m)
FY 2018
Charter Hall
investment
income 1
($m)
Weighted
average
lease
expiry
(years)
Weighted
average
market cap
rate
(%)
Weighted
average
discount
rate
(%)
Weighted
Average
rental
reviews
(%)
FY 2018
Charter Hall
investment
yield 2
(%)
Office
Charter Hall Prime Office Fund (CPOF)
Charter Hall Office Trust (CHOT)
Brisbane Square Wholesale Fund (BSWF)
Charter Hall Counter Cyclical Trust (CCT)
Charter Hall Direct WorkZone Trust (WZF)
Charter Hall Direct PFA Fund (PFA)3
Industrial
Core Logistics Partnership Trust (CLP)
Charter Hall Prime Industrial Fund (CPIF)
Charter Hall Direct Industrial Fund No.4
(DIF4)
Retail
Charter Hall Retail REIT (CQR)4
BP Fund 1 (BP1)6
Charter Hall Prime Retail Fund (CPRF)
Retail Partnership No. 6 Trust (RP6)4
BP Fund 2 (BP2)6
Long WALE Investment Partnership (LWIP)5
Long WALE Investment Partnership 2
(LWIP2)5
TTP Wholesale Fund (TTP)4, 6
Retail Partnership No. 2 (RP2)4
Diversified
Charter Hall Long WALE REIT (CLW)
Charter Hall Direct Diversified Consumer
Staples Fund (DCSF)7
Property investment – subtotal
Commercial and Industrial Property Pty
Limited (CIP)8
Total
8.4
15.7
16.8
5.0
2.0
0.1
13.8
5.9
16.4
18.7
11.9
38.0
20.0
17.6
5.0
10.0
10.0
5.0
20.4
61.3
50.0
620.1
258.8
246.4
102.1
11.2
1.4
0.2
300.6
148.8
121.0
30.8
533.6
327.6
54.7
45.7
36.7
25.4
21.1
10.5
5.4
6.5
251.7
195.2
34.1
13.2
13.4
6.9
0.5
0.1
–
17.3
8.6
6.5
2.2
34.1
23.0
2.3
2.9
2.1
0.9
1.4
0.7
0.4
0.4
14.9
11.8
56.5
1,706.0
17.7
1,723.7
3.1
100.4
3.5
103.9
5.5
6.2
4.3
8.3
5.3
7.2
8.2
9.9
10.4
8.9
11.0
6.5
6.6
9.3
4.0
4.5
10.4
16.3
17.0
4.1
4.9
10.5
10.8
8.6
7.2
n/a
5.4
5.3
5.2
5.9
5.6
7.1
7.0
6.0
6.0
6.0
6.3
6.0
6.2
5.4
5.8
5.6
5.6
5.9
5.9
6.0
5.8
6.3
6.1
6.7
5.8
n/a
6.8
6.8
6.7
7.1
7.0
7.5
7.7
7.3
7.3
7.2
7.6
7.3
7.3
7.0
7.5
7.8
7.0
7.2
7.3
7.5
7.3
7.4
7.3
7.8
7.1
n/a
3.8
3.9
3.9
3.5
3.7
4.0
3.4
3.0
3.0
3.1
3.0
3.9
4.2
2.8
4.3
3.6
2.7
2.0
2.0
4.0
4.4
2.9
2.9
2.9
3.6
n/a
6.1
5.6
6.3
6.7
8.9
9.0
7.4
6.0
6.2
5.5
7.0
6.7
7.2
5.4
6.4
6.1
4.0
7.1
7.0
5.2
6.5
6.3
6.5
5.6
6.3
n/a
1 Charter Hall Group property investment earnings per segment, Note 3(b) of the financial report.
2 Yield = Operating earnings divided by investment value at start of the year adjusted for investments/divestments during the period.
Excludes MTM movements in NTA during the year.
3 Formerly PFA Diversified Property Trust.
4 Average rent reviews is contracted weighted average rent increases of specialty tenants.
5 The LWIP and LWIP2 rental increase is CPI, uncapped.
6 These funds comprise the Long WALE Hardware Partnership (LWHP).
7 DCSF adjusted for non-controlling interest share of 38.7%.
8 CIP was reclassified as held for sale in June 2018.
24
DIRECTORS’ REPORTFOR THE YEAR ENDED 30 JUNE 2018Charter Hall Group Annual Report 2018 A summary of the significant activities of each of the Group’s property
investments is provided below:
(a) Office
Charter Hall Prime Office Fund (CPOF)
CPOF is a wholesale pooled fund that invests in high-quality office
buildings located in Australia’s major capital cities. CPOF owns an
interest in 24 assets valued at $4.5 billion.
Charter Hall Office Trust (CHOT)
CHOT is an unlisted wholesale partnership that invests in a high-
quality portfolio of CBD office properties with a mix of premium and
A grade quality buildings. The CHOT portfolio comprises 10 office
assets valued at $2.9 billion.
Brisbane Square Wholesale Fund (BSWF)
BSWF is an unlisted partnership that owns two prime buildings in
Brisbane and Perth CBD’s valued at $1.1 billion.
Charter Hall Counter Cyclical Trust (CCT)
CCT is an unlisted wholesale partnership designed to take advantage
of counter-cyclical investment opportunities in the Perth and Brisbane
office markets, currently comprising two assets with a portfolio value
of $460 million.
Charter Hall Direct WorkZone Trust (WZF)
WZF is an unlisted single asset property syndicate investing in an
A-grade office building located on the fringe of the Perth CBD, which
was sold post balance date.
Charter Hall Direct PFA Fund (PFA)
PFA is an unlisted fund diversified across geographic locations,
tenant profiles and lease expiries in Australia with a portfolio value
of $360 million.
(b) Industrial
Core Logistics Partnership Trust (CLP)
CLP is a wholesale industrial partnership which owns 27 assets
valued at $1.6 billion.
Charter Hall Prime Industrial Fund (CPIF)
CPIF is a wholesale open ended fund focused on industrial and
logistics assets in major Australian capital cities. CPIF owns a
portfolio of 55 assets valued at $3.0 billion.
Charter Hall Direct Industrial Fund No.4 (DIF4)
DIF4 is an unlisted property fund investing in quality Australian
industrial properties with a total value of $210 million.
(c) Retail
Charter Hall Retail REIT (CQR)
CQR is an Australian Real Estate Investment Trust (A-REIT) listed on
the Australian Securities Exchange (ASX) (ASX:CQR) and invests in
convenience shopping centres anchored by Coles, Woolworths and
Aldi supermarkets. CQR’s portfolio comprises 59 properties valued
at $2.8 billion.
Charter Hall Prime Retail Fund (CPRF)
CPRF is a wholesale fund which owns Campbelltown Shopping
Centre and an interest in Gateway Plaza, which was acquired post
balance date, with a total portfolio value of $270 million.
Retail Partnership No.6 Trust (RP6)
RP6 is a wholesale fund focusing on neighbourhood and sub-regional
shopping centres. RP6 owns two assets valued at $280 million.
Long WALE Hardware Partnership (LWHP)
The combined BP Fund 1, BP Fund 2 and TTP Wholesale Fund
are collectively referred to as the Long WALE Hardware Partnership
(LWHP), which owns 23 assets valued at $1.0 billion predominantly
leased to Bunnings.
Long WALE Investment Partnership (LWIP)
LWIP is a wholesale partnership which owns 57 retail and pub assets
valued at $770 million. These assets are leased to Australian Leisure
and Hospitality Group (ALH) under triple net leases.
Long WALE Investment Partnership 2 (LWIP2)
LWIP2 is a wholesale partnership which owns nine retail and pub
assets valued at $160 million.
Retail Partnership No.2 (RP2)
RP2 is a wholesale retail fund which owns the Bateau Bay Square
shopping centre valued at $230 million on the Central Coast of New
South Wales.
(d) Diversified
Charter Hall Long WALE REIT (CLW)
CLW is a A-REIT listed on the ASX (ASX:CLW) and invests in high
quality Australasian real estate assets that are predominantly leased
to corporate and government tenants on long-term leases. CLW’s
portfolio comprises 81 properties valued at $1.5 billion.
Charter Hall Direct Diversified Consumer Staples Fund (DCSF)
DCSF is an unlisted fund with a diversified and growing portfolio of
properties leased to distributors and producers of consumer staples
goods. DCSF owns six properties valued at $63 million.
(e) Wholesale mandates
The Group originates and manages segregated mandates for direct
property investments either in joint venture with funds such as CPOF
or CQR or as 100% owned assets by our clients. The total property
value of wholesale mandates is $0.9 billion.
(f) Direct investor funds
The Group manages equity raised from retail investors via advisers,
high net worth individuals and through direct distribution channels.
The total FUM of these retail funds and single asset syndicates
is $3.1 billion.
(g) Commercial and Industrial Property Pty Limited (CIP)
The Group had a 50% interest in CIP, an industrial development
business, that was held for sale as at 30 June 2018 and subsequently
sold post balance date.
25
Charter Hall Group Annual Report 2018 Review and results of operations continued
Property Funds Management
The Property Funds Management business provides investment
management, asset management, property management,
development management and leasing and transaction services to
the Group’s $23.2 billion funds management portfolio. The use of an
integrated property services model, which earns fees from providing
these services to the managed portfolio, enhances the Group’s
returns from capital invested. The Group also provides services to
segregated mandates looking to capitalise on its property and funds
management expertise. The Property Funds Management business
contributed $71.9 million in operating earnings to the Group.
During the year, total funds under management increased by
$3.4 billion to $23.2 billion. The growth comprised development
capital expenditure, net valuation uplifts, along with the acquisition
of approximately $2.5 billion and divestment of approximately
$1.0 billion of property.
Significant changes in the state of affairs
In May 2018, the Group completed several key initiatives to
restructure its debt funding platform:
• The Group’s debt facility was refinanced with a new unsecured
$200.0 million credit facility plus an additional $20.0 million
unsecured facility to support the bank guarantees with the
maturity date changing to May 2023.
• On 24 May 2018, the Group issued US Private Placement debt
(USPP) for a 10-year fixed coupon with US$175.0 million principal.
The Group simultaneously executed a cross currency interest
rate swap to convert the US$175.0 million into A$231.5 million
(exchange rate of $0.7559) and swapped the fixed coupon to
an Australian floating rate. Receipt of the USPP proceeds is
scheduled for 24 August 2018.
Matters subsequent to the end of the period
The following events have occurred subsequent to 30 June 2018:
•
•
In July 2018, the Group entered into a binding agreement to sell
its interest in joint venture Commercial and Industrial Property
Pty Ltd (CIP) for net proceeds of $29.0 million. Other receivables
from investments in CIP resulted in a total cash realisation from the
transaction of $56.3 million. The sale completed on 10 August 2018.
In July 2018, the Group entered into a binding agreement to
purchase a three-building amalgamated holding on Queen Street
Mall known as No. 1 Brisbane, located in Brisbane’s CBD, for a
net purchase price of $94.0 million.
• On 22 August 2018, Charter Hall and Folkestone Limited entered
into a scheme implementation agreement for Charter Hall to
acquire 100% of the shares in Folkestone Limited. Under the terms
of the scheme, Folkestone shareholders will be entitled to receive
from Charter Hall $1.354 cash per share, which equates to a
$205.0 million outlay (excluding c.1.4 million CHC service rights
(subject to CHC share price) to be issued to FLK management,
(excluding Greg Paramor) vesting over 3 years). If the proposal is
approved by Folkestone shareholders, completion is anticipated
to be early November 2018.
Except for the matters discussed above, no other matter or
circumstance has arisen since 30 June 2018 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
Business strategy and prospects
The Group’s strategy is to use its specialist property expertise to
access, deploy and manage equity invested in Retail, Office, Industrial
property and diversified property fund portfolios. Charter Hall Group
invests alongside equity partners to create value and provide superior
returns for clients and the Group’s securityholders.
Charter Hall is well positioned to benefit from projected growth of
capital inflows from investors seeking property investments driven by
the attractive spreads between property yields and long-term interest
rates. During the last 12 months, the Group has seen positive equity
flows across all sectors from listed, wholesale and retail investors.
Various risks could impact the Group’s financial performance, the
potential nature and impact of these risks can change over time.
The Group actively manages risks in line with the Group’s Corporate
Governance Framework and the Risk Management Policy. In addition
to the business risks referenced below, key strategic and operational
risks include breaches of cyber security and privacy, work, health
and safety, as well as environmental, social, governance and
regulatory risks. These frameworks and policies can be found at
www.charterhall.com.au.
Property Investment portfolio
The property investment portfolio composition is primarily driven by
co-investment requirements where, typically, between 10–20% of the
equity in a fund is contributed by Charter Hall. In addition to these
co-investments, the Group may invest a higher proportion in certain funds
to reweight its investment portfolio and continues to review opportunities
to optimise the proportion of office, retail and industrial investments and
extend the overall WALE of its property investment portfolio.
The Group regularly reviews the performance of its property investment
portfolio and relevant economic drivers to actively manage performance
at an asset level in each fund.
The material business risks faced by the property investment portfolio
that may have an effect on financial performance of the Group include
interest rate risk, refinancing risk, lease defaults or extended vacancies,
portfolio concentration risks, development risk, joint venture risk and
changes in economic or industry factors impacting tenants, property
values or the ability to source suitable investment opportunities.
Property funds management platform
The Group manages property investments on behalf of listed,
wholesale and direct investors and has strict policies in place to ensure
appropriate governance procedures are in place to meet fiduciary
responsibilities and manage any conflicts of interest. Charter Hall
provides a suite of services including investment management,
asset management, property management, transaction services,
development services, treasury, finance, legal and custodian
services based on each fund’s individual requirements.
The Group regularly reviews investor requirements and preferences
for an investment partner in the Australian core real estate sectors and
transaction structures that would meet their requirements.
The material business risks faced by the property funds management
platform that may have an effect on the financial performance of the
Group include not delivering on investor expectations or organizational
conduct leading to loss of FUM or management rights, loss of key
personnel impacting service delivery, economic factors impacting fee
streams or property valuations, development risk and access to capital.
26
DIRECTORS’ REPORTFOR THE YEAR ENDED 30 JUNE 2018Charter Hall Group Annual Report 2018 Information on Directors
David Clarke
Chair/Independent Non-Executive Director
Experience and expertise
David joined the Board of Charter Hall Group on 10 April 2014, and
was appointed Chair of the Board on 12 November 2014.
David has over 35 years’ experience in investment banking, funds
management, property finance and retail banking. David was Chief
Executive Officer of Investec Bank (Australia) Limited from 2009 to 2013.
Prior to joining Investec Bank, David was the CEO of Allco Finance
Group and a Director of AMP Limited, following five years at Westpac
Banking Corporation where he held a number of senior roles including
Chief Executive of the Wealth Management Business, BT Financial
Group. David also was previously an Executive Director at Lend Lease
Corporation Limited, Chief Executive of MLC Limited, and prior to this
was Chief Executive Officer of Lloyds Merchant Bank in London.
David holds a Bachelor of Laws degree.
Other current listed company directorships
Austbrokers Holdings Limited
Former listed company directorships in last three years
Nil
Special responsibilities
Chair of the Nominations Committee
Member of the Audit, Risk and Compliance Committee
Member of the Investment Committee
Interests in securities
45,875 stapled securities in Charter Hall Group via an indirect interest
Anne Brennan
Independent Non-Executive Director
Experience and expertise
Anne joined the Board of Charter Hall Group on 6 October 2010
and is on the board of a number of other companies. Anne is an
experienced executive and has held senior management roles in
both large corporates and professional services firms.
During her executive career, Anne 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. Anne has more than 35 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 (Honours) degree, is a Fellow of
the Institute of Chartered Accountants in Australia and New Zealand
and a Fellow of the Australian Institute of Company Directors.
Other current listed company directorships
Argo Investments Limited
Metcash Limited
Nufarm Limited
Former listed company directorships in last three years
The Star Entertainment Group Limited
Myer Holdings Limited
Special responsibilities
Chair of Remuneration and Human Resources Committee
Member of Audit, Risk and Compliance Committee
Interests in securities
30,000 stapled securities in Charter Hall Group via direct and
indirect interests
27
Charter Hall Group Annual Report 2018 Information on Directors continued
Philip Garling
Independent Non-Executive Director
Experience and expertise
Philip joined the Board of the Charter Hall Group on 25 February 2013.
Philip has over 35 years’ experience in property and infrastructure,
development, operations and asset and investment management. His
executive career included nine years as Global Head of Infrastructure
at AMP Capital Investors and 22 years at Lend Lease Corporation,
including five years as CEO of Lend Lease Capital Services.
Philip holds a Bachelor of Building from the University of NSW,
has completed the Advanced Management Program at the
Australian Institute of Management and the Advanced Diploma
at the Australian Institute of Company Directors. He is a Fellow of
the Australian Institute of Company Directors, Australian Institute
of Building and Institution of Engineers, Australia.
Other current listed company directorships
Downer EDI Limited
Former listed company directorships in last three years
Spotless Group Holdings Ltd
Special responsibilities
Member of the Nominations Committee
Member of the Remuneration and Human Resources Committee
Chair of the Investment Committee
Interests in securities
16,759 stapled securities in Charter Hall Group via a direct interest
David Harrison
Managing Director and Group CEO
Experience and expertise
David has 32 years of property market experience across office,
retail and industrial sectors in multiple geographies globally.
As Charter Hall’s Managing Director and Group CEO, David is
responsible for all aspects of the Charter Hall business, with specific
focus on strategy and continuing the momentum from building
an Investment Manager recognised as a multi-core sector market
leader. David is an executive member of various Fund Boards and
Partnership Investment Committees, Chair of the Executive Property
Valuation Committee and Executive Leadership Committee.
David has overseen the growth of the Charter Hall Group from
$500 million to $23.2 billion of assets under management in 14 years.
David holds a Bachelor of Business Degree (Land Economy) from the
University of Western Sydney, is a Fellow of the Australian Property
Institute (FAPI) and holds a Graduate Diploma in Applied Finance from
the Securities Institute of Australia.
David is a Director and Vice-President of the Property Council of
Australia and chair of the Audit and Risk Committee.
David is also a member of the Property Male Champions of Change.
Other current listed company directorships
Charter Hall Retail REIT
Charter Hall Long WALE REIT
Former listed company directorships in last three years
Nil
Special responsibilities
Member of the Investment Committee
Interests in securities
207,026 stapled securities in Charter Hall Group via direct interests
and 1,441,773 stapled securities in Charter Hall Group via indirect
interests. 875,807 performance rights and 174,781 service rights in
the Charter Hall Performance Rights and Options Plan; performance
rights, service rights and options vest after performance and service
conditions are met.
28
DIRECTORS’ REPORTFOR THE YEAR ENDED 30 JUNE 2018Charter Hall Group Annual Report 2018 Karen Moses
Independent Non-Executive Director
Experience and expertise
Karen joined the Board of Charter Hall Group on 1 September 2016
and was appointed Chair of the Audit, Risk and Compliance
Committee on 9 November 2016. Karen has over 30 years’ corporate
experience in the energy industry spanning oil, gas, electricity and
coal commodities, gaining her experience both within Australia
and overseas. During her executive career, Karen was a senior
executive at Origin Energy including the roles of Executive Director,
Finance and Strategy and Chief Operating Officer.
Karen holds a Bachelor of Economics and a Diploma of Education
from the University of Sydney.
Other current listed company directorships
Orica Ltd (ASX:ORI)
Boral Limited (ASX:BLD)
Former listed company directorships in last three years
Origin Energy Ltd (ASX:ORG)
Special responsibilities
Chair of Audit, Risk and Compliance Committee
Interests in securities
23,137 stapled securities in Charter Hall Group via indirect interests
David Ross
Independent Non-Executive Director
Experience and expertise
David joined the Board of the Charter Hall Group on 20 December 2016.
David has over 30 years’ corporate experience in the property
industry and has gained his experience both within Australia and
overseas, including a total of eight years as Chief Executive Officer
of GPT and Global Chief Executive Officer, Real Estate Investments
for Lend Lease.
David is the Chair of Arena REIT, which owns, manages and develops
property in the childcare and healthcare sectors. Previously, David
held executive positions at GPT, Lend Lease and Babcock & Brown.
Prior board appointments include a non-executive directorship with
Sydney Swans Foundation Limited.
David holds a Bachelor of Commerce from the University of Western
Australia and an Associate Diploma in Valuation from Curtin University
in Western Australia.
Other current listed company directorships
Arena REIT
Former listed company directorships in last three years
Nil
Special responsibilities
Member of Nominations Committee
Member of Investment Committee
Member of Remuneration and Human Resources Committee
Interests in securities
Nil
Company Secretary
Mark Bryant was appointed as joint Company Secretary for Charter Hall Group on 24 August 2015 and has been the sole Company Secretary
since 1 March 2017.
Mark holds a Bachelor of Business (Accounting) and a Bachelor of Laws (Hons) and has over 14 years’ experience as a lawyer, including advising
on listed company governance, securities law, funds management, real estate and general corporate law. Mark is the Group General Counsel and
Company Secretary for the Charter Hall Group.
Meetings of Directors
The number of meetings of the Group’s Board of Directors and of each Committee of the Board held during the year ended 30 June 2018,
and the number of meetings attended by each Director were:
Full meetings of the
Board of Directors
A
11
12
11
12
12
12
B
12
12
12
12
12
12
Audit, Risk and
Compliance
Committee
B
A
Investment
Committee
B
A
Nomination
Committee
B
A
6
6
*
*
6
*
6
6
*
*
6
*
*
2
2
2
*
2
*
2
2
2
*
2
*
2
2
*
*
2
*
2
2
*
*
2
Remuneration and
HR Committee
A
4
*
4
*
*
4
B
4
*
4
*
*
4
A Brennan
D Clarke
P Garling
D Harrison
K Moses
D Ross
* Not a member of the stated Committee.
A = Number of meetings attended.
B = Number of meetings held during the time the Director held office or was a member of the stated Committee during the year.
29
Charter Hall Group Annual Report 2018 Remuneration Report summary
Charter Hall Limited is pleased to present its Remuneration Report (Report) for the year ended 30 June 2018. The table below outlines the key
changes made in 2018 and outcomes achieved in 2018.
Component
Key changes in FY 2018
Key management
personnel (KMP)
KMP changes included in the Report (section 1):
• appointment of Russell Proutt as Chief Financial Officer;
• departure of Paul Ford as Group Executive, Industrial;
• Sean McMahon temporarily assuming the role of Industrial CEO along with his Chief Investment Officer role; and
• Greg Chubb, Retail CEO, taking on the role of Fund Manager, CQR.
Component
Key remuneration outcomes in FY 2018
Fixed remuneration
Increased the Managing Director and Group CEO’s (Managing Director) fixed annual remuneration (FAR) by 10%
to $1,430,000, effective 1 July 2017 (section 3.3).
‘On target’ total
remuneration and
remuneration mix
Other Reported Executives’ FAR remained flat during 2018, excluding increases for role changes.
Increased the Managing Director’s ‘on target’ total remuneration (inclusive of target ‘at-risk’ components) by 10%
to $4,290,000, effective 1 July 2017 (section 3.2).
Increased ‘at-risk’ components of ‘on target’ total remuneration for Other Reported Executives averaging 4.7%,
excluding role changes.
Short term incentive (STI) An above target STI pool (120%) was awarded across the Group (section 3.4) based on actual performance
against budget Group OEPS and Board discretion.
Long term incentive (LTI) 100% of the FY 2015 grant vested as a result of the performance against absolute and relative TSR hurdles over
the three years to 30 June 2017 (section 3.5).
Other security plans
Continued the General Employee Securities Plan ($1,000 grant) for eligible employees not participating in the LTI.
Non-Executive Directors
Increased the Fee Pool for Non-Executive Directors (NED) to $1.7 million per annum, as approved by the
securityholders at the Annual General Meeting in November 2017 (section 5).
30
DIRECTORS’ REPORTFOR THE YEAR ENDED 30 JUNE 2018Charter Hall Group Annual Report 2018 Remuneration Report – unaudited
Actual remuneration received in FY 2018 – unaudited
The following table presents the actual remuneration received by Reported Executives during the financial year ended 30 June 2018.
This voluntary disclosure is provided to increase transparency and includes:
• fixed pay and other benefits for 2018;
• 2017 cash STI paid during 2018; and
• the value of any LTI and STI award that vested during 2018.
The actual remuneration presented is distinct from the audited disclosed remuneration (as required by section 308(C) of the Corporations Act
2001 (Cth) (Act)) in the Financial Report on page 40, which is calculated in accordance with statutory obligations and accounting standards.
The numbers in the audited disclosed remuneration include accounting values for current and prior years’ LTI grants which have not been
(have not or may not be) received, as they are dependent on performance hurdles and service conditions being met.
Name
Executive Director
D Harrison
Other Reported Executives
G Chubb4
S McMahon5
R Proutt6
A Taylor
Former Reported Executive
P Ford7
Totals
Salary
and other
benefits1
$
Short term
incentive2
$
Value of
securities
vested3
$
% of
remuneration
consisting of
rights
%
Total
$
1,431,621
1,213,333
1,961,752
4,606,706
644,575
801,621
760,351
704,457
268,667
396,380
–
377,406
704,606
329,680
–
454,488
1,617,848
1,527,681
760,351
1,536,351
264,882
173,333
86,250
524,465
4,607,507
2,429,119
3,536,776
10,573,402
42.6
43.6
21.6
–
29.6
16.4
33.4
1 Other benefits include superannuation and non-monetary benefits.
2 Values relate to STI paid in FY 2018 in cash for FY 2017 performance.
3 Values at vesting date for LTI performance rights, STI deferred rights and any sign on service rights, they predominantly relate to performance rights for the FY 2016 LTI and
subsequent deferred service rights relating to deferred STI payments.
4 On 19 December 2014, G Chubb was awarded 197,370 sign on service rights vesting in three equal tranches; the final tranche of 65,790 vested.
5 On 25 November 2016, S McMahon was awarded 59,056 sign on service rights which all vested.
6 R Proutt commenced on 20 July 2017. His remuneration is reported pro-rata for this reporting period.
7 P Ford took leave of absence from 19 June 2017. He formally ceased being a KMP on 14 September 2017 and remained employed by the Group until 15 December 2017.
As he continued to be employed, his remuneration is shown for the period until 15 December 2017. This table shows his remuneration whilst employed excluding separation
arrangements.
Remuneration Report – audited
1. Key management personnel – audited
This Report outlines the remuneration policies and practices that apply to Charter Hall’s KMP for the year ended 30 June 2018. The KMP
include the Non-Executive Directors, Executive Directors and other Reported Executives who are responsible for the Group’s strategy.
Name
Non-Executive Directors
David Clarke
Anne Brennan
Phil Garling
Karen Moses
David Ross
Executive Director
David Harrison
Other Reported Executives
Greg Chubb
Sean McMahon
Russell Proutt
Adrian Taylor
Former Reported Executive
Paul Ford
Role
Chair
Director
Director
Director
Director
Term as KMP
Full Year
Full Year
Full Year
Full Year
Full Year
Managing Director and Group CEO
Full Year
Retail CEO
Chief Investment Officer and Industrial CEO
Chief Financial Officer
Office CEO
Full Year
Full Year
Part Year (joined 20 July 2017)
Full Year
Group Executive, Industrial
Part Year (ceased 14 Sept 2017)
The Report has been prepared and audited in accordance with the requirements of the Act.
31
Charter Hall Group Annual Report 2018 Remuneration Report – audited continued
2. Remuneration governance
Charter Hall’s Board and the Remuneration and Human Resources Committee (the Committee) are responsible for setting and overseeing
remuneration policy for the Group.
Members of
the Committee
The Committee is appointed by the Board and comprised solely of NEDs:
• Anne Brennan (Chair of the Committee)
• Philip Garling
• David Ross
Role of the Committee
Charter Hall’s Board and the Committee are responsible for setting and overseeing remuneration policy for the Group.
In summary, the Committee provides advice and recommendations to the Board for approval on:
Attendance
Remuneration and
risk management
External advisers and
remuneration consultants
• the Group’s remuneration and incentives framework;
• fixed annual remuneration, total remuneration package for executives;
• short term incentives and long term incentives for executives;
• any other remuneration matters that relate to executives;
• criteria for reviewing the performance of the Managing Director;
•
•
incentive plans for all employees; and
fees for NEDs of the Group and fund committees.
The specific responsibilities of the Board and the Committee are detailed in their respective charters, which are
available on the Group website at www.charterhall.com.au.
Other Directors of the Board, the Managing Director and the Group Executive, People, Brand and Community
attend Committee meetings by invitation. Importantly, executives (including the Managing Director), do not attend
meetings, or sections of meetings, where agenda items for discussion relate to their own remuneration outcomes.
Risk is managed at various points in the executive remuneration framework through:
• part deferral of STI awards into service rights over two years;
• LTI performance hurdles that reflect the long-term performance of the business, measured over three years
with an additional one year holding lock;
• clawback on unvested deferred STI and unvested LTI for material misstatement and financial
misrepresentation;
• minimum shareholding for Independent Directors; and
• Board discretion on performance outcomes.
Where necessary, the Committee seeks support from independent experts and advisers. Remuneration
consultants provide information on market trends in respect of KMP remuneration structures and benchmarking
information on KMP remuneration levels. Other external advisers (including legal practitioners) assist with the
administration of the Group’s remuneration plans and ensure that the appropriate legal parameters are applied
and employment contracts are in place.
The Committee independently appoints its remuneration consultants and engages with them in a manner which
ensures that any information provided is not subject to undue influence by management.
The information provided by external advisers is used as an input only to the Committee’s considerations and
decision making. The Board has ultimate decision making authority over matters of remuneration structure
and outcomes.
During the FY 2018 period Egan Associates provided guidance to the Board in connection with Non-Executive
Directors fees and Managing Director remuneration.
Work undertaken during FY 2018 for the Managing Director remuneration was benchmarking and did not
constitute a remuneration recommendation for the purposes of the Corporations Act 2001.
Work undertaken during FY 2018 for the Non-Executive Director remuneration was a remuneration
recommendation and Egan Associates was paid $28,875 for this advice. The Committee is satisfied that the
advice received from Egan Associates is free from undue influence from the KMP to whom the remuneration
recommendations relate. Egan Associates also confirmed in writing that the remuneration recommendation
was made free from undue influence by KMP.
32
DIRECTORS’ REPORTFOR THE YEAR ENDED 30 JUNE 2018Charter Hall Group Annual Report 2018 3. Executive remuneration framework
3.1 Executive remuneration strategy
Charter Hall’s remuneration philosophy is aimed at rewarding performance. This is achieved by attracting and retaining talented people who are
motivated to achieve challenging performance targets aligned with both the business strategy and the long-term interests of securityholders.
The following illustrates the link between business strategy and remuneration outcomes:
BUSINESS STRATEGY
To access, deploy, manage and co-invest equity to create value and provide superior income and capital returns for our clients and
securityholders through:
• delivering outperformance for both managed fund/partnership investors and CHC securityholders
• optimising total return on invested capital
• growing sustainable earnings and maintaining resilience via long WALE portfolios and through strong customer relationships
• developing a scalable and efficient platform
• recruiting, retaining and motivating a high performance team
REMUNERATION STRATEGY
Create sustainable securityholder value by:
Attract, retain and motivate talent by:
• assessing performance and STI outcomes against financial and
non-financial key performance indicators (KPI) linked to strategy
• deferring a portion of STI into equity for executives
• aligning LTI performance hurdles with securityholders’
• rewarding superior performance
• offering competitive total remuneration
• creating retention mechanisms
• ensuring remuneration strategy is simple, transparent
expected returns
and consistent
• ensuring a significant ‘at-risk’ component of total remuneration
FAR
FAR
REMUNERATION COMPONENTS
Remuneration ‘at risk’ and subject to performance outcomes
STI
LTI
• OEPS target, and
• KPIs (50% financial and 50%
non-financial)
Cash (67%)
Deferred equity
(33%) over two years
• equal measures of absolute TSR and
relative TSR (comparator group)
• three year performance measures
• additional one year holding lock
REMUNERATION OUTCOMES
Remuneration ‘at risk’ and subject to performance outcomes
• Managing Director’s FAR increased 10%
STI
LTI
1 July 2017 (section 3.3)
• Other Reported Executives’ remained
flat on average in FY 2018, excluding
role changes
• STI pool of 120% of target STI pool
• 100% of FY 2015 LTI grant vested
based on FY 2018 OEPS performance
above target and Board discretion
• 100% of deferred equity STI due to vest
in FY 2018 for FY 2015 (second tranche)
and FY 2016 (first tranche) has vested
(31 August 2017)
• FY 2016 LTI grant will fully vest
(31 August 2018)
33
Charter Hall Group Annual Report 2018 120
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40
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Remuneration Report – audited continued
3. Executive remuneration framework continued
3.2 Remuneration mix
Executive remuneration is structured as a mixture of fixed and variable ‘at-risk’ STI and LTI components. While fixed remuneration is
designed to provide a base level of remuneration, the ‘at-risk’ STI and LTI components reward executives when pre-agreed performance
measures are met or exceeded.
The figures below for all Reported Executives show the percentage mix of fixed versus ‘at-risk’ for ‘on target’ total remuneration. The ‘maximum’
total remuneration for the Managing Director shows the mix of fixed versus ‘at-risk’ as a percentage of ‘on target’ remuneration. This reflects
maximum STI of up to 150% of the target STI due to strong Company and executive outperformance. Other Reported Executives also have
the potential to earn up to 150% of target STI.
33%
50%
33%
33%
33%
33%
LTI
STI
FAR
28%
28%
26%
31%
19%
31%
20%
30%
43%
43%
50%
50%
Target
Maximum
Chief Financial
Officer
Chief Investment
Officer and
Industrial CEO
Retail CEO1
Office CEO
MANAGING DIRECTOR
OTHER REPORTED EXECUTIVES (TARGET ONLY)
1 G Chubb’s (Retail CEO) remuneration mix was changed in November 2017, when his position included the Fund Manager, CQR role. The above remuneration mix is
effective November 2017.
3.3 Fixed remuneration
Composition
Fixed remuneration comprises cash base salary, statutory superannuation contributions and other
nominated benefits.
Review process
Fixed remuneration is targeted at the median of the market and is reviewed annually, effective 1 July,
benchmarked against equivalent roles in the market recognising:
individual performance; and
•
• the market environment for each individual’s skills and capabilities.
Benchmarking
The following comparator group is used when determining the Reported Executives’ remuneration:
Executive Director
outcome
•
industry related companies: based on entities in the S&P/ASX 200 Australian Real Estate and Investment
Trust (A-REIT) industry group.
The fixed remuneration of the Managing Director, Mr Harrison, increased by 10% to $1,430,000 in the FY 2018
annual remuneration review (1 July 2017) such that his total package increased to $4,290,000. Mr Harrison’s last
review was 1 February 2016 when he was appointed single Managing Director and Group CEO, reflecting his
change in role.
In determining Mr Harrison’s remuneration and appropriate remuneration mix, the Chair and the Remuneration
and Human Resources Committee jointly commissioned an independent benchmarking by Egan Associates.
The review had regard to:
• 20 ASX listed entities ranked by market capitalisation on either side of the Charter Hall Group;
• ASX listed entities ranked 20 positions either side of an assumed entity with an aggregate market
capitalisation equal to the combined total of the Charter Hall Group, the Charter Hall Long WALE REIT and
the Charter Hall Retail REIT;
• Mr Harrison’s current role; and
• market for established CEOs among REITs with varying attributes, specifically considering the fixed CEO
remuneration payable by nine industry specific comparator entities.
Other Reported
Executives
Other Reported Executives’ fixed remuneration remained flat on average in FY 2018, excluding increases for
role changes.
34
DIRECTORS’ REPORTFOR THE YEAR ENDED 30 JUNE 2018Charter Hall Group Annual Report 2018 3.4 Short term incentive
Purpose
STI is an ‘at-risk’ incentive awarded annually, which is designed to reward executives, subject to performance
against agreed financial and non-financial KPIs.
Gateway for STI
Determining and
assessing the
STI pool
A Group financial gateway of 90% (95% for executives) of budgeted OEPS must be met before any STI
entitlement is available, with the Board retaining overall discretion on performance achievement.
The size of the pool is determined by the Board, upon advice from the Committee, based on achieving a
budgeted OEPS target. The Board retains discretion to increase or decrease the overall STI pool available,
based on its assessment of the overall performance throughout the year.
In consultation with the Committee, the Board assesses the Group’s financial performance and the performance
of all Reported Executives against agreed KPIs.
Maximum STI potential
The maximum STI potential for all employees is 150% of their STI target, enabling recognition for outperformance.
Performance targets
STI measures are set to ensure appropriate focus on achievement of Group, divisional and individual
performance targets that are aligned with implementation of Charter Hall’s overall strategy.
Delivery
KPIs are typically split between 50% financial and 50% non-financial, based on a balanced scorecard approach,
which encourages executives to take a holistic approach to enhancing and protecting securityholder value.
For all executives, STI is delivered in the form of cash (67%) and deferred service rights (33%). For the Retail
CEO, deferred service rights are issued as securities in CQR rather than CHC due to his joint role of Fund
Manager, CQR.
Service rights are deferred over two years, with 50% vesting at the end of year one and 50% at the end of year
two. The number of rights granted to an executive is determined based on an independent fair value calculation
reviewed by Deloitte using the Black-Scholes valuation method. If an executive’s employment terminates prior to
expiry of the relevant vesting period, the service rights will be forfeited or remain ‘on foot’, subject to the Board’s
discretion to determine ‘good leaver’ status.
Managing Director’s KPIs
The Managing Director’s scorecard is divided into three performance goals, Financial, Customer and Leadership and Collaboration. For each
of these goals there will be performance measures aligned to our core strategic objectives of growth and resilience.
Below is a summary of the Managing Director’s performance measures and KPIs for FY 2018 as assessed by the Board.
Performance goal
Measures
Financial (50%)
Including Group OEPS; annuity revenue growth, growth in funds under management; maintain
Group investment capacity.
Status
Exceeded
Customer (25%)
Delivering exceptional customer experience with continuous improvement and innovation.
Exceeded
Leadership and
Collaboration (25%)
Driving an engaged inclusive, diverse culture with strengthening leadership and succession.
Achieved
Other Reported Executives’ KPIs
KPIs for other Reported Executives are broadly similar to that of the Managing Director and are focused on individual areas of accountability.
Performance goal
Measures
Financial (50%)
Including Group and Divisional financials and investment earnings; growth in funds under
management; and divisional specific financial initiatives.
Customer (25%)
Including customer experience, service and satisfaction measures for funds and tenants.
Leadership and
Collaboration (25%)
Including leadership contribution, succession, talent and engagement.
Status
Exceeded
Exceeded
Achieved
35
Charter Hall Group Annual Report 2018 40
35
30
25
20
15
10
5
0
Remuneration Report – audited continued
3. Executive remuneration framework continued
Group FY 2018 performance outcomes
In FY 2018, Charter Hall’s OEPS was 37.7 cents, which was 5.0% above the FY 2017 OEPS. The table below shows Charter Hall’s OEPS (cps)
over a four year period:
18.1%
growth
35.9
5.0%
growth
37.7
10.5%
growth
30.4
27.5
FY 2015
FY 2016
FY 20171
FY 2018
1 The first year CHC recognised operating tax expense.
FY 2018 STI outcomes
In FY 2018, 120% of the target STI pool was awarded across the Group, recognising outperformance of the
Group’s OEPS against budget and as determined by the Board which we note compares to 129% in FY 2017
and 112.7% in FY 2016.
The below table shows the STI outcomes for Reported Executives for 2018.
All Reported Executives received 123% of STI target for FY 2018. This is based on a reflection of the executives’
leadership as a group, achievements of KPIs and their overall leadership team contribution to the Group.
Name
Executive Director
D Harrison
Other Reported Executives
G Chubb2
S McMahon
R Proutt3
A Taylor
Former Reported Executive
P Ford
STI earned
$
Paid in cash
$
Deferred
into service
rights
$
Target
STI of
fixed pay
%
STI earned
compared to
target
%
% of
target STI
opportunity
forfeited1
%
1,758,900
1,172,600
586,300
100%
123%
481,048
710,940
612,136
516,600
320,699
473,960
408,091
344,400
160,349
236,980
204,045
172,200
–
–
–
62%
72%
66%
60%
35%
123%
123%
123%
123%
0%
100%
0%
0%
0%
0%
0%
1 The STI was not earned; the Act requires this disclosure as forfeiture.
2 STI earned is pro-rata for the year to reflect changes to remuneration in FY 2018.
3 STI pro-rata for period employed.
36
DIRECTORS’ REPORTFOR THE YEAR ENDED 30 JUNE 2018Charter Hall Group Annual Report 2018 3.5 Long term incentive
Purpose
Participants
Type of equity awarded
LTI aligns key employee rewards with sustainable growth in securityholder value over time. It also plays an
important role in employee retention.
All Reported Executives, executives, Fund Managers and selected other managers, comprising approximately
5.5% of employees.
The LTI is governed by the Performance Rights and Options Plan (PROP), under which rights to stapled
securities are granted to participants. Each performance right entitles the participant to one stapled security in
the Charter Hall Group for nil consideration at the time of vesting, subject to meeting the performance hurdles
outlined below. For FY 2018 detail, see specific grant allocation (section 6.2).
Valuation
The number of rights granted to an executive is determined based on an independent fair value calculation by
Deloitte using the Black-Scholes valuation method.
Performance measures,
vesting schedule and
holding lock
For the FY 2018 LTI allocation, the two performance hurdles that applied to the performance rights for vesting
over a three year period commencing 1 July 2017 were:
• Absolute TSR (50%) – with vesting occurring on a straight line basis if the compound total return is between
9% and 12% per annum, with 50% vesting at the lower end of the range and 100% vesting at the higher end
of the range.
• Relative TSR (50%) – with vesting occurring on a straight line basis if the total compounded return is between
the 50th and the 75th percentile when Charter Hall’s return is ranked against a comparator group of the S&P/
ASX 200 A-REIT Accumulation Index (XPJAI). The comparator group for the relative TSR grant is:
– Abacus Property Group (ABP)
– BWP Trust (BWP)
– Cromwell Property Group (CMW)
– Charter Hall Retail REIT (CQR)
– Dexus Property Group (DXS)
– Goodman Group (GMG)
– Growthpoint Properties Australia (GOZ)
– GPT Group (GPT)
– Iron Mountain Incorporated (INM)
– Investa Office Fund (IOF)
– Mirvac Group (MGR)
– National Storage REIT (NSR)
– SCentre Group (SCG)
– Shopping Centres Australasia Property Group (SCP)
– Stockland (SGP)
– Vicinity Centres (VCX)
The Board is able to determine the treatment of the companies in the comparator group at its discretion.
Any performance rights that fail to meet these performance hurdles by 30 June 2020 will lapse.
Performance rights which vest will be subject to a further one year holding lock.
Rationale for performance
conditions
TSR measures the overall returns that a company has provided for its securityholders, reflecting share price
movements and reinvestment of dividends over a specified period.
Absolute TSR provides a strong link to Charter Hall’s business strategy of co-investing in managed funds with
absolute and total return hurdles.
Relative TSR is the most widely used LTI hurdle adopted in Australia. It ensures that value is only delivered
to participants if the investment return actually received by CHC securityholders is sufficiently high relative
to the return they could have received by investing in a portfolio of alternative A-REIT sector stocks over the
same period.
37
Charter Hall Group Annual Report 2018 Remuneration Report – audited continued
3. Executive remuneration framework continued
Cessation of employment
provisions
For the FY 2018 LTI allocation, the following provisions apply in the case of cessation of a participant’s
employment:
• Misconduct: all unvested performance rights are forfeited unless the Board determines otherwise;
• Resignation or where a participant breaches a post-termination restriction in their employment contract:
all unvested performance rights are forfeited unless the Board determines otherwise; and
• All other leavers, including good leavers: all unvested performance rights lapse with effect from the date of
cessation of employment, unless the Board allows part or all to vest early or remain on foot subject to the
original terms of grant.
The Board, in its absolute discretion, may determine that all or a specified number of a participant’s unvested
performance rights vest. In doing so, the Board has regard to whether the performance is in line with the
performance conditions over the period from the date of the grant of the performance right to the date of
the relevant event.
Change of control
provisions
Treatment of dividends
Participants who hold performance rights are not entitled to receive any distributions or dividends declared by
the Group until the performance rights are exercised and held as stapled securities.
Hedging and margin
lending prohibitions
In accordance with the Corporations Act 2001, all KMP are prohibited from hedging or otherwise protecting the
value of unvested stapled securities.
Group FY 2018 performance outcomes
The Group delivered a compound TSR (including stapled security price movements and distributions) over the three years to 30 June 2017
(FY 2015 performance period) of 14% per annum and three years to 30 June 2018 (FY 2016 performance period) of 18% per annum, both
exceeding the absolute TSR stretch performance hurdle of 13% each year, respectively.
The following graphs demonstrate how the Group’s TSR has performed relative to the ASX A-REIT Accumulation Index for the three years
to 30 June 2017 (FY 2015 LTI performance period) and three years to 30 June 2018 (FY 2016 LTI performance period).
FY 2015 LTI period (vesting date 31 August 2017)
170%
160%
150%
140%
130%
120%
110%
100%
90%
As at 30 June 2017
CHC: 153%
Index: 140%
Jun 14
Dec 14
Jun 15
Dec 15
Jun 16
Dec 16
Jun 17
CHC
A-REIT Accumulation Index
38
DIRECTORS’ REPORTFOR THE YEAR ENDED 30 JUNE 2018Charter Hall Group Annual Report 2018 FY 2016 LTI period (vesting date 31 August 2018)
170%
160%
150%
140%
130%
120%
110%
100%
90%
As at 30 June 2018
CHC: 165%
Index: 132%
Jun 15
Dec 15
Jun 16
Dec 16
Jun 17
Dec 17
Jun 18
CHC
A-REIT Accumulation Index
Outcomes
• The FY 2015 LTI had a vesting date of 31 August 2017. As a result of the TSR performance over the three
years to 30 June 2017, the performance hurdles were exceeded and 100% of the performance rights vested
based on absolute and relative performance.
• The FY 2016 LTI has a vesting date of 31 August 2018. As a result of the TSR performance over the three
years to 30 June 2018, the performance hurdles were exceeded and 100% of the performance rights will
vest based on absolute and relative performance.
3.6 Group summary of performance and total remuneration outcomes
The tables below provide information on Charter Hall’s performance against key metrics over the last five years and the relationship to Reported
Executives’ total remuneration, both fixed and ‘at risk’. Charter Hall’s STI is weighted towards growth in OEPS and the LTI provides an important
link between remuneration and TSR.
Key performance metrics
Statutory profit after tax for stapled securityholders ($m)
Operating earnings for stapled securityholders ($m)
Operating earnings per stapled security (cents)
Statutory earnings per stapled security (EPS) (cents)
Growth in OEPS %
Distribution per stapled security (cents)
Stapled security price at 30 June ($)
S&P/ASX 200 A-REIT Accumulation Index (XPJAI) – Jul – Jun (%)
Total securityholder return – Jul – Jun (%)
2014
82.1
81.2
25.3
25.6
10.4
22.3
4.26
11.1
16.3
2015
117.9
98.8
27.5
32.8
8.7
24.2
4.52
20.3
11.8
2016
215.2
124.7
30.4
52.5
10.5
26.9
5.06
23.2
18.3
2017
257.6
151.2
35.9
61.2
18.1
30.0
5.50
–6.3
15.2
2018
250.2
175.8
37.7
53.7
5.0
31.8
6.52
13.0
24.6
Reported Executives total remuneration summary
2014
2015
20161
20172
20183
Fixed payments ($)
STI accounting expense ($)
LTI accounting expense ($)4
Earned remuneration ($)5
6,122,898
3,381,549
2,169,193
4,776,471
3,037,030
1,746,018
6,774,805
5,070,682
1,761,639
4,120,280
3,778,462
931,165
4,685,414
4,390,624
1,203,735
11,673,640
9,559,519
13,607,126
8,829,907
10,279,773
On target total remuneration ($)
11,984,905
9,257,989
12,198,875
7,864,408
9,205,916
Earned remuneration relative to target remuneration – over/(under)
(%)
(3%)
4%
12%
12%
12%
1 Includes remuneration for D Southon’s 2017 notice period and excludes his redundancy payments.
2 Includes remuneration for P Altschwager for his period of KMP and excludes his separation arrangements and excludes the STI payment reported for D Southon in 2017.
3 Includes remuneration for P Ford for his period of employment and excludes his termination benefits.
4 The LTI expense attributed to the Reported Executives reflects the statutory accounting expense under AASB2.
5 Earned remuneration for the Reported Executives is the sum of their fixed payments, the STI accounting expense and the LTI accounting expense.
39
Charter Hall Group Annual Report 2018 Remuneration Report – audited continued
4. Executive remuneration in detail
4.1 Total remuneration of Reported Executives
The following table details the total remuneration of the Reported Executives of the Group for FY 2017 and FY 2018.
Short-term benefits
Post-
employ-
ment
benefits
Security-based
payment
Other
long-term
benefits
Termin-
ation
benefits
Cash
short term
incentive
$
Salary
$
Annual
leave1
$
Non-
monetary
benefits2
$
Super-
annuation
$
Name
Securities,
options
and
perform-
ance
rights
$
Security-
based
short term
incentive
$
Long
service
leave1
$
Termination
benefits
$
% of total
remun-
eration
consisting
of rights
%
Total
$
Executive Director
D Harrison
2018
2017
1,409,951 1,172,600
34,143
1,280,384 1,213,333 (147,108)
1,621
1,901
20,049
19,616
586,300
606,667
502,577
429,177
(55,970)
22,751
622,906
610,384
Other Reported Executives
G Chubb
2018
2017
S McMahon3
2018
2017
R Proutt
2018
A Taylor
2018
2017
779,951
677,820
679,951
673,704
738,681
320,699
268,667
473,960
396,380
408,091
344,400
377,406
Former Reported Executive Director
D Southon4
2017
197,190
–
Former Other Reported Executives
P Altschwager5
2017
P Ford6
2018
2017
254,658
448,754
–
173,333
375,287
134,783
Total 2018
4,486,098 2,719,750
13,037
(24,834)
1,621
1,901
20,049
19,616
160,349
134,333
59,608
161,457
12,320
11,561
(6,462)
14,118
1,621
1,901
20,049
19,616
547,980
198,190
226,745
209,733
14,001
12,213
22,483
1,621
20,049
204,045
296,990
13,325
17,347
(17,057)
4,457
7,418
20,049
19,616
172,200
188,703
90,212
75,641
13,682
23,125
–
–
–
–
5,646
9,808
–
–
–
28,621
–
–
–
–
–
–
–
–
–
–
–
–
3,671,271
3,426,721
1,210,589
1,183,084
2,057,845
1,529,971
1,705,285
1,342,298
1,348,556
197,190
893,344 1,447,489
30
30
18
25
38
27
29
20
20
–
2
4
14
27
22
–
11,988
80,548
200
5,188
10,024
19,616
–
86,667
27,603
26,536
–
15,348
417,099
–
709,584
787,430
11,141
110,269 1,670,874 1,203,735
(2,642) 417,099 10,696,872
Total 2017
4,066,333 2,761,092 (162,893)
23,955
107,887 1,214,560
931,165
84,998
893,344 9,920,441
1 Shows the movement in leave accruals for the year.
2 Non-monetary benefits for FY 2018 is salary continuance insurance.
3 I n recognition of the dual roles S McMahon has undertaken for the FY18 year, he has been allocated an extra grant of deferred service rights of $311,000 as approved by
the Board. This is shown in the security-based short term incentive column. These service rights are to vest in full 31 August 2019.
4 D Southon ceased as KMP in his role as Joint Managing Director effective 1 February 2016.
The data for FY2017 shows the difference between the STI target amount (as shown in previous FY 2016 reporting) and the actual amount paid due to performance criteria
that were met and exceeded. Previously, the STI opportunity was shown at target amount. The performance criteria were exceeded and the actual amount paid was
$690,161. The difference to the previously reported amount is shown in the 2017 data. None of these benefits are termination benefits for the purposes of the Corporations
Act termination benefits cap.
5 In accordance with P Altschwager’s employment agreement, P Altschwager is entitled to a six months’ notice period. The termination benefits value also includes the
security-based expense for unvested incentives as at 31 December 2016 which remain on foot and may vest at the same time as all other participants and statutory leave
entitlements. None of these benefits are termination benefits for the purposes of the Corporations Act termination benefits cap.
6 In accordance with P Ford’s employment agreement, P Ford is entitled to a three months’ notice period during which he remained employed by the Group. The termination
benefits value also includes a six month ex-gratia payment which forms part of his termination benefits under the Corporations Act termination benefits cap. It also includes
his statutory leave entitlements. The security options and performance rights column includes the expense for unvested incentives as at 15 December 2017 which remain
on foot and may vest at the same time as all other participants. None of the security expense benefits are termination benefits for the purposes of the Corporations Act
termination benefits cap.
40
DIRECTORS’ REPORTFOR THE YEAR ENDED 30 JUNE 2018Charter Hall Group Annual Report 2018
4.2 Key terms of employment
The remuneration and other terms of employment for Reported Executives are formalised in employment contracts. Each of these contracts
provides for participation in the Group’s STI and LTI programs (as described above) and payment of other benefits.
The terms and conditions of employment of each executive reflect market conditions at the time of their contract. All Reported Executives’
contracts are ongoing in duration. The material terms of the employment agreements for the Executive Directors and Reported Executives are
summarised below:
Name
Position
Executive Director
D Harrison
Other Reported Executives
G Chubb
S McMahon
R Proutt
A Taylor2
Former Reported Executive
Managing Director
Retail CEO
Chief Investment Officer
Chief Financial Officer
Office CEO
P Ford
Group Executive, Industrial
Minimum notice period1
Charter Hall
Employee
6 months
12 months
3 months
6 months
6 months
3 months
3 months
6 months
6 months
3 months
3 months
3 months
1 No notice period is required for termination by the Company for serious or wilful misconduct by the employee.
2 Termination payments under Adrian Taylor’s contract equals nine months base salary plus one month per year of service to a maximum of 12 months’ base salary.
Other than as described above, the Reported Executives’ contracts do not provide for any termination benefits aside from payment in lieu
of notice (where applicable). Treatment of unvested incentives is dealt with in accordance with the terms of the grant (refer to STI and LTI
commentary in section 3).
5. Non-Executive Director remuneration
Policy
The Committee makes recommendations to the Board on the total level of remuneration of the Chair and other
Non-Executive Directors, including any additional fees payable to Directors for membership of Board committees.
Benchmarking
Fees are set by reference to the following considerations:
industry practice and best principles of corporate governance;
•
• responsibilities and risks attaching to the role of NEDs;
• the time commitment expected of NEDs on Group matters; and
• reference to fees paid to NEDs of other comparable companies.
NED fees are periodically reviewed to ensure they remain in line with general industry practice and reflect proper
compensation for duties undertaken. External independent advice is sought in these circumstances.
Fee framework
NED fees, including committee fees, are set by the Board within the aggregate amount of $1.7 million per annum
as approved by securityholders at the AGM in November 2017.
Under the current framework, NEDs, other than the Chair, receive (inclusive of superannuation):
• Board base fee; and
• Committee fees.
The Chair receives an all-inclusive fee.
NEDs are also entitled to be reimbursed for all business-related expenses, including travel on Charter Hall
business, incurred in the discharge of their duties in accordance with Charter Hall’s Constitution.
In accordance with principles of good corporate governance, NEDs do not receive any benefits upon retirement
under any retirement benefits schemes (other than statutory superannuation) and NEDs are not eligible to
participate in any of Charter Hall’s employee incentive schemes.
41
Charter Hall Group Annual Report 2018 Remuneration Report – audited continued
5. Non-Executive Director remuneration continued
Remuneration outcomes
As approved by the securityholders at the AGM in November 2017, the Fee Pool for NED fees increased to
$1.7 million per annum (from $1.3 million).
In June 2017, the Committee commissioned an independent remuneration benchmarking report from Egan
Associates to determine, among other matters, appropriate NED fees and payments (Egan Report). The
Egan Report recommended an increase to NED fees to reflect market practice and the accountabilities and
workload of the Charter Hall Group Directors. The Egan Report is the most comprehensive Director fee review
undertaken by the Board to date and the report’s recommendations are reflective of the considerable growth of
the Charter Hall Group business since 2014. In arriving at its recommendation, the Egan Report considered the
revenue, assets and market capitalisation of the Charter Hall Group together with the accountability of the Board
for the stewardship of approximately $19.8 billion (at the time) of funds under management.
Based on the Egan Report effective 1 July 2017, the Board agreed to the following changes in NED fees:
• The Board Chair’s fee increased from $307,500 to $375,000;
• Board member base fees increased from $123,000 to $150,000; and
• Board Committees fees increased for both Chair and members.
Minimum shareholding
guidelines
Minimum shareholding guidelines were implemented in FY 2016 requiring Independent Directors to hold CHC
securities to the value of $50,000 (being approximately a year’s base fee, net of tax) to be purchased over a
three year period. The valuation is based on the value of the securities at the time of purchase.
Summary of fee framework per annum
Board
Chair
Member
Audit Risk and Compliance Committee
Chair
Member
Remuneration and Human Resources Committee
Chair
Member
Nomination Committee
Chair
Member
Investment Committee1
Chair
Member
2018
$
2017
$
375,000
150,000
307,500
123,000
40,000
20,000
30,000
15,000
3,000
3,000
15,000
10,000
30,000
15,000
25,000
13,879
2,060
2,060
4,500
–
1 The Investment Committee members have previously received no remuneration for the Committee fees. In FY 2018, the Chair (P Garling) received a payment of $4,500 for
FY 2017 Investment Committee meetings.
Non-Executive Director remuneration
Non-Executive Directors
D Clarke
A Brennan
P Garling1
K Moses
D Ross
Former Non-Executive Directors
P Kahan
C McGowan
Total
2018 fees
$
2017 fees
$
375,000
200,000
177,841
190,000
178,000
–
–
307,500
163,000
159,287
124,659
73,035
72,004
49,256
1,120,841
948,741
1 Due to timing adjustments for Committee memberships, P Garling’s actual remuneration shown is less than his fee entitlement of $183,000 for FY 2018.
42
DIRECTORS’ REPORTFOR THE YEAR ENDED 30 JUNE 2018Charter Hall Group Annual Report 2018 6. Appendix – further detail
6.1 Securityholdings
Key management personnel securityholdings
Name
Directors of Charter Hall Limited
Ordinary stapled securities
D Clarke
A Brennan
P Garling
K Moses
D Ross
Executive Director
D Harrison
Other Reported Executives
G Chubb
S McMahon
R Proutt
A Taylor
Former Reported Executive
P Ford1
Opening
balance at
30 Jun 2017
Stapled
securities
acquired
Rights and
options
exercised
Stapled
securities
sold
Closing
balance at
30 Jun 2018
45,875
30,000
16,759
8,137
–
1,648,799
–
–
–
61,605
–
–
–
–
15,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
45,875
30,000
16,759
23,137
–
351,411
(351,411)
1,648,799
126,217
59,056
–
81,413
(126,217)
–
–
(81,413)
–
59,056
–
61,605
15,450
(15,450)
–
1 Deemed disposal of all stapled securityholdings as no longer a KMP of the Group.
6.2 Performance Rights and Option Plan details
Performance rights and service rights outstanding under the PROP.
Performance rights
Year of issue
2016
2017
2018
Securities
857,738
818,364
843,477
Exercise price
Vesting conditions
Nil
Nil
Nil
Absolute and relative performance criteria
Absolute and relative performance criteria
Absolute and relative performance criteria
Total performance rights outstanding
2,519,579
Service rights
Year of issue
2017
2018
2018
Total service rights issued
Securities
134,438
94,468
258,623
487,529
Exercise price
Vesting conditions
Nil
Nil
Nil
Service conditions – Deferred STI
Service conditions
Service conditions – Deferred STI
Valuation model
The Black-Scholes methodology is used for allocation purposes while the Monte Carlo method is used for accounting purposes.
The accounting value determined using a Monte Carlo simulation valuation is in accordance with AASB 2.
43
Charter Hall Group Annual Report 2018 Remuneration Report – audited continued
6. Appendix – further detail continued
6.2 Performance Rights and Option Plan details continued
Valuation model continued
Reported Executives rights – details by plan
Rights held
at 30 June
2017
Rights
granted
during
the year
Rights
vested and
exercised
during
the year
Rights
forfeited
during
the year
Rights held
at 30 June
2018
Fair value
per right
at grant
date ($)
Grant
date
Fair value
to be
expensed
in future
years($)1
Vesting
date
Type of equity
Executive Director
D Harrison
LTI Performance Rights
LTI Performance Rights
LTI Performance Rights
LTI Performance Rights
STI Deferred Service Rights
STI Deferred Service Rights
STI Deferred Service Rights
STI Deferred Service Rights
STI Deferred Service Rights
248,371
250,965
330,178
–
43,420
59,620
59,620
–
–
–
–
–
294,664
–
–
–
57,581
57,580
248,371
–
–
–
43,420
59,620
–
–
–
Other Reported Executives
G Chubb
LTI Performance Rights
LTI Performance Rights
LTI Performance Rights
LTI Performance Rights
LTI Service Rights
STI Deferred Service Rights
STI Deferred Service Rights
STI Deferred Service Rights
STI Deferred Service Rights2
STI Deferred Service Rights2
S McMahon
42,135
39,490
36,991
–
65,790
6,791
11,501
11,501
–
–
–
–
–
30,909
–
–
–
–
18,274
18,274
LTI Performance Rights
LTI Performance Rights
LTI Service Rights
STI Deferred Service Rights
STI Deferred Service Rights
112,934
–
59,056
–
–
–
100,763
–
18,811
18,811
R Proutt
LTI Performance Rights
LTI Service Rights
LTI Service Rights
A Taylor
LTI Performance Rights
LTI Performance Rights
LTI Performance Rights
LTI Performance Rights
STI Deferred Service Rights
STI Deferred Service Rights
STI Deferred Service Rights
STI Deferred Service Rights
STI Deferred Service Rights
–
–
–
108,181
62,979
31,489
48,315
49,099
46,018
–
17,522
15,576
15,576
–
–
–
–
–
57,697
–
–
–
17,911
17,910
42,135
–
–
–
65,790
6,791
11,501
–
–
–
–
–
59,056
–
–
–
–
–
48,315
–
–
–
17,522
15,576
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 19–Dec–14
250,965 30–Nov–15
330,178 25–Nov–16
294,664 23–Nov–17
– 30–Nov–15
– 25–Nov–16
59,620 25–Nov–16
57,581 23–Nov–17
57,580 23–Nov–17
– 19–Dec–14
39,490 30–Nov–15
36,991 25–Nov–16
30,909 23–Nov–17
– 19–Dec–14
– 30–Nov–15
– 25–Nov–16
11,501 25–Nov–16
18,274 08–Nov–17
18,274 08–Nov–17
2.09 31–Aug–17
1.41 31–Aug–18
1.39 31–Aug–19
2.65 31–Aug–20
4.16 31–Aug–17
4.37 31–Aug–17
4.15 31–Aug–18
5.93 31–Aug–18
5.65 31–Aug–19
–
18,962
169,525
536,004
–
–
–
–
–
2.09 31–Aug–17
1.41 31–Aug–18
1.39 31–Aug–19
2.65 31–Aug–20
4.03 30–Jun–17
4.16 31–Aug–17
4.37 31–Aug–17
4.15 31–Aug–18
3.88 31–Aug–18
3.62 31–Aug–19
–
2,984
18,992
56,225
–
–
–
–
–
–
112,934 25–Nov–16
100,763 23–Nov–17
– 25–Nov–16
18,811 23–Nov–17
18,811 23–Nov–17
1.39 31–Aug–19
2.65 31–Aug–20
4.29 31–Aug–17
5.93 31–Aug–18
5.65 31–Aug–19
57,984
183,291
–
–
–
108,181 23–Nov–17
62,979 23–Nov–17
31,489 23–Nov–17
2.65 31–Aug–20
20–Jul–19
5.68
20–Jul–20
5.41
196,785
200,318
121,473
– 19–Dec–14
49,099 30–Nov–15
46,018 25–Nov–16
57,697 23–Nov–17
– 30–Nov–15
– 25–Nov–16
15,576 25–Nov–16
17,911 23–Nov–17
17,910 23–Nov–17
2.09 31–Aug–17
1.41 31–Aug–18
1.39 31–Aug–19
2.65 31–Aug–20
4.16 31–Aug–17
4.37 31–Aug–17
4.15 31–Aug–18
5.93 31–Aug–18
5.65 31–Aug–19
–
3,710
23,627
104,953
–
–
–
–
–
44
DIRECTORS’ REPORTFOR THE YEAR ENDED 30 JUNE 2018Charter Hall Group Annual Report 2018 Rights held
at 30 June
2017
Rights
granted
during
the year
Rights
vested and
exercised
during
the year
Rights
forfeited
during
the year
Rights held
at 30 June
2018
Fair value
per right
at grant
date ($)
Grant
date
Fair value
to be
expensed
in future
years($)1
Vesting
date
Type of equity
Former Reported Executives
P Altschwager
LTI Performance Rights
STI Deferred Service Rights
STI Deferred Service Rights
STI Deferred Service Rights
101,967
18,419
9,346
9,346
–
–
–
–
101,967
18,419
9,346
–
P Ford
LTI Performance Rights
LTI Performance Rights
LTI Performance Rights
STI Deferred Service Rights
STI Deferred Service Rights
15,450
15,005
20,786
–
–
–
–
–
8,226
8,226
15,450
–
–
–
–
–
–
–
–
–
–
–
–
–
– 19–Dec–14
– 30–Nov–15
– 25–Nov–16
9,346 25–Nov–16
– 19–Dec–14
15,005 30–Nov–15
20,786 25–Nov–16
8,226 23–Nov–17
2.09 31–Aug–17
4.16 31–Aug–17
4.37 31–Aug–17
4.15 31–Aug–18
2.09 31–Aug–17
1.41 31–Aug–18
1.39 31–Aug–19
5.93 31–Aug–18
8,226 23–Nov–17
5.65 31–Aug–19
–
–
–
–
–
–
–
–
–
1 The maximum value of the grants yet to vest is the fair value amount at the grant date yet to be reflected in the Group’s consolidated income statement. The minimum
future value is $nil as the future performance and service conditions may not be met.
2 G Chubb will receive securities in CQR for these deferred STI rights.
End of Remuneration Report – audited. Directors’ Report – unaudited continued
Indemnification and insurance of directors, officers and auditor
During the year, the Charter Hall Group contributed to the premium for a contract insuring all directors, secretaries, executive officers and
officers of the Charter Hall Group and of each related body corporate of the Group, with the balance of the premium paid by funds managed
by members of the Charter Hall Group. The insurance does not provide any cover for the independent auditor of the Charter Hall Group or of
a related party of the Charter Hall Group. 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.
So long as the officers of the Responsible Entity act in accordance with the Charter Hall Property Trust’s constitution and the Corporations
Act 2001, the officers are indemnified out of the assets of the Charter Hall Property Trust against losses incurred while acting on behalf of the
Charter Hall Property Trust. The Charter Hall Group indemnifies the auditor (PricewaterhouseCoopers Australia) against any liability (including
legal costs) for third party claims arising from a breach by the Charter Hall Group of the auditor’s engagement terms, except where prohibited
by the Corporations Act 2001.
Non-audit services
The Company may decide to employ the auditor on assignments additional to its 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 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:
• 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.
45
Charter Hall Group Annual Report 2018 DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2018
Non-audit services continued
During the year, the following fees were paid or payable for non-audit services provided by the auditor and its related practices by the Charter
Hall Group and Charter Hall Property Trust Group:
PricewaterhouseCoopers Australian firm
Taxation services
Total remuneration for taxation services
Advisory services
PricewaterhouseCoopers Australian firm
Sustainability assurance
Accounting advice
Total remuneration for advisory services
Total remuneration for non-audit services
Charter Hall Group
2018
$
2017
$
57,222
57,222
135,781
135,781
76,698
53,252
129,950
187,172
–
–
–
135,781
1,132
Charter Hall Property
Trust Group
2018
$
1,132
1,132
–
–
–
2017
$
–
–
–
–
–
–
Environmental regulation
The Charter Hall Group recognises that sustainability is more than
protecting the natural environment; it is about responding to the needs of
our customers, achieving our long-term commercial goals and working
in partnership with our stakeholders to improve environmental and social
outcomes. Our Group Sustainability Policy outlines our commitments
to achieving a leading role in a sustainable future and can be found at
https://www.charterhall.com.au/About-Us/Corporate-Governance/.
The Group ensures compliance with applicable environmental
standards and regulations and reports its greenhouse gas emissions
and energy use on an annual basis under the National Greenhouse
and Energy Reporting Act 2007. Charter Hall emissions reports are
independently audited and in October 2018 the Group will report to
the Clean Energy Regulator emissions for the measurement period
1 July 2017 to 30 June 2018. To mitigate its carbon emissions, the
Group continues to implement resource efficiency measures across its
portfolio of assets and is also exploring renewable energy generation
opportunities within its office, retail and industrial portfolios.
Charter Hall also voluntarily reports annually to international organisations,
such as the United Nations Principles for Responsible Investment (PRI),
Dow Jones Sustainability Index (DJSI) and the Carbon Disclosure Project
(CDP). Charter Hall has recently submitted its 2018 PRI Report and DJSI
Report (along with DJSI Reports for CQR and CLW), which address
Charter Hall’s environment, social and governance (ESG) practices
and emissions from 1 July 2016 to 30 June 2017. Charter Hall Group
and CQR will report to CDP by August 2018 (due to changes in CDP
reporting requirements), which will also demonstrate our environmental
sustainability practices, initiatives and emissions from 1 July 2016 to
30 June 2017. Charter Hall funds (CQR, CHOT, CPOF, DOF, CPIF,
CLP, CLW and BSWF) also voluntarily report to the Global Real Estate
Sustainability Benchmark (GRESB). These funds have recently submitted
their 2018 GRESB reports, which also address Charter Hall sustainability
practices and emissions from 1 July 2016 to 30 June 2017.
Proceedings on behalf of the Company
Section 237 of the Corporations Act 2001 allows for a person to
apply to the Court to bring proceedings on behalf of the Company,
or to intervene in any proceedings to which the Company is a party,
in certain circumstances.
No person has made such an application and no proceedings have
been brought or intervened in on behalf of the Company with the
Court under this section.
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 47.
Rounding of amounts
The Company is of a kind referred to in ASIC Corporations Instrument
(Rounding in Financial/Directors’ Reports) 2016/191, relating to the
‘rounding off’ of amounts in the Directors’ Report. Amounts in the
Directors’ Report have been rounded off in accordance with that
instrument to the nearest hundred 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.
Directors’ authorisation
The Directors’ Report is made in accordance with a resolution of the
Directors. The financial statements were authorised for issue by the
Directors on 22 August 2018. The Directors have the power to amend
and re-issue the Financial Statements.
Tax Governance Statement
Charter Hall Group has adopted the Board of Taxation’s Tax
Transparency Code (TTC) at 30 June 2017. As part of the TTC,
Charter Hall has published a Tax Governance Statement (TGS) which
details Charter Hall Group’s corporate structure and tax corporate
governance systems. Charter Hall Group’s TGS can be found on our
website at www.charterhall.com.au.
David Clarke
Chair
Sydney
22 August 2018
46
Charter Hall Group Annual Report 2018 AUDITOR’S INDEPENDENCE DECLARATION
47
Charter Hall Group Annual Report 2018 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2018
Income
Revenue
Share of net profit of investments accounted for using the equity
method
Net gain on sale of investments
Net gain on investment in associates at fair value
Total income
Expenses
Investment property expenses
Depreciation
Finance costs
Net losses from derivative financial instruments
Reversal/(impairment) of investments in joint ventures
Net fair value adjustments on investment properties
Amortisation of intangibles
Asset management fees
Employee costs
Administration and other expenses
Total expenses
Profit before tax
Income tax expense
Profit for the year
Profit for the year as attributable to:
Equity holders of Charter Hall Limited
Equity holders of Charter Hall Property Trust
(non-controlling interest)
Profit attributable to stapled securityholders
of Charter Hall Group
Net profit attributable to Charter Hall Direct Diversified Consumer
Staples Fund (non-controlling interest)
Profit for the year
Note
4
31,32
31
5
5
5
32
14
5,15
5
5
6
Charter Hall Group
Charter Hall Property
Trust Group
2018
$’m
246.2
169.1
–
1.4
416.7
(0.9)
(3.5)
(3.2)
(0.3)
7.3
(0.7)
(2.7)
–
(110.9)
(24.1)
(139.0)
277.7
(26.5)
251.2
75.0
175.2
250.2
1.0
251.2
2017
$’m
213.4
207.2
3.2
–
423.8
–
(3.5)
(1.5)
–
(10.5)
(0.7)
(4.3)
–
(100.9)
(21.2)
(142.6)
281.2
(23.6)
257.6
39.6
218.0
257.6
–
257.6
2018
$’m
24.3
158.4
–
1.4
184.1
(1.0)
–
(3.5)
(0.3)
–
(0.7)
–
(1.9)
–
(0.5)
(7.9)
176.2
–
176.2
–
175.2
175.2
1.0
176.2
2017
$’m
19.7
198.0
3.8
–
221.5
–
–
(1.3)
–
–
(0.7)
–
(1.4)
–
(0.1)
(3.5)
218.0
–
218.0
–
218.0
218.0
–
218.0
48
Charter Hall Group Annual Report 2018 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME CONTINUED
FOR THE YEAR ENDED 30 JUNE 2018
Profit for the year
Other comprehensive income
Items that may be reclassified to profit or loss
Exchange differences on translation of foreign operations
Changes in the fair value of cash flow hedges
Equity accounted fair value movements in cash flow hedges
Other comprehensive income for the year
Total comprehensive income for the year
Total comprehensive income for the year is attributable to:
Equity holders of Charter Hall Limited
Equity holders of Charter Hall Property Trust
(non-controlling interest)
Total comprehensive income attributable to stapled
securityholders of Charter Hall Group
Total comprehensive income attributable to Charter Hall Direct
Diversified Consumer Staples Fund (non-controlling interest)
Total comprehensive income for the year
Basic earnings per security (cents) attributable to:
Equity holders of Charter Hall Limited
Equity holders of Charter Hall Property Trust
(non-controlling interest)
Basic earnings per stapled security (cents) attributable to
stapled securityholders of Charter Hall Group
8(a)
Diluted earnings per security (cents) attributable to:
Equity holders of Charter Hall Limited
Equity holders of Charter Hall Property Trust
(non-controlling interest)
Diluted earnings per stapled security (cents) attributable to
stapled securityholders of Charter Hall Group
8(b)
Note
23
23
23
Charter Hall Group
Charter Hall Property
Trust Group
2018
$’m
251.2
(0.5)
1.2
0.3
1.0
2017
$’m
257.6
–
–
(0.5)
(0.5)
2018
$’m
176.2
(0.5)
1.2
0.3
1.0
2017
$’m
218.0
–
–
(0.5)
(0.5)
252.2
257.1
177.2
217.5
75.0
176.2
251.2
1.0
252.2
16.1
37.6
53.7
16.0
37.4
53.4
39.6
217.5
257.1
–
257.1
9.4
51.8
61.2
9.3
51.4
60.7
–
176.2
176.2
1.0
177.2
n/a
37.6
n/a
n/a
37.4
n/a
–
217.5
217.5
–
217.5
n/a
51.8
n/a
n/a
51.4
n/a
The above consolidated statements of comprehensive income should be read in conjunction with the accompanying notes.
49
Charter Hall Group Annual Report 2018 CONSOLIDATED BALANCE SHEETS
AS AT 30 JUNE 2018
Assets
Current assets
Cash and cash equivalents
Receivables and other assets
Fair value of USPP commitment
Assets classified as held for sale
Total current assets
Non-current assets
Receivables and other assets
Investments in associates at fair value through profit or loss
Inventories
Investments accounted for using the equity method
Investment properties
Intangible assets
Property, plant and equipment
Deferred tax assets
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Current tax liabilities
Provisions
Total current liabilities
Non-current liabilities
Trade and other payables
Provisions
Derivative financial instruments
Borrowings
Deferred tax liabilities
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
Contributed equity
Reserves
Accumulated profit
Equity holders of Charter Hall Property Trust
(non-controlling interest)
Non-controlling interest in Charter Hall Direct Diversified
Consumer Staples Fund
Total equity
Charter Hall Group
Charter Hall Property
Trust Group
Note
9
10
20
11
10
31
13
14
15
16
17
18
19
18
19
12
20
17
2018
$’m
94.9
98.9
2.2
17.7
213.7
–
32.4
1.8
1,617.1
63.4
62.7
20.9
1.6
1,799.9
2,013.6
112.7
15.3
1.5
129.5
5.3
1.6
1.4
3.6
14.0
25.9
2017
$’m
174.4
66.2
–
–
240.6
–
29.7
–
1,476.6
40.4
65.4
18.8
1.6
1,632.5
1,873.1
108.7
18.7
1.9
129.3
6.5
1.3
–
–
13.7
21.5
155.4
1,858.2
150.8
1,722.3
21(a)
23
24
21(a)
23
24
285.7
(45.1)
(33.6)
207.0
1,453.5
0.9
161.2
285.0
(44.6)
(54.1)
186.3
1,456.9
(0.5)
79.6
2018
$’m
32.8
50.4
2.2
–
85.4
–
32.4
–
1,543.3
63.4
–
–
–
1,639.1
1,724.5
50.6
–
–
50.6
17.7
–
1.4
3.6
–
22.7
73.3
1,651.2
–
–
–
–
2017
$’m
53.4
29.9
–
–
83.3
73.2
29.7
–
1,386.3
40.4
–
–
–
1,529.6
1,612.9
76.9
–
–
76.9
–
–
–
–
–
–
76.9
1,536.0
–
–
–
–
1,453.5
0.9
161.2
1,456.9
(0.5)
79.6
1,615.6
1,536.0
1,615.6
1,536.0
35.6
1,858.2
–
1,722.3
35.6
1,651.2
–
1,536.0
The above consolidated balance sheets should be read in conjunction with the accompanying notes.
50
Charter Hall Group Annual Report 2018 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY –
CHARTER HALL GROUP
FOR THE YEAR ENDED 30 JUNE 2018
Attributable to the owners of Charter Hall Limited
Contributed
equity
Reserves
$’m
Accumulated
profit/(losses)
$’m
Note
Balance at 1 July 2016
Profit for the year
Other comprehensive income
Total comprehensive income
Transactions with equity holders in their
capacity as equity holders:
Contributions of equity, net of issue costs
Buyback and issuance of securities for
exercised performance rights
Tax recognised direct to equity
Transfer due to deferred compensation
payable in service rights
Distribution provided for or paid
Security-based benefit expense
Transfer unvested securities to
accumulated losses
Balance at 30 June 2017
Balance at 1 July 2017
Profit for the year
Other comprehensive income
Total comprehensive income
Transactions with equity holders in their
capacity as equity holders:
Contributions of equity, net of issue costs
Buyback and issuance of securities for
exercised performance rights
Tax recognised direct to equity
Transfer due to deferred compensation
payable in service rights
Dividend/distribution provided for or paid
Security-based benefit expense
Transactions with non-controlling interests
Balance at 30 June 2018
256.1
–
–
–
21(b)
28.3
6(c)
7
6(c)
7
(0.3)
0.9
–
–
–
–
28.9
285.0
285.0
–
–
–
–
(0.4)
1.1
–
–
–
–
0.7
285.7
(45.5)
–
–
–
–
(2.4)
1.7
1.4
–
1.4
(1.2)
0.9
(44.6)
(44.6)
–
–
–
–
(3.9)
0.3
1.4
–
1.7
–
(0.5)
(45.1)
(94.5)
39.6
–
39.6
–
–
(0.4)
–
–
–
1.2
0.8
(54.1)
(54.1)
75.0
–
75.0
–
–
–
–
(54.5)
–
–
(54.5)
(33.6)
Non-
controlling
interest
$’m
1,195.0
218.0
(0.5)
217.5
Total
$’m
116.1
39.6
–
39.6
Charter Hall
Group
Total
equity
$’m
1,311.1
257.6
(0.5)
257.1
28.3
258.0
286.3
(2.7)
2.2
1.4
–
1.4
–
30.6
186.3
186.3
75.0
–
75.0
–
(4.3)
1.4
1.4
(54.5)
1.7
–
(54.3)
(2.4)
–
–
(132.1)
–
–
123.5
1,536.0
1,536.0
176.2
1.0
177.2
36.0
(3.3)
–
–
(94.4)
–
(0.3)
(62.0)
(5.1)
2.2
1.4
(132.1)
1.4
–
154.1
1,722.3
1,722.3
251.2
1.0
252.2
36.0
(7.6)
1.4
1.4
(148.9)
1.7
(0.3)
(116.3)
207.0
1,651.2
1,858.2
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
51
Charter Hall Group Annual Report 2018 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY –
CHARTER HALL PROPERTY TRUST GROUP
FOR THE YEAR ENDED 30 JUNE 2018
Attributable to the owners of the
Charter Hall Property Trust Group
Contributed
equity
$’m
Reserves
$’m
Accumulated
profit/(losses)
$’m
Note
Balance at 1 July 2016
Profit for the year
Other comprehensive income
Total comprehensive
income/(loss)
Transactions with equity holders in
their capacity as equity holders:
Contributions of equity, net
of issue costs
Buyback and issuance of
securities for exercised
performance rights
Distribution provided for or paid
Balance at 30 June 2017
Balance at 1 July 2017
Profit for the year
Other comprehensive income
Total comprehensive income
Transactions with equity holders in
their capacity as equity holders:
Contributions of equity, net
of issue costs
Buyback and issuance of
securities for exercised
performance rights
Distribution provided for or paid
Transactions with non-controlling
interest
1,201.3
–
–
–
21(b)
258.0
7
(2.4)
–
255.6
1,456.9
1,456.9
–
–
–
21(b)
(0.1)
7
(3.3)
–
–
(3.4)
Balance at 30 June 2018
1,453.5
–
–
(0.5)
(0.5)
–
–
–
–
(0.5)
(0.5)
–
1.0
1.0
–
–
–
0.4
0.4
0.9
Total
$’m
1,195.0
218.0
(0.5)
(6.3)
218.0
–
218.0
217.5
–
258.0
–
(132.1)
(132.1)
79.6
79.6
175.2
–
175.2
(2.4)
(132.1)
123.5
1,536.0
1,536.0
175.2
1.0
176.2
Non-
controlling
interest
$’m
–
–
–
–
–
–
–
–
–
–
1.0
–
1.0
Total
equity
$’m
1,195.0
218.0
(0.5)
217.5
258.0
(2.4)
(132.1)
123.5
1,536.0
1,536.0
176.2
1.0
177.2
–
(0.1)
36.1
36.0
–
(93.6)
–
(93.6)
161.2
(3.3)
(93.6)
0.4
(96.6)
1,615.6
–
(0.8)
(0.7)
34.6
35.6
(3.3)
(94.4)
(0.3)
(62.0)
1,651.2
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
52
Charter Hall Group Annual Report 2018 CONSOLIDATED CASH FLOW STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
Note
Cash flows from operating activities
Receipts from customers (inclusive of GST)
Payments to suppliers and employees (inclusive of GST)
Tax paid
Interest received
Interest paid
Distributions and dividends from investments
Net cash inflow from operating activities
26
Cash flows from investing activities
Payments for property, plant and equipment (net of lease
incentive received)
Proceeds on disposal of investment properties
Payments for inventory
Payments for investment properties
Payment for acquisition of subsidiary (net of cash acquired)
Investments in associates and joint ventures
Proceeds on disposal and return of capital from investments
in associates and joint ventures
Loans to associates, joint ventures and related parties
Repayments of loans to associates, joint ventures and
related parties
Net cash (outflow)/inflow from investing activities
Cash flows from financing activities
Proceeds from issues/(buy back) of stapled securities
Proceeds from borrowings (net of borrowing costs)
Repayment of borrowings
Proceeds on disposal of partial interest in a subsidiary that does
not involve loss of control
Distributions to non-controlling interests
Distributions paid to stapled securityholders
Net cash inflow/(outflow) from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at the end of the year
9
Charter Hall Group
Charter Hall Property
Trust Group
2018
$’m
259.5
(153.5)
(28.2)
3.7
(2.6)
90.2
169.1
(5.5)
5.5
(1.8)
(29.1)
–
(98.5)
14.3
(17.8)
1.3
(131.6)
(7.7)
24.4
(21.1)
33.9
(0.8)
(145.3)
(116.6)
(79.1)
174.4
(0.4)
94.9
2017
$’m
217.8
(138.9)
–
2.2
(1.3)
76.5
156.3
(4.6)
67.2
–
(40.5)
(25.2)
(384.0)
120.0
(11.7)
21.2
(257.6)
281.2
88.8
(124.1)
–
–
(115.6)
130.3
29.0
145.4
–
174.4
2018
$’m
14.1
(2.1)
–
0.5
(2.6)
86.9
96.8
–
5.5
–
(29.1)
–
(98.5)
10.9
(176.7)
257.7
(30.2)
(6.8)
24.4
(21.1)
33.9
(0.8)
(116.4)
(86.8)
(20.2)
53.4
(0.4)
32.8
2017
$’m
10.7
(2.4)
–
0.3
(1.2)
72.5
79.9
–
(40.5)
–
–
–
(379.8)
123.6
(407.6)
494.6
(209.7)
255.5
88.8
(88.8)
–
–
(115.6)
139.9
10.1
43.3
–
53.4
The above consolidated cash flow statements should be read in conjunction with the accompanying notes.
53
Charter Hall Group Annual Report 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
1 Summary of significant accounting policies
The significant policies which have been adopted in the preparation
of these consolidated financial statements for the year ended
30 June 2018 are set out below. These policies have been
consistently applied to the years presented, unless otherwise stated.
(a) Basis of preparation
The Charter Hall Group (Group, CHC or Charter Hall) is a ‘stapled’
entity comprising Charter Hall Limited (Company or CHL) and its
controlled entities, and Charter Hall Property Trust (Trust or CHPT) and
its controlled entities (Charter Hall Property Trust Group). The shares in
the Company are stapled to the units in the Trust. The stapled securities
cannot be traded or dealt with separately. The stapled securities of the
Group are listed on the Australian Securities Exchange (ASX). CHL has
been identified as the parent entity in relation to the stapling.
The two Charter Hall entities comprising the stapled group remain
separate legal entities in accordance with the Corporations Act 2001,
and are each required to comply with the reporting and disclosure
requirements of Accounting Standards and the Corporations Act 2001.
As permitted by ASIC Corporations (Stapled Group Reports)
Instrument 2015/838, this financial report is a combined financial
report that presents the consolidated financial statements and
accompanying notes of both the Charter Hall Group and the Charter
Hall Property Trust Group.
The financial report of the Charter Hall Group comprises CHL and its
controlled entities, including Charter Hall Funds Management Limited
(Responsible Entity) as responsible entity for CHPT and CHPT and
its controlled entities. 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 financial report
of the Charter Hall Property Trust Group comprises the Trust and its
controlled entities.
These general purpose financial statements have been prepared in
accordance with Australian Accounting Standards and Interpretations
issued by the Australian Accounting Standards Board and the
Corporations Act 2001. The Charter Hall Group and Charter Hall
Property Trust Group are for-profit entities for the purpose of
preparing the consolidated financial statements.
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 was therefore 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,
acquisition accounted for CHL as at 6 June 2005.
Group references in accounting policies
The accounting policies in Note 1 apply to both the Group and
Charter Hall Property Trust Group unless otherwise stated in the
relevant policy.
Compliance with IFRS
The consolidated financial statements of the Group also comply with
International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board (IASB).
Historical cost convention
The consolidated financial statements have been prepared on a
historical cost basis, except for the following:
•
•
investments in associates at fair value through profit or loss –
measured at fair value;
investments in financial assets held at fair value – measured at
fair value;
• Derivative financial instruments.
New and amended standards adopted
No new accounting standards or amendments have come into effect
for the year ended 30 June 2018 that affect the Group’s operations or
reporting requirements.
(b) Principles of consolidation
(i) Controlled entities
The consolidated financial statements of the Charter Hall Group
and the Charter Hall Property Trust Group incorporate the assets and
liabilities of all controlled entities as at 30 June 2018 and their results
for the year then ended.
The Group controls an entity when the Group is exposed to, or has
rights to, variable returns from its involvement with the entity and
has the ability to affect those returns through its power to direct
the activities of the 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.
Intercompany transactions, balances and unrealised gains on
transactions between group companies are eliminated. Unrealised
losses are also eliminated unless the transaction provides evidence
of an impairment of the transferred asset. 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 statement of comprehensive
income, consolidated balance sheet and consolidated statement of
changes in equity respectively.
Investments in associates
(ii)
Associates are entities over which the Group has significant influence but
not control or joint control. Investments in associates are accounted
for in the consolidated balance sheet at either fair value through profit
or loss (CHPT only) or by using the equity method (CHPT and CHL).
On initial recognition, the Group elects to account for investments
in associates at either fair value through profit or loss or using the
equity method based on assessment of the expected strategy for
the investment.
Under the equity accounted method, the Group’s share of the
associates’ post acquisition net profit after income tax expense
is recognised in the consolidated statement of comprehensive
income. The cumulative post-acquisition movements in results and
reserves are adjusted against the carrying amount of the investment.
Distributions and dividends received from associates are recognised in
the consolidated financial report as a reduction of the carrying amount
of the investment.
Investments in associates at fair value through profit or loss are initially
recognised at fair value and transaction costs are expensed in the
consolidated statement of comprehensive income.
54
Charter Hall Group Annual Report 2018 (iii) Joint arrangements
Under AASB 11 Joint Arrangements, investments in joint arrangements
are classified as either joint operations or joint ventures. The classification
depends on the contractual rights and obligations of each investor,
rather than the legal structure of the joint arrangement.
(c) Segment reporting
Segment information is reported in a manner that is consistent with
internal reporting provided to the chief operating decision maker. The
chief operating decision maker is responsible for allocating resources
and assessing performance of the operating segments.
Joint operations
The Group recognises its direct right to the assets, liabilities, revenues
and expenses of joint operations and its share of any jointly held
or incurred assets, liabilities, revenues and expenses. These have
been incorporated in the consolidated financial statements under the
appropriate headings.
Joint ventures
Interests in joint ventures are accounted for using the equity method,
with investments initially recognised at cost and adjusted thereafter
to recognise the Group’s share of post-acquisition profits or losses of
the investee in profit or loss, and the Group’s share of movements in
other comprehensive income of the investee in other comprehensive
income. Dividends received or receivable from joint ventures are
recognised as a reduction in the carrying amount of the investment.
When the Group’s share of losses in an equity accounted investment
equals or exceeds its interest in the entity, 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 other entity.
Unrealised gains on transactions between the Group and its equity
accounted investees are eliminated to the extent of the Group’s
interest in these entities. Unrealised losses are also eliminated unless
the transaction provides evidence of an impairment of the asset
transferred. Accounting policies of equity accounted investees have
been aligned where necessary to ensure consistency with the policies
adopted by the Group.
(iv) Changes in ownership interests
When the Group ceases to equity account for an investment because
of a loss of joint control or significant influence, any retained interest
in the entity is remeasured to its fair value with the change in carrying
amount recognised in profit or loss. This fair value becomes the
initial carrying amount for the purposes of subsequently accounting
for the retained interest as a joint venture entity or financial asset. In
addition, any amounts previously recognised in other comprehensive
income in respect of that entity are accounted for as if the Group had
directly disposed of the related assets or liabilities. This may mean
that amounts previously recognised in other comprehensive income
are reclassified to profit or loss. The Group treats transactions with
non-controlling interests that do not result in a loss of control as
transactions with equity owners of the Group.
If the ownership interest in a joint venture entity or an associate is
reduced but joint control or significant influence is retained, only a
proportionate share of the amounts previously recognised in other
comprehensive income is reclassified to profit or loss where appropriate.
(d) Foreign currency translation
(i) Functional and presentation currencies
Items included in the financial statements of each of the Group’s
entities are measured using the currency of the primary economic
environment in which the entity operates (the functional currency). The
consolidated financial statements are presented in Australian dollars,
which is CHL’s and CHPT’s functional and presentation currency.
(ii) Transactions and balances
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at year end
exchange rates of monetary assets and liabilities denominated in
foreign currencies are recognised in the consolidated statement of
comprehensive income, except when they are deferred in equity as
qualifying cash flow hedges and qualifying net investment hedges or
are attributable to part of the net investment in a foreign operation.
Non-monetary items that are measured at fair value in a foreign
currency are translated using the exchange rates at the date when
the fair value was determined. Translation differences on assets and
liabilities carried at fair value are reported as part of the fair value
gain or loss.
(iii) Foreign operations
The results and financial position of foreign operations that have
a functional currency different from the presentation currency are
translated into the presentation currency as follows:
• assets and liabilities for each consolidated balance sheet
•
presented are translated at the closing rate at the date of that
consolidated balance sheet;
income and expenses for each income statement and
consolidated statement of comprehensive income are translated
at average exchange rates; and
• all resulting exchange differences are recognised in other
comprehensive income.
(iv) Foreign currency translation
On consolidation, exchange differences arising from the translation
of any net investment in foreign entities, and of borrowings and other
financial instruments designated as hedges of such investments,
are recognised in other comprehensive income. On disposal of
interests in foreign controlled entities, the cumulative foreign exchange
gains/losses relating to these investments are transferred to the
consolidated statement of comprehensive income in accordance
with the requirements of AASB 121 The Effect of Changes in Foreign
Exchange Rates.
55
Charter Hall Group Annual Report 2018 1 Summary of significant accounting
policies continued
(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:
Investment management revenue
(i)
Investment management fees are brought to account on an accruals
basis when the services have been performed and, if not received at
the reporting date, are reflected in the consolidated balance sheet as
a receivable.
Performance fees are only recognised when the services have
been performed and the amount can be reliably measured and it
is probable the performance fee criteria will be met.
Transaction fees are recognised when the services have been
performed and the fee can be reliably estimated.
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 and judgements in Note 2.
(ii) Property services revenue
Property services revenue is brought to account on an accruals basis
when the services have been performed and, if not received at the
reporting date, are reflected in the consolidated balance sheet as a
receivable.
Where property services revenue is derived in respect of an
acquisition or disposal of property, the revenue is recognised when
services have been performed and the fee can be reliably estimated.
(iii) Gross rental income
Gross rental income 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. The portion
of rental income relating to fixed increases in operating lease rentals
in future years is recognised as a separate component of investment
properties. Turnover rent is recognised on an accruals basis.
(iv) Recovery of property related expenses
Expense recoveries are brought to account on an accruals basis when
the services have been performed and, if not received at the reporting
date, are reflected in the consolidated balance sheet as a receivable.
Interest income
(v)
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 flows 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.
(vi) Distributions
Distributions are recognised as revenue when the right to receive
payment is established.
(vii) Other investment-related revenue
Other investment-related revenue represents amounts received in
relation to investment commitments and rebates relating to investments
and is recognised where the right to receive payment is established.
56
(f) 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. 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, any non-
controlling interest in the acquiree is recognised 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 acquirer’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.
(g) Income tax
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 Group’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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2018Charter Hall Group Annual Report 2018 Deferred tax liabilities and assets are not recognised for temporary
differences between the carrying amount and tax bases of
investments in controlled entities where the parent entity is able to
control the timing of the reversal of the temporary differences and it is
probable that the differences will not reverse in the foreseeable future.
Deferred tax assets and liabilities are offset when there is a legally
enforceable right to offset current tax assets and liabilities and when
the deferred tax balances relate to the same taxation authority.
Current tax assets and tax liabilities are offset where the entity has a
legally enforceable right to offset and intends either to settle on a net
basis, or to realise the asset and settle the liability simultaneously.
Current and deferred tax is recognised in profit or loss, except to
the extent that it relates 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.
(h) Impairment of assets
Assets are reviewed for impairment whenever 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 of disposal and
value-in-use. For the purposes of 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 that suffered impairment in prior years are reviewed for
possible reversal of the impairment at each reporting date.
(i) Cash and cash equivalents
For the purpose of presentation in the cash flow statement, 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 in the
consolidated balance sheet.
(j) Trade and other receivables
Trade and other 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 uncollectible are written off in the year
in which they are identified. A provision for doubtful debts is raised
where there is objective evidence that the Group will not collect all
amounts due. The amount of the provision is the difference between
the carrying amount and estimated future cash flows. Cash flows
relating to current receivables are not discounted.
(k) Non-current assets classified as held for sale
Non-current assets are classified as held for sale and carried as
current assets if their carrying amount will be recovered principally
through a sale transaction rather than through continuing use and a
sale is considered highly probable. They are measured at the lower
of their carrying amount and fair value less costs of disposal, except
for assets such as deferred tax assets and investment properties
carried at fair value.
An impairment loss is recognised for any initial or subsequent
write-down of the asset to fair value less costs of disposal. A gain is
recognised for any subsequent increases in fair value less costs of
disposal of an asset, but not in excess of any cumulative impairment
loss previously recognised. A gain or loss not previously recognised
by the date of the sale of the non-current asset is recognised at the
date of derecognition.
Non-current assets classified as held for sale are presented
separately from the other assets in the consolidated balance sheet.
The liabilities directly associated with assets classified as held
for sale are also presented separately from other liabilities in the
consolidated balance sheet.
(l) Derivative financial instruments
The Group uses derivatives to hedge its exposure to interest rates
and foreign currency on foreign denominated borrowings. Derivative
financial instruments are measured and recognised at fair value on a
recurring basis.
The accounting for subsequent changes in fair value depends on
whether the derivative is designated as a hedging instrument, and
if so, the nature of the item being hedged. The Group designates
certain derivatives as either fair value hedges or cash flow hedges.
Fair value hedges
The gain or loss relating to the effective portion of interest rate swaps
hedging fixed rate borrowings is recognised in profit or loss within
finance costs. Changes in the fair value of the hedged fixed rate
borrowings attributable to interest rate risk are recognised within ‘Net
gains/(losses) from derivative financial instruments’. The gain or loss
relating to the ineffective portion is also recognised in profit or loss
within ‘Net gains/(losses) from derivative financial instruments’.
Cash flow hedges
The effective portion of changes in the fair value of derivatives is
recognised in other comprehensive income and accumulated in
the cash flow hedge reserve in equity. The gain or loss relating to the
ineffective portion is recognised immediately in profit or loss within
‘Net gains/(losses) from derivative financial instruments’.
Amounts accumulated in equity are reclassified to profit or loss in the
periods when the hedged item affects profit or loss (for instance when
the forecast transaction that is hedged takes place). The gain or loss
relating to the effective portion of cross currency interest rate swaps
hedging fixed rate borrowings is recognised in profit or loss within
‘Finance costs’.
(m) Other financial assets
Classification
The Group classifies its other financial assets 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 trading. A financial asset held for trading is classified in this
category if acquired principally for the purpose of selling in the short
term. Derivatives are classified as held for trading unless they are
designated as hedges. Assets in this category are classified as current
assets if they are expected to be settled within 12 months; otherwise
they are classified as non-current.
57
Charter Hall Group Annual Report 2018 1 Summary of significant accounting
policies continued
(m) Other financial assets continued
Classification continued
(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.
(iii) Held to maturity investments
Held to maturity investments are non-derivative financial assets with
fixed or determinable payments and fixed maturities that 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-derivative financial assets 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 way 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 at fair value through profit or
loss are initially recognised at fair value and transaction costs are
expensed in the consolidated statement of comprehensive income.
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 distribution income, are presented in
the consolidated statement of comprehensive income in the year in
which they arise.
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(y) and Note 28.
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 consolidated statement of comprehensive
income – is removed from equity and recognised in the consolidated
statement of comprehensive income. Impairment losses recognised
in the consolidated statement of comprehensive income on equity
instruments classified as available for sale are not reversed through
the consolidated statement of comprehensive income.
(n) Plant and equipment
Plant and equipment is stated at historical cost less depreciation.
Historical cost includes expenditure that is directly attributable to the
acquisition of 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 consolidated
statement of comprehensive income 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
• Fixtures
• Software
3 to 10 years
5 to 10 years
3 to 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
consolidated statement of comprehensive income.
(o) Investment properties
Investment properties comprise investment interests in land and
buildings (including integral plant and equipment) held for the purpose
of producing rental income, including properties that are under
construction for future use as investment properties.
Initially, investment properties are measured at cost including
transaction costs. Subsequent to initial recognition, the investment
properties are stated at fair value. Fair value of investment property
is the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants at the
measurement date. The best evidence of fair value is given by current
prices in an active market for similar property in the same location and
condition. Gains and losses arising from changes in the fair values of
investment properties are included in the consolidated statement of
comprehensive income in the year in which they arise.
58
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2018Charter Hall Group Annual Report 2018
At each balance date, the fair values of the investment properties are
assessed by the Responsible Entity with reference to independent
valuation reports or through appropriate valuation techniques adopted
by the Responsible Entity. Specific circumstances of the owner
are not taken into account. Further information relating to valuation
techniques can be found in Note 28(d).
Where the terms of a financial liability are renegotiated and the
entity issues equity instruments to a creditor to extinguish all or part
of the liability (debt for equity swap), a gain or loss is recognised
in profit or loss, which is measured as the difference between the
carrying amount of the financial liability and the fair value of the equity
instruments issued.
Where the Group disposes of a property at fair value in an arm’s
length transaction, the carrying value immediately prior to the sale is
adjusted to the transaction price, and the adjustment is recorded in
the consolidated statement of comprehensive income within net fair
value gain/(loss) on investment property.
The carrying amount of investment properties recorded in the
consolidated balance sheet takes into consideration components
relating to lease incentives, leasing costs and fixed increases in
operating lease rentals in future years.
(p) Intangibles
Intangibles – indefinite life assets
(i)
Intangibles with no fixed life are not amortised as they have
an indefinite life. Intangibles with an indefinite life 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. Intangibles are allocated
to cash generating units for the purpose of impairment testing.
(ii) Management Rights – finite life assets
Management rights with a fixed life are amortised using the straight
line method over their useful life. Management rights of Charter Hall
Office Trust (CHOT) are amortised over nine years.
(q) Trade and other payables
Liabilities are recognised for amounts to be paid in the future for goods
and services received, whether or not billed to the Group. The amounts
are unsecured and are usually paid within 30 days of recognition.
Trade and other payables are presented as current liabilities unless
payment is not due within 12 months after the reporting period. They
are recognised initially at their fair value and subsequently measured at
amortised cost using the effective interest method.
(r) 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 consolidated
statement of comprehensive income over the period of the
borrowing using the effective interest rate method. Fees paid on
the establishment of loan facilities are recognised as transaction
costs of the loan to the extent that it is probable that some or all of
the facility will be drawn down unless there is an effective fair value
hedge of the borrowings, in which case a fair value adjustment will
be applied based on the mark to market movement in the benchmark
component of the borrowings and this movement is recognised
in profit or loss. If the facility has not been drawn down the fee is
capitalised as a prepayment and amortised over the period of the
facility to which it relates.
Borrowings are removed from the consolidated balance sheet when
the obligation specified in the contract is discharged, cancelled or
expired. The difference between the carrying amount of a financial
liability that has been extinguished or transferred to another party and
the consideration paid, including any non-cash assets transferred or
liabilities assumed, is recognised in profit or loss as other income or
finance costs.
59
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 period.
(s) Borrowing costs
Borrowing costs associated with the acquisition or construction of a
qualifying asset, including interest expense, are capitalised as part of
the cost of that asset during the period that is required to complete
and prepare the asset for its intended use. Borrowing costs not
associated with qualifying assets are expensed.
(t) Provisions
Provisions 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 can be reliably estimated. Provisions are not recognised
for future operating losses.
(u) 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 inclusive of GST. The net amount of
GST recoverable from or payable to the tax authority is included in
receivables or payables in the consolidated balance sheet.
Cash flows relating to GST are included in the consolidated statement of
cash flows 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.
(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 a
corporate bond rate 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.
Charter Hall Group Annual Report 2018 1 Summary of significant accounting
policies continued
(v) Employee benefits continued
(iv) Security-based benefits
Security-based compensation benefits are provided to employees via
the Charter Hall Performance Rights and Options Plan (PROP) and the
General Employee Security Plan (GESP). Information relating to these
schemes is set out in Note 36. For PROP, the fair value at grant date is
independently valued using a Monte Carlo simulation pricing model that
takes into account the exercise price, the term of the option, impact of
dilution, stapled security price at grant date, expected price volatility of
the underlying stapled security, expected dividend yield and the risk-free
interest rate for the term of the option and 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 stapled securities
that are expected to vest. At each reporting date, the entity revises
its estimate of the number of stapled securities that are expected to
vest. The employee benefits expense recognised each year takes into
account the most recent estimate.
Upon the vesting of stapled securities, the balance of the stapled
security-based benefits reserve relating to those stapled securities is
transferred to equity, net of any directly attributable transaction costs.
For GESP, eligible employees are entitled to receive up to $1,000 in
stapled securities based on the stapled security price on the grant
date. The cost of the stapled securities bought on market to settle the
award liability is included in employee benefits expense. The stapled
securities are held in trust on behalf of eligible employees until the
earlier of the completion of three years’ service or termination.
(v) Bonus plans
Charter Hall recognises a liability and an expense for amounts payable
to employees. Charter Hall 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 by the
Group before the normal retirement date, or when an employee accepts
voluntary redundancy in exchange for these benefits. The Group
recognises termination benefits at the earlier of the following dates:
(a) when the Group can no longer withdraw the offer of those benefits;
and
(b) when the entity recognises costs for a restructuring that is within
the scope of AASB 137 and involves the payment of termination
benefits. In the case of an offer made to encourage voluntary
redundancy, the termination benefits are measured based on the
number of employees expected to accept the offer. Benefits falling
due more than 12 months after the end of the reporting period are
discounted to present value.
(w) Contributed equity
Ordinary stapled securities are classified as equity. Incremental costs
directly attributable to the issue of new stapled securities or options
are shown in equity as a deduction, net of tax, from the proceeds.
(x) Distributions/dividends paid and payable
A liability is recognised for the amount of any distribution/dividend
declared by the Group on or before the end of the reporting period
but not paid at balance date.
(y) Fair value estimation
The fair value of financial assets and financial liabilities must be
estimated for recognition and measurement or for disclosure purposes.
A fair value measurement of a non-financial asset takes into account
the Group’s ability to generate economic benefits by using the asset in
its highest and best use or by selling it to another market participant
that would use the asset in its highest and best use.
The fair value of financial instruments traded in active markets is
determined using quoted market prices at the balance date. The
quoted market price used for financial assets held by the Group is
the current bid price; the appropriate quoted market price for financial
liabilities is the current ask price.
The fair value of financial instruments that are not traded in an active
market is determined using valuation techniques. The Group uses a
variety of methods and makes assumptions that are based on market
conditions existing at each balance date. Other techniques, such as
estimated discounted cash flows, are used to determine fair value for
the remaining financial instruments.
The fair value of cross currency interest rate swaps is determined
using forward foreign exchange market rates and the present value
of the estimated future cash flows at the balance date.
Certain unlisted property securities have been designated on initial
recognition to be treated at fair value through profit or loss. Movements
in fair value during the period have been recognised in the consolidated
statement of comprehensive income. These assets have been acquired
with the intention of being long-term investments. Where the assets
in this category are expected to be sold within 12 months, they are
classified as current assets; otherwise they are classified as non-current.
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.
(z) Earnings per stapled security
Basic earnings per stapled security is determined by dividing profit
attributable to the stapled securityholders by the weighted average
number of ordinary stapled securities on issue during the year.
Basic earnings per stapled security is determined by dividing the profit
by the weighted average number of ordinary stapled securities on
issue during the year.
Diluted earnings per stapled security is determined by dividing profit
attributable to the stapled securityholders by the weighted average
number of ordinary stapled securities and dilutive potential ordinary
stapled securities on issue during the year.
Diluted earnings per stapled security is determined by dividing the
profit by the weighted average number of ordinary stapled securities
and potential ordinary stapled securities on issue during the year.
(aa) Parent entity financial information
The financial information for the parent entity of the Charter Hall
Group, Charter Hall Limited, and for the parent entity of the Charter
Hall Property Trust Group, Charter Hall Property Trust, disclosed
in Note 37, has been prepared on the same basis as the Group’s
financial statements except as set out below:
60
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2018Charter Hall Group Annual Report 2018 Investments in controlled entities
(i)
Investments in controlled entities, associates and joint ventures are
accounted for at cost or fair value through profit or loss in the financial
statements of the parent entity. Such investments include both
investments in equity securities issued by the controlled entity and
other parent entity interests that in substance form part of the parent
entity’s investment in the controlled entity. These include investments
in the form of interest-free loans which have no fixed contractual term
and which have been provided to the controlled entity as an additional
source of long-term capital.
Dividends and distributions received from controlled entities,
associates and joint ventures are recognised in the parent entity’s
statement of comprehensive income, rather than deducted from
the carrying amount of these investments.
(ii) 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.
(iii) Recoverable amount of assets
The carrying amounts of investments in controlled entities, associates
and joint ventures valued on the cost basis are reviewed to determine
whether they are in excess of their recoverable amount at balance
date. If the carrying value exceeds their recoverable amount, the
assets are written down to the lower value. The write-down is
expensed in the year in which it occurs.
(iv) 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 standalone
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 a tax funding agreement 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 6.
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.
(ab) Impact of new standards and interpretations issued but
not yet adopted by the Group
Certain new accounting standards and interpretations have been
published that are not mandatory for the year ended 30 June 2018 but
are available for early adoption. The impact of these new standards and
interpretations (to the extent relevant to the Group) is set out below:
(i) AASB 9 Financial Instruments (applicable for financial
periods starting on or after 1 January 2018)
AASB 9 addresses the recognition, classification, measurement and
derecognition of financial assets and liabilities and sets out new rules
for hedge accounting.
The Group has reviewed its financial assets and liabilities and is not
expecting significant impacts from the adoption of the new standard
on 1 July 2018:
• equity investments currently measured at fair value through profit
or loss (FVPL) will continue to be measured on the same basis
under AASB 9, and
• debt instruments currently classified as held-to-maturity and
measured at amortised cost meet the conditions for classification
at amortised cost under AASB 9.
There will be no impact on the Group’s accounting for financial
liabilities, as the new requirements only affect the accounting for
financial liabilities that are designated at fair value through profit or loss
and the Group does not have any such liabilities. The derecognition
rules have been transferred from AASB 139 Financial Instruments:
Recognition and Measurement and have not been changed.
The new impairment model requires the recognition of impairment
provisions based on expected credit losses (ECL) rather than only
incurred credit losses as is the case under AASB 139. It applies
to financial assets classified at amortised cost, contract assets
under AASB 15 Revenue from Contracts with Customers, loan
commitments and certain financial guarantee contracts. Based on its
assessments undertaken to date, management does not expect any
additional material loss allowance relating to any of its financial assets
to be recognised on initial adoption of AASB 9.
The Group’s current hedge relationship for its cross-currency interest
rate swaps will continue under AASB 9.
The new standard also introduces expanded disclosure requirements
and changes in presentation. These are expected to change the nature
and extent of the Group’s disclosures about its financial instruments
particularly in the year of the adoption of the new standard.
The Group will apply the new standard retrospectively from
1 July 2018, with the practical expedients permitted under the
standard. Comparatives for 2018 will not be restated.
(ii) AASB 15 Revenue from Contracts with Customers
(applicable for financial periods starting on or after
1 January 2018)
The standard is based on the principle that revenue is recognised
when control of a good or service is transferred to a customer, so the
notion of control replaces the notion of risks and rewards. It applies to
all contracts with customers, excluding leases, financial instruments
and insurance contracts.
AASB 15 requires reporting entities to provide users of financial
statements with more informative, relevant disclosures. The Group
has assessed the effects of applying the new standard on the Group’s
financial statements and has not identified any material changes in the
pattern of revenue recognition. The AASB 15 requirement to present
contract assets and contract liabilities separately in the balance sheet, will
result in the reclassification of any accrued performance fees from trade
and other receivables to contract assets in the Group’s balance sheet.
The Group will adopt the standard in the financial year beginning
1 July 2018, applying the modified retrospective approach which will
not require the restatement of comparatives. The Group does not
expect any material adjustment to retained earnings as a result of
adopting AASB 15.
61
Charter Hall Group Annual Report 2018 1 Summary of significant accounting
policies continued
(ab) Impact of new standards and interpretations issued
but not yet adopted by the Group
(iii) AASB 16 Leases (applicable for financial periods starting
on or after 1 January 2019 – early adoption allowed if AASB
15 is adopted at the same time)
The standard will affect primarily the accounting by lessees and will
result in the recognition of almost all leases on balance sheet. The
standard removes the current distinction between operating and
financing leases and requires recognition of an asset and liability in
relation to most operating leases. The income statement will also be
affected because the total expense is typically higher in the earlier
years of a lease and lower in later years. Additionally, operating
expense will be replaced with interest and depreciation, so key
financial metrics may change. The accounting by lessors will not
significantly change. Management’s assessment identified that the
impact on the Group’s office operating lease commitments will be the
recognition of a right-of-use asset and a corresponding lease liability,
Management is progressing with its transition plans.
(ac) Comparative information
Where necessary, comparative information has been adjusted to
conform with changes in presentation in the current year.
(ad) Rounding of amounts
Under the option provided by ASIC Corporations (Rounding in Financial/
Directors’ Reports) Instrument 2016/191 issued by the Australian
Securities and Investments Commission relating to the ‘rounding off’
of amounts in the financial statements, amounts in the Company and
the Trust’s consolidated financial statements have been rounded to the
nearest hundred thousand in accordance with that ASIC Corporations
Instrument, unless otherwise indicated.
2 Critical accounting estimates and
judgements
The Charter Hall Group and Charter Hall Property Trust Group make
estimates and assumptions concerning the future. 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. 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:
(a) Classification and carrying value of investments
The Group controls an entity when the Group is exposed to, or has
rights to, variable returns from its involvement with the entity and has the
ability to affect those returns through its power over the entity. Critical
judgements are made in assessing whether an investee entity is controlled
or subject to significant influence or joint control. These judgements
include an assessment of the nature, extent and financial effects of the
Group’s interest in investee entities, including the nature and effects of its
contractual relationship with the entity or with other investors.
Investments in associates are accounted for at either fair value
through profit or loss (CHPT only) or by using the equity method
(CHPT and CHL). CHPT designates investments in associates as
fair value through profit or loss or equity accounted on a case by
case basis taking the investment strategy into consideration.
Management regularly reviews equity accounted investments for
impairment and remeasures investments carried at fair value through
profit or loss by reference to changes in circumstances or contractual
arrangements, external independent property valuations and market
conditions, using generally accepted market practices. When a
recoverable amount is estimated through a value in use calculation,
critical judgements and estimates are made regarding future cash
flows and an appropriate discount rate. When a fair value is estimated
through an earnings valuation, critical judgements and estimates are
made in relation to the earnings measure and appropriate multiple.
(b) Performance fee recognition
Critical judgements and estimates are made by the Group in respect
of recognising performance fee revenue. Performance fees are
only recognised when services have been performed and they can
be reliably estimated and are probable. Detailed calculations are
completed and the risks associated with the fee are assessed when
deciding when it is appropriate to recognise revenue. Key risks
include the period remaining from balance sheet date to performance
fee crystallisation date and the degree of probability that any potential
fee may unwind during that period. Key drivers of performance
fees are assessed based on historic data and prevailing economic
conditions to inform judgements on the extent to which the fee can
be reliably estimated.
(c) Intangible assets
Critical judgements and estimates are made by the Group in assessing
the recoverable amount of intangibles acquired, where the funds to
which those intangibles relate have an indefinite life. Intangibles are
considered to have 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. Refer to Note 15 for further details.
Critical judgements are also made in assessing the manner in which
the cost of indefinite life intangible assets is expected to be recovered
and in recognising a corresponding deferred tax liability.
(d) Deferred tax assets
Critical judgements and accounting estimates are made in
assessing the extent to which the utilisation of tax losses carried
forward is considered probable and the corresponding deferred tax
asset recognised.
3 Segment information
(a) Description of segments
Charter Hall Property Trust Group
The Board allocates resources and assesses the performance of
operating segments for the entire Charter Hall Group. Results are not
separately identified and reported according to the legal structure of
the Charter Hall Group and therefore segment information for CHPT is
not prepared and provided to the chief operating decision maker.
62
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2018Charter Hall Group Annual Report 2018 Charter Hall Group
Management has determined the operating segments based on
the reports reviewed by the Board that are used to make strategic
decisions. The Board is responsible for allocating resources and
assessing performance of the operating segments.
Operating earnings is a financial measure which represents statutory
profit after tax adjusted for proportionately consolidated fair value
adjustments, gains or losses on sale of investments, amortisation
and/or impairment of intangible assets, performance fee expenses,
non-operating tax expense and other unrealised or one-off items.
Operating earnings is the primary measure of the Group’s underlying
and recurring earnings from its operations. Operating earnings is used
by the Board to make strategic decisions and as a guide to assessing
an appropriate distribution to declare.
Segment operating earnings reviewed by the Board ceased to include
the gross up of proportionately consolidated income and expenses.
This focus has been reflected in an update to the tables in this note,
including restating the comparatives. It should be noted that this
change did not impact the segment operating earnings reported
from previous periods.
The Board has identified the following two reportable segments,
the performance of which it monitors separately.
Property Investments
This segment comprises investments in property funds.
Property Funds Management
This segment comprises investment management services and
property management services.
(b) Operating segments
The operating segments provided to the Board for the reportable segments for the year ended 30 June 2018 are as follows:
30 June 2018
Property Investment earnings
Investment management revenue
Property services revenue
Total income
Net operating expenses
Corporate expenses
EBITDA
Depreciation
Net interest income
Operating earnings before tax
Income tax expense
Operating earnings attributable to stapled securityholders
Basic weighted average number of securities (‘m)
Operating earnings per stapled security (cents)
30 June 2017 – Restated
Property Investment earnings
Investment management revenue
Property services revenue
Total income
Net operating expenses
Corporate expenses
EBITDA
Depreciation
Net interest income
Operating earnings before tax
Income tax expense
Operating earnings attributable to stapled securityholders
Basic weighted average number of securities (‘m)
Operating earnings per stapled security (cents)
Refer to Note 8 for statutory earnings per stapled security figures.
63
Property
Investments
$’m
Property
Funds
Management
$’m
103.8
–
–
103.8
(1.0)
–
102.8
–
1.1
103.9
–
103.9
–
144.3
56.7
201.0
(71.6)
(27.0)
102.4
(3.5)
–
98.9
(27.0)
71.9
Property
Investments
$’m
Property
Funds
Management
$’m
84.8
–
–
84.8
(1.0)
–
83.8
–
1.2
85.0
–
85.0
–
131.7
46.8
178.5
(65.1)
(24.2)
89.2
(3.5)
–
85.7
(19.5)
66.2
Total
$’m
103.8
144.3
56.7
304.8
(72.6)
(27.0)
205.2
(3.5)
1.1
202.8
(27.0)
175.8
465.8
37.7
Total
$’m
84.8
131.7
46.8
263.3
(66.1)
(24.2)
173.0
(3.5)
1.2
170.7
(19.5)
151.2
420.8
35.9
Charter Hall Group Annual Report 2018 3 Segment information continued
(c) The reconciliation of operating earnings to statutory profit after tax attributable to stapled securityholders
is shown below:
Operating earnings attributable to stapled securityholders
Realised and unrealised gains on derivatives1
Net fair value movements on equity accounted investments1
Amortisation of intangibles
Reversal/(impairment) of investment in joint venture
Non-operating income tax benefit/(expense)
Gain/(loss) on disposal of property investments1
Performance fees expense1
Other1
Statutory profit after tax attributable to stapled securityholders
2018
$’m
175.8
(2.5)
98.4
(2.7)
7.3
0.5
(1.5)
(16.5)
(8.6)
250.2
2017
$’m
151.2
8.2
118.3
(4.3)
(10.5)
(4.1)
3.9
–
(5.1)
257.6
1 Includes the Group’s proportionate share of non-operating items of equity accounted investments on a look through basis.
(d) Reconciliation of operating earnings from the property investments segment to the share of net profit of investments
accounted for using the equity method and the net gain on investment in associates at fair value in the statement of
comprehensive income
Operating earnings – investments
Add: non-operating equity accounted profit
Less: distributions in operating income
Add: net gain on investment in associates at fair value
Add: net operating expenses
Less: net interest income
Less: net rental income
Share of net profit of investments accounted for using the equity method
Net gain/(loss) on investment in associates at fair value
2018
$’m
103.9
70.7
(2.2)
1.4
1.0
(1.1)
(3.2)
170.5
169.1
1.4
170.5
(e) Reconciliation of property funds management income stated above to revenue per the statement of
comprehensive income
Property funds management revenue
Add: recovery of property and fund-related expenses
Add: interest income
Add: distributions received for investments accounted for at fair value
Add: rental income
Revenue per statement of comprehensive income
Geographical segments are immaterial as the vast majority of the Group’s income is from Australian sources. Assets and liabilities have not been
reported on a segmented basis as the Board is focused on the consolidated balance sheet.
64
2017
$’m
85.0
122.8
(0.4)
–
1.0
(1.2)
–
207.2
207.2
–
207.2
2017
$’m
178.5
31.7
2.7
0.4
0.1
2018
$’m
201.0
33.6
4.0
2.2
5.4
246.2
213.4
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2018Charter Hall Group Annual Report 2018 4 Revenue
Gross rental income
Investment management revenue1
Property services revenue1
Other revenue
Recovery of property and fund-related expenses
Interest
Distributions/Dividends2
Other investment-related revenue
Total other revenue
Total revenue3
Charter Hall Group
Charter Hall Property
Trust Group
2018
$’m
5.4
144.3
56.7
206.4
33.6
4.0
2.2
–
39.8
2017
$’m
0.1
131.7
46.8
178.6
31.8
2.7
0.3
–
34.8
246.2
213.4
2018
$’m
5.4
–
–
5.4
–
4.2
3.1
11.6
18.9
24.3
2017
$’m
0.1
–
–
0.1
–
9.0
0.4
10.2
19.6
19.7
1 Revenue from the Group’s property and funds management business is categorised into the two main lines of operations being investment management and property services.
2 Represents the distribution of income from investments in associates accounted for at fair value by the Group and Charter Hall Property Trust Group.
3 Revenue excludes share of net profits of equity accounted associates and joint ventures.
5 Expenses
Charter Hall Group
Charter Hall Property
Trust Group
2018
$’m
2017
$’m
2018
$’m
2017
$’m
Profit before income tax includes the following specific expenses:
Depreciation
Plant and equipment
Impairment of investments
(Reversal)/impairment of investments
Amortisation and impairment of intangibles
Intangibles – amortisation
Intangibles – reversal of impairment
Total amortisation and impairment
Finance costs
Interest and finance charges paid/payable
Net losses from derivative financial instruments
Loss on derivative financial instruments designated
as a fair value hedge – unrealised
Employee costs
Employee benefit expenses
Restructuring costs
Security-based benefits expense
Payroll tax
Total employee costs
Administration and other expenses
Advertising, marketing and promotion
Occupancy costs
Accounting, professional and other costs
Communication and IT expenses
Administration expenses
Total administration and other expenses
3.5
3.5
(7.3)
10.5
2.7
–
2.7
3.2
0.3
101.6
1.3
1.7
6.3
110.9
3.0
3.5
6.4
6.0
5.2
5.1
(0.8)
4.3
1.5
–
94.5
0.3
1.4
4.7
100.9
2.8
3.3
5.4
5.5
4.2
24.1
21.2
65
–
–
–
–
–
3.5
0.3
–
–
–
–
–
–
–
0.3
0.1
0.1
0.5
–
–
–
–
–
1.3
–
–
–
–
–
–
0.1
0.1
Charter Hall Group Annual Report 2018 6 Income tax expense
(a) Income tax expense
Current tax expense
Deferred income tax expense
Under provided in prior years
Deferred income tax expense
(Increase)/decrease in deferred tax assets
for the tax consolidated group
Increase in deferred tax liabilities for the tax consolidated group
Increase in deferred tax assets for entities outside the tax
consolidated group
(b) Reconciliation of income tax expense/(benefit) to
prima facie tax payable
Profit before income tax expense
Prima facie tax expense at the Australian tax rate of 30%
Tax effect of amounts which are not deductible/(taxable)
in calculating taxable income:
Charter Hall Property Trust income
Non-allowable expenses
Other allowable deductions
Foreign losses not recognised
Sundry items
Non-taxable dividends, net of equity accounted profit
(Reversal)/impairment of equity accounted investment
Recognition of deferred tax asset on previously unrecognised
income tax losses
Income sheltered by previously unrecognised losses in subsidiary
outside of the tax consolidated group
Amounts under provided in respect of prior years
Income tax expense
(c) Amounts recognised directly in equity
Aggregate current and deferred tax arising in the reporting period
and not recognised in net profit or loss or other comprehensive
income but directly debited or credited to equity:
Current tax: Deduction for rights vesting in excess of the
cumulative fair value expense
Deferred tax: Estimated future deduction for rights vesting, in
excess of the cumulative fair value expense
Deferred tax: Unwind of deferred tax assets on rights which failed
to meet vesting conditions
Note
17
17
17
Charter Hall Group
2018
$’m
25.6
0.6
0.3
26.5
(1.1)
1.7
–
0.6
2017
$’m
19.5
4.1
–
23.6
0.8
4.9
(1.6)
4.1
Charter Hall Property
Trust Group
2018
$’m
2017
$’m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
277.7
83.3
281.2
84.3
176.2
53.0
218.0
65.4
(53.0)
0.2
(0.1)
0.1
–
(1.0)
(2.2)
–
(1.0)
0.2
26.5
(1.1)
(0.3)
–
(1.4)
(65.4)
0.1
(0.1)
0.1
(0.1)
(1.2)
3.1
(1.6)
(0.3)
4.7
23.6
(0.9)
(1.7)
0.4
(2.2)
(53.0)
–
–
–
–
–
–
(65.4)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
66
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2018Charter Hall Group Annual Report 2018 (d) Tax consolidation legislation
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(g).
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.
(e) Charter Hall Property Trust
Under current Australian income tax legislation, the Trust is not liable for income tax on its taxable income (including any assessable component
of capital gains) provided that the unitholders are presently entitled to the income of the Trust.
(f) Tax losses – Charter Hall Group
At 30 June 2018, the Group has approximately $12.5 million (2017: $13.6 million) of tax effected unrecognised income tax losses.
At 30 June 2018, the Group has approximately $12.7 million (2017: $13.0 million) of tax effected unrecognised capital tax losses.
7 Distributions/Dividends paid and payable
Ordinary stapled securities
Final ordinary dividend of 5.5 cents and ordinary distribution of 10.7 cents per
stapled security for the six months ended 30 June 2018 payable on
31 August 2018
Interim ordinary dividend of 6.2 cents and interim ordinary distribution
of 9.4 cents per stapled security for the six months ended 31 December 2017
paid on 28 February 2018
Final ordinary distribution for the six months ended 30 June 2017
of 15.6 cents per stapled security paid on 31 August 2017
Interim ordinary distribution for the six months ended 31 December 2016
of 14.4 cents per stapled security paid on 28 February 2017
Total distributions/dividends paid and payable to stapled securityholders
Distributions paid and payable to DCSF non-controlling interests
Total distributions/dividends paid and payable
Charter Hall Group
Charter Hall Property
Trust Group
2018
$’m
2017
$’m
2018
$’m
2017
$’m
75.5
72.6
–
–
148.1
0.8
148.9
–
–
72.7
59.4
132.1
–
132.1
49.8
43.8
–
–
93.6
0.8
94.4
–
–
72.7
59.4
132.1
–
132.1
Franking credits available in the parent entity (Charter Hall Limited) for dividends payable in subsequent financial years based on a tax rate of
30% (2017: 30%) are $35.7 million (2017: $29.0 million). These amounts are calculated from the balance of the franking account as at the end
of the reporting period, adjusted for franking credits and debits that will arise from the settlement of liabilities or receivables for income tax and
dividends after the end of the year.
67
Charter Hall Group Annual Report 2018 8 Earnings per stapled security
(a) Basic earnings per security attributable to:
Equity holders of Charter Hall Limited
Equity holders of Charter Hall Property Trust (non-controlling interest)
Stapled securityholders of Charter Hall Group
(b) Diluted earnings per security attributable to:
Equity holders of Charter Hall Limited
Equity holders of Charter Hall Property Trust (non-controlling interest)
Stapled securityholders of Charter Hall Group
Charter Hall Group
Charter Hall Property
Trust Group
2018
Cents
2017
Cents
2018
Cents
2017
Cents
16.1
37.6
53.7
16.0
37.4
53.4
2018
$’m
9.4
51.8
61.2
9.3
51.4
60.7
2017
$’m
n/a
37.6
n/a
n/a
37.4
n/a
2018
$’m
n/a
51.8
n/a
n/a
51.4
n/a
2017
$’m
(c)
Reconciliations of earnings used in calculating earnings
per stapled security
Equity holders of Charter Hall Limited
75.0
39.6
n/a
n/a
Profit attributable to the ordinary stapled securityholders of the Group
used in calculating basic and diluted earnings per stapled security
250.2
257.6
175.2
218.0
(d) Weighted average number of stapled securities
used as the denominator
Weighted average number of ordinary stapled securities used as
the denominator in calculating basic earnings per stapled security
Adjustments for calculation of diluted earnings per stapled security:
Performance rights
Service rights
Weighted average number of ordinary stapled securities and potential ordinary
stapled securities used as the denominator in calculating diluted earnings per
stapled security
(e) Information concerning the classification of securities
2018
Number
2017
Number
2018
Number
2017
Number
465,777,131 420,838,262 465,777,131 420,838,262
2,381,990
420,802
2,881,070
546,854
2,381,990
420,802
2,881,070
546,854
468,579,923 424,266,186 468,579,923 424,266,186
Performance rights, service rights issued under the Charter Hall Performance Rights and Options Plan
The performance and service rights are unquoted securities. Conversion to stapled securities and vesting to executives is subject to
performance and/or service conditions.
Stapled securities issued under the General Employee Securities Plan (GESP)
Stapled securities issued under the GESP are purchased on market on behalf of eligible employees but held in trust until the earlier of the
completion of three years’ service or termination. No adjustment to diluted earnings per stapled security is required under the GESP.
9 Cash and cash equivalents
Cash at bank and on hand
Charter Hall Group
2018
$’m
94.9
2017
$’m
174.4
Charter Hall Property
Trust Group
2018
$’m
32.8
2017
$’m
53.4
These amounts earn fixed and floating interest rates of between 1.6% and 1.8% (2017: 1.6% and 2.5%).
68
DIRECTORS’ REPORTFOR THE YEAR ENDED 30 JUNE 2018Charter Hall Group Annual Report 2018 10 Receivables and other assets
Current
Trade receivables
Loans to joint ventures
Loans to associates
Distributions receivable
Other receivables
Prepayments
Non-current
Loan receivable from Charter Hall Limited
Note
29(e)
29(e)
Charter Hall Group
Charter Hall Property
Trust Group
2018
$’m
29.7
25.8
–
41.0
1.7
0.7
98.9
–
–
2017
$’m
27.9
8.5
0.8
27.4
0.9
0.7
66.2
–
–
2018
$’m
5.9
16.3
–
27.4
0.8
–
50.4
–
–
2017
$’m
2.7
–
0.8
26.3
0.1
–
29.9
73.2
73.2
(a) Bad and doubtful trade receivables
During the year, the Charter Hall Group and Charter Hall Property Trust Group incurred $nil expense (2017: $nil) in respect of provisioning for
bad and doubtful trade receivables.
(b) Fair values
Receivables are carried at amounts that approximate their fair value.
(c) Credit risk
There is a limited concentration of credit risk as the majority of current and non-current receivables are due from related parties of Charter Hall
Group and Charter Hall Property Trust Group. Refer to Note 27 for more information on the risk management policy of the Charter Hall Group
and Charter Hall Property Trust Group.
The ageing of trade receivables at the reporting date was as follows:
Current
1 to 3 months
3 to 6 months
More than 6 months
Charter Hall Group
Charter Hall Property
Trust Group
2018
$’m
29.7
–
–
–
29.7
2017
$’m
27.8
–
0.1
–
27.9
2018
$’m
5.9
–
–
–
5.9
2017
$’m
2.7
–
–
–
2.7
As at 30 June 2018, Charter Hall Group had trade receivables of $nil (2017: $0.1 million) past due but not impaired. Charter Hall Property Trust
had $nil receivables past due (2017: $nil).
11 Assets classified as held for sale
In June 2018, the Group’s interest in Commercial and Industrial Property Pty Ltd (CIP), a property development company, met the criteria to be
reclassified as a held for sale asset. Immediately prior to the reclassification, $7.3 million of accumulated impairment losses were reversed to
reflect its fair value less costs to sell.
CIP
Charter Hall Group
Charter Hall Property
Trust Group
2018
$’m
17.7
2017
$’m
–
2018
$’m
–
2017
$’m
–
Valuation basis
Assets held for sale are carried at the lower of book value and fair value less costs to sell, representing the amount at which the assets could be
exchanged between a knowledgeable willing buyer and a knowledgeable willing seller in an arm’s length transaction at the date of valuation.
69
Charter Hall Group Annual Report 2018 12 Derivative financial instruments
Non-current liabilities
Cross currency interest rate swaps
Charter Hall Group
Charter Hall Property
Trust Group
2018
$’m
1.4
2017
$’m
2018
$’m
2017
$’m
–
1.4
–
Cross currency interest rate swaps
In May 2018, the Group entered into A$/US$ cross currency interest rate swap agreements that hedge the Group’s exposure to foreign currency
and interest rate fluctuations arising from a US Private Placement (USPP) note issuance to be funded in August 2018. The swap agreements entitle
the Group to receive interest, at semi-annual intervals, at a fixed rate on a notional principal amount of US$175.0 million and oblige it to pay, at
quarterly intervals, at a floating rate on a notional principal amount of A$231.5 million. The swap agreements mature in May 2028.
13 Investments accounted for using the equity method
Investments in associates
Investments in joint venture entities
Charter Hall Group
Charter Hall Property
Trust Group
Note
31
32
2018
$’m
1,336.6
280.5
1,617.1
2017
$’m
1,218.1
258.5
1,476.6
2018
$’m
1,262.8
280.5
1,543.3
2017
$’m
1,147.3
239.0
1,386.3
Investments in associates represent units in listed and unlisted Charter Hall managed funds which are accounted for using the equity method.
Refer to Note 31(a) for carrying value of investments in associates. Investments in joint venture entities represent joint venture interests in
Australia which are accounted for using the equity method. Refer to Note 32(a) for carrying value of investments in joint venture entities.
14 Investment properties
The Group’s controlled entity investment fund, Charter Hall Direct Diversified Consumer Staples Fund, has a portfolio of investment properties
which are consolidated into the Group’s balance sheet.
A reconciliation of the carrying amount of investment properties at the beginning and end of the year is set out below:
Opening balance
Additions
Acquisition costs incurred
Revaluation decrement attributable to acquisition costs
Gain/(loss) on property revaluation
Straightlining of rental income
Disposals
Closing balance
Charter Hall Group
Charter Hall Property
Trust Group
2018
$’m
40.4
27.5
1.4
(1.4)
0.7
0.3
(5.5)
63.4
2017
$’m
–
108.3
–
–
(0.7)
–
(67.2)
40.4
2018
$’m
40.4
27.5
1.4
(1.4)
0.7
0.3
(5.5)
63.4
2017
$’m
–
41.1
–
–
(0.7)
–
–
40.4
Key valuation assumptions used in the determination of the investment properties’ fair value and the Group’s valuation policy are disclosed in
Note 28.
Leasing arrangements
The investment properties, excluding development properties, are leased to tenants under long-term operating leases with rentals payable
monthly. Minimum lease payments under non-cancellable operating leases of investment properties not recognised in the financial statements
are receivable as follows:
70
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2018Charter Hall Group Annual Report 2018 Due within one year
Due between one and five years
Over five years
Charter Hall Group
Charter Hall Property
Trust Group
2018
$’m
4.4
17.8
20.0
42.2
2017
$’m
2.4
7.2
12.7
22.3
2018
$’m
4.4
17.8
20.0
42.2
2017
$’m
2.4
7.2
12.7
22.3
15 Intangible assets
In March 2010, the Charter Hall Group completed a transaction to acquire the majority of Macquarie Group’s core real estate management
platform. This transaction was structured to secure the management rights (i.e. future management fee revenue) of Macquarie Office Trust (now
Charter Hall Office Trust), Macquarie CountryWide Trust (now Charter Hall Retail REIT) and Macquarie Direct Property Fund (now Charter Hall
Direct Office Fund). The excess of consideration paid over net tangible assets acquired represents the value of these management rights.
With the exception of management rights held over Charter Hall Office Trust (CHOT), management considers that the management rights have
an indefinite life as there are no finite terms in the underlying agreements and the Charter Hall Group has no intention to cease managing these
funds. On 1 May 2012, Charter Hall Office REIT (CQO) was privatised and CQO changed from a listed REIT to a wholesale unit trust (CHOT)
with liquidity reviews every five years. In November 2016, CHOT’s investors agreed to extend the life of the fund by three years to 30 April 2020.
The amortisation period for the CHOT management rights has also been extended prospectively by three years. The Group is amortising the
associated intangible assets over a nine year period from 1 May 2012, which includes an additional year to source liquidity were the fund to be
wound up as a result of a liquidity review.
On 15 August 2012, a subsidiary of the Group paid the previous manager of Charter Hall Direct PFA Fund (PFA) to facilitate the appointment of
a Group subsidiary as the responsible entity of PFA. As PFA is an open ended fund with no termination date or review event contemplated in its
constitution, these facilitation payments have been treated as an intangible asset which is considered to have an indefinite useful life.
Indefinite life intangibles
Charter Hall Retail REIT
Opening and closing balance
Charter Hall Direct Office Fund
Opening and closing balance
Charter Hall Direct PFA Fund
Opening balance
Reversal of impairment
Closing balance
Total indefinite life intangibles
Finite life intangibles
Charter Hall Office Trust
Opening balance
Amortisation charge
Closing balance
At balance date
Cost
Accumulated amortisation
Total finite life intangibles
Total intangible assets
Charter Hall Group
Charter Hall Property
Trust Group
2018
$’m
2017
$’m
2018
$’m
2017
$’m
42.3
42.3
7.4
5.2
–
5.2
7.4
4.4
0.8
5.2
54.9
54.9
10.5
(2.7)
7.8
50.3
(42.5)
7.8
62.7
15.6
(5.1)
10.5
50.3
(39.8)
10.5
65.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
71
Charter Hall Group Annual Report 2018 15 Intangible assets continued
All indefinite life intangible assets recognised on the consolidated balance sheet are subject to an annual impairment assessment. The impairment
assessments support the carrying values and the methodology applied is an assessment of value in use based on discounted cash flows.
Key assumptions used for the indefinite life intangible impairment calculations are as follows:
• cash flow projections covering a three year period based on financial budgets approved by management. Cash flows beyond the three year
period are extrapolated using estimated growth rates appropriate for the business;
• pre-tax discount rate range of 14–16% (2017: 14–16%) which is in excess of the Group’s weighted average cost of capital;
• growth after three years of 2–3% (2017: 2–3%) per annum; and
• terminal value multiple of 7.0–8.0 times earnings (2017: 7.0–8.0 times).
Impairment is tested at the cash generating unit (CGU) level being each fund which generates management fee income.
16 Property, plant and equipment
Opening net book amount
Additions
Depreciation charge
Closing net book amount
At balance date
Cost
Accumulated depreciation
Net book amount
17 Deferred tax assets and liabilities
Deferred tax assets comprises temporary differences attributable to:
Tax losses carried forward1
Deferred tax assets comprises temporary differences attributable to:
Employee benefits
Other
Deferred tax liabilities comprises temporary differences attributable to:
Intangible assets
Investment in associates
Other
Charter Hall Group
2018
$’m
18.8
5.6
(3.5)
20.9
33.4
(12.5)
20.9
2017
$’m
14.9
7.4
(3.5)
18.8
29.3
(10.5)
18.8
Charter Hall Group
2018
$’m
1.6
12.9
0.9
13.8
17.2
8.1
2.5
27.8
2017
$’m
1.6
11.9
0.5
12.4
18.1
6.4
1.6
26.1
Net deferred tax liabilities
(14.0)
(13.7)
Charter Hall Property
Trust Group
2018
$’m
2017
$’m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Charter Hall Property
Trust Group
2018
$’m
2017
$’m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1 Tax losses carried forward in 2017 were acquired following the acquisition of Charter Hall Opportunity Fund No. 5 (CHOF5) as a wholly owned entity. CHOF5 does not form
part of the Charter Hall tax consolidated group and therefore is not included in the net deferred tax liability balance on the balance sheet.
72
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2018Charter Hall Group Annual Report 2018 A reconciliation of the carrying amount of deferred tax assets for the tax consolidated group at the beginning and end of the current and
previous years is set out below:
Charter Hall Group
Balance at 1 July 2016
(Charged)/credited to income statement
(Charged)/credited to directly to equity
Balance at 30 June 2017
(Charged)/credited to income statement
(Charged)/credited directly to equity
Balance at 30 June 2018
Note
6
6
Tax losses
carried
forward
$’m
Employee
benefits
$’m
1.5
(1.5)
–
–
–
–
–
9.1
1.5
1.3
11.9
0.7
0.3
12.9
Other
$’m
1.3
(0.8)
–
0.5
0.4
–
0.9
Total
$’m
11.9
(0.8)
1.3
12.4
1.1
0.3
13.8
A reconciliation of the carrying amount of deferred tax liabilities for the tax consolidated group at the beginning and end of the current and
previous years is set out below:
Note
6
6
Intangible
assets
$’m
Investment
in associate
$’m
14.9
3.2
18.1
(0.9)
17.2
5.4
1.0
6.4
1.7
8.1
Other
$’m
0.9
0.7
1.6
0.9
2.5
Total
$’m
21.2
4.9
26.1
1.7
27.8
Charter Hall Group
Charter Hall Property
Trust Group
2018
$’m
1.3
3.0
75.5
1.8
4.1
24.1
1.6
1.3
2017
$’m
1.1
3.3
72.7
0.8
3.5
21.7
4.5
1.1
112.7
108.7
–
5.3
5.3
–
6.5
6.5
2018
$’m
–
0.8
49.8
(0.1)
–
–
0.1
–
50.6
17.7
–
17.7
2017
$’m
–
0.5
72.7
(0.2)
–
–
3.9
–
76.9
–
–
–
Charter Hall Group
Balance at 1 July 2016
Charged/(credited) to income statement
Balance at 30 June 2017
Charged/(credited) to income statement
Balance at 30 June 2018
18 Trade and other payables
Current
Trade payables
Accruals
Distribution payable
GST payable
Annual leave liability
Employee benefits liability
Other payables
Lease incentive liability
Non-current
Loan payable to Charter Hall Limited
Lease incentive liability
All current liabilities are expected to be settled within 12 months.
73
Charter Hall Group Annual Report 2018 19 Provisions
Current
Employee benefits – long service leave
Non-current
Employee benefits – long service leave
20 Borrowings
Current assets
Movement in fair value of USPP commitment attributable to the hedged position
Non-current liabilities
Cash advance facilities (DCSF)
Less: unamortised transaction costs
Charter Hall Group
2018
$’m
1.5
1.6
2017
$’m
1.9
1.3
Charter Hall Property
Trust Group
2018
$’m
2017
$’m
–
–
–
–
Charter Hall Group
Charter Hall Property
Trust Group
30 Jun 2018
$’m
30 Jun 2017
$’m
30 Jun 2018
$’m
30 Jun 2017
$’m
2.2
2.2
5.4
(1.8)
3.6
–
–
–
–
–
2.2
2.2
5.4
(1.8)
3.6
–
–
–
–
–
Charter Hall Property Trust Group
In May 2018, the Group completed several key initiatives to restructure its debt platform:
• Debt facility was refinanced with a new unsecured $200 million credit facility plus an additional $20 million unsecured facility to support the
bank guarantees with the maturity date changing to May 2023.
• US$175 million (A$231.5 million) US Private Placement (USPP) issuance:
– 10 year duration.
– Funding to occur on 24 August 2018.
– Fixed US$ coupon of 4.61% which is 100% hedged in Australian dollars (principal plus interest), with A$ interest payable of BBSW +
2.05% margin.
At 30 June 2018, drawn borrowings of $nil (30 June 2018: $nil) and bank guarantees of $14.3 million (30 June 2018: $14.3 million) had been
utilised under these facilities, which under the terms of the agreements reduce the available facilities. No liability is recognised for bank guarantees.
Movement in fair value of USPP commitment attributable to the hedged position
This adjustment reflects movement in the fair value of an unrecognised firm commitment to issue USPP notes which offsets the change in fair
value of cross currency swaps designated as a fair value hedge.
DCSF Facility
The fund has two revolving debt facilities of A$25.0 million and NZ$7.0 million. The facilities were established in November 2017 with a maturity
date of November 2020. At 30 June 2018, drawn borrowings of NZ$6.0 million had been utilised under this facility.
The NZ$6.0 million drawn borrowings translated into A$5.4 million are presented on the balance sheet net of A$1.8 million of unamortised
transaction costs under the CHPT facility.
The carrying amounts of assets pledged as security for borrowings are:
Non-current
First ranking security
Investments in associates – Charter Hall Property Trust
Investment properties – DCSF
Total non-current assets pledged as security
74
Charter Hall Group
Charter Hall Property
Trust Group
2018
$’m
–
63.4
63.4
2017
$’m
1,416.0
–
1,416.0
2018
$’m
–
63.4
63.4
2017
$’m
1,416.0
–
1,416.0
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2018Charter Hall Group Annual Report 2018 (a) Financial arrangements
The Charter Hall Group and Charter Hall Property Trust Group had unrestricted access at reporting date to the following lines of credit:
Charter Hall Property Trust (CHPT)
Total facilities
Drawn balance for bank guarantees
Balance available for drawing
Charter Hall Direct Diversified Consumer Staples Fund (DCSF)
Cash advance facilities
Drawn balance
Balance available for drawing
Total balance available for drawing
Charter Hall Group
Charter Hall Property
Trust Group
2018
$m
220.0
(14.3)
205.7
31.3
(5.4)
25.9
2017
$m
125.0
(14.3)
110.7
–
–
–
2018
$m
220.0
(14.3)
205.7
31.3
(5.4)
25.9
2017
$m
125.0
(14.3)
110.7
–
–
–
231.6
110.7
231.6
110.7
(b) Gearing
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 total assets with both net of cash and cash equivalents.
The gearing ratio of the Charter Hall Group at 30 June 2018 was nil % (30 June 2017: nil %) and Charter Hall Property Trust Group nil %
(30 June 2017: nil %). 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 monitoring compliance with covenants.
(c) Net debt reconciliation
This section sets out an analysis of net debt and the movements in net debt for each of the periods presented.
Charter Hall Group
2018
Bank debt
Borrowing costs
Fair value of USPP commitment
Cash
Charter Hall Property Trust Group
2018
Bank debt
Borrowing costs
Funding received from CHL
Fair value of USPP commitment
Cash
Movement
in derivatives
and foreign
exchange
$’m
Movement
in borrowing
costs
$’m
Opening
balance
$’m
Movement
in cash
$’m
Closing
balance
$’m
–
–
–
(174.4)
(174.4)
–
–
(73.2)
–
(53.4)
(126.6)
–
–
(2.2)
–
(2.2)
–
–
–
(2.2)
–
(2.2)
–
(1.8)
–
–
(1.8)
–
(1.8)
–
–
–
(1.8)
5.4
–
–
79.5
84.9
5.4
–
90.9
–
20.6
116.9
5.4
(1.8)
(2.2)
(94.9)
(93.5)
5.4
(1.8)
17.7
(2.2)
(32.8)
(13.7)
75
Charter Hall Group Annual Report 2018 21 Contributed equity
(a) Security capital
Charter Hall Limited
Charter Hall Property Trust
2018
Securities
2017
Securities
Ordinary securities – stapled securities, fully paid
465,777,131 465,777,131
(b) Movements in ordinary stapled security capital
2018
$’m
285.7
1,453.5
1,739.2
2017
$’m
285.0
1,456.9
1,741.9
Details
Opening balance at 1 July 2016
Buyback and issuance of securities for exercised
performance and service rights1
Tax recognised directly in equity
Issued under institutional placement2
Closing balance at 30 June 2017
Less: transaction costs on stapled security issues
Closing balance per accounts at 30 June 2017
Buyback and issuance of securities for exercised
performance and service rights3
Tax recognised directly in equity
Balance at 30 June 2018
Less: transaction costs on stapled security issues
Number of
securities1
Weighted
average
issue price
Charter Hall
Limited
$’m
Charter Hall
Property
Trust
$’m
Total
$’m
412,717,802
–
–
53,059,329
465,777,131
465,777,131
$2.63
$5.48
–
–
$2.83
465,777,131
256.1
1,201.4
1,457.5
(0.3)
0.9
28.7
285.4
(0.4)
285.0
(0.4)
1.1
285.7
–
285.7
(2.5)
–
262.0
1,460.9
(4.0)
1,456.9
(3.3)
–
1,453.6
(0.1)
1,453.5
(2.8)
0.9
290.7
1,746.3
(4.4)
1,741.9
(3.7)
1.1
1,739.3
(0.1)
1,739.2
Balance per accounts at 30 June 2018
465,777,131
1 879,616 stapled securities bought on market at an average value of $5.74, offset by the exercise of 445,518 performance rights with a fair value of $1.16 and
434,098 service rights with an average value of $4.11.
2 53,059,329 stapled securities issued under Institutional Placement and Security Purchase Plan in May 2017 with an issue price of $5.48.
3 1,356,889 stapled securities bought on market at an average value of $5.58, offset by the exercise of 918,240 performance rights with a fair value of $2.09 and
438,649 service rights with an average value of $4.37.
(c) Ordinary stapled securities
Ordinary stapled securities entitle the holder to participate in distributions/dividends and the proceeds on winding up of the Company/Trust in
proportion to the number of and amounts paid on the stapled securities held.
On a show of hands, every holder of ordinary stapled securities present at a meeting in person or by proxy is entitled to one vote and upon a
poll, each holder is entitled to one vote per security that they hold.
(d) Distribution Re-investment Plan
The Group has established a Distribution Re-investment Plan (DRP) under which holders of ordinary stapled securities may elect to have all or
part of their distribution satisfied by the issue of new ordinary stapled securities rather than by being paid in cash. The DRP was suspended for
the distribution paid on 25 August 2016 and subsequent distributions.
76
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2018Charter Hall Group Annual Report 2018 22 Non-controlling interests
During the period, the Group reduced its holding in the Charter Hall Direct Diversified Consumer Staples Fund from 100% to 61.3%. The
proceeds on redemption were $12.4 million, received in cash.
The difference between the redemption proceeds and amount transferred to non-controlling interests of $0.3 million has been recognised
directly in equity.
Summarised balance sheet
Current assets
Current liabilities
Current net assets
Non-current assets
Non-current liabilities
Non-current net assets
Net assets
Accumulated non-controlling interest
Summarised statement of comprehensive income
Revenue
Profit for the period
Other comprehensive loss
Total comprehensive income
Comprehensive income allocated to non-controlling interest
23 Reserves
Business combination reserve
Security-based benefits reserve
Cash flow hedge reserve
Transactions with non-controlling interests
Other reserves
Charter Hall Limited
Charter Hall Property Trust
Charter Hall Group
Charter Hall Property
Trust Group
2018
$’m
34.4
0.4
34.0
63.4
5.3
58.1
92.1
35.6
2018
$’m
4.2
3.3
(0.5)
2.8
1.0
2017
$’m
–
–
–
39.9
–
39.9
39.9
–
2017
$’m
–
–
–
–
–
2018
$’m
34.4
0.4
34.0
63.4
5.3
58.1
92.1
35.6
2018
$’m
4.2
3.3
(0.5)
2.8
1.0
2017
$’m
–
–
–
39.9
–
39.9
39.9
–
2017
$’m
–
–
–
–
–
Charter Hall Group
Charter Hall Property
Trust Group
2018
$’m
(52.0)
4.9
1.2
0.4
1.3
(44.2)
(45.1)
0.9
(44.2)
2017
$’m
(52.0)
5.7
–
–
1.2
(45.1)
(44.6)
(0.5)
(45.1)
2018
$’m
–
–
1.2
0.4
(0.7)
0.9
–
0.9
0.9
2017
$’m
–
–
–
–
(0.5)
(0.5)
–
(0.5)
(0.5)
77
Charter Hall Group Annual Report 2018 23 Reserves continued
Movements:
Business combination reserve
Opening and closing balance
Security-based benefits reserve
Opening balance
Security-based benefits expense
Transfer due to deferred compensation payable in performance rights
Transferred to equity on options and performance rights exercised
Transfer unvested securities to accumulated losses
Closing balance
Cash flow hedge reserve
Opening balance
Changes in the fair value of cash flow hedges
Closing balance
Transactions with non-controlling interests
Opening balance
Disposal of DCSF units at premium
Closing balance
Other reserves
Opening balance
Exchange differences on translation of foreign operations
Equity accounted fair value movements in cash flow hedges
Deferred tax asset recognised directly in equity
Closing balance
Charter Hall Group
Charter Hall Property
Trust Group
2018
$’m
2017
$’m
2018
$’m
2017
$’m
(52.0)
(52.0)
5.7
1.7
1.4
(3.9)
–
4.9
–
1.2
1.2
–
0.4
0.4
1.2
(0.5)
0.3
0.3
1.3
6.5
1.4
1.4
(2.4)
(1.2)
5.7
–
–
–
–
–
–
–
–
(0.5)
1.7
1.2
–
–
–
–
–
–
–
1.2
1.2
–
0.4
0.4
(0.5)
(0.5)
0.3
–
(0.7)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(0.5)
–
(0.5)
(a) Business combination reserve
This reserve relates to the reverse acquisition at the initial public offering (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.
(b) Security based benefits reserve
The security based benefits reserve is used to recognise the fair value of rights and options issued under the PROP.
(c) Cash flow hedge reserve
The cash flow hedge reserve is used to record gains or losses on derivatives that are designated and qualify as cash flow hedges and that are
recognised in other comprehensive income. Amounts are reclassified to profit or loss when the associated hedged transaction affects profit or loss.
(d) 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 Charter Hall
Group and Charter Hall Property Trust 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.
78
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2018Charter Hall Group Annual Report 2018 (e) Other reserves
Exchange differences arising on translation of foreign controlled entities and the Charter Hall Group’s and Charter Hall Property Trust Group’s
share of foreign exchange differences arising from the 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.
Equity accounted fair value movements in cash flow hedges is the equity accounted portion of the gains or losses on hedging instruments
in cash flow hedges that are determined to be an effective hedge relationship.
Deferred tax credits recognised directly in equity relate to the excess of the expected future tax deduction on performance and service rights
on issue over the cumulative fair value expensed to date.
24 Accumulated profits/(losses)
Opening balance
Profit for the year
Distributions
Transfer unvested securities to accumulated losses
Deferred tax asset recognised directly to equity
Closing balance
Charter Hall Limited
Charter Hall Property Trust
Closing balance
Charter Hall Group
Charter Hall Property
Trust Group
2018
$’m
25.5
250.2
(148.1)
–
–
127.6
(33.6)
161.2
127.6
2017
$’m
(100.8)
257.6
(132.1)
1.2
(0.4)
25.5
(54.1)
79.6
25.5
2018
$’m
79.6
175.2
(93.6)
–
–
161.2
–
161.2
161.2
2017
$’m
(6.3)
218.0
(132.1)
–
–
79.6
–
79.6
79.6
25 Remuneration of auditors
During the year, the following fees were paid or payable for services provided by the auditors of the Charter Hall Group and Charter Hall
Property Trust Group, their related practices and non-related audit firms:
(a) Audit services
PricewaterhouseCoopers – Australian Firm
Audit and review of financial reports
Other assurance services
Total remuneration for audit services
(b) Taxation services
PricewaterhouseCoopers – Australian Firm
Taxation services
Total remuneration for taxation services
(c) Advisory services
PricewaterhouseCoopers – Australian Firm
Sustainability
Accounting advice
Total remuneration for advisory services
Charter Hall Group
Charter Hall Property
Trust Group
2018
$
2017
$
2018
$
2017
$
290,829
10,000
300,829
304,750
18,000
322,750
57,222
57,222
135,781
135,781
76,698
53,252
129,950
–
–
–
6,961
–
6,961
1,132
1,132
–
–
–
7,000
–
7,000
–
–
–
–
–
79
Charter Hall Group Annual Report 2018 26 Reconciliation of profit after tax to net cash inflow from operating activities
Profit after tax for the year
Non-cash items:
Amortisation and impairment of intangibles
(Reversal)/impairment of joint ventures
Depreciation and amortisation
Non-cash security-based benefits expense
Net gain on sale of investments, property and derivatives
Fair value adjustments
Straightlining of rental income
Unrealised net loss on derivative financial instruments
Change in assets and liabilities, net of effects from purchase of controlled entity:
Increase in trade debtors and other receivables
Increase/(decrease) in trade creditors and accruals
Share of net profits from equity accounted investments in associates and
joint ventures
(Increase)/decrease for net deferred income tax
Net cash inflow from operating activities
Charter Hall Group
Charter Hall Property
Trust Group
2018
$’m
251.2
2.7
(7.3)
4.6
1.8
–
(0.8)
(0.3)
0.4
(3.8)
4.7
(81.1)
(3.0)
169.1
2017
$’m
257.6
4.3
10.5
3.6
1.4
(3.2)
0.7
–
–
(11.5)
20.1
(129.9)
2.7
156.3
2018
$’m
176.2
–
–
0.3
–
–
(0.8)
(0.3)
0.4
(3.5)
(0.9)
(74.6)
–
96.8
2017
$’m
218.0
–
–
0.1
–
(3.7)
0.7
–
–
(9.4)
0.1
(125.9)
–
79.9
Distribution and interest income received on investments has been classified as cash flow from operating activities.
27 Capital and financial risk management
(a) Capital risk management
The key capital risk management objective of the Charter Hall Group and Charter Hall Property Trust Group is to optimise returns through
the mix of available capital sources whilst complying with statutory and constitutional capital requirements, and complying with the covenant
requirements of the finance facility. The capital management approach is regularly reviewed by management and the Board as part of the overall
strategy. The capital mix can be altered by issuing new units, electing to have the DRP underwritten, adjusting the amount of distributions paid,
activating a stapled security buyback program or selling assets.
(b) Financial risk management
Both the Charter Hall Group and Charter Hall Property Trust Group 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 framework focuses on the
unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. From time
to time, the Group uses derivative financial instruments such as interest rate swaps and option contracts to hedge certain risk exposures.
Risk management is carried out by the Group Treasurer, the Chief Financial Officer and the Managing Director and Group CEO in consultation with
senior management, the Audit, Risk and Compliance Committee and the Board of Directors. The Group Treasurer identifies, evaluates and hedges
financial risks in close co-operation with the Chief Financial Officer. 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.
80
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2018Charter Hall Group Annual Report 2018 (i) Market risk
Unlisted unit price risk
The Group is exposed to unlisted unit 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 executives 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 respective fund board or investment committee and
the Executive Property Valuation Committee.
The following table illustrates the potential impact a change in unlisted unit prices by +/-10% would have on the Charter Hall Group and Charter
Hall Property Trust 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.
-10%
+10%
Carrying
amount
$’m
Profit
$’m
Equity
$’m
Profit
$’m
Equity
$’m
Charter Hall Group
2018
Assets – Charter Hall Group
Investments in associates at fair value through profit or loss
2017
Assets – Charter Hall Group
Investments in associates at fair value through profit or loss
Charter Hall Property Trust Group
2018
Assets – Charter Hall Property Trust Group
Investments in associates at fair value through profit or loss
2017
Assets – Charter Hall Property Trust Group
32.4
(3.2)
(3.2)
29.7
(3.0)
(3.0)
32.4
(3.2)
(3.2)
Investments in associates at fair value through profit or loss
29.7
(3.0)
(3.0)
Cash flow and fair value interest rate risk
The Charter Hall Group has no long-term interest bearing assets.
3.2
3.0
3.2
3.0
3.2
3.0
3.2
3.0
Charter Hall Property Trust has a loan payable to Charter Hall Limited which is an unsecured stapled loan maturing on 30 June 2021 with
interest charged on an arm’s length basis. Refer to Note 29(e) for further details.
The Charter Hall Group’s and Charter Hall Property Trust Group’s external interest rate risk arises from the $220 million loan facilities and the
cross-currency interest rate swaps that convert its USPP interest rate exposure from fixed to variable. At 30 June 2018 no borrowings were
drawn on these facilities (2017: $nil). Borrowings drawn at variable rates expose both Groups to cash flow interest rate risk. Borrowings drawn
at fixed rates expose both Groups to fair value interest rate risk. The Charter Hall Group and Charter Hall Property Trust Group’s policy is to
mitigate interest rate risk by ensuring that interest rates on core borrowings for the anticipated debt term match the use of those funds. Core
borrowings are defined as being the level of borrowings that are expected to be held for a period of more than two years.
81
Charter Hall Group Annual Report 2018 27 Capital and financial risk management continued
(b) Financial risk management continued
Interest rate risk exposure
(ii)
The Group’s controlled subsidiary, Charter Hall Direct Diversified Consumer Staples Fund, has drawn debt of $5.4 million. This exposure is not
considered to be material to the Group. The Group has no other drawn debt.
The Charter Hall Property Trust’s exposure arises predominantly from an unsecured stapled loan maturing on 30 June 2021 payable to
Charter Hall Limited bearing a variable interest rate.
Interest rate sensitivity analysis
The following tables illustrate the potential impact a change in interest rates of +/-1% would have on the Charter Hall Group and Charter Hall
Property Trust Group’s profit and equity.
Effective
interest rate
Fair value
$’m
Carrying
amount
$’m
Profit
$’m
Equity
$’m
Profit
$’m
Equity
$’m
-1%
+1%
Charter Hall Group
2018
Financial assets
Cash and cash equivalents
Financial liabilities
Interest bearing liabilities
Total increase/(decrease)
2017
Financial assets
Cash and cash equivalents
Charter Hall Property
Trust Group
2018
Financial assets
Cash and cash equivalents
Financial liabilities
Loan payable to Charter Hall Ltd
Interest bearing liabilities
Total increase/(decrease)
2017
Financial assets
Cash and cash equivalents
Loan receivable from
Charter Hall Ltd
Total increase/(decrease)
1.8%
4.7%
94.9
5.4
94.9
5.4
(0.9)
0.1
(0.8)
(0.9)
0.1
(0.8)
0.9
(0.1)
0.8
0.9
(0.1)
0.8
2.5%
174.4
174.4
(1.7)
(1.7)
1.7
1.7
1.8%
7.8%
4.7%
2.5%
9.3%
32.8
17.7
5.4
53.4
73.2
32.8
17.7
5.4
53.4
73.2
(0.3)
(0.3)
0.2
0.1
–
(0.5)
(0.7)
(1.2)
0.2
0.1
–
(0.5)
(0.7)
(1.2)
0.3
(0.2)
(0.1)
–
0.5
0.7
1.2
0.3
(0.2)
(0.1)
–
0.5
0.7
1.2
The fair value of interest bearing liabilities 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.
(iii) Foreign exchange risk
The Charter Hall Group’s principal exposure to foreign exchange risk arises from its investments in foreign subsidiaries and exposure to
US Private Placement issuances denominated in US dollars. The major asset held by foreign subsidiaries is cash in foreign denominated
bank accounts. Cross currency swaps are used to convert US dollar borrowings into Australian dollar exposure.
82
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2018Charter Hall Group Annual Report 2018 (c) Credit risk
The Charter Hall Group and Charter Hall Property Trust Group have policies in place to ensure that sales of services are made to customers
with appropriate credit histories.
56.8% of the Charter Hall Group’s income is derived from management fees, transaction and other fees from related parties. 40.6% of the
Charter Hall Group’s income is derived from equity accounted investments in property funds and distributions from investments in property
funds held at fair value through the profit and loss. The balance relates to interest income and gross rental income.
87.2% of the Charter Hall Property Trust Group’s income is derived from equity accounted investments in property funds and distributions from
investments in property funds held at fair value through profit and loss.
Where appropriate, tenants in the underlying property funds for Charter Hall Group and the Charter Hall Property Trust Group are assessed for
creditworthiness, taking into account their financial position, past experience and other factors. Refer to Note 10(c) for more information on credit risk.
Derivative counterparties and cash transactions are limited to high credit quality financial institutions. The Charter Hall Group and Charter Hall
Property Trust Group have policies that limit the amount of credit exposure to any one financial institution.
(d) 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 Charter Hall Group
and Charter Hall Property Trust Group aim at maintaining flexibility in funding by keeping committed credit lines available.
Maturities of financial liabilities
The following table provides the contractual maturity of Charter Hall Group’s and Charter Hall Property Trust Group’s financial liabilities. The
amounts presented represent the future contractual undiscounted principal and interest cash flows and therefore do not equate to the value
shown in the balance sheet. Repayments which are subject to notice are treated as if notice were given immediately.
Charter Hall Group
2018
Trade and other payables
Derivative financial instruments
Net contractual amounts payable/(receivable)
Total financial liabilities
2017
Trade and other payables
Total financial liabilities
Charter Hall Property Trust Group
2018
Trade and other payables
Derivative financial instruments
Net contractual amounts payable/(receivable)
Total financial liabilities
2017
Trade and other payables
Total financial liabilities
Carrying
amount
$’m
Less than
one year
$’m
Between
one and
five years
$’m
Over
five years
$’m
Total cash
flows
$’m
118.0
112.7
1.4
119.4
115.2
115.2
68.3
1.4
69.7
76.9
76.9
6.4
119.1
108.7
108.7
68.3
6.4
74.7
76.9
76.9
2.3
(2.9)
(0.6)
1.1
1.1
–
(2.9)
(2.9)
–
–
3.0
5.2
8.2
5.3
5.3
–
5.2
5.2
–
–
118.0
8.7
126.7
115.2
115.2
68.3
8.7
77.0
76.9
76.9
Offsetting financial assets and liabilities
The Group is a party to the master franchise agreement as published by International Swaps and Derivative Associates, Inc. (ISDA) which allows
the Group’s counterparties, under certain conditions (i.e. event of default), to set off the position owing/receivable under a derivative contract to
a net position outstanding. As at 30 June 2018, there was a gross liability position of $1.4 million with no amounts subject to offset.
As the Group does not have a legally enforceable right to set off, none of the financial assets or financial liabilities are offset on the balance sheet
of the Group.
83
Charter Hall Group Annual Report 2018 28 Fair value measurement
(a) Recognised fair value measurement
The Charter Hall Group and the Charter Hall Property Trust Group measure and recognise the following assets and liabilities at fair value on a
recurring basis:
Investments in associates at fair value through profit and loss (refer to Note 7).
•
• Derivatives.
•
Investment properties.
AASB 13 Fair Value Measurement 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 table presents the Charter Hall Group and Charter Hall Property Trust Group’s assets and liabilities measured and recognised
at fair value:
Charter Hall Group
30 June 2018
Investments in associates at fair value through profit and loss
Investment properties
Total assets
Cross currency interest rate swaps
Total liabilities
30 June 2017
Investments in associates at fair value through profit and loss
Investment properties
Total assets
Charter Hall Property Trust Group
30 June 2018
Investments in associates at fair value through profit and loss
Investment properties
Total assets
Cross currency interest rate swaps
Total liabilities
30 June 2017
Investments in associates at fair value through profit and loss
Investment properties
Total assets
Level 1
$’m
Level 2
$’m
Level 3
$’m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1.4)
(1.4)
–
–
–
–
–
–
(1.4)
(1.4)
–
–
–
32.4
63.4
95.8
–
–
29.7
40.4
70.1
32.4
63.4
95.8
–
–
29.7
40.4
70.1
Total
$’m
32.4
63.4
95.8
(1.4)
(1.4)
29.7
40.4
70.1
32.4
63.4
95.8
(1.4)
(1.4)
29.7
40.4
70.1
There have been no transfers between Level 1, Level 2 and Level 3 during the period.
(b) Disclosed fair values
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 Charter Hall Group and Charter Hall Property Trust Group for similar financial instruments. The fair value of current borrowings
approximates the carrying amount, as the impact of discounting is not significant.
84
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2018Charter Hall Group Annual Report 2018 (c) Valuation techniques used to derive Level 2 fair values
Derivatives
Derivatives are classified as level 2 on the fair value hierarchy as the inputs used to determine fair value are observable market data but not
quoted prices.
The fair value of cross currency interest rate swaps is determined using forward foreign exchange market rates and the present value of the
estimated future cash flows at the balance date.
Credit value adjustments are calculated based on the counterparty’s credit risk using the counterparty’s credit default swap curve as a
benchmark. Debit value adjustments are calculated based on the Group’s credit risk using debt financing available to the Group as a benchmark.
(d) Valuation techniques used to derive Level 3 fair values
Investments in associates
The fair value of investments in associates held at fair value through profit and loss, which are investments in unlisted securities, are determined
giving consideration to the unit prices and net assets of the underlying funds. The unit prices and net asset values are largely driven by the fair
values of investment properties and derivatives held by the funds. Recent arm’s length transactions, if any, are also taken into consideration.
The fair value of investments in associates at fair value through profit or loss is impacted by the price per security of the investment. An increase
to the price per security results in an increase to the fair value of the investment.
Investment property
The fair value measurement of investment property takes into account the Group’s ability to generate economic benefits by using the asset in its
highest and best use.
The use of independent external valuers is on a rotational basis at least once every 12 months, or earlier, where the Responsible Entity deems it
appropriate or believes there may be a material change in the carrying value of the property.
Where an independent valuation is not obtained, the fair value is determined using Discounted Cash Flow and income capitalisation methods.
The table below identifies the inputs, which are not based on observable market data, used to measure the fair value (Level 3) of the
investment properties:
Adopted
capitalisation
rate
(% p.a.)
6.0-7.8
6.8-8.5
Fair value
$’m
63.4
40.4
Adopted
terminal
yield
(% p.a.)
6.3-9.9
7.0-9.0
Adopted
discount
rate
(% p.a.)
6.8-9.5
7.5-9.3
Definition
A method in which a discount rate is applied to future expected income streams to estimate the present value.
2018
2017
Term
Discounted Cash Flow
(DCF) method
Income capitalisation
method
A valuation approach that provides an indication of value by converting future cash flows to a single current
capital value.
Gross market rent
The estimated amount for which an interest in real property should be leased to a major tenant on the valuation
date between a willing lessor and a willing lessee on appropriate lease terms in an arm’s length transaction, after
proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.
Capitalisation rate
The return represented by the income produced by an investment, expressed as a percentage.
Terminal yield
A percentage return applied to the expected net income following a hypothetical sale at the end of the
cash flow period.
Discount rate
A rate of return used to convert a future monetary sum or cash flow into present value.
Movement in the inputs are likely to have an impact on the fair value of investment properties. An increase in gross market rent will likely lead
to an increase in fair value. A decrease in adopted capitalisation rate, adopted terminal yield or adopted discount rate will likely lead to an
increase in fair value.
85
Charter Hall Group Annual Report 2018 29 Related parties
(a) Parent entity
The parent entity of the Charter Hall Group is Charter Hall Limited. The parent entity of the Charter Hall Property Trust Group is the
Charter Hall Property Trust.
(b) Controlled entities
Interests in controlled entities are set out in Note 30.
(c) Key management personnel
The following persons were considered key management personnel (excluding Non-Executive Directors) during the year:
Executive Director
D Harrison
Other key management personnel
G Chubb
S McMahon
R Proutt
A Taylor
Former key management personnel
P Ford1
1 Ceased being key management personnel on 14 September 2017.
Below are the aggregate amounts paid or payable to key management personnel (including Non-Executive Directors):
Salary and fees
Non-Executive Director remuneration
Short-term incentives
Superannuation
Value of securities vested
Non-monetary benefits
Termination benefits
Charter Hall Group
2018
$’000
4,564
1,121
4,391
110
1,204
11
417
2017
$’000
3,988
949
3,976
108
931
24
893
11,818
10,869
Charter Hall Property
Trust Group
2018
$’000
2017
$’000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
86
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2018Charter Hall Group Annual Report 2018 (d) Transactions with related parties
The following income was earned from related parties during the year:
Associates
Accounting cost recoveries
Marketing cost recoveries
Transaction and performance fees
Management and development fees
Property management fees and cost recoveries
Joint ventures
Accounting cost recoveries
Marketing cost recoveries
Transaction and performance fees
Management and development fees
Property management fees and cost recoveries
Other
Accounting cost recoveries
Marketing cost recoveries
Transaction and performance fees
Management and development fees
Property management fees and cost recoveries
Investment-related revenue
Charter Hall Group
2018
$’000
8,043
2,281
41,011
84,312
49,068
676
210
7,280
10,241
6,444
1,680
98
7,977
12,512
2,813
–
2017
$’000
7,321
2,342
44,597
63,450
48,558
658
205
3,901
11,005
4,217
1,604
50
8,079
10,620
1,976
–
The following balances arising through the normal course of business were due from related parties at balance date:
234,646
208,583
Associates
Management fee receivables
Other receivables
Joint ventures
Management fee receivables
Other receivables
Other
Management fee receivables
Other receivables
Charter Hall Group
2018
$’000
8,535
11,570
636
3,067
924
1,301
26,033
2017
$’000
8,369
13,518
2,282
1,181
682
1,413
27,445
87
Charter Hall Property
Trust Group
2018
$’000
2017
$’000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
11,599
11,599
–
–
–
–
–
10,200
10,200
Charter Hall Property
Trust Group
2018
$’000
2017
$’000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Charter Hall Group Annual Report 2018 29 Related parties continued
(e) Loans to/(from) related parties
Loans to joint ventures
Opening balances
Loans advanced
Loan repayments received
Closing balance
Loans to other related parties
Opening balances
Loans advanced
Loan repayments received
Closing balance
Loans to/(from) Charter Hall Limited
Opening balance
Loans advanced
Loan repayments received
Net interest charged
Closing balance
Charter Hall Group
Charter Hall Property
Trust Group
2018
$’000
8,500
17,800
(500)
25,800
750
–
(750)
–
–
–
–
–
–
2017
$’000
6,500
2,000
–
8,500
2,586
19,398
(21,234)
750
2018
$’000
–
16,300
–
16,300
750
–
(750)
–
–
–
–
–
–
73,175
163,688
(256,952)
2,403
(17,686)
2017
$’000
–
–
–
–
2,586
19,398
(21,234)
750
139,860
397,897
(473,321)
8,739
73,175
No provisions for doubtful debts have been raised in relation to any outstanding balances.
The loan to/(from) CHL comprises an unsecured stapled loan maturing on 30 June 2021. Interest is charged on an arm’s length basis which,
at 30 June 2018, amounted to a weighted average rate of 8.3% (June 2017: 9.3%).
(f) Fees paid to the Responsible Entity or its associates
Fees paid to the Responsible Entity of the Charter Hall Property Trust, and its associates, by the Charter Hall Property Trust Group amounted
to $1,917,000 (2017: $1,382,000). At 30 June 2018, related fees payable amounted to $471,000 (2017: $414,000).
88
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2018Charter Hall Group Annual Report 2018 30 Controlled entities
The consolidated financial statements of the Charter Hall Group incorporate the assets, liabilities and results of the following controlled entities in
accordance with the accounting policy described in Note 1(b):
(a) Details of controlled entities of the Charter Hall Group
Name of entity
Controlled entities of Charter Hall Limited
Charter Hall Holdings Pty Limited
CH La Trobe Trust
Controlled entities of Charter Hall Holdings Pty Ltd
Bieson Pty Limited
Brisbane Square Holdings Pty Limited
Brisbane Square Pty Limited
Charter Hall (NZ) Pty Limited
Charter Hall Asset Services Pty Limited
Charter Hall Development Services Pty Ltd
Charter Hall Direct Property Management Limited
Charter Hall Escrow Agent Pty Limited
Charter Hall Funds Management Limited
Charter Hall Holdings Investment Trust
Charter Hall Holdings Real Estate Pty Limited
Charter Hall International Office Pty Limited1
Charter Hall Investment Management Limited
Charter Hall Nominees Pty Limited
Charter Hall Office Collins Street Pty Limited
Charter Hall Office Investments Pty Limited1
Charter Hall Opportunity Fund No. 5
Charter Hall Opportunity Fund No. 5 Bringelly Trust
Charter Hall Real Estate Europe Limited2
Charter Hall Real Estate Inc
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 and NT)
Pty Limited
Charter Hall Real Estate Management Services (SA) Pty Limited
Charter Hall Real Estate Management Services (TAS) Pty Limited
Charter Hall Real Estate Management Services (VIC) Pty Limited
Charter Hall Real Estate Management Services (WA) Pty Limited
Charter Hall Retail Management Limited
Charter Hall WALE Limited
Charter Hall Wholesale Management Limited
CHLWR No. 1 Pty Ltd
CHLWR No. 2 Pty Ltd
CHREI US Office LLC
CHREI US Retail LLC
Dorcasia Pty Limited3
Visokoi Pty Limited
Votraint No. 1622 Pty Limited
Country of
incorporation Principal activity
Class of
securities
2018
%
2017
%
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
UK
USA
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
USA
USA
Australia
Australia
Australia
Property management
Property investment
Ordinary
Ordinary
Trustee company
Trustee company
Trustee company
Property management
Property management
Property management
Responsible entity
Holding company
Responsible entity
Holding company
Holding company
Holding company
Responsible entity
Trustee company
Holding company
Holding company
Property development
Property development
Property management
Property management
Property management
Property management
Property management
Property management
Property management
Property management
Property management
Responsible entity
Responsible entity
Responsible entity
Holding company
Holding company
Property management
Property management
Trustee company
Trustee company
Trustee company
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
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
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
1 Charter Hall International Office Pty Limited and Charter Hall Office Investments Pty Limited were de-registered in July 2017.
2 Charter Hall Real Estate Europe Limited was dissolved in July 2017.
3 Dorcasia Pty Limited was acquired in April 2018.
89
Charter Hall Group Annual Report 2018
30 Controlled entities continued
(a) Details of controlled entities of the Charter Hall Group continued
Name of entity
Controlled entities of Charter Hall Property Trust
Charter Hall Chester Hill Trust4
Charter Hall Co-Investment Trust5
Charter Hall Co-Investment Trust 26
Charter Hall Direct Diversified Consumer Staples Fund
CHC CDC Holding Trust
CHPT RP2 Trust
DCSF NZ Trust
50 Franklin Street Trust7
Country of
incorporation Principal activity
Class of
securities
2018
%
2017
%
Property investment
Australia
Property investment
Australia
Property investment
Australia
Property investment
Australia
Property investment
Australia
Australia
Property investment
New Zealand Property investment
Australia
Property investment
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100
100
100
61
100
100
61
100
–
100
–
100
100
100
100
–
4 Charter Hall Chester Hill Trust was established in May 2018.
5 Charter Hall Co-Investment Trust is an entity which was set up by Charter Hall Property Trust to hold its investments in Charter Hall Retail REIT (CQR), Charter Hall Office
Trust (CHOT), BP Fund 1 (BP1), BP Fund 2 (BP2), Core Logistics Partnership (CLP), TTP Wholesale Fund (TTP), Retail Partnership No. 6 Trust (RP6), Charter Hall Prime
Retail Fund (CPRF), Brisbane Square Wholesale Fund (BSWF) and Charter Hall Long WALE REIT (CLW).
6 Charter Hall Co-Investment Trust 2 is an entity which was set up by Charter Hall Property Trust to hold its investment in Charter Hall Prime Office Fund (CPOF).
7 50 Franklin Street Trust was established in December 2017.
(b) Details of controlled entities of the Charter Hall Property Trust Group
Name of entity
Controlled entities of Charter Hall Property Trust
Charter Hall Chester Hill Trust1
Charter Hall Co-Investment Trust2
Charter Hall Co-Investment Trust 23
Charter Hall Direct Diversified Consumer Staples Fund
CHC CDC Holding Trust
CHPT RP2 Trust
DCSF NZ Trust
50 Franklin Street Trust4
Country of
incorporation Principal activity
Class of
securities
2018
%
2017
%
Property investment
Australia
Property investment
Australia
Property investment
Australia
Property investment
Australia
Property investment
Australia
Australia
Property investment
New Zealand Property investment
Australia
Property investment
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100
100
100
61
100
100
61
100
–
100
–
100
100
100
100
–
1 Charter Hall Chester Hill Trust was established in May 2018.
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 Retail REIT (CQR), Charter Hall Office
Trust (CHOT), BP Fund 1 (BP1), BP Fund 2 (BP2), Core Logistics Partnership (CLP), TTP Wholesale Fund (TTP), Retail Partnership No. 6 Trust (RP6), Charter Hall Prime
Retail Fund (CPRF), Brisbane Square Wholesale Fund (BSWF) and Charter Hall Long WALE REIT (CLW).
3 Charter Hall Co-Investment Trust 2 is an entity which was set up by Charter Hall Property Trust to hold its investment in Charter Hall Prime Office Fund (CPOF).
4 50 Franklin Street Trust was established in December 2017.
90
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2018Charter Hall Group Annual Report 2018 31 Investments in associates
(a) Carrying amounts
Information relating to associates is set out below. All associates are incorporated and operate in Australia.
Unless otherwise noted all associates have a 30 June year end.
Charter Hall Group
Name of entity
Accounted for at fair value through
profit or loss:1
Unlisted
Charter Hall Direct Industrial Fund No. 4
Charter Hall Direct WorkZone Trust
Charter Hall Direct PFA Fund
Equity accounted
Unlisted
Charter Hall Prime Office Fund
Charter Hall Office Trust2
Core Logistics Partnership
Charter Hall Prime Industrial Fund
Long WALE Investment Partnership
Charter Hall Counter Cyclical Trust
Retail Partnership No. 2 Trust
Listed
Charter Hall Retail REIT3
Charter Hall Long WALE REIT4
Total investments in associates
Principal activity
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Ownership interest
Carrying amount
2018
%
2017
%
2018
$’m
2017
$’m
16.4
2.0
0.1
8.4
15.7
13.8
5.9
5.0
5.0
5.0
18.7
20.4
21.2
–
0.1
10.5
14.3
13.8
6.0
5.0
–
5.0
18.6
20.0
30.8
1.4
0.2
32.4
258.8
246.4
148.8
121.0
21.1
11.2
6.5
29.5
–
0.2
29.7
236.4
212.9
139.2
117.1
19.0
–
6.3
327.6
195.2
1,336.6
1,369.0
321.2
166.0
1,218.1
1,247.8
1 These investments comprise units in certain unlisted Charter Hall managed funds which have been designated at fair value through profit or loss. Changes in fair values of
investments in associates at fair value through profit or loss are recorded in fair value adjustments in the consolidated statement of comprehensive income. Information about
the Charter Hall Group and Charter Hall Property Trust Group’s material exposure to share and unit price risk is provided in Note 27 Capital and financial risk management.
2 The entity has a 31 December balance date.
3 Fair value at the ASX closing price as at 30 June 2018 was $315.6 million (30 June 2017: $306.6 million).
4 Fair value at the ASX closing price as at 30 June 2018 was $208.6 million (30 June 2017: $171.2 million).
91
Charter Hall Group Annual Report 2018 31 Investments in associates continued
(a) Carrying amounts continued
Charter Hall Property Trust Group
Name of entity
Accounted for at fair value through
profit or loss:
Unlisted
Charter Hall Direct Industrial Fund No. 41
Charter Hall Direct WorkZone Trust
Charter Hall Direct PFA Fund
Principal activity
Property investment
Property investment
Property investment
Equity accounted
Unlisted
Charter Hall Office Trust2
Charter Hall Prime Office Fund
Core Logistics Partnership
Charter Hall Prime Industrial Fund
Long WALE Investment Partnership
Charter Hall Counter Cyclical Trust
Retail Partnership No. 2 Trust
Charter Hall Opportunity Fund No. 5
Listed
Charter Hall Retail REIT3
Charter Hall Long WALE REIT4
Total investments in associates
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property development
Property investment
Property investment
Ownership interest
Carrying amount
2018
%
2017
%
2018
$’m
2017
$’m
16.4
2.0
0.1
15.7
7.9
13.8
2.8
5.0
5.0
5.0
7.5
18.7
20.4
21.2
–
0.1
14.3
10.0
13.8
2.9
5.0
–
5.0
7.5
18.6
20.0
30.8
1.4
0.2
32.4
246.4
244.1
148.8
58.3
21.1
11.2
6.5
3.6
29.5
–
0.2
29.7
212.9
223.0
139.2
56.4
19.0
–
6.3
3.3
327.6
195.2
1,262.8
1,295.2
321.2
166.0
1,147.3
1,177.0
1 These investments comprise units in certain unlisted Charter Hall managed funds which have been designated at fair value through profit or loss. Changes in fair values of
investments in associates at fair value through profit or loss are recorded in fair value adjustments in the consolidated statement of comprehensive income. Information about
the Charter Hall Group and Charter Hall Property Trust Group’s material exposure to share and unit price risk is provided in Note 27 Capital and financial risk management.
2 The entity has a 31 December balance date.
3 Fair value at the ASX closing price as at 30 June 2018 was $315.6 million (30 June 2017: $306.6 million).
4 Fair value at the ASX closing price as at 30 June 2018 was $208.6 million (30 June 2017: $171.2 million).
(b) Summarised movements in carrying amounts of associates accounted for at fair value through profit or loss
Opening balance
Investment
Net (loss)/gain on investment in associates at fair value
Disposal of units
Closing balance
Charter Hall Group
Charter Hall Property
Trust Group
2018
$’m
29.7
1.3
1.4
–
32.4
2017
$’m
0.2
35.9
–
(6.4)
29.7
2018
$’m
29.7
1.3
1.4
–
32.4
2017
$’m
0.2
35.9
–
(6.4)
29.7
92
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2018Charter Hall Group Annual Report 2018 (c) Summarised movements in carrying amounts of equity accounted associates
Opening balance
Investment
Share of profit after income tax
Distributions received/receivable
Share of movement in reserves
Return of capital
Disposal of units
Transfer of associate acquired as subsidiary1
Transfer from investment in joint ventures
Closing balance
Charter Hall Group
Charter Hall Property
Trust Group
2018
$’m
1,218.1
62.5
140.5
(74.1)
0.3
(10.7)
–
–
–
1,336.6
2017
$’m
851.3
288.8
192.8
(72.3)
(0.5)
(32.7)
(19.1)
(7.4)
17.2
1,218.1
2018
$’m
1,147.3
62.5
133.3
(69.9)
0.3
(10.7)
–
–
–
1,262.8
2017
$’m
784.6
280.9
185.1
(68.2)
(0.5)
(32.7)
(19.1)
–
17.2
1,147.3
1 CHOF5 was reclassified in 2017 from associate to controlled entity on increase of ownership to 100%.
(d) Summarised financial information for material associates
The tables below provide summarised financial information for the associates that are material to CHC and CHPT. Materiality is assessed on
the investments’ contribution to Group income and net assets. The information presented reflects the amounts in the financial statements of the
associates, not the Group’s proportionate share.
Charter Hall
Office Trust
$’m
Charter Hall
Retail REIT
$’m
Charter Hall
Prime Office
Fund
$’m
Core
Logistics
Partnership
$’m
Charter Hall
Long WALE
REIT
$’m
2018
Summarised balance sheet:
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Summarised statement of comprehensive income:
Revenue
Profit for the year from continuing operations
Profit from discontinued operations
Total comprehensive income
2017
Summarised balance sheet:
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Summarised statement of comprehensive income:
Revenue
Profit for the year from continuing operations
Other comprehensive income
Total comprehensive income
117.2
2,652.3
93.6
979.4
1,696.5
226.9
146.3
–
148.6
245.0
2,462.2
96.3
936.4
1,674.5
215.5
251.3
(2.2)
249.1
178.8
4,239.8
83.4
1,211.9
3,123.3
238.7
386.6
–
385.5
128.3
2,986.3
105.8
742.8
2,266.0
202.2
333.7
–
333.7
15.3
1,413.0
32.4
324.3
1,071.6
97.8
132.3
–
132.3
33.5
1,318.4
28.4
321.6
1,001.9
97.8
101.7
–
101.7
49.5
1,345.5
24.4
430.3
940.4
69.0
83.3
–
83.3
12.2
1,180.5
17.7
357.6
817.4
45.6
34.6
–
34.6
23.4
2,860.7
45.9
1,274.1
1,564.1
140.8
206.5
(12.4)
194.1
53.8
2,589.3
57.0
1,099.1
1,487.0
146.9
523.1
–
523.1
93
Charter Hall Group Annual Report 2018 31 Investments in associates continued
(e) Reconciliation of net assets of associates to carrying amounts of equity accounted investments
Charter Hall Group
2018
Net assets of associate
Group’s share in %
Group’s share in $
Other movements not accounted for under the equity method1
Carrying amount
Movements in carrying amounts:
Opening balance
Investment
Share of profit after income tax
Other comprehensive gain/(loss)
Distributions received/receivable
Return of capital
Closing balance
2017
Net assets of associate
Group’s share in %
Group’s share in $
Other movements not accounted for under the equity method1
Carrying amount
Movements in carrying amounts:
Opening balance
Investment
Disposal
Share of profit after income tax
Other comprehensive income/(loss)
Distributions received/receivable
Return on capital
Closing balance
Charter Hall
Office Trust
$’m
Charter Hall
Retail REIT
$’m
Charter Hall
Prime Office
Fund
$’m
Core
Logistics
Partnership
$’m
Charter Hall
Long WALE
REIT
$’m
1,564.1
15.7
245.6
0.8
246.4
212.9
25.0
29.2
–
(10.0)
(10.7)
246.4
1,487.0
14.3
212.6
0.3
212.9
164.1
–
–
74.8
–
(10.3)
(15.7)
212.9
1,696.5
18.7
317.2
10.4
327.6
321.2
–
27.3
0.4
(21.3)
–
327.6
1,674.5
18.6
311.5
9.7
321.2
226.7
73.3
–
42.6
(0.4)
(21.0)
–
321.2
3,123.3
8.4
262.4
(3.6)
258.8
236.4
–
35.7
(0.1)
(13.2)
–
258.8
2,266.0
10.5
237.9
(1.5)
236.4
183.3
30.0
–
34.8
–
(11.7)
–
236.4
1,071.6
13.8
147.9
0.9
148.8
139.2
–
18.3
–
(8.7)
–
148.8
1,001.9
13.8
138.3
0.9
139.2
170.0
–
(19.2)
15.2
–
(9.8)
(17.0)
139.2
940.4
20.4
191.8
3.4
195.2
166.0
24.6
16.8
–
(12.2)
–
195.2
817.4
20.0
163.5
2.5
166.0
–
165.4
–
7.2
–
(6.6)
–
166.0
1 Other movements are primarily due to the funds issuing new units to external investors at a price above or below the underlying net assets of the fund or, for listed
investments, where the Group has acquired units on market at a price different to the fund’s NTA.
94
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2018Charter Hall Group Annual Report 2018 Charter Hall Property Trust
2018
Net assets of associate
Group’s share in %
Group’s share in $
Other movements not accounted for under the equity method1
Carrying amount
Movements in carrying amounts:
Opening balance
Investment
Share of profit after income tax
Other comprehensive gain/(loss)
Distributions received/receivable
Return of capital
Closing balance
2017
Net assets of associate
Group’s share in %
Group’s share in $
Other movements not accounted for under the equity method1
Carrying amount
Movements in carrying amounts:
Opening balance
Investment
Disposal
Share of profit after income tax
Other comprehensive income/(loss)
Distributions received/receivable
Disposal
Closing balance
Charter Hall
Office Trust
$’m
Charter Hall
Retail REIT
$’m
Charter Hall
Prime Office
Fund
$’m
Core
Logistics
Partnership
$’m
Charter Hall
Long WALE
REIT
$’m
1,564.1
15.7
245.6
0.8
246.4
212.9
25.0
29.2
–
(10.0)
(10.7)
246.4
1,487.1
14.3
212.7
0.2
212.9
164.1
–
–
74.8
–
(10.3)
(15.7)
212.9
1,696.5
18.7
317.2
10.4
327.6
321.2
–
27.3
0.4
(21.3)
–
327.6
1,674.5
18.6
311.5
9.7
321.2
226.7
73.3
–
42.6
(0.4)
(21.0)
–
321.2
3,123.3
7.9
246.7
(2.6)
244.1
223.0
–
33.7
(0.1)
(12.5)
–
244.1
2,266.0
9.9
224.3
(1.3)
223.0
171.4
30.0
–
32.6
–
(11.0)
–
223.0
1,071.6
13.8
147.9
0.9
148.8
139.2
–
18.3
–
(8.7)
–
148.8
1,001.9
13.8
138.3
0.9
139.2
170.0
–
(19.2)
15.2
–
(9.8)
(17.0)
139.2
940.4
20.4
191.8
3.4
195.2
166.0
24.6
16.8
–
(12.2)
–
195.2
817.4
20.0
163.5
2.5
166.0
–
165.4
–
7.2
–
(6.6)
–
166.0
1 Other movements are primarily due to the funds issuing new units to external investors at a price above or below the underlying net assets of the fund or, for listed
investments, where the Group has acquired units on market at a price different to the fund’s NTA.
95
Charter Hall Group Annual Report 2018 31 Investments in associates continued
(f) Summarised financial information and movement in carrying amounts of other equity accounted associates
The following table shows the Group’s share of the summarised profit and loss of equity accounted associates that are not material to the Group,
and a reconciliation of the movement in the aggregated carrying amount of these investments.
Movements in aggregate carrying amount:
Opening balance
Reclassification from material associates1
Investment
Share of profit after income tax
Distributions received/receivable
Return of capital
Transfer from investments in joint ventures
Closing balance
Charter Hall Group
Charter Hall Property
Trust Group
2018
$’m
142.4
–
12.9
13.2
(8.7)
–
–
159.8
2017
$’m
12.5
94.7
20.1
18.2
(12.9)
(7.4)
17.2
2018
$’m
85.0
–
12.9
8.0
(5.2)
–
–
142.4
100.7
2017
$’m
6.3
46.1
12.2
12.7
(9.5)
–
17.2
85.0
1 Charter Hall Prime Industrial Fund was reclassified from material associates during the year ended 30 June 2017, as a result of the listing of the Charter Hall Long WALE
REIT in 2017.
(g) Commitments and contingent liabilities of associates
Below are commitments and contingent liabilities of associates material to the Group’s balance sheet.
Charter Hall Prime Office Fund’s (CPOF) capital expenditure contracted for at the reporting date but not recognised as liabilities was
$604.1 million (2017: $85.2 million) relating to investment properties.
32 Investments in joint ventures
(a) Carrying amounts
Information relating to joint ventures is set out below. All joint ventures are incorporated and operate in Australia.
Unless otherwise noted all associates have a 30 June year end.
Charter Hall Group
Name of entity
Unlisted
Brisbane Square Wholesale Fund
BP Fund 11
Charter Hall Prime Retail Fund
Retail Partnership No. 6 Trust
Commercial and Industrial Property Pty Ltd 2
BP Fund 21
Long WALE Investment Partnership 2
TTP Wholesale Fund (TTP)1
Principal activity
Property investment
Property investment
Property investment
Property investment
Property development
Property investment
Property investment
Property investment
Ownership interest
Carrying amount
2018
%
16.8
11.9
38.0
20.0
50.0
17.6
10.0
10.0
2017
%
16.8
8.4
38.0
20.0
50.0
13.2
10.0
10.0
2018
$’m
102.1
54.7
45.7
36.7
–
25.4
10.5
5.4
280.5
2017
$’m
99.6
28.4
44.8
34.3
19.5
13.8
10.1
8.0
258.5
1 These funds comprise the Long WALE Hardware Partnership. During the year ended 30 June 2017 there was a $2.0 million capital distribution from BP Fund 2 which was
settled by a simultaneous capital call in the BP Fund 1.
2 Commercial and Industrial Property Pty Ltd met the criteria to be reclassified as a held for sale asset in June 2018, see Note 11.
96
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2018Charter Hall Group Annual Report 2018 Charter Hall Property Trust Group
Name of entity
Unlisted
Brisbane Square Wholesale Fund
BP Fund 11
Charter Hall Prime Retail Fund
Retail Partnership No. 6 Trust
BP Fund 21
Long WALE Investment Partnership 2
TTP Wholesale Fund (TTP)1
Principal activity
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Ownership interest
Carrying amount
2018
%
16.8
11.9
38.0
20.0
17.6
10.0
10.0
2017
%
16.8
8.4
38.0
20.0
13.2
10.0
10.0
2018
$’m
102.1
54.7
45.7
36.7
25.4
10.5
5.4
280.5
2017
$’m
99.6
28.4
44.8
34.3
13.8
10.1
8.0
239.0
1 These funds comprise the Long WALE Hardware Partnership. During the year ended 30 June 2017 there was a $2.0 million capital distribution from BP Fund 2 which was
settled by a simultaneous capital call in the BP Fund 1.
(b) Summarised financial information and movements in carrying amounts
Movements in aggregate carrying amount:
Opening balance
Investment
Share of profit after income tax
Distributions received/receivable
Reversal/(impairment) of carrying amount
Return of capital
Disposal of units
Transfer to held for sale
Transfer to investments in associates
Closing balance
Charter Hall Group
Charter Hall Property
Trust Group
2018
$’m
258.5
34.1
28.6
(27.6)
7.3
(2.7)
–
(17.7)
–
280.5
2017
$’m
285.4
149.7
14.4
(8.5)
(10.5)
(2.0)
(152.8)
–
(17.2)
258.5
2018
$’m
239.0
34.2
25.1
(15.1)
–
(2.7)
–
–
–
280.5
2017
$’m
256.9
149.7
12.9
(8.5)
–
(2.0)
(152.8)
–
(17.2)
239.0
(c) Commitments and contingent liabilities of joint ventures
Below are commitments and contingent liabilities of joint ventures material to the Group’s balance sheet.
Charter Hall Prime Retail Fund’s capital commitments contracted for at the reporting date but not recognised as liabilities was $58.5 million (2017: $nil).
Brisbane Square Wholesale Fund’s (BSWF) capital expenditure contracted for at the reporting date but not recognised as liabilities was
$28.6 million (2017: $nil). BSWF had contingent liabilities at the reporting date of $83.4 million (2017: $nil) relating to potential capital works.
97
Charter Hall Group Annual Report 2018 33 Interests in unconsolidated structured entities
The Charter Hall Group considers its investments in associates and joint ventures to be unconsolidated structured entities, on the basis that the
Group’s voting rights are not the sole factor in determining whether control over an entity exists. Where the Group determines that control over
an entity does not exist, the entity is recognised as an associate or joint venture of the Group for reporting purposes.
The activity and objective of the unconsolidated structured entities of the Group include property investment for annuity income and medium to
long-term capital growth and/or development profit.
The aggregate of all the Group’s interests and maximum exposure to loss in unconsolidated structured entities, being the Group’s interests in
associates and joint ventures, are included in the table below:
Current assets
Trade receivables
Distributions receivable
Loans to associates and joint ventures
Assets classified as held for sale
Total current assets
Non-current assets
Investments in associates at fair value through profit or loss
Investments accounted for using the equity method
Total non-current assets
Total carrying amount of interests in unconsolidated structured entities
Charter Hall Group
Charter Hall Property
Trust Group
2018
$’m
1.1
41.0
25.8
17.7
85.6
2017
$’m
1.0
27.5
9.3
–
37.8
2018
$’m
–
27.4
–
–
27.4
2017
$’m
–
26.4
–
–
26.4
32.4
1,617.2
1,649.6
1,735.2
29.7
1,477.3
1,507.0
1,544.8
32.4
1,543.2
1,575.6
1,603.0
29.7
1,376.4
1,406.1
1,432.5
Total funds under management in unconsolidated structured entities
21,457.2
18,388.7
21,457.2
18,375.7
There are no additional arrangements that would expose the Charter Hall Group or Charter Hall Property Trust Group to losses beyond the
carrying amounts.
During the year, the Charter Hall Group earned fees from structured entities in its capacity as investment manager. Refer to Note 29 for
further information.
No financial support has been provided to the funds beyond the loans disclosed in the above table.
34 Commitments
(a) Lease commitments – Group as lessee
Due within one year
Due between one and five years
Over five years
Charter Hall Group
Charter Hall Property
Trust Group
2018
$’m
4.1
15.0
2.4
21.5
2017
$’m
3.4
14.4
6.4
24.2
2018
$’m
–
–
–
–
2017
$’m
–
–
–
–
Commitments are payable in relation to non-cancellable operating leases contracted for at the balance sheet date but not recognised as liabilities.
(b) US Private Placement (USPP)
In May 2018, the Group committed to issue US$175 million (A$231.5 million) of USPP notes. Refer to Note 20 for details.
Capital commitments
Charter Hall Group
The Group had no contracted capital commitments as at 30 June 2018 (30 June 2017: $nil).
Charter Hall Property Trust Group
The Trust Group had no contracted capital commitments as at 30 June 2018 (30 June 2017: $nil).
98
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2018Charter Hall Group Annual Report 2018 35 Contingent liabilities
The Group did not have any material contingent liabilities as at 30 June 2018 (30 June 2017: $nil) other than the bank guarantees
of $14.3 million (30 June 2017: $14.3 million) provided for under the bank facility (refer to Note 20).
36 Security-based benefits expense
(a) Charter Hall – Performance Rights and Options Plan (PROP)
The performance rights and options are unquoted securities and conversion to stapled securities and vesting to executives are subject
to service and performance conditions which are discussed in the Remuneration Report.
Charter Hall Group and
Charter Hall Property Trust Group
Performance rights
Rights issued 19/12/14
Rights issued 30/11/15
Rights issued 25/11/16
Rights issued 23/11/17
Performance rights issued
Number of rights forfeited/lapsed
Prior years
Current year
Number of rights vested
Prior years
Current year
Closing balance
Service rights
Rights issued 19/12/14
Rights issued 30/11/15
Rights issued 25/11/16
Rights issued 23/11/17
Service rights issued
Number of rights forfeited/lapsed
Prior years
Current year
Number of rights vested
Prior years
Current year
Closing balance
2015
Number
2016
Number
2017
Number
2018
Number
Total
Number
1,051,804
–
–
–
–
1,085,276
–
–
–
–
998,453
1,051,804
1,085,276
998,453
–
–
–
871,739
871,739
1,051,804
1,085,276
998,453
871,739
4,007,272
(133,564)
–
(205,581)
(21,957)
(121,270)
(58,819)
–
(28,262)
(460,415)
(109,038)
–
(918,240)
–
–
–
–
–
–
–
(918,240)
–
857,738
818,364
843,477
2,519,579
554,401
–
–
–
554,401
–
409,195
–
–
409,195
–
–
344,548
–
344,548
–
–
–
353,091
353,091
554,401
409,195
344,548
353,091
1,661,235
–
–
(10,422)
–
(16,616)
–
(488,611)
(65,790)
–
(219,409)
(179,364)
–
–
(193,494)
134,438
–
–
–
–
353,091
(27,038)
–
(708,020)
(438,648)
487,529
(b) PROP expense
Total expenses related to the PROP recognised during the year as part of employee benefit expense were as follows:
Performance rights and option plan
Charter Hall Group
Charter Hall Property
Trust Group
2018
$’m
1.7
2017
$’m
1.4
2018
$’m
–
2017
$’m
–
All PROP expenses were recognised in operating expenses during the current and prior year.
99
Charter Hall Group Annual Report 2018 36 Security-based benefits expense continued
(c) Option inputs
The Black-Scholes or Monte Carlo method, as applicable, is utilised for valuation and accounting purposes. The model inputs to assess the fair
value of the PROP rights granted during FY2018 are as follows:
Grant date
Stapled security price at grant date1
Fair value of right
Expected volatility2
Dividend yield
Risk-free interest rate
CHC
Performance
rights
23/11/2017
$6.16
$2.65
21.2%
4.9%
CHC
Service
rights –
Deferred STI
CHC
Service
rights –
Sign on
CQR
Service
rights –
Deferred STI
23/11/2017
$6.16
$5.79
18.3%
4.9%
23/11/2017
$6.16
$5.59
19.9%
4.9%
8/11/2017
$4.10
$3.75
13.4%
6.9%
1.9%
1.9%
1.9%
2.0%
1 The grant date reflects the date the rights were allocated. Participants are eligible and performance period commences from 1 July of the relevant financial year for
performance rights.
2 Expected volatility takes into account historical market price volatility.
(d) Charter Hall General Employee Security Plan (GESP)
During the year, eligible employees received up to $1,000 (2017: $1,000) in stapled securities which vested immediately on issue but are held
in trust until the earlier of the completion of three years’ service or termination. An expense of $371,000 (2017: $350,000) was recognised in
relation to this plan during the year.
37 Parent entity financial information
(a) Summary financial information
The individual financial statements for the parent entity of the Charter Hall Group, being Charter Hall Limited, and the parent entity of the
Charter Hall Property Trust Group, being the Charter Hall Property Trust, show the following aggregate amounts:
Balance sheet
Current assets
Total assets
Current liabilities
Total liabilities
Shareholders’ equity
Issued capital
Other reserves
Accumulated losses
Net equity
Profit for the year
Total comprehensive income for the year
Charter Hall Limited
Charter Hall
Property Trust
2018
$’m
139.2
151.1
45.7
66.6
285.7
(53.6)
(147.6)
84.5
68.0
68.0
2017
$’m
9.0
177.5
85.9
85.9
285.0
(52.9)
(140.5)
91.6
20.0
20.0
2018
$’m
8.8
1,297.6
48.0
51.4
1,453.5
1.2
(208.5)
1,246.2
50.7
50.7
2017
$’m
62.6
1,300.9
73.1
73.1
1,456.9
–
(229.1)
1,227.8
52.7
52.7
Notwithstanding the net current liability, Charter Hall Property Trust has total net assets of $1.2 billion and liquidity through the inter-staple loan
with Charter Hall Limited.
100
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2018Charter Hall Group Annual Report 2018 (b) Contingent liabilities of the parent entity
Charter Hall Limited and Charter Hall Property Trust had no contingent liabilities as at 30 June 2018 (30 June 2017: $nil) other than the bank
guarantees of $14.3 million provided for under the bank facility held by Charter Hall Property Trust (refer to Note 20(a)).
(c) Contractual commitments
As at 30 June 2018, Charter Hall Limited had no contractual commitments (2017: $nil). As at 30 June 2018, Charter Hall Property Trust was
committed to issue US$175 million (A$231.5 million) of USPP notes as disclosed in Note 34 (2017: $nil).
38 Deed of cross guarantee
Charter Hall Group
Charter Hall Limited and its wholly owned subsidiary, Charter Hall Holdings Pty Ltd (CHH), are parties to a deed of cross guarantee under which
each company guarantees the debts of the other. By entering into the deed, CHH has been relieved from the requirement to prepare financial
statements and a directors’ report under ASIC Instrument 2016/785 issued by the Australian Securities and Investments Commission.
(a) Consolidated statement of comprehensive income and summary of movements in consolidated accumulated losses
The above companies represent a ‘closed group’ for the purposes of the Instrument 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 as follows is 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.
Statement of comprehensive income
Revenue
Depreciation
Finance costs
Foreign exchange (loss)/gain
Share of net profit of associates accounted for using the equity method
Amortisation and impairment of intangibles
Other expenses
Profit before income tax
Income tax expense
Profit for the year
Summary of movements in consolidated accumulated losses
Accumulated losses at the beginning of the financial year
Profit for the year
Dividends paid/payable
Accumulated losses at the end of the financial year
2018
$’m
233.0
(3.5)
(6.6)
0.2
3.5
(2.7)
(127.6)
96.3
(24.6)
71.7
(64.8)
71.7
(54.5)
(47.6)
2017
$’m
205.7
(3.5)
(9.9)
(0.2)
2.5
(5.1)
(131.2)
58.3
(23.6)
34.7
(99.5)
34.7
–
(64.8)
101
Charter Hall Group Annual Report 2018 38 Deed of cross guarantee continued
(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.
2018
$’m
60.6
61.6
17.7
139.9
2.4
17.7
15.1
95.3
20.9
62.7
214.1
354.0
86.4
1.5
87.9
5.3
–
60.0
6.0
1.6
72.9
160.8
193.2
285.7
(45.0)
(47.6)
193.1
2017
$’m
117.4
44.8
–
162.2
0.8
–
15.1
114.7
18.8
65.4
214.8
377.0
46.7
1.9
48.6
6.3
129.7
–
7.4
1.3
144.7
193.3
183.7
285.0
(36.5)
(64.8)
183.7
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Assets held for sale
Total current assets
Non-current assets
Trade and other receivables
Loans due from Charter Hall Property Trust
Investment in associates at fair value through profit or loss
Investments in controlled entities
Property, plant and equipment
Intangible 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 due to Charter Hall Property Trust
Net loans due to related entities
Deferred tax liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Accumulated losses
Total equity
102
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2018Charter Hall Group Annual Report 2018 39 Events occurring after the reporting date
The following events have occurred subsequent to 30 June 2018:
•
•
In July 2018, the Group entered into a binding agreement to sell its interest in joint venture Commercial and Industrial Property Pty Ltd
(CIP) for net proceeds of $29.0 million. Other receivables from investments in CIP resulted in a total cash realisation from the transaction
of $56.3 million. The sale completed on 10 August 2018.
In July 2018, the Group entered into a binding agreement to purchase a three-building amalgamated holding on Queen Street Mall known
as No. 1 Brisbane, located in Brisbane’s CBD, for a net purchase price of $94.0 million.
• On 22 August 2018, Charter Hall and Folkestone Limited entered into a scheme implementation agreement for Charter Hall to acquire
100% of the shares in Folkestone Limited. Under the terms of the scheme, Folkestone shareholders will be entitled to receive from
Charter Hall $1.354 cash per share, which equates to a $205.0 million outlay (excluding c.1.4 million CHC service rights (subject to CHC
share price) to be issued to FLK management, (excluding Greg Paramor) vesting over 3 years). If the proposal is approved by Folkestone
shareholders, completion is anticipated to be early November 2018.
Except for the matters discussed above, no other matter or circumstance has arisen since 30 June 2018 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.
103
Charter Hall Group Annual Report 2018 DIRECTORS’ DECLARATION TO SECURITYHOLDERS
FOR THE YEAR ENDED 30 JUNE 2018
In the opinion of the Directors of Charter Hall Limited (Company), and the Directors of the Responsible Entity of Charter Hall Property Trust
(Trust), Charter Hall Funds Management Limited (collectively referred to as the Directors):
(a) the financial statements and notes of Charter Hall Limited and its controlled entities including Charter Hall Property Trust and its controlled
entities (Charter Hall Group) and Charter Hall Property Trust and its controlled entities (Charter Hall Property Trust Group) set out on pages
48 to 103 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 Charter Hall Group’s and Charter Hall Property Trust Group’s financial positions as at 30 June 2018 and of
their performance for the financial year ended on that date; and
(b) there are reasonable grounds to believe that both Charter Hall Limited and the Charter Hall Property Trust will be able to pay their 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
38 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 38.
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 Managing Director and Group CEO 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.
David Clarke
Chairman
Sydney
22 August 2018
104
Charter Hall Group Annual Report 2018 INDEPENDENT AUDITOR’S REPORT
FOR THE YEAR ENDED 30 JUNE 2018
105
Charter Hall Group Annual Report 2018 INDEPENDENT AUDITOR’S REPORT
FOR THE YEAR ENDED 30 JUNE 2018
106
Charter Hall Group Annual Report 2018 107
Charter Hall Group Annual Report 2018 INDEPENDENT AUDITOR’S REPORT
FOR THE YEAR ENDED 30 JUNE 2018
108
Charter Hall Group Annual Report 2018 109
Charter Hall Group Annual Report 2018 INDEPENDENT AUDITOR’S REPORT
FOR THE YEAR ENDED 30 JUNE 2018
directors determine is necessary to enable the preparation of financial reports that give a true and fair
view and are free from material misstatement, whether due to fraud or error.
In preparing the financial reports, the directors are responsible for assessing the ability of the Charter
Hall Group and Charter Hall Property Trust Group to continue as going concerns, disclosing, as
applicable, matters related to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial reports
Our objectives are to obtain reasonable assurance about whether the financial reports as a whole are
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial report.
A further description of our responsibilities for the audit of the financial reports is located at the
Auditing and Assurance Standards Board website at:
http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our
auditor's report.
Report on the remuneration report
Our opinion on the remuneration report
We have audited the remuneration report included in pages 31 to 45 of the Directors’ Report for the
year ended 30 June 2018.
In our opinion, the remuneration report of Charter Hall Limited for the year ended 30 June 2018
complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of Charter Hall Limited are responsible for the preparation and presentation of the
remuneration report in accordance with section 300A of the Corporations Act 2001. Our responsibility
is to express an opinion on the remuneration report, based on our audit conducted in accordance with
Australian Auditing Standards.
PricewaterhouseCoopers
Wayne Andrews
Partner
Sydney
22 August 2018
110
Charter Hall Group Annual Report 2018
SECURITYHOLDER ANALYSIS
A. Distribution of stapled securityholders as at 24 September 2018
Range
100,001 and Over
50,001 to 100,000
10,001 to 50,000
5,001 to 10,000
1,001 to 5,000
1 to 1,000
Total
Unmarketable
B. Top 20 registered securityholders as at 24 September 2018
Rank Name
A/C Designation
Stapled
Securities
Held
% of Issued
Stapled
Securities Held
446,390,159
2,357,084
7,439,165
4,595,691
4,488,077
506,955
465,777,131
1,814
95.84
0.51
1.60
0.99
0.96
0.11
100.00
0.00
No. of
Holders
53
35
394
631
1,613
1,360
4,086
321
Stapled
Securities
Held
%IC of
Issued
Securities
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA LIMITED
CITICORP NOMINEES PTY LIMITED
NATIONAL NOMINEES LIMITED
BNP PARIBAS NOMINEES PTY LTD
BNP PARIBAS NOMS PTY LTD
CITICORP NOMINEES PTY LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
AMP LIFE LIMITED
MUTUAL TRUST PTY LTD
MILTON CORPORATION LIMITED
BNP PARIBAS NOMS (NZ) LTD
PORTMIST PTY LIMITED
UBS NOMINEES PTY LTD
BOND STREET CUSTODIANS LIMITED
IOOF INVESTMENT MANAGEMENT LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
AET SFS PTY LTD
BNP PARIBAS NOMINEES PTY LTD
BOND STREET CUSTODIANS LIMITED
Total
Balance of register
Grand total
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