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Annual Report 2019
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Contents
Strategy
Purpose
FY19 Performance Highlights
Chair’s Letter
Managing Director
and Group CEO Letter
Sector Highlights
Sustainability
Board and Management
Directors’ Report and Financial Report
Securityholder Analysis
Investor Information
Corporate Directory
To view our Corporate Governance
Statement, go to charterhall.com.au/
About-Us/Corporate-Governance
Cover image:
Chifley Tower, Sydney.
Better Futures.
Mutual Success.
At Charter Hall we
believe in going above
and beyond. In doing
more to help our tenants,
investors, our people
and the communities we
operate in realise their
full potential.
With a reputation for resilience, we use our property
expertise to access, deploy, manage and invest
equity across our core sectors – office, retail,
industrial and logistics and social infrastructure.
Our integrated offering and approach to partnership
means that as both investor and manager, we can
build value and deliver solutions designed for long
term success, across market cycles.
The impacts of what we do are far reaching. From
helping businesses succeed by supporting their
evolving workplace needs, to providing investors
with superior returns for a better retirement, we’re
powered by the drive to go further.
1
Strategy
Strategy
We use our property expertise to access,
deploy, manage and invest in our core
real estate sectors to create value and
generate superior returns for customers.
2
Access
Accessing equity from
listed, wholesale and
retail investors.
Deploy
Manage
Creating value through
attractive investment
opportunities.
Funds management, asset
management, leasing and
development services.
Invest
Investing alongside
our capital partners.
1 YEAR
Gross equity
raised
$3.4bn
Gross
transactions
Funds Under
Management (FUM)
Increase in Property
Investment (PI) to $1.8bn
$5.0bn
$30.4bn
$138m
7.3bn
8.1%
Acquisitions
$4.2bn
Properties
844
Total property
investment return
9.1%
Divestments
$0.8bn
5 YEARS
Gross equity raised
Gross transactions
FUM growth
$10.6bn
$20.0bn
$19.0bn
5-year FUM growth
of 21.5% per annum
Acquisitions
$14.5bn
Divestments
$5.5bn
Image:
Drystone Industrial
Estate, Melbourne.
Increase in PI
$1.1bn
156.0%
Total property
investment return
13.3%p.a
3
Charter Hall Group Annual Report 2019 Purpose
4
Purpose
At Charter Hall we’re all about achieving
better futures and mutual success.
It’s a philosophy that underpins our
operating model and our commitment
to all our stakeholders.
Our
tenants
Our
investors
Our
people
Our
community
Our
environment
We work harder
to create stable
investments with
greater potential to
generate consistent,
superior returns.
We invest alongside
our capital partners,
because we believe
that fundamental to
long-term success,
is mutual success.
Our focus on quality,
well located assets
with long-term leases,
together with our ability
to unlock hidden value,
creates a balance
between stability,
returns and growth.
We have a genuine
desire to see people
perform at their best
and advance their
careers. We actively
leverage our unique
operating model to
give people learning
opportunities that
accelerate their
growth and potential.
Our open, flexible
workplace fosters
a collaborative
environment and,
together with our
many benefits, enables
people to flourish.
Every year we do
more to strengthen
communities. Our
philosophy of mutual
success is the reason
why we were the first
Australian property
company to join the
international Pledge
1% movement.
Through Pledge 1%
we give back our
spaces, profits and
our people’s time, to
support community
organisations such as
local charities, arts and
sports groups.
We put our
environmental
commitment into
action. As part of our
sustainability strategy
we now own Australia’s
largest Green Star
rated portfolio, and are
investing in renewables
and managing down
all forms of waste to
reduce our footprint.
We’re always looking
for new ways to help
businesses grow.
Working in close
partnership with our
tenants, we seek out
innovative solutions to
fulfil their exact needs.
As cross-sector
specialists, we
think laterally to
solve a business’
holistic needs,
often solving their
office, warehousing
and distribution
requirements
together as an
integrated solution.
Our commitment to
our tenants runs deep,
and we continue to
challenge ourselves to
go above and beyond
in our service.
5
Charter Hall Group Annual Report 2019 FY19 Performance Highlights
FY19 Performance
Highlights
Group Returns
Property Investments
Funds Management
Balance Sheet
Operating earnings (post
tax) and OEPS growth
Property investment
portfolio
Funds Under
Management (FUM)
$221m
25.5%
$1.8bn
8.1%
$30.4bn
31.1% (post balance date
FUM of $34.6bn)
Balance sheet
gearing
5.4%
Total property
investment return2
Gross
transactions
9.1%
$5.0bn
Property investment
yield
Property funds
management yield3
6.3%
6.0%
Look through
gearing
30.8%
Weighted average
debt maturity
7.1 yrs
Distributions per
share growth
33.7cps
6.0%
NTA per security
$3.90
Total platform return1
11.1%
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.
2. 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 in new vehicles held for less than a year and investments in
Direct funds.
3. Property Funds Management (PFM) yield is calculated as PFM operating earnings post tax per security (includes 50% allocation of net
interest) divided by the opening NTA per security.
6
Charter Hall Group Annual Report 2019
Image:
10 Shelley Street,
Sydney.
7
Chair’s Letter
Supporting our purpose and guiding our decisions
are our four values of active partnership, genuine
insight, inventive spirit and powered by drive.
Our values ensure we stay strong as we grow
and are our constant in this time of technological,
environmental and societal change.
Chair’s Letter
8
Dear Securityholder,
Despite an uncertain external environment in
FY2019, I am pleased to report that Charter Hall
continues to gain momentum in the business,
delivering on its strategic pillars of Access, Deploy,
Manage and Invest. In particular, the record
equity flows demonstrate our customer centric
approach continues to be supported by our investor
customers. Additionally, the repeat tenant customer
metrics, retention rates and customer interviews
suggest the Group has an equal focus on both
tenant and investor customers.
While this annual report measures our performance
for the year to 30 June 2019, we see long term
performance as the true test of success. Over
the past five years, we’ve been able to deliver
securityholders 13.4% post tax growth in earnings per
annum, and distribution growth of 12.4% per annum.
With growth in both net tangible assets (NTA) per
security plus distributions, we were able to deliver
securityholders an 11.1% total platform return1 in FY19.
Our track record of out-performance over ten
years has also delivered strong returns for our
securityholders, delivering returns 9.6% above the
broader equity market.2
Guided by a strong purpose and values
As your Board, one of our roles is to ensure that
the team remains focused on delivering against the
Group’s strategy, whilst ensuring all stakeholders
are fairly treated and the culture of “doing the right
thing” permeates throughout the Group.
While our results demonstrate our performance
focus, front and centre for us is our role as guardians
of other people’s capital over the long term. That’s
why our purpose, developed with input from
investors, tenants and employees, is about achieving
better futures and mutual success through bringing
aspirations to life.
Supporting our purpose and guiding our decisions
are our four values of active partnership, genuine
insight, inventive spirit and powered by drive – a
strong desire to look for new ways to help our
people and customers grow with us. Our values
ensure we keep strong as we grow and are our
constant in this time of technological, environmental
and societal change.
Investing in new sectors
Today, with your support, the property portfolio
that we manage and invest in is one of Australia’s
leading real estate platforms. Charter Hall Group’s
FUM at $34.6 billion, ‘post balance date’, represents
the second largest commercial property portfolio
in Australia.
Comprising 844 properties, with over 3000
tenancies and delivering over $1.7 billion p.a. of net
rental income, we have been active in curating our
portfolios to drive performance.
During the period we completed the successful
acquisition and integration of the Folkestone
business, which also materially added to FUM
growth and expanded our investable horizons into
the social infrastructure sector, primarily through the
ASX listed Charter Hall Education Trust (ASX:CQE).
Our ability to partner with capital to access
attractive investment opportunities, often through
off-market channels and our willingness and ability
to invest alongside our partners for mutual gain
will see the Group continue to be an active market
participant particularly where we can access high
quality assets leased to quality tenants on long
weighted average leases.
Continuing to work on diversity
Talented people with different experiences,
backgrounds and perspectives are key to Charter
Hall’s growth and the sustainability of its future. As a
Board and management team, we understand the
role we play in driving the organisational and systemic
change needed to create equity, remove barriers to
inclusion and genuinely engage with both the internal
and external communities within which we operate.
Whilst we have achieved gender balance overall
as a Group, we haven’t achieved it to the level we
would like in key revenue generating parts of our
business and at important decision-making levels.
Internally, our focus this year has been on the
composition of Divisional Leadership Teams,
increasing the retention of women, recruiting
young talent and leveraging our operating model to
accelerate development from within. More broadly,
our CEO David Harrison, remains an active member
of the Property Male Champions of Change and
Vice President of the Property Council of Australia
(PCA), together with being a Workplace Gender
Equality Agency (WGEA) Pay Equity Ambassador.
Our commitment to inclusion also extends to nurturing
other communities within the business, with our
focus this year being on the young, up and coming
talent attracted into Charter Hall as part of our Annual
Scholarship Program and our LGBTIQ+ community.
For more information,
please visit
charterhall.com.au/
chc2019
Image:
David Clarke, Chair.
by the opening NTA per security.
2. Source: UBS.
1. Total Platform Return is calculated as growth in net tangible assets (NTA) per security plus distributions per security divided
9
Charter Hall Group Annual Report 2019 Chair’s Letter
As a Group, we continue to reflect upon what’s
working and what’s not, both within our business
and across the industry.
Serving our investors
We remain focused on providing clear governance
and oversight to assist management in continuing
to deliver for our stakeholders. We have always
understood that embedding a high standard
of ethics into our business, creating trust in the
institution and the people who manage your wealth,
is paramount. Our role as a Board is to serve you to
maintain and build trust.
The Charter Hall Board continues to comprise a
majority of independent directors, in line with best
practice. Following the acquisition of Folkestone
Property Group during the period Greg Paramor, AO,
the former CEO of Folkestone Limited, was invited
to join the board. Greg brings to the Board extensive
property expertise and was honoured during the
year by being inducted into the PCA Hall of Fame,
recognising 40 years of service to the property sector.
Your Board is actively engaged in the business
to ensure the continued execution of the Group
strategy. Through a diverse mix of skills and
expertise, the Non-Executive Directors continue to
provide a strong overall contribution to the success
of the Group. This approach places the Group in a
resilient position for further growth.
I encourage all securityholders to familiarise
themselves with your directors – our biographies
can be found on pages 31–33 of the Directors’ Report.
Broader impact
The impacts of what we do are far reaching. This
year, we’ve maintained and expanded Australia’s
largest Green Star footprint and continue to see
improvement in our NABERS energy ratings across
office and retail.
We’ve increased our renewable energy footprint
from 2.5MW in 2018 to 5.2MW of solar PV across
the portfolio and are also expanding our solar
footprint with our retail power purchase agreements
(PPAs) with Clean Peak Energy and Solgen. The
PPA partnership will help the Group realise our
short-term sustainability targets and contribute
towards our longer-term aspirations.
During the period we became a signatory to the
United Nations Global Compact. This significant
commitment will see us engage in collaborative
projects to advance the Sustainable Development
Goals and make the UN Global Compact and its
principles part of our strategy and culture.
In May 2018, we undertook a risk assessment of
our supply chain in relation to human rights and
modern slavery to develop our governance and
management approach to the issue. Following this
assessment, a Modern Slavery and Human Rights
Working Group has been established to ensure that
we monitor modern slavery and human rights risk.
Our commitment to the philanthropic movement
Pledge 1% continues to grow as we grow, reinforcing
our philosophy of mutual success. Our people are
heavily engaged in the communities we operate in,
with 378 employee volunteer days in community
charities such as Rural Aid, where our retail centres
and customers raised $196,000 to support drought
affected communities. Across our property portfolio,
we committed over $1.8 million or 37,997sqm in
space which was used by community organisations
and for health and wellbeing activities. I am proud
that through our partnerships and people we
invested $775,000 in community programs and
services across Australia.
Outlook
Economic growth in Australia was weaker over
FY2019 than expected and growth in Australia’s
major trading partners eased in the second half
of 2018. The global outlook is reported to have
continued to moderate further into 2019. This is
leading to a weaker global economic outlook and
creating downward pressure on both interest rates
in Australia and US bond yield rates.
We remain well set for the future, supported by a
high-quality team focused on delivering results for
our securityholders and capital partners, positioning
us well for resilient performance and shared
growth. We have access of $4.1 billion1 in available
investment capacity through existing cash balances
and available lines in our funds and on our balance
sheet. This capacity provides a resilience against
any short-term volatility and an ability to move
quickly to capture opportunities, while also providing
a meaningful avenue for future growth.
As we continue to build on the Group’s solid
foundations, I would like to take this opportunity to
thank our customers, investors and securityholders
for their support, and our people and their families
for their passion, commitment and sacrifice
throughout the year to deliver what has been an
exceptional year of performance.
1. As at 30 June 2019.
David Clarke
Chair
10
Charter Hall Group Annual Report 2019
Image:
Charter Hall,
Brisbane.
11
Managing Director and Group CEO Letter
Managing Director
and Group CEO Letter
A year of continued momentum
delivers strong growth.
12
Dear Securityholder
In Financial Year 2019 we built on the momentum
from prior years, significantly growing Funds
Under Management (FUM) by 31%, successfully
completing the acquisition and integration of
Folkestone Ltd, providing us a leading position
in the Social Infrastructure property market; and
we had a record year for equity inflows across all
capital sources and transactions.
Our focus remains on delivering sustainable growth
for securityholders, replenishing dry powder,
strengthening resilience and maintaining a vigilant
focus on property fundamentals, cycles and future
return forecasts.
Performance
I am pleased to report a 34% increase in Operating
Earnings EBITDA to $275 million. Operating earnings
and OEPS have also had very strong growth of
25.5% to $220.7 million and 47.4 cents per share
(cps) respectively. Further, we have continued
to generate leading REIT sector distribution per
share growth of 6.0% to 33.7cps, whilst retaining a
significant proportion of earnings for growth via a
distribution payout ratio of 71%.
Importantly, the growth in earnings also comes
after-tax. When compared to peers on a pre-tax
basis, we have delivered sector-leading 17.3% OEPS
growth rate (CAGR) annually over the last five years.
Tax paid also delivers valuable franking credits for
our securityholders.
Charter Hall has generated a Total Shareholder
Return (TSR) over 10-years of 25.3% versus
the AREIT index S&P/ASX 200 (GICS) Property
Accumulation Index of 14%.
Quality Property Funds Management portfolio
Our Property Funds Management portfolio is
well-diversified comprising 844 properties, with over
3,000 tenancies delivering in excess of $1.7 billion of
net rental income. Group FUM WALE has increased
to 8.2 years and the weighted average cap rate
firmed to 5.58%, reflecting the improving quality and
risk profile of our portfolio.
Significant growth in funds under management
We have been active in acquiring and divesting
assets during the period. The Folkestone acquisition
added $1.6 billion to FUM growth, whilst Group FUM
grew by $7.2 billion to $30.4 billion in 12 months and
a further $4.2 billion since 1 July 2019, meaning we
have seen around a 50% rise in FUM over 14 months
to $34.6 billion.
Developments continue to be a meaningful contributor,
while our focus on driving total returns has seen net
revaluations also lift significantly during the period.
Development completions of $1.1 billion and net
revaluations of $1 billion have driven FUM growth.
Strong capital raising support
It’s been another excellent 12 months for equity
flows, with 16 funds across the platform raising
equity of $3.4 billion across all capital sources.
We’ve been actively deploying proceeds into
developing or buying new assets, curating our
portfolios to drive performance and taking the
opportunity to sell and divest non-core assets
where recycling enhances portfolio quality.
Our Wholesale and Partnership Funds continue to
secure investment opportunities and successfully
raise capital to take advantage of our development
and acquisition pipeline. Our Direct business also
continues to enjoy strong support from investors
given the performance of the funds. We currently
have four Direct funds open for investment in office,
industrial and diversified offerings.
Despite volatility in listed markets, we have also
enjoyed the support in our listed funds, with all of
them successfully raising equity to fund portfolio
enhancing transactions.
Transactions
Active deployment of capital is an integral part of
our business. This year we completed $5 billion of
gross transactions. All our sectors have been busy,
but activity has been led by our office and industrial
sectors deploying capital after recent capital-raising
activity. Repeat customer transactions are a
healthy sign of delivering on our customer centric
objectives, many of which reflect our capacity to
deal with customers in multiple sectors.
Active development pipeline
The Group continues to progress various
developments across its portfolios, creating
investment grade properties and adding significant
value through enhancing income yield and total
returns. Our development completions have added
$1.1 billion to FUM in the last 12 months. Our total
development pipeline now stands at $6.5 billion,
up from $3.5 billion three years ago.
The Group’s $4.2 billion office development pipeline
of committed projects is predominantly pre-leased
to high quality tenants and will generate institutional
quality long-leased assets for our funds, while
providing attractive incremental FUM growth and
enhancing our credentials to attract capital. Our
Industrial pipeline also continues to grow, reflecting
our position as the second-largest logistics and
industrial owner in Australia.
13
Image:
David Harrison,
Managing Director
and Group CEO.
Charter Hall Group Annual Report 2019 Managing Director and Group CEO Letter
Valued relationships with our tenants
Equity Sources
Across the platform we enjoy strong tenant
customer relationships. We’re always looking
for new ways to support our tenants – actively
partnering with them to provide innovative solutions
to fulfil their exact needs.
Woolworths, Wesfarmers and Coles Group are
three of our largest tenant customers occupying
space across our retail, industrial and logistics
and office sectors. Combined, they account for
over 25% of our net income; and as cross-sector
specialists, we think laterally to solve their retail,
warehousing and distribution requirements
together in an integrated solution.
In fact, 72% of our tenant customers lease more
than one tenancy from us. That ability to partner
with our tenants and meet their entire property
needs drives tenant retention, with 69% of tenants
re-leasing with us during the twelve-month period.
Importantly, this benefits shareholders by producing
earnings resilience across our property investment
portfolio and also feeds back into transactions, with
our significant sale and leaseback activity providing
off-market opportunities to grow our funds.
A resilient property investment portfolio
Our Property Investment Portfolio provides a strong
alignment of interest with our investor customers,
while also ensuring that securityholders benefit
from our property expertise. Our earnings here are
characterised by the high quality of our tenants, the
diversity of sectors, and the lack of concentration
risk, or single asset exposure.
The portfolio has grown to $1.8 billion, or 8.1% over
the year, largely reflecting our investment in Charter
Hall Education Trust (ASX:CQE), but also growth in
underlying asset values. It has delivered an attractive
6.3% property investment yield while maintaining
capacity from retained earnings and recycling
co-investment stakes into new growth.
Occupancy is broadly stable, and through active
asset management the Property Investment
portfolio WALE has increased to 7.6 years. Our
Weighted Average Rent Review remains attractive
at 3.5% and the number of properties has increased
significantly to 844, again largely reflecting our
investment in Charter Hall Education Trust.
With our single largest single asset exposure
being 1.8% of the Group’s balance sheet property
investment portfolio and our top 10 assets only
representing 11.4% of net income generated,
we believe the groups Property Investment
portfolio is a very defensive, well diversified,
core investment portfolio.
$6.3bn
21%
$5.0bn
16%
$19.1bn
63%
Wholesale Equity
Listed Fund
Retail Equity
$30.4bn
Culture the key to our performance
The energy, growth and performance of our business
are fuelled by our culture and our people. This year
we continued to reinforce what makes us unique, by
engaging with and listening to our key stakeholders
(Boards, investors, customers, employees) around our
values, making our purpose explicit and designing our
approach to succession and key talent development
in a way that leverages our operating model, our
purpose and our culture. Across the Group, the
response to our new values of Active Partnership,
Genuine Insight, Inventive Spirit and Powered by Drive
has also been extremely positive.
We’re very aware of the demands of an active and
growing Group likes ours, and while we know that
makes Charter Hall an exciting place to work, our
focus is on keeping our culture and engagement
strong and building the wellbeing and resilience
of our people. In FY19 we rolled out a People and
Culture program across the Group to develop
resilience and psychological safety. There was
also greater focus on empowering our LGBTIQ+
and younger communities to have more of a voice,
including partnerships with Pride and Diversity,
the Foundation for Young Australians Innovation
Program and Universities to encourage young talent
into the property industry.
Sizing up our approach to Sustainability
Our approach to sustainability is consistent with
our approach to business. We’re less about talk
and more about action. We like to understand
the challenge, prove things up and then commit
to delivering. This year, we undertook a Board
endorsed investigation into alignment with the
Taskforce for Climate related Financial Disclosures
14
Operating Earnings Per Security Growth
Distribution Per Security Growth
60
50
40
30
20
10
0
40
40
35
35
30
30
25
25
20
20
15
15
10
10
5
5
0
0
Pre-tax OEPS
Post-tax OEPS
56.3cps
40.5cps
43.5cps
47.4cps
27.5cps
25.3cps
30.4cps
35.9cps
37.7cps
FY16
FY17
FY14
FY15
8.5% 10.5%
8.5% 10.5%
18.1%
33.2%
FY19
FY18
5.0% 25.5%
7.4% 29.4%
Post-tax growth
Pre-tax growth
CAGR (Pre-tax)
CAGR (Post-tax)
17.3%
13.4%
(TCFD) Framework to ensure our portfolio is
resilient enough to withstand the impacts of
climate change. We understand that this is an
important consideration of our investor customers
when deciding on the placement of their capital.
Over the next year we will develop an action plan
towards alignment with the framework. We’ve also
done significant work around scoping and reducing
our emissions and have set ourselves a target for
net zero direct emissions by 2030.
Outlook and guidance
Since year end, we have grown Funds Under
Management from $30.4 billion to $34.6 billion.
Post balance date our partnerships have also
increased with new investments into 201 Elizabeth
Street, Sydney, 242 Exhibition Street, Melbourne,
Chifley Tower in Sydney and the Telstra Exchange
portfolio of prime properties.
The Group continues to maintain modest balance
sheet gearing of 5.4% and 30.8% look through
gearing. As at 30 June 2019, our investment
capacity was $4.1 billion across the platform. Post
balance date and considering recent transaction
activity, investment capacity stands at $3 billion,
plus committed but undrawn equity commitments
in wholesale funds and partnerships.
DPS (grossed up)
DPS (grossed up)
DPS
DPS
26.9cps
26.9cps
24.2cps
24.2cps
30.0cps
30.0cps
22.3cps
22.3cps
40.0cps
40.0cps
33.7cps
33.7cps
36.9cps
36.9cps
31.8cps
31.8cps
FY14
FY14
FY15
FY15
FY16
FY16
FY17
FY17
FY18
FY18
6.0%
6.0%
6.0%
6.0%
11.5%
11.5%
11.2%
11.2%
8.5%
8.5%
FY19
FY19
CAGR (grossed up)
CAGR (grossed up)
CAGR (cash paid)
CAGR (cash paid)
12.4%
12.4%
8.6%
8.6%
Based on no material change in current market
conditions and reflecting FUM growth already
achieved in FY20, guidance is for 18-20% growth
in post-tax operating earnings per security in
the year ahead. This includes $132 million for the
CHOT performance fee, payable in April 2020, with
$50 million already accrued in FY19 earnings. When
the impact of the CHOT performance fee is removed
from both FY19 and FY20 earnings, guidance implies
post tax operating earnings growth of 11-13% over
FY19. Distribution per security guidance is for 6%
growth in the year ahead.
My thanks, on behalf of the Executive Leadership
Team, to all our people for all their hard work
this year. I would also like to thank the Charter
Hall Group Board for their continued strategic
guidance along with the Independent Directors
of our Fund Responsible Entity Boards. Our strategy
of using our property expertise to create value
and generate superior returns for our customers
underpins our ability to continue to deliver returns
for securityholders.
Finally, thank you to all our tenants and investors
for continuing to be part of our Charter Hall
Group community.
David Harrison
Managing Director and Group CEO
15
Charter Hall Group Annual Report 2019 Sector Highlights
Sector Highlights
Charter Hall’s active partnership approach and
continued outperformance has positioned us as
a trusted manager of choice. Across the Group,
we continue to focus on delivering a sustainable
and resilient return through property sector
diversity, with a focus on Long WALE properties.
Our ability to partner with our tenants to meet
their entire property needs sets us apart from
many of our peers.
Office
FUM
Industrial
$14.1bn
FUM
$7.6bn
Retail
FUM
$6.9bn
Social
Infrastructure
FUM
$1.4bn
Direct2
FUM
$5.0bn
Portfolio
66
properties
Portfolio
164
properties
Portfolio
178
properties
Occupancy
WALE
96.7%
6.9 yrs
Occupancy
WALE
99.3%
10.6 yrs
Occupancy
WALE
98.2%
7.8 yrs
Portfolio
Occupancy
WALE1
433
properties
Portfolio
78
properties
100.0%
10.0 yrs
Occupancy
WALE
99.2%
8.8 yrs
1. Includes Brisbane City Council Bus Network Terminal (CQE owns 50% interest).
2. Direct FUM and statistics have been reflected in the sectors.
3. Total portfolio is 844. The table above excludes three assets held in non-core sectors.
16
Charter Hall Group Annual Report 2019
Office
“Our business is focused on creating a true
partnership approach to deliver high quality
workplace environments that are productive
and provide a better work day experience.”
ADRIAN TAYLOR OFFICE CEO
144
Leasing deals executed
across 207,000sqm
$2.8bn
Gross transactions
130 Lonsdale
100% pre-leased
12
Development projects
$4.2bn
Completion value
$2.9bn
New and refinanced
debt facilities
17
Image:
Artist’s impression of
130 Lonsdale Street,
Melbourne.
Sector Highlights
Industrial and Logistics
“As one of the largest owners of Industrial and
Logistics property in Australia, we go further in
collaborating and partnering with our tenant
customers to build long-term relationships, and
deliver superior returns for our investor customers.”
RICHARD STACKER INDUSTRIAL CEO
45
Leasing deals executed
across 576,000sqm
$1.8bn
New and refinanced
debt facilities
$1.0bn
Gross transactions
28
Development projects
$2.0bn
Completion value
Image:
Coca Cola Amatil,
Orchard Road, Brisbane.
18
Charter Hall Group Annual Report 2019
Retail
“As the leading owner and manager of community
convenience retail and long WALE retail, we are
curating a portfolio focused on convenience and
everyday needs, that provides a resilient and
growing income stream for our investors.”
GREG CHUBB RETAIL CEO
447
Leasing deals executed
across 57,000sqm
Leases executed across
12
69,000sqm
to majors
$1.0bn
New and refinanced
debt facilities
$1.0bn
Gross transactions
5
Development projects
$0.2bn
Development spend
19
Image:
Secret Harbour,
Perth.
Sector Highlights
Social Infrastructure
“Our social infrastructure assets support the
delivery of vital social and community services,
enriching the lives of our community and provide
a social dividend to our investors.”
NICK ANAGNOSTOU HEAD OF SOCIAL INFRASTRUCTURE
18
Leasing deals executed
across 11,000sqm
$0.18bn
Gross transactions
$0.4bn
New and refinanced
debt facilities
29
Development projects
$0.2bn
Development spend
Image:
Only About Children,
Camberwell, Melbourne.
20
Charter Hall Group Annual Report 2019
Direct
“Charter Hall Direct is Australia’s leading direct property fund
manager, with $5.0 billion of assets under management.
We have a strong track record managing unlisted property funds
and syndicates since 1995 and our products are consistently
highly rated by external research groups.”
STEVEN BENNETT DIRECT CEO
Direct Funds Net Return Since Inception
The active Direct Funds have returned 12.2% p.a., outperforming the benchmark1 by 2.0%
0.20
17%
16%
12%
11%
10%
11%
11%
10%
9%
12%
11%
11%
11%
10%
13%
10%
11%
10%
9%
DIF2
2013-2019
DIF3
2014-2019
CDC Trust
2014-2019
DIF4
2016-2019
BW Trust
2014-2019
DAT
2015-2019
DAT2
2016-2019
DCSF
2017-2019
PFA (Original)
2012-2019
DOF (WSA)
2014-2019
1. Benchmark refers to the MSCI/IPD Unlisted Core Wholesale Property Fund Index.
21
0.15
14%
Image:
Bunnings,
Mackay, QLD.
0.10
Net Return (% p.a.):
Office
Industrial
Retail
Diversified
0.05
Benchmark (% p.a.)
0.00
Sustainability
Sustainability
In a rapidly changing
world, we engage
regularly with
stakeholders to
better understand
the horizon risks and
opportunities ahead.
22
Environment
Climate resilience
Act on climate change
WHAT
MATTERS
MOST
OUR
RESPONSE
HOW WE
CREATE VALUE
Energy and carbon: Making our buildings more
energy efficient and investing in renewables
Water: Conserving water resources
Waste: Reducing waste and increasing recycling
Resilience: Understanding and managing climate
risk and adaptation.
HOW WE
MEASURE
OUR SUCCESS
Reduction in greenhouse gas emissions
and resource use
Benchmarking against NABERS and
Green Star standards
Percent of assets covered by adaptation plans
FY19
SUSTAINABILITY
HIGHLIGHTS
Energy efficient buildings
Emissions reduction target
4.77star
Increased Office portfolio
NABERS Energy ratings
weighted average,
up from 4.66 star in FY18
100%
reduction in emissions
within Charter Hall direct
control (Scope 1 and 2)
by 2030
Onsite renewable energy
5.2MW solar
PV installed across the office,
industrial and retail portfolio,
generating 7,598MWh
of electricity per annum
(equivalent to powering
507 homes)
Social
Governance
Engagement and inclusion
Responsible business
Increase the strength of communities
Embed a high standard of ethics into our actions
Investment: Pledging 1% to community initiatives
Jobs: Creating more employment opportunities
Inclusion: Fostering a diverse, inclusive and
agile workforce
Engagement: Investing in innovative ways to
engage our stakeholders
Wellbeing: Providing healthy, built environments
through our WELL rated buildings and partnerships
Health and Safety: Improving the health and safety
of our work environment.
Governance: Ensuring we deliver on our
commitment to the UN Global Compact
Compliance: Training all employees in ethical
behaviour and standards
Data security: Protecting the privacy of
individuals and companies.
Pledge 1% metrics
Diversity metrics
Tenant and employee satisfaction
Health and safety data
WELL accreditation
Annual UN Global Compact and Modern
Slavery statements
Implementing measures on customer,
investor and employee satisfaction
100% employee ethics compliance training
Alignment to international standards
Pledge 1% achievements
Employee engagement
Risk Culture Index
81%
Above the Australian
National and Global High
Performance Norm
100%
Employee engagement
in compliance training
67%
of our employees
engaged in 378 employee
volunteer days
87%
$775,000
invested in community programs
and services
1.8m
or 37,997sqm of space
utilised by community
organisations, and for health
and wellbeing activities
Signatory to
UN Global
Compact
Launched our new
Purpose
and Values
Implementing our
Human
Rights
Framework
23
Charter Hall Group Annual Report 2019 Board and Management
Board
of Directors
See pages 31–33
for Director bios.
Executive
Committee
Natalie Devlin
Chief Experience Officer
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
its operating model.
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
30 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.
David Clarke
Chair/Independent
Non-Executive Director
Anne Brennan
Independent
Non-Executive Director
Philip Garling
Independent
Non-Executive Director
David Ross
Independent
Non-Executive Director
Karen Moses
Independent
Non-Executive Director
Greg Paramor AO
Non-Executive Director
David Harrison
Managing Director
and Group CEO
David Harrison
Managing Director
and Group CEO
BBus (Land Economics),
FAPI, GDipAppFin
See page 36.
Steven Bennett
Direct CEO
BBA
Steven oversees more
than $5.0 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.
24
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.
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.
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 led
the establishment and
structuring of new funds
and 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.
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$14.1 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.
Adrian graduated with
a Bachelor of Business
from Monash University,
is a Certified Practising
Accountant, is a 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.
Sheridan Ware
Chief Information and
Technology Officer
BA, MBA
Sheridan joined Charter
Hall in March 2019 with
20 years experience
helping companies drive
commercial value and
increased customer
engagement through
cultural and digital
transformation. She has
worked across a wide
range of industries –
including commercial real
estate, government and
not-for-profit – and across
multiple global markets.
Sheridan is responsible
for all strategic and
operational aspects of
technology at Charter Hall
and is a key contributor
to the Property Council
of Australia’s CIO Cyber
Security Roundtable.
Prior to joining Charter
Hall Sheridan spent
11 years at Cushman &
Wakefield in a variety of
roles covering strategy,
business transformation
and technology; most
recently as Chief
Information Officer of their
Asia Pacific business. She
has won multiple awards
for her contributions
to thought leadership
in the commercial real
estate field.
25
Charter Hall Group Annual Report 2019 Directors’ Report and Financial Report
Directors’ Report and
Financial Report
For the year ended 30 June 2019
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 Segment information
2
3
Investments in associates
Investments in joint ventures
4 Revenue
5 Expenses
6
Income tax expense
7 Distributions/Dividends paid
and payable
8 Earnings per stapled security
9 Receivables and other assets
10 Assets classified as held for sale
11
Investment properties
12 Business combination
13 Intangible assets
14 Deferred tax assets and liabilities
15 Trade and other liabilities
27
53
54
56
57
58
59
60
60
63
68
70
70
71
72
73
74
75
75
76
77
78
79
16 Borrowings
17 Derivative financial instruments
18 Contributed equity
19 Reserves
20 Non-controlling interests
21 Remuneration of auditors
22 Reconciliation of profit after tax to net
cash inflow from operating activities
79
82
82
83
83
84
84
23 Capital and financial risk management 85
24 Fair value measurement
25 Related parties
26 Controlled entities
27 Interests in unconsolidated
structured entities
28 Commitments
29 Contingent liabilities
30 Security-based benefits expense
31 Parent entity financial information
32 Deed of cross guarantee
33 Events occurring after the
reporting date
34 Summary of significant
accounting policies
Directors’ Declaration to Securityholders
Independent Auditor’s Report
Securityholder Analysis
Investor Information
Contact Details
Corporate Directory
91
94
96
97
97
98
98
100
101
103
103
111
112
119
120
121
121
26
Directors’ Report
For the year ended 30 June 2019
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 2019, 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)
and CHPT and its controlled entities. 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.
• David Clarke – Chair and Independent Non-Executive Director
• Anne Brennan – Independent Non-Executive Director
• Philip Garling – Independent Non-Executive Director
• David Harrison – Managing Director and Group CEO
• Karen Moses – Independent Non-Executive Director
• Greg Paramor AO – Independent Non-Executive Director (appointed 30 November 2018)
• David Ross – Independent Non-Executive Director
Distributions/Dividends – Charter Hall Group
Distributions/dividends paid/payable to stapled securityholders during the year were as follows:
Final ordinary distribution of 10.7 cents and ordinary dividend of 6.5 cents per stapled security for the six months
ended 30 June 2019 payable on 30 August 2019
Interim ordinary distribution of 8.3 cents and interim ordinary dividend of 8.2 cents per stapled security for the six
months ended 31 December 2018 paid on 28 February 2019
Total Distributions/Dividends paid and payable to stapled securityholders
2019
$’m
80.1
76.8
156.9
Operating and financial review
The Group recorded a statutory profit after tax attributable to stapled securityholders for the year to 30 June 2019 of $235.3 million
compared to a profit of $250.2 million for the year ended 30 June 2018.
Operating earnings amounted to $220.7 million for the year to 30 June 2019, compared to $175.8 million for the year ended
30 June 2018, an increase of 25.5%. Operating earnings is a financial measure which represents statutory profit after tax adjusted
for the items in the table below. Operating earnings is used by the Board to make strategic decisions and as a guide to assessing
an appropriate distribution to declare.
The operating earnings information included in the table below has not been subject to any specific audit procedures but has
been extracted from segment information in Note 1 of the accompanying financial report.
27
Charter Hall Group Annual Report 2019 Directors’ Report and Financial Report
Operating earnings attributable to stapled securityholders
Add: Net fair value movements on equity accounted investments1
Add: Gain/(loss) on disposal of property investments1
Add: Reversal of impairment of investment in joint venture
Less: Realised and unrealised net losses on derivatives1
Less: Business combination acquisition costs
Less: Non-operating income tax benefit/(expense)
Less: Performance fees expense1
Less: Amortisation of intangibles
Less: Other1
Statutory profit after tax attributable to stapled securityholders
2019
$’m
220.7
75.8
1.9
–
(29.0)
(8.3)
(7.3)
(7.0)
(4.1)
(7.4)
235.3
2018
$’m
175.8
98.4
(1.5)
7.3
(2.5)
–
0.5
(16.5)
(2.7)
(8.6)
250.2
1
Includes the Group’s proportionate share of non-operating items of equity accounted investments on a look through basis.
The 30 June 2019 financial results with comparatives are summarised as follows:
Revenue ($ million)1
Statutory profit after tax for stapled securityholders ($ million)
Statutory earnings per stapled security (EPS) (cents)
Operating earnings for stapled securityholders ($ million)
Operating earnings per stapled security (cents)
Distribution/dividend per stapled security (cents)
Property investment segment earnings ($ million)2
Development investment segment earnings ($ million)2
Property funds management segment revenue ($ million)2
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 ($)4
Balance sheet gearing5
Funds under management (FUM) ($ million)
CHARTER HALL GROUP
CHARTER HALL PROPERTY
TRUST GROUP
2019
378.5
235.3
50.5
220.7
47.4
33.7
110.8
7.8
262.9
2,453.6
493.7
1,959.9
50.3
1,909.6
465.8
4.10
1,817.0
3.90
5.7%
30,425.6
2018
246.2
250.2
53.7
175.8
37.7
31.8
103.8
–
201.0
2,013.6
155.4
1,858.2
35.6
1,822.6
465.8
3.91
1,777.10
3.82
0.0%
23,214.1
2019
37.5
144.3
31.0
n/a
–
19.0
n/a
n/a
n/a
2,078.3
359.3
1,719.0
50.3
1,668.7
465.8
3.58
1,668.7
3.58
n/a
n/a
2018
24.3
175.2
37.6
n/a
–
20.1
n/a
n/a
n/a
1,724.5
73.3
1,651.2
35.6
1,615.6
465.8
3.47
1,615.6
3.47
n/a
n/a
1 Gross revenue does not include the Group’s share of net profits of associates and joint ventures of $146.2 million (2018: $169.1 million).
2 Segment earnings and revenue is used by the Board in assessing the performance and allocating of resources to its operating segments.
3 Represents the 58.1% (2018: 38.7%) non-controlling interest share of the Charter Hall Direct Diversified Consumer Staples Fund (DCSF).
4 NTA attributable to stapled securityholders and NTA per stapled security ($) are calculated using assets less liabilities, net of intangible assets and related deferred
tax and non-controlling interests in DCSF.
5 Gearing is calculated as interest-bearing debt drawn (excluding hedged foreign exchange movements subsequent to the related debt drawing date and DCSF)
net of cash, divided by total assets net of cash, derivative assets and DCSF.
Property investment
Property investment provides the Group with yields from its co-investments in Group funds. During the year property investment
contributed $110.8 million in segment earnings to the Group.
Industrial;
The Group’s property investments are classified into the following real estate sectors:
• Office;
•
• Retail;
• Diversified; and
• Social infrastructure.
28
Directors’ ReportFor the year ended 30 June 2019 The following table summarises the key metrics for the property investments of the Group:
FY 2019
Charter Hall
investment
income1
($m)
36.7
13.4
15.2
Weighted
average
lease
expiry
(years)
5.8
7.1
4.3
Weighted
average
market cap
rate
(%)
5.2
5.1
5.0
Weighted
average
discount
rate
(%)
6.6
6.6
6.4
Weighted
average
rental
reviews
(%)
3.8
3.8
3.8
FY 2019
Charter Hall
investment
yield2
(%)
6.1
5.2
6.4
Charter Hall
investment
($m)
671.9
291.1
263.7
Ownership
stake
(%)
7.1
15.7
16.8
5.0
–
4.0
9.2
–
16.2
13.5
29.4
20.0
10.0
5.0
0.1
15.2
41.9
11.1
13.1
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 PFA Fund (PFA)
Industrial
Charter Hall Prime Industrial Fund
(CPIF)
Core Logistics Partnership Trust (CLP)
Charter Hall Direct Industrial Fund
No.4 (DIF4)
Retail
Charter Hall Retail REIT (CQR)3
Long WALE Hardware Partnership
(LWHP)
Charter Hall Prime Retail Fund (CPRF)
Retail Partnership No. 6 Trust (RP6)3
Long WALE Investment Partnership 2
(LWIP2)4
Retail Partnership No. 2 (RP2)3
Long WALE Investment Partnership
(LWIP)4
Diversified
Charter Hall Long WALE REIT (CLW)
Charter Hall Direct Diversified
Consumer Staples Fund (DCSF)5
Deep Value Partnership (DVP)
Social infrastructure
Charter Hall Education Trust (CQE)
Property investment – subtotal
Other investments6
Total
104.8
12.0
0.3
232.8
126.9
105.9
–
506.4
299.6
96.5
56.6
35.9
11.0
6.3
0.5
241.6
200.8
36.2
4.6
117.6
117.6
1,770.3
73.3
1,843.6
7.2
0.9
–
16.1
6.7
7.6
1.8
34.3
22.4
4.8
3.7
2.0
0.7
0.4
0.3
18.1
13.4
3.3
1.4
4.3
4.3
109.5
1.3
110.8
7.8
7.0
7.5
10.1
10.0
10.2
10.2
6.4
6.5
8.3
4.9
5.0
16.0
4.6
15.1
11.6
12.4
7.2
3.4
9.9
9.9
7.6
5.6
5.8
6.0
5.6
5.6
5.6
5.7
6.0
6.2
5.4
6.0
5.7
5.8
6.0
5.8
6.0
6.0
6.2
5.9
6.2
6.2
5.6
7.0
6.7
7.0
6.9
6.9
6.8
7.1
7.0
7.2
6.9
7.2
7.3
n/a
7.5
n/a
7.1
7.0
7.4
7.3
n/a
n/a
6.9
3.9
3.6
3.5
3.0
3.1
3.0
2.7
3.9
4.2
2.8
4.2
3.6
2.2
4.2
2.2
2.9
2.8
3.3
3.9
2.3
2.3
3.5
1 Charter Hall Group property investment segment earnings per segment information in Note 1(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 Average rent reviews is contracted weighted average rent increases of specialty tenants.
4 The LWIP and LWIP2 rental increase is CPI, uncapped.
5 DCSF adjusted for non-controlling interest share of 58.1%.
6
Includes the Group’s investments in the CHAB Office Trust and the Charter Hall Maxim Property Securities Fund.
7.0
8.1
7.1
5.9
5.5
6.3
6.1
6.6
7.1
5.2
6.4
5.4
6.8
6.5
6.8
6.6
6.5
6.3
8.9
6.2
6.2
6.3
29
Charter Hall Group Annual Report 2019 Directors’ Report and Financial Report
Development investment
Development investment provides the Group with development
profits and interest income from its development assets held
directly on balance sheet and through co-investments in
development ventures. During the year development investment
contributed $7.8 million in segment earnings to the Group.
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 $30.4 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. During the year the
property funds management business contributed $262.9 million
in segment revenue to the Group.
Significant changes in the state of affairs
On 7 November 2018, the Group acquired 100% of the shares
in Folkestone Limited. Folkestone shareholders received
from Charter Hall $1.354 cash per share, which equates to
a purchase consideration of $205.0 million. Charter Hall also
issued 1.5 million CHC service rights to Folkestone management
which vest over three years.
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.
Matters subsequent to the end of the period
The following events have occurred subsequent to 30 June 2019:
• The Group entered into a partnership agreement to acquire
a 16.8% share of the Charter Hall platform’s acquisition
of 100% of the freehold interest in 242 Exhibition Street,
Melbourne. The Group’s total investment on settlement
in the first half of FY20 is expected to be $68.5 million.
In August 2019, two of Charter Hall’s managed wholesale
trusts, in partnership with GIC, acquired the leasehold of
Chifley Tower, 2 Chifley Square, Sydney. Charter Hall will
assume the asset, property and development management
of 100% of the Tower, increasing the Group’s funds under
management (FUM) by approximately $1.8 billion.
•
•
In August 2019, a partnership created by Charter Hall
comprising its managed Long WALE REIT (ASX: CLW), a
domestic super fund and the Group acquired a 49% stake
in a Property Trust created to own a $1.43 billion portfolio of
Telstra Exchanges leased to Telstra Corporation (ASX: TLS)
on long term leases with an average initial lease term (WALE)
of 21 years plus multiple options, with annual CPI +0.5% rent
reviews. The Charter Hall managed partnership’s 49% stake
has a value of $700 million and Charter Hall will invest 21.8%
or $76 million of equity in the partnership.
Except for the matters discussed above, no other matter
or circumstance has arisen since 30 June 2019 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 office,
industrial, retail, diversified and social infrastructure property
portfolios. Charter Hall Group invests alongside equity partners
to create value and provide superior returns for clients and
the Group’s securityholders. Growth is driven by a strong
development capability that adds value for fund/partnership
investors, whilst deployment through acquisitions compliments
the development capability to deploy the equity raised from
investors in line with each property strategy.
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.
30
Directors’ ReportFor the year ended 30 June 2019 Property investment portfolio
The property investment portfolio of the Group is primarily
composed of co-investments in funds and partnerships, where,
typically, between 5–20% of the equity in a fund is contributed
by Charter Hall. The percentage stake may be higher than the
long-term target at origination of the fund or partnership but
will fall toward the long-term target over time with external
equity flows.
The Group regularly reviews the performance of its property
investment portfolio and may reduce its investment in funds
to reinvest into new partnerships or funds that drive FUM
growth and to align with new partners. Sector diversification,
industry diversification and earnings growth of each fund/
partnership co-investment together with associated funds
management earnings derived from each fund/partnership
combine to provide a matrix from which the balance sheet
capital is allocated. 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.
Development investment portfolio
The development investment portfolio comprises inventory held
directly on balance sheet and co-investments in development
associates and joint ventures, most of which has been
absorbed from the acquisition of Folkestone in 2018. Primarily,
development investments will drive stabilised investment
opportunities made available to our funds.
The Group regularly reviews the performance of its
development investments and relevant economic drivers
to actively manage performance of each development.
The business risks faced by the development investment
portfolio that may have an effect on financial performance of the
Group include interest rate risk, refinancing risk, development
risk, construction risk, joint venture risk and changes in economic
or industry factors impacting customers, 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 organisational 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.
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
AUB Group 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
31
Charter Hall Group Annual Report 2019 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
Nufarm Limited
Former listed company directorships in last three years
Metcash Limited
The Star Entertainment Group Limited
Myer Holdings Limited
Special responsibilities
Chair of the Remuneration and Human Resources Committee
Member of the Audit, Risk and Compliance Committee
Interests in securities
30,000 stapled securities in Charter Hall Group via direct and
indirect interests
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,
and 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 over 30 years’ 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, and 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 $30.4 billion of assets under management in
15 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
Charter Hall Education Trust (Alternative Director)
Former listed company directorships in last three years
Nil
Special responsibilities
Member of the Investment Committee
Interests in securities
457,991 stapled securities in Charter Hall Group via direct interests
and 841,773 stapled securities in Charter Hall Group via indirect
interests. 929,080 performance rights and 155,821 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.
32
Directors’ ReportFor the year ended 30 June 2019Directors’ Report and Financial Report 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
Boral Limited
Former listed company directorships in last three years
Origin Energy Ltd
Special responsibilities
Chair of the Audit, Risk and Compliance Committee
Interests in securities
23,137 stapled securities in Charter Hall Group via
indirect interests
Greg Paramor AO
Independent Non-Executive Director
Experience and expertise
Greg joined the Board of the Charter Hall Group on
30 November 2018.
Greg has been involved in the real estate and funds
management industry for more than 40 years, and was the
co-founder of Equity Real Estate Partners, Growth Equities
Mutual, Paladin Australia and the James Fielding Group.
Greg was the CEO of Mirvac Group between 2004 and 2008.
Greg is a past president of the Property Council of Australia
and past president of Investment Funds Association, a Fellow
of the Australian Property Institute and The Royal Institute of
Chartered Surveyors. Greg is a board member of the Sydney
Swans and the immediate past Chair of LJ Hooker. Greg is an
Independent Non-Executive Director of Juwai Limited. Greg
was awarded an Officer in the General Division (AO) of the Order
of Australia in January 2015 for his distinguished service to the
community through executive roles in a range of fields, including
breast cancer research, the not-for-profit sector and real estate
and property investment industries.
Other current listed company directorships
Nil
Former listed company directorships in last three years
Folkestone Limited
Charter Hall Education Trust (Alternative Director)
Special responsibilities
Member of the Audit, Risk and Compliance Committee
Member of the Investment Committee
Interests in securities
Nil
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 the Nominations Committee
Member of the Investment Committee
Member of the 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 15 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.
33
Charter Hall Group Annual Report 2019 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 2019, and the number of meetings attended by each Director were:
FULL MEETINGS OF THE
BOARD OF DIRECTORS
AUDIT, RISK AND
COMPLIANCE
COMMITTEE
INVESTMENT
COMMITTEE
NOMINATION
COMMITTEE
REMUNERATION AND HR
COMMITTEE
A Brennan
D Clarke
P Garling
D Harrison
K Moses
G Paramor AO
D Ross
A
10
10
10
10
10
4
10
B
10
10
10
10
10
4
10
A
5
5
*
*
5
2
*
B
5
5
*
*
5
3
*
A
*
3
3
3
*
2
3
B
*
3
3
3
*
2
3
A
*
2
2
*
*
*
2
B
*
2
2
*
*
*
2
A
5
*
5
*
*
*
5
B
5
*
5
*
*
*
5
* 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.
34
Directors’ ReportFor the year ended 30 June 2019Directors’ Report and Financial Report Remuneration Report Summary – unaudited
Charter Hall Limited is pleased to present its Remuneration Report (Report) for the year ended 30 June 2019. The table below
outlines the key changes made in 2019 and outcomes achieved in 2019.
Key changes in FY2019
Component
Key management
personnel (KMP)
New Long Term Incentive
(LTI) performance measure
Change
During 2019, the identified KMP roles were revised. KMP are the persons having authority and responsibility for
planning, directing and controlling the activities of the Group, being the Non-Executive Directors, the Chief Executive
Officer/Managing Director, the Chief Financial Officer and the Chief Investment Officer.
During 2018, the Board reviewed the LTI performance measures to ensure they continued to align with securityholder
expectations and with Charter Hall’s current strategy. Following the review, the Board determined in FY 2019 to retain
the Relative TSR performance measure and replace the Absolute TSR performance hurdle with an Operating Earnings
Per Security (OEPS) growth measure. See Section 3.5 for further details.
Non-Executive Directors
(NED) Minimum Shareholding
Increase to the Independent Directors minimum shareholding guidelines from $50,000 to $90,000. For new NEDs
this minimum shareholding must be met within three years of commencement as a NED.
How do Remuneration Outcomes Align to FY2019 Performance?
Purpose
Fixed remuneration set with reference to market median, to
attract and retain high quality executives.
Outcome
There were no increases to Fixed Remuneration for any
KMP in FY2019.
Delivery
Fixed remuneration
‘On target’ total
remuneration and
remuneration mix
Remuneration is structured as a mixture of fixed and
variable ‘at-risk’ components. Fixed remuneration is
designed to provide a base level of remuneration, the
‘at-risk’ components reward executives when pre-agreed
performance measures are met or exceeded.
Short Term Incentive
(STI)
STI is an ‘at-risk’ incentive awarded annually, which is
designed to reward executives, subject to performance
against agreed financial and non-financial Key Performance
Indicators (KPIs) including evidence of behaviour in line
with values.
Long term incentive
(LTI)
LTI is ‘at risk’ and aligns with the long-term interests of
securityholders and business performance.
Non-Executive
Directors (NED)
NED fees are set in line with general industry practice and
reflect responsibilities for duties undertaken. NEDs do not
receive any performance-related remuneration.
Increased the Managing Director’s ‘on target’ total
remuneration by 6% to $4,547,000, through uplifting the
‘at-risk’ Long Term Incentive component only, effective
1 July 2018 (Section 3.2).
Increased Other Reported Executives ‘on target’ total
remuneration by 6% on average, through uplifting the ‘at-risk’
Short Term Incentive and Long Term Incentive components.
KPIs are typically split between 50% financial and 50%
non-financial KPIs, based on a balanced scorecard
approach, which encourages executives to take a holistic
approach to enhancing and protecting securityholder
value. A financial gateway of 95% for Executive Committee
Members of budgeted OEPS excluding CHOT must be
met before any STI entitlement is available, with the Board
retaining overall discretion on performance achievement.
An above target STI pool 128% was awarded across
the Group (Section 3.4) based on outperformance
against target Group OEPS by 11.2%. Group OEPS was
47.4 cents, which was 25.5% above the FY2018 OEPS.
For all executives, STI is delivered in the form of cash (67%)
and deferred service rights (33%).
100% of the FY2016 grant vested on 31 August 2018 as a
result of the performance against absolute and relative TSR
hurdles over the three years to 30 June 2018 (Section 3.5).
The FY2017 LTI award reached the end of its three-year
performance period on 30 June 2019 and will vest at 100%
on the 31 August 2019 and will be subject to a further
one-year holding lock.
There was no increase to the NED pool in FY2019. NED fees
increased by 2.5% in FY2019.
35
Charter Hall Group Annual Report 2019 Actual remuneration received in FY2019
The following table presents the actual remuneration received by Reported Executives during the financial year ended 30 June 2019.
This voluntary disclosure is provided to increase transparency and includes:
• fixed pay and other benefits for 2019;
• 2018 cash STI paid during 2019; and
• the value of any LTI and STI award that vested during 2019.
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 19, 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
S McMahon
R Proutt
Totals
Salary
and other
benefits1
$
Short Term
Incentive2
$
Value of
securities
vested3
$
% of
remuneration
consisting of
rights
%
Total
$
1,431,621
1,172,600
2,604,051
5,208,272
801,621
801,621
3,034,863
473,960
408,091
2,054,651
133,051
–
2,737,102
1,408,632
1,209,712
7,826,616
50.0
9.4
–
35.0
1 Other benefits include superannuation and non-monetary benefits.
2 Values relate to STI paid in FY2019 in cash for FY2018 performance.
3 Values calculated using the five-day VWAP up until the vesting date applied to the number of rights vesting for LTI performance rights, STI deferred service rights
and any sign-on service rights.
36
Directors’ ReportFor the year ended 30 June 2019Directors’ Report and Financial Report Remuneration Report – audited
1. Key management personnel
This Report outlines the remuneration policies and practices that apply to Charter Hall’s KMP for the year ended 30 June 2019.
The KMP include the Non-Executive Directors, Executive Directors and other Reported Executives.
Name
Non-Executive Directors
David Clarke
Anne Brennan
Philip Garling
Karen Moses
David Ross
Greg Paramor AO
Executive Director
David Harrison
Other Reported Executives
Sean McMahon
Russell Proutt
Role
Chair
Director
Director
Director
Director
Director
Term as KMP
Full Year
Full Year
Full Year
Full Year
Full Year
Part Year, since 15 November 2018
Managing Director and Group CEO
Full Year
Chief Investment Officer
Chief Financial Officer
Full Year
Full Year
The Report has been prepared and audited, where identified, in accordance with the requirements of the Act.
2. Remuneration governance
Charter Hall’s Board and the Remuneration and Human Resources Committee (the Committee) are responsible for 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 overseeing remuneration policy for the Group.
In overseeing remuneration policy, the Committee considers the Group’s risk management framework, strategic objectives,
long-term financial soundness, culture and values. In summary, the Committee reviews and provides guidance, and as
appropriate, endorses the recommendations made by management and submits them for Board approval, including:
• the Group’s remuneration and incentives framework;
• fixed annual remuneration and 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.
37
Charter Hall Group Annual Report 2019 Remuneration and
risk management
The Committee has access to the Group’s risk and finance personnel and other parties (internal and external), and may
seek the advice of the Group’s auditors, solicitors and other independent advisers so it can adequately monitor and review
the operation of the remuneration policy and framework. The Committee receives reports from Group Risk and Compliance,
External and Internal Audit and other Board Committees (as appropriate), on issues that are relevant to the Committee.
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 and align with the long-term interests
of securityholders, measured over three years with an additional one-year holding lock;
• the application of malus on unvested deferred STI and unvested LTI for where an Executive has committed any act of
fraud, defalcation or gross misconduct, acted dishonestly and/or materially breached their obligations to the Group;
• minimum shareholding for Independent Directors; and
• Board discretion on performance outcomes.
Managing Director
and management
The Managing Director makes recommendations to the Committee regarding the Executive Committee Members
remuneration and on the remuneration policy and framework including its application to employees.
Management provides information and recommendations for the Committee’s consideration and implement any approved
arrangements by the Committee and Board.
External advisers
and remuneration
consultants
Where necessary, the Committee seeks support from independent experts and advisers. Remuneration consultants
provide information on market trends in relation to 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 FY2019 period Conari Partners was engaged by the Board to provide external benchmarking information on
Managing Director and Executive Committee Members remuneration. Work undertaken during FY2019 for the Managing
Director and Executive Committee Members remuneration was for information and did not constitute a remuneration
recommendation for the purposes of the Corporations Act 2001.
The Committee is satisfied that the guidance received from Conari Partners is free from undue influence from the KMP
to whom the advice relates.
38
Directors’ ReportFor the year ended 30 June 2019Directors’ Report and Financial Report 3. Executive remuneration framework
3.1 Executive remuneration strategy
Charter Hall’s remuneration strategy is designed to attract and retain talented employees by rewarding them for achieving
performance outcomes that are aligned with our purpose, business strategy and the long-term interests of our customers and
securityholders. The following illustrates the link between business strategy and remuneration outcomes:
Business Strategy
To access, deploy, manage and invest equity in core real estate sectors, creating value and generating superior returns for our
customers 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; and
• recruiting, retaining and motivating a high performance team.
Remuneration Strategy
Deliver long-term results for our securityholders
Assessing performance and STI outcomes against financial
and non-financial key performance indicators (KPIs) linked
to strategy
Deferring a portion of STI into equity for executives
Aligning LTI performance hurdles with securityholders’
expected returns
Ensuring a significant ‘at-risk’ component of total remuneration
Attract, retain and motivate talent
Rewarding superior performance
Offering competitive total remuneration
Creating retention mechanisms
Ensuring remuneration strategy is simple, transparent
and consistent
Component Delivery
Year 1
Year 2
Year 3
Year 4
FAR
STI
LTI
FAR
STI
LTI
Fixed remuneration comprises cash base salary,
statutory superannuation contributions and other
nominated benefits.
‘At risk’ and subject to performance outcomes (OEPS
and financial and non-financial KPIs including evidence
of behaviour in line with values). 67% is paid as cash and
33% is deferred as service rights.
Deferred STI vests
equally over 2 years
‘At risk’ equity awards that are subject to long-term
performance conditions.
100% is delivered as performance rights.
Vesting after 3 years, equal
measures of Relative TSR and OEPS
growth
1-year
holding
lock
Remuneration Outcomes FY19
No increase to the Managing Director’s FAR in 2019 (Section 3.3)
No increases to other Reported Executives’ FAR in FY2019.
STI pool of 128% of target based on FY2019 OEPS performance and Board discretion
100% vesting of FY2016 (second tranche) and FY2017 (first tranche) of deferred service rights.
FY2016 LTI award reached the end of its three-year performance period on 30 June 2018 and vested at 100% on 31 August 2018
and was subject to a further one-year holding lock.
FY2017 LTI award reached the end of its three-year performance period on 30 June 2019 and will vest at 100% on 31 August 2019
and will be subject to a further one-year holding lock.
39
Charter Hall Group Annual Report 2019 Deferred STI and LTI Awards are subject to terms and conditions. The terms and conditions for awards granted in FY2019 are:
Type of Equity
Cessation of employment
provisions
Risk and malus
Deferred STI and LTI Rights Awarded – Terms and Conditions
Deferred STI and LTI awards are delivered in the form of rights under the Performance Rights and Options
Plan (PROP), under which rights to stapled securities are granted to participants, subject to meeting specific
performance and vesting conditions.
If a participant ceases employment, unvested rights lapse unless the Board determines otherwise.
The Board has discretion to reduce, including to nil, unvested rights in certain circumstances to ensure Executives
do not obtain an inappropriate benefit. The circumstances in which the Board may exercise this discretion include
where an Executive has committed any act of fraud, defalcation or gross misconduct, acted dishonestly and/or
materially breached their obligations to the Group.
Change of control provisions The Board, in its absolute discretion, may determine the manner in which the rights will be dealt with.
Treatment of dividends
Participants who hold rights are not entitled to receive any distributions or dividends declared by the Group until
the 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.
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’ remuneration based on the
maximum STI of up to 150% of the target STI. All Reported Executives have the potential to earn up to 150% of target STI.
32%
13%
27%
27%
24%
14%
28%
35%
26%
13%
26%
36%
Target FR
STI (Cash)
STI (Deferred Rights)
LTI
CEO Maximum
CIO Maximum
CFO Maximum
3.3 Fixed remuneration
Composition
Benchmarking
and Review
Fixed remuneration comprises cash base salary, statutory superannuation contributions and other nominated benefits.
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.
Comparator Group
The following comparator group is used when determining the Reported Executives’ remuneration:
• industry related companies: based on entities in the S&P/ASX 200 Australian Real Estate and Investment Trust (A-REIT)
industry group.
Executive Director
outcome
The fixed remuneration of the Managing Director, Mr Harrison, remained unchanged in FY19. Mr Harrison’s fixed
remuneration was reviewed at 1 July 2018, with the last fixed remuneration increase at 1 July 2017.
There were no increases to other Reported Executives’ FAR in FY2019.
Other Reported
Executives
40
100
80
60
40
20
0
Directors’ ReportFor the year ended 30 June 2019Directors’ Report and Financial Report 3.4 Short Term Incentive
Purpose
Gateway for STI
STI is an ‘at-risk’ incentive awarded annually, which is designed to reward executives, subject to performance
against agreed financial and non-financial KPIs including evidence of behaviour in line with values.
A financial gateway of 95% for Executive Committee Members of budgeted OEPS excluding CHOT must be met
before any STI entitlement is available, with the Board retaining overall discretion on performance achievement.
Determining and assessing
the STI pool
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.
For FY2019, the Board, on advice from the Committee, elected to exclude the CHOT performance fee amount (post
tax) from both the Budget and the actual OEPS achieved due to the potential volatility and the significance of the
earnings contributed by this fee during the period.
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.
KPIs are typically split between 50% financial and 50% non-financial, based on a balanced scorecard approach
that considers behaviour in alignment with Group’s values and encourages executives to take a holistic approach
to enhancing and protecting securityholder value.
Delivery
For all Executives, STI is delivered in the form of cash (67%) and deferred service rights (33%).
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 scorecard elements: Financial; Customer; and Leadership/Collaboration/
Culture with 50% Financial weighting and 50% non-financial split between Customer and Leadership/Collaboration/Culture. For each
of these elements there are Key Performance Indicators (KPIs) aligned to our core strategic objectives of growth and resilience.
The Board applies the following general principles when determining and measuring performance goals and any STI incentive:
• STI outcomes should always align with the market reported results, with any adjustments being consistent with business
performance and behaviour aligned to Group values.
‘On target’ performance aligns with the Board approved budget for the financial year.
•
• Each STI or LTI performance condition or target is measured independently.
• Payout above Gateway for STI is up to a maximum (150%).
• The Board has discretion to apply judgement when approving the final performance outcomes.
41
Charter Hall Group Annual Report 2019 Below is a summary of the Managing Director’s KPIs for FY2019 as assessed by the Board.
Scorecard
Financial (50%)
KPI
Achieve Board approved OEPS for FY19.
Status
Exceeded
Achieve budgeted PFM Annuity Revenue Growth.
Growth in funds under management up to Board approved number.
Maintaining Group investment capacity at Board approved number.
Customer and Strategy (30%) Agreed percentage of Inflows from new investors.
Exceeded
Execution of Major Tenant Customer Relationship Strategy.
Successful integration of Folkestone Platform (including incremental earnings and FUM Growth).
Customer satisfaction – Results of interviews with major tenants and investors and improvement
in independent survey results.
Leadership and
Collaboration (20%)
Progress on diversity statistics.
Strength of EXCO Leadership Team.
Other Reported Executives’ KPIs
Achieved
KPIs for other Reported Executives are aligned to that of the Managing Director and are focused on individual areas of accountability.
Scorecard
Financial (50%)
KPI
Including Group and Divisional financials and investment earnings; growth in funds under
management; and divisional specific financial initiatives.
Customer and Strategy (30%)
Including customer experience, service and satisfaction measures for funds and tenants.
Leadership and
Collaboration (20%)
Including leadership contribution, succession, talent and engagement.
Status
Exceeded
Exceeded
Achieved
Group FY2019 performance outcomes
In FY2019, Charter Hall’s OEPS was 47.4 cents, which was 25.5% above the FY2018 OEPS. The table below shows Charter Hall’s
OEPS (cps) over a five-year period:
18.1%
growth
35.9
5.0%
growth
37.7
3.9 CHOT
30.4
25.5%
growth
47.4
8.0 CHOT
16.6%
growth
ex-CHOT
33.8
ex-CHOT
39.4
ex-CHOT
FY2016
FY20171
FY2018
FY2019
1 The first year CHC recognised operating tax expense of 4.6 cps.
FY2019 STI outcomes For FY2019, the Board, on advice from the Committee, elected to exclude the CHOT performance fee amount (post tax)
from both the Budget and the actual OEPS achieved due to the potential volatility and the significance of the earnings
contributed by this fee during the period.
128% of the target STI pool was awarded, recognising outperformance of the Group’s OEPS against budget (ex CHOT
performance fee) which compares to 120% in FY2018 and 129% in FY2017.
The below table shows the STI outcomes for Reported Executives for 2019.
Reported Executives received on average 142% of STI target for FY 2019. This is based on individual achievement against
KPIs including evidence of behaviour in line with values and overall leadership team contribution to the Group.
42
Directors’ ReportFor the year ended 30 June 2019Directors’ Report and Financial Report Name
Executive Director
D Harrison
Other Reported Executives
S McMahon
R Proutt
3.5 Long Term Incentive
STI earned
$
Paid in cash
$
Deferred
into service
rights
$
Target
STI of
fixed pay
%
STI earned
compared to
target
%
STI earned
compared to
maximum
%
2,145,000
1,430,000
715,000
100%
150%
100%
893,940
789,480
595,960
526,320
297,980
263,160
72%
66%
141%
136%
94%
91%
Purpose
Participants
Type of equity
awarded
LTI is ‘at risk’ and aligns with the long-term interests of securityholders and business performance. It also plays an
important role in employee retention.
All Reported Executives, Executives, Fund Managers and selected other managers, comprising approximately 7% of
permanent 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 FY2019 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 FY2019 LTI allocation, the two performance hurdles that applied to the performance rights for vesting over a
three-year period commencing 1 July 2018 were:
• OEPS growth (50% of LTI allocation) – with 50% vesting if the aggregate OEPS (excluding any Charter Hall Office Trust
(CHOT) performance fee, after tax (CHOT fee)) over the 3 year performance period from 1 July 2018 to 30 June 2021
represents 5% per annum compound annual growth on the FY18 adjusted OEPS of 33.837 cps (after tax) (which equates
to aggregate OEPS (after tax) of 112.004 cps over the performance period) and 100% vesting of performance rights if
the aggregate OEPS excluding any CHOT fee over the performance period represents 7% per annum compound growth
(which equates to aggregate OEPS (after tax) of 116.397 cps over the performance period), with progressive pro-rata
vesting between 112.004 cps and 116.397 cps (i.e. on a straight line basis).
• Relative TSR component (50% of LTI allocation) – Relative TSR performance is determined based on Charter Hall Group’s
total ASX return (assuming distributions are reinvested) ranking against the constituents of the comparator group (see
below) over the performance measurement period. Performance rights vest on 31 August 2021 if the ASX TSR of Charter
Hall Group for the performance period ranks between the 50th and 75th percentile of the comparator group, with 50%
of performance rights vesting at the 50th percentile and 100% vesting at the 75th percentile, with progressive pro-rata
vesting between the 50th and 75th percentile (i.e. on a straight line basis):
The Board has determined the comparator group for the FY19 LTI to be:
• Abacus Property Group (ABP)
• Mirvac Group (MGR)
• BWP Trust (BWP)
• National Storage REIT (NSR)
• Cromwell Property Group (CMW)
• SCentre Group (SCG)
• Charter Hall Retail REIT (CQR)
• Shopping Centres Australasia Property Group (SCP)
• Charter Hall Long Wale REIT (CLW)
• Stockland (SGP)
• Dexus Property Group (DXS)
• Vicinity Centres (VCX)
• Goodman Group (GMG)
• Viva Energy REIT (VVR)
• Growthpoint Properties Australia (GOZ)
• GPT Group (GPT)
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 2021 will lapse.
Following vesting, performance rights will be subject to a further one-year holding lock.
43
Charter Hall Group Annual Report 2019 Rationale for
performance
conditions
During 2018, the Board reviewed the LTI performance conditions to ensure they continue to align with securityholder
expectations and with Charter Hall’s current strategy. Following the review, the Board determined in FY2019 to retain the
Relative TSR performance measure and replace the Absolute TSR performance hurdle with an Operating Earnings Per
Security (OEPS) growth measure.
The OEPS growth measure aligns the PROP with commercial long-term performance which is within the executive’s ability
to influence and aligns with securityholder expectations.
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. 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 returns they could have received by investing in a portfolio of alternative A-REIT sector
stocks over the same period.
Group performance outcomes
Absolute TSR – The Group delivered a compound TSR (including stapled security price movements and distributions) over the three years to
30 June 2019 (FY2017 LTI performance period) of 36% per annum and three years to 30 June 2018 (FY2016 LTI performance period) of 18% per
annum, both exceeding the Absolute TSR stretch performance hurdles of 12% and 13% respectively.
The following graph illustrates the Group’s TSR compared with the ASX A-REIT Accumulation Index throughout the FY2016 LTI performance period.
FY2016 LTI performance period (vesting date 31 August 2018)
170%
160%
150%
140%
130%
120%
110%
100%
90%
80%
CHC
A-REIT Accumulation Index
Jun 15
Dec 15
Jun 16
Dec 16
Jun 17
Dec 17
Jun 18
As at 30 June 2018:
CHC: 165%
Index: 132%
Relative TSR – The following graph illustrates the Group’s TSR compared with the comparator’s Groups 50th and 75th percentile throughout the
FY 2017 LTI performance period.
FY2017 LTI performance period (vesting date 31 August 2019)
270%
245%
220%
195%
170%
145%
120%
95%
70%
CHC
Comparator group 75th Percentile
Comparator group 50th Percentile
As at 30 June 2019:
CHC: 250%
75th Comparator Group: 165%
50th Comparator Group: 132%
Jun 16
Dec 16
Jun 17
Dec 17
Jun 18
Dec 18
Jun 19
Outcomes
• The FY2016 LTI had a vesting date of 31 August 2018. As a result of the TSR performance over the three years to
30 June 2018, the absolute and relative performance hurdles were exceeded and 100% of the performance rights vested
and was subject to a further one-year holding lock.
• The FY2017 LTI has a vesting date of 31 August 2019. As a result of the TSR performance over the three years to
30 June 2019, the absolute and relative performance hurdles were exceeded and 100% of the performance rights will
vest and be subject to a further one-year holding lock.
44
Directors’ ReportFor the year ended 30 June 2019Directors’ Report and Financial Report 3.6 Group summary of performance and total remuneration outcomes
The table below provides information on Charter Hall’s performance against key metrics over the last five years.
Key performance metrics
Statutory profit after tax for stapled securityholders ($m)
Statutory earnings per stapled security (EPS) (cents)
Operating earnings for stapled securityholders ($m)
Operating earnings per stapled security (cents)
Growth in OEPS %
Operating earnings per stapled security (ex CHOT performance
fee) (cents)
Growth in OEPS (ex CHOT performance fee) %
Distribution per stapled security (cents)
Stapled security price at 30 June ($)
CHC total securityholder return – Jul to Jun (%)
2015
117.9
32.8
98.8
27.5
8.7
27.5
8.7
24.2
4.52
11.8
2016
215.2
52.5
124.7
30.4
10.5
30.4
10.5
26.9
5.06
18.3
2017
257.6
61.2
151.2
35.9
18.1
35.9
18.1
30.0
5.50
15.2
2018
250.2
53.7
175.8
37.7
5.0
33.8
-6.0
31.8
6.52
24.6
2019
235.3
50.5
220.7
47.4
25.5
39.4
16.6
33.7
10.83
72.4
The table below provides information on Reported Executives’ total remuneration, both fixed and ‘at risk’ compared to target
total remuneration. Charter Hall’s STI is weighted towards growth in OEPS and the LTI provides an important link between
remuneration and TSR.
Reported Executives total remuneration summary
Fixed payments ($)
STI accounting expense ($)
LTI accounting expense ($)1
Earned remuneration ($)2
On target total remuneration ($)
Earned remuneration relative to target remuneration – over/(under) (%)
2018
4,685,414
4,390,624
1,203,735
10,279,773
9,205,916
12%
20193
3,117,452
3,828,420
1,654,108
8,599,980
7,416,060
16%
1 The LTI expense attributed to the Reported Executives reflects the statutory accounting expense under AASB2.
2 Earned remuneration for the Reported Executives is the sum of their fixed payments, STI and LTI expenses recognised.
3 Earned and target total remuneration in FY2019 reflects the revised identified KMP roles.
45
Charter Hall Group Annual Report 2019 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 FY2018 and FY2019.
SHORT-TERM
BENEFITS
POST-
EMPLOY-
MENT
BENEFITS
Cash
short-term
incentive
$
Annual
leave1
$
Non-
monetary
benefits2
$
Super-
annuation
$
SECURITY-BASED
PAYMENTS
Securities
options
and
perform-
ance
rights
$
Security-
based
short-term
incentive
$
OTHER
LONG-
TERM
BENEFITS
TERMIN-
ATION
BENEFITS
Long
service
leave1
$
Term-
ination
benefits
$
% of total
remun-
eration
consisting
of rights
%
Total
$
Salary
$
Name
Executive Director
D Harrison
2019
2018
Other Reported Executives
S McMahon3
2019
2018
R Proutt
2019
2018
Previously Disclosed KMPs
2018
Total 2019
779,469
779,951
779,469
738,681
1,557,515
35
30
29
38
36
29
16
34
27
1,409,469 1,430,000
1,172,600
1,409,951
23,100
34,143
1,621
1,621
20,531
20,049
715,000
586,300
864,899
502,577
25,026
(55,970)
– 4,489,646
3,671,271
–
595,960
473,960
6,462
(6,462)
526,320
408,091
–
22,483
1,621
1,621
1,621
1,621
20,531
20,049
297,980
547,980
286,827
226,745
14,001
14,001
20,531
20,049
263,160
204,045
502,382
296,990
14,000
13,325
– 2,002,851
– 2,057,845
– 2,107,483
– 1,705,285
665,099
2,968,407 2,552,280
30,384
29,562
80,548
6,278
4,863
50,122
61,593
332,549
177,423
1,276,140 1,654,108
26,002
53,027
417,099 3,262,471
– 8,599,980
11,141
110,269
1,670,874 1,203,735
(2,642)
417,099 10,696,872
Total 2018
4,486,098 2,719,750
1 Shows the movement in leave accruals for the year.
2 Non-monetary benefits for FY2019 is salary continuance insurance.
3
In recognition of the dual roles S McMahon undertook during the FY18 year, he was 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. The service rights are to vest in full on 31 August 2019.
46
Directors’ ReportFor the year ended 30 June 2019Directors’ Report and Financial Report 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
Executive Director
David Harrison
Other Reported Executives
Sean McMahon
Russell Proutt
Position
MINIMUM NOTICE PERIOD1
Employee
Charter Hall
Managing Director
6 months
12 months
Chief Investment Officer
Chief Financial Officer
6 months
6 months
6 months
6 months
1 No notice period is required for termination by the Company for serious or wilful misconduct by the employee.
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.
Remuneration outcomes
Following a review against the market, the Board determined to increase the Chair and member committee fees as
detailed in the table below by 2.5%, effective 1 July 2018.
The Board agreed to the following changes in NED fees within the current aggregate fee pool:
• The Board Chair’s fee increased from $375,000 to $384,000;
• Board member base fees increased from $150,000 to $153,750; and
• Board Committees fees increased for both Chair and members.
Minimum shareholding
guidelines
Minimum shareholding guidelines were increased in FY2019 requiring Independent Directors to hold CHC
securities to the value of $90,000 (previously $50,000). This minimum shareholding guideline is approximately a
year’s base fee (net of tax) and is to be purchased over a three-year period. The valuation is based on the value of
the securities at the time of purchase.
47
Charter Hall Group Annual Report 2019 2019
$
2018
$
384,000
153,750
375,000
150,000
41,000
20,500
30,750
15,375
3,075
3,075
15,375
10,250
40,000
20,000
30,000
15,000
3,000
3,000
15,000
10,000
2019 fees
$
2018 fees
$
384,000
205,000
187,575
194,750
182,450
116,011
1,269,786
375,000
200,000
177,841
190,000
178,000
–
1,120,841
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 Committee
Chair
Member
Non-Executive Director remuneration
Non-Executive Directors
D Clarke
A Brennan
P Garling
K Moses
D Ross
G Paramor AO1
Total
1 Part-year Non-Executive Director commenced on 15 November 2018.
48
Directors’ ReportFor the year ended 30 June 2019Directors’ Report and Financial Report 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
G Paramor AO
Executive Director
D Harrison
Other Reported Executives
S McMahon
R Proutt
Opening
balance at
30 Jun 2018
Stapled
securities
acquired
Rights and
options
exercised
Stapled
securities
sold
Closing
balance at
30 Jun 2019
45,875
30,000
16,759
23,137
–
–
1,648,799
59,056
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
45,875
30,000
16,759
23,137
–
–
368,166
(717,201)
1,299,764
18,811
–
–
–
77,867
–
6.2 Performance Rights and Option Plan details
Performance rights and service rights outstanding under the PROP
Performance rights
Year of issue
2017
2018
2019
Total performance rights outstanding
Service rights
Year of issue
2018
2018
2019
2019
2019
Total service rights issued
Exercise
price
Nil
Nil
Nil
Exercise
price
Nil
Nil
Nil
Nil
Nil
Securities
797,578
824,931
1,015,843
2,638,352
Securities
94,468
123,346
50,875
244,617
1,453,485
1,966,791
Vesting conditions
Absolute and relative performance criteria
Absolute and relative performance criteria
OEPS and relative performance criteria
Vesting conditions
Service conditions
Service conditions – Deferred STI
Service conditions
Service conditions – Deferred STI
Service conditions
49
Charter Hall Group Annual Report 2019 Valuation model
The Black-Scholes methodology is used for allocation purposes for all rights and accounting purposes for non-market based
performance rights. The Monte Carlo method is used for accounting purposes for market based performance rights. The accounting
value determined using a Monte Carlo simulation valuation is in accordance with AASB 2.
Reported Executive rights – details by plan
Rights
granted
during
the year
Rights
vested and
exercised
during
the year
Rights held
at 30 June
2018
Rights
forfeited
during
the year
Rights held
at 30 June
2019
Fair value
per right
at grant
date ($)
Grant
date
Vesting
date
Fair value
to be
expensed
in future
years ($)1
250,965
330,178
294,664
–
59,620
57,581
57,580
–
–
112,934
100,763
–
18,811
18,811
–
–
–
108,181
–
62,979
31,489
–
–
–
–
–
304,238
–
–
–
49,121
49,120
–
–
98,287
–
–
50,875
19,854
19,854
–
104,689
–
–
17,095
17,095
250,965
–
–
–
59,620
57,581
–
–
–
–
–
–
18,811
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 30-Nov-15
330,178 25-Nov-16
294,664 23-Nov-17
304,238 28-Nov-18
– 25-Nov-16
– 23-Nov-17
57,580 23-Nov-17
49,121 28-Nov-18
49,120 28-Nov-18
112,934 25-Nov-16
100,763 23-Nov-17
98,287 28-Nov-18
– 23-Nov-17
18,811 23-Nov-17
50,875 28-Nov-18
19,854 28-Nov-18
19,854 28-Nov-18
108,181 23-Nov-17
104,689 28-Nov-18
62,979 23-Nov-17
31,489 23-Nov-17
17,095 28-Nov-18
17,095 28-Nov-18
31-Aug-18
1.41
1.39 31-Aug-19
2.65 31-Aug-20
31-Aug-21
5.09
4.15
31-Aug-18
31-Aug-18
5.93
5.65 31-Aug-19
6.84 31-Aug-19
6.54 31-Aug-20
–
24,615
289,293
1,074,532
–
–
–
–
–
1.39 31-Aug-19
2.65 31-Aug-20
5.09
31-Aug-21
31-Aug-18
5.93
5.65 31-Aug-19
6.84 31-Aug-19
6.84 31-Aug-19
6.54 31-Aug-20
2.65 31-Aug-20
31-Aug-21
5.09
20-Jul-19
5.68
5.41
20-Jul-20
6.84 31-Aug-19
6.54 31-Aug-20
8,419
98,926
347,139
–
–
–
–
–
106,209
369,750
10,406
62,435
–
–
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
Other Reported Executives
S McMahon
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
R Proutt
LTI Performance Rights
LTI Performance Rights
LTI Service Rights
LTI Service Rights
STI Deferred Service Rights
STI Deferred Service Rights
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.
50
Directors’ ReportFor the year ended 30 June 2019Directors’ Report and Financial Report 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.
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
PricewaterhouseCoopers – New Zealand Firm
Taxation services for DCSF
PricewaterhouseCoopers – United States
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
CHARTER HALL PROPERTY
TRUST GROUP
2019
$
2018
$
2019
$
135,370
57,222
34,520
2018
$
1,132
13,164
17,006
13,164
17,006
78,846
227,380
–
74,228
–
47,684
–
18,138
–
36,990
36,990
264,370
76,698
53,252
129,950
204,178
–
–
–
–
–
–
47,684
18,138
51
Charter Hall Group Annual Report 2019
Directors’ Report
For the year ended 30 June 2019
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/corporate-governance-charter-hall-group.
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 2019 the Group will report to the Clean Energy
Regulator emissions for the measurement period 1 July 2018
to 30 June 2019. 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), FTSE4Good 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 2017 to 30 June 2018.
Charter Hall Group and CQR will report to CDP by August 2019,
which will also demonstrate our environmental sustainability
practices, initiatives and emissions from 1 July 2017 to
30 June 2018. Charter Hall funds (CQR, CHOT, CPOF, DOF, PFA,
CPIF, CLP, CLW and BSWF) also voluntarily report to the Global
Real Estate Sustainability Benchmark (GRESB). These funds
have recently submitted their 2019 GRESB reports, which also
address Charter Hall sustainability practices and emissions
from 1 July 2017 to 30 June 2018.
Labour practices
Charter Hall Group became a signatory to the UN Global
Compact on 8 March 2019. Charter Hall Group released its
Human Rights Policy in November 2018 and adopted the
Charter Hall Supplier Code of Conduct, in February 2019.
These governance policies and practices can be found at
https://www.charterhall.com.au/About-Us/corporate-governance/
corporate-governance-charter-hall-group and outline our
commitment to manage our operations in line with the UN Guiding
Principles, the UN Global Compact and international and Australian
Modern Slavery legislation, which reflects both our business needs
and the expectations of our customers and key stakeholders.
52
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.
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 53.
Rounding of amounts
The Company and the Trust 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.
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 20 August 2019. The Directors have
the power to amend and re-issue the Financial Statements.
David Clarke
Chair
Sydney
20 August 2019
Directors’ Report and Financial Report Auditor’s Independence Declaration
Auditor’s Independence Declaration
As lead auditor for the audit of Charter Hall Limited and Charter Hall Property Trust for the year
ended 30 June 2019, I declare that to the best of my knowledge and belief, there have been:
(a)
no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
(b)
no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Charter Hall Limited and the entities it controlled during the year and
Charter Hall Property Trust and the entities it controlled during the year.
E A Barron
Partner
PricewaterhouseCoopers
Sydney
20 August 2019
PricewaterhouseCoopers, ABN 52 780 433 757
One International Towers Sydney, Watermans Quay, Barangaroo, GPO BOX 2650, SYDNEY NSW 2001
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au
Level 11, 1PSQ, 169 Macquarie Street, Parramatta NSW 2150, PO Box 1155 Parramatta NSW 2124
T: +61 2 9659 2476, F: +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
53
Charter Hall Group Annual Report 2019
Consolidated Statements of Comprehensive Income
For the year ended 30 June 2019
Income
Revenue
Share of net profit from equity accounted investments
method
Net gain on sale of investments
Other net fair value adjustments
Total income
Expenses
Employee costs
Administration and other expenses
Cost of sale of inventory
Depreciation and amortisation
Finance costs
Fair value losses from derivative financial instruments
Reversal of impairment of investments in joint ventures
Other net losses
Total expenses
Profit before tax
Income tax expense
Profit for the year
Profit for the year 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
2,3
5
5
6
CHARTER HALL GROUP
2019
$’m
2018
$’m
378.5
246.2
146.2
2.7
–
527.4
(129.6)
(32.5)
(51.3)
(8.8)
(11.5)
(7.6)
–
(0.5)
(241.8)
285.6
(48.8)
236.8
91.0
144.3
235.3
1.5
236.8
169.1
–
0.7
416.0
(110.9)
(25.0)
–
(6.2)
(3.2)
(0.3)
7.3
–
(138.3)
277.7
(26.5)
251.2
75.0
175.2
250.2
1.0
251.2
CHARTER HALL PROPERTY
TRUST GROUP
2019
$’m
37.5
128.8
3.7
–
170.0
–
(4.5)
–
–
(11.6)
(7.6)
–
(0.5)
(24.2)
145.8
–
145.8
–
144.3
144.3
1.5
145.8
2018
$’m
24.3
158.4
–
0.7
183.4
–
(3.4)
–
–
(3.5)
(0.3)
–
–
(7.2)
176.2
–
176.2
–
175.2
175.2
1.0
176.2
54
Directors’ Report and Financial Report CHARTER HALL GROUP
CHARTER HALL PROPERTY
TRUST GROUP
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
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
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
Note
2019
$’m
236.8
0.1
1.4
1.3
2.8
2018
$’m
251.2
(0.5)
1.2
0.3
1.0
2019
$’m
145.8
0.2
1.4
0.3
1.9
239.6
252.2
147.7
91.9
146.1
238.0
1.6
239.6
19.5
31.0
50.5
19.4
30.7
50.1
75.0
176.2
251.2
1.0
252.2
16.1
37.6
53.7
16.0
37.4
53.4
–
146.1
146.1
1.6
147.7
n/a
31.0
n/a
n/a
30.7
n/a
8(a)
8(b)
The above consolidated statements of comprehensive income should be read in conjunction with the accompanying notes.
2018
$’m
176.2
(0.5)
1.2
0.3
1.0
177.2
–
176.2
176.2
1.0
177.2
n/a
37.6
n/a
n/a
37.4
n/a
55
Charter Hall Group Annual Report 2019 Consolidated Balance Sheets
As at 30 June 2019
Assets
Current assets
Cash and cash equivalents
Receivables and other assets
Fair value of bonds commitment
Assets classified as held for sale
Total current assets
Non-current assets
Receivables and other assets
Derivative financial instruments
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 liabilities
Current tax liabilities
Borrowings
Total current liabilities
Non-current liabilities
Trade and other liabilities
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
16
10
9
17
2
2,3
11
13
14
15
16
15
17
16
14
18(a)
19
18(a)
19
2019
$’m
113.9
177.4
–
–
291.3
11.0
40.3
73.6
15.5
1,754.3
118.5
125.8
21.8
1.5
2,162.3
2,453.6
136.7
2.1
7.5
146.3
5.9
6.1
297.5
37.9
347.4
493.7
1,959.9
286.7
(34.8)
(11.0)
240.9
1,448.5
3.2
217.0
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
114.2
15.3
–
129.5
6.9
1.4
3.6
14.0
25.9
155.4
1,858.2
285.7
(45.1)
(33.6)
207.0
1,453.5
0.9
161.2
2019
$’m
50.0
72.6
–
–
122.6
42.1
40.3
73.6
–
1,681.2
118.5
–
–
–
1,955.7
2,078.3
55.7
–
–
55.7
–
6.1
297.5
–
303.6
359.3
1,719.0
–
–
–
–
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
–
–
–
–
1,448.5
3.2
217.0
1,453.5
0.9
161.2
1,668.7
1,615.6
1,668.7
1,615.6
20
50.3
1,959.9
35.6
1,858.2
50.3
1,719.0
35.6
1,651.2
The above consolidated balance sheets should be read in conjunction with the accompanying notes.
56
Directors’ Report and Financial Report Consolidated Statement of Changes in Equity –
Charter Hall Group
For the year ended 30 June 2019
ATTRIBUTABLE TO THE OWNERS OF CHARTER HALL LIMITED
CHARTER HALL
GROUP
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
Security-based benefit expense
Distribution provided for or paid
Transactions with non-controlling
interests
Balance at 30 June 2018
Balance at 1 July 2018
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
Security-based benefit expense
Dividend/distribution provided for or paid
Transactions with non-controlling
interests
Note
Contributed
equity
$’m
285.0
–
–
–
Reserves
$’m
(44.6)
–
–
–
Accumulated
profit/(losses)
$’m
(54.1)
75.0
–
75.0
6(c)
7
6(c)
7
–
(0.4)
1.1
–
–
–
–
0.7
285.7
285.7
–
–
–
–
(0.6)
1.6
–
–
–
–
1.0
–
(3.9)
0.3
1.4
1.7
–
–
(0.5)
(45.1)
(45.1)
–
0.9
0.9
–
(2.5)
3.1
2.0
6.8
–
–
9.4
–
–
–
–
–
(54.5)
–
(54.5)
(33.6)
(33.6)
91.0
–
91.0
–
–
–
–
–
(68.4)
–
(68.4)
(11.0)
Non-
controlling
interest
$’m
1,536.0
176.2
1.0
177.2
36.0
(3.3)
–
–
–
(94.4)
(0.3)
(62.0)
1,651.2
1,651.2
145.8
1.9
147.7
14.4
(5.0)
–
–
–
(91.5)
2.2
(79.9)
1,719.0
Total
$’m
186.3
75.0
–
75.0
–
(4.3)
1.4
1.4
1.7
(54.5)
–
(54.3)
207.0
207.0
91.0
0.9
91.9
–
(3.1)
4.7
2.0
6.8
(68.4)
–
(58.0)
240.9
Balance at 30 June 2019
286.7
(34.8)
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
Total
equity
$’m
1,722.3
251.2
1.0
252.2
36.0
(7.6)
1.4
1.4
1.7
(148.9)
(0.3)
(116.3)
1,858.2
1,858.2
236.8
2.8
239.6
14.4
(8.1)
4.7
2.0
6.8
(159.9)
2.2
(137.9)
1,959.9
57
Charter Hall Group Annual Report 2019 Consolidated Statement of Changes in Equity –
Charter Hall Property Trust Group
For the year ended 30 June 2019
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
interests
Balance at 30 June 2018
Balance at 1 July 2018
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
Dividend/distribution provided for
or paid
Transactions with non-controlling
interests
ATTRIBUTABLE TO THE OWNERS OF THE CHARTER HALL
PROPERTY TRUST GROUP
Note
Contributed
equity
$’m
1,456.9
–
–
–
Reserves
$’m
(0.5)
–
1.0
1.0
Accumulated
profit/(losses)
$’m
79.6
175.2
–
175.2
Total
$’m
1,536.0
175.2
1.0
176.2
Non-
controlling
interest
$’m
–
1.0
–
1.0
Total
equity
$’m
1,536.0
176.2
1.0
177.2
18(b)
(0.1)
7
7
(3.3)
–
–
(3.4)
1,453.5
1,453.5
–
–
–
–
(5.0)
–
–
(5.0)
–
–
–
0.4
0.4
0.9
0.9
–
1.8
1.8
–
–
–
0.5
0.5
3.2
–
(0.1)
36.1
36.0
–
(93.6)
–
(93.6)
161.2
161.2
144.3
–
144.3
–
–
(88.5)
–
(88.5)
217.0
(3.3)
(93.6)
0.4
(96.6)
1,615.6
1,615.6
144.3
1.8
146.1
–
(0.8)
(0.7)
34.6
35.6
35.6
1.5
0.1
1.6
(3.3)
(94.4)
(0.3)
(62.0)
1,651.2
1,651.2
145.8
1.9
147.7
–
14.4
14.4
(5.0)
(88.5)
0.5
(93.0)
1,668.7
–
(3.0)
1.7
13.1
50.3
(5.0)
(91.5)
2.2
(79.9)
1,719.0
Balance at 30 June 2019
1,448.5
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
58
Directors’ Report and Financial Report Consolidated Cash Flow Statements
For the year ended 30 June 2019
CHARTER HALL GROUP
CHARTER HALL PROPERTY
TRUST GROUP
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
Cash flows from investing activities
Payments for property, plant and equipment (net of lease incentive
received)
Proceeds on disposal of investment properties
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 from investing activities
Proceeds from issues/(buy back) of stapled securities
Borrowing costs paid
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
Dividends/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
Note
22
2019
$’m
340.3
(212.5)
(48.3)
3.8
(2.2)
112.8
193.9
(5.9)
4.0
(59.0)
(192.1)
(199.5)
201.3
(39.4)
34.9
(255.7)
(8.2)
(9.5)
307.8
(72.1)
18.2
(3.1)
(152.3)
80.8
19.0
94.9
–
113.9
2018
$’m
259.5
(155.3)
(28.2)
3.7
(2.6)
90.2
167.3
(5.5)
5.5
(29.1)
–
(98.5)
14.3
(17.8)
1.3
(129.8)
(7.7)
–
24.4
(21.1)
33.9
(0.8)
(145.3)
(116.6)
(79.1)
174.4
(0.4)
94.9
2019
$’m
22.6
(3.9)
–
1.3
(2.2)
90.8
108.6
–
4.0
(59.0)
–
(296.9)
160.4
(496.9)
429.0
(259.4)
(7.2)
(9.5)
303.9
(45.8)
18.2
(3.1)
(88.5)
168.0
17.2
32.8
–
50.0
The above consolidated cash flow statements should be read in conjunction with the accompanying notes.
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
59
Charter Hall Group Annual Report 2019 Notes to the Consolidated Financial Statements
For the year ended 30 June 2019
The notes to these consolidated financial statements include additional information to assist the reader in understanding the
operations, performance and financial position of the Charter Hall Group and the Charter Hall Property Trust Group.
Critical accounting estimates and judgements
The preparation of the consolidated financial statements in conformity with Australian Accounting Standards requires the use
of certain critical accounting estimates and judgements in the process of applying accounting policies.
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 estimates or assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets
and liabilities are described in their respective notes:
• Note 2
• Note 3
• Note 4
• Note 13
• Note 14
• Note 26 Controlled entities
Investments in associates
Investments in joint ventures
Revenue
Intangible assets
Deferred tax
1 Segment information
(a) Description of segments
Charter Hall Group
The operating segments disclosed are based on the reports reviewed by the Board 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 the items in Note 1(c). Operating
earnings is the primary measure of the Group’s underlying and recurring earnings. Operating earnings is used by the Board to
make strategic decisions and as a guide to assessing an appropriate distribution to declare.
Segment earnings reviewed by the Board ceased to allocate net operating expenses to segments. This has been reflected in the
tables contained in this note, including restating the comparatives. This change did not impact the total segment income reported
in the prior period. In assessing the financial performance of the business, net operating expenses are primarily related to the
Property Funds Management business.
The Board has identified the following three reportable segments, the performance of which it monitors separately.
Property investments
This segment comprises investments in property funds.
Development investments
This segment comprises investments in development.
Property funds management
This segment comprises investment management services and property management services.
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 Board.
60
Directors’ Report and Financial Report (b) Operating segments
The operating segments reported to the Board for the year ended 30 June 2019 are as follows:
Property investment segment earnings
Development investment segment earnings
Property funds management
Investment management revenue
Property services revenue
Total Property funds management segment revenue
Total segment income
Net operating expenses
Corporate expenses
EBITDA
Depreciation
Net interest expense
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)
2019
$’m
110.8
7.8
210.3
52.6
262.9
381.5
(78.0)
(28.3)
275.2
(4.7)
(8.3)
262.2
(41.5)
220.7
465.8
47.4
Refer to Note 8 for statutory earnings per stapled security figures.
(c) The reconciliation of operating earnings to statutory profit after tax attributable to stapled securityholders is
shown below:
Operating earnings attributable to stapled securityholders
Add: Net fair value movements on equity accounted investments1
Add: Gain/(loss) on disposal of property investments1
Add: Reversal of impairment of investment in joint venture
Less: Realised and unrealised net losses on derivatives1
Less: Business combination acquisition costs
Less: Non-operating income tax benefit/(expense)
Less: Performance fees expense1
Less: Amortisation of intangibles
Less: Other1
Statutory profit after tax attributable to stapled securityholders
1
Includes the Group’s proportionate share of non-operating items of equity accounted investments on a look through basis.
2019
$’m
220.7
75.8
1.9
–
(29.0)
(8.3)
(7.3)
(7.0)
(4.1)
(7.4)
235.3
Restated
2018
$’m
103.8
–
144.3
56.7
201.0
304.8
(72.6)
(27.0)
205.2
(3.5)
1.1
202.8
(27.0)
175.8
465.8
37.7
2018
$’m
175.8
98.4
(1.5)
7.3
(2.5)
–
0.5
(16.5)
(2.7)
(8.6)
250.2
61
Charter Hall Group Annual Report 2019 Notes to the Consolidated Financial Statements
For the year ended 30 June 2019
1 Segment information continued
(d) Reconciliation of earnings from the property and development investment segments to the share of net profit of equity
accounted investments
Segment earnings – property investments
Segment earnings – development investments
Segment earnings – investments
Add: Non-operating equity accounted profit
Less: Net rental income
Less: Distributions in operating income
Less: Development profit
Less: Interest income on development investments
Share of net profit of investments accounted for using the equity method
(e) Reconciliation of property funds management earnings stated above to revenue per the statement
of comprehensive income
Investment management revenue
Property services revenue
Segment revenue – property funds management
Add: recovery of property and fund-related expenses
Add: proceeds from sale of inventory
Add: interest income
Add: distributions received for investments accounted for at fair value
Add: rental income
Revenue per statement of comprehensive income
2019
$’m
110.8
7.8
118.6
37.4
(3.3)
(2.8)
(2.3)
(1.4)
146.2
2019
$’m
210.3
52.6
262.9
46.3
53.5
4.4
2.8
8.6
378.5
2018
$’m
103.8
–
103.8
70.7
(3.2)
(2.2)
–
–
169.1
2018
$’m
144.3
56.7
201.0
33.6
–
4.0
2.2
5.4
246.2
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.
62
Directors’ Report and Financial Report 2 Investments in associates
(a) Carrying amounts
All associates are incorporated and operate in Australia. Refer to Note 34(e) for accounting policy information relating to associates.
Unless otherwise noted all associates have a 30 June year end.
OWNERSHIP INTEREST
CARRYING AMOUNT
Charter Hall Group
Name of entity
Accounted for at fair value through profit or loss:1
Unlisted
Charter Hall Maxim Property Securities Fund
Charter Hall Direct Industrial Fund No. 4
Other associates
Principal activity
Property investment
Property investment
Equity accounted
Unlisted
Charter Hall Prime Office Fund
Charter Hall Office Trust2
Charter Hall Prime Industrial Fund
Core Logistics Partnership
Other associates
Listed
Charter Hall Retail REIT3
Charter Hall Long WALE REIT4
Charter Hall Education Trust5
Total investments in associates
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
2019
%
19.0
–
–
7.1
15.7
4.0
9.2
16.2
15.2
13.1
2018
%
–
16.4
–
8.4
15.7
5.9
13.8
18.7
20.4
–
2019
$’m
25.4
–
0.6
26.0
291.1
263.7
126.9
105.9
32.9
299.6
200.8
117.6
1,438.5
1,464.5
2018
$’m
–
30.8
1.6
32.4
258.8
246.4
121.0
148.8
38.8
327.6
195.2
–
1,336.6
1,369.0
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 23.
2 The entity has a 31 December balance date.
3 Fair value at the ASX closing price as at 30 June 2019 was $311.7 million (30 June 2018: $315.6 million).
4 Fair value at the ASX closing price as at 30 June 2019 was $245.9 million (30 June 2018: $208.6 million).
5 Fair value at the ASX closing price as at 30 June 2019 was $143.7 million (30 June 2018: $nil).
63
Charter Hall Group Annual Report 2019 Notes to the Consolidated Financial Statements
For the year ended 30 June 2019
2 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:1
Unlisted
Charter Hall Maxim Property Securities Fund
Charter Hall Direct Industrial Fund No. 4
Other associates
Principal activity
Property investment
Property investment
Equity accounted
Unlisted
Charter Hall Prime Office Fund
Charter Hall Office Trust2
Core Logistics Partnership
Charter Hall Prime Industrial Fund
Other associates
Listed
Charter Hall Retail REIT3
Charter Hall Long WALE REIT4
Charter Hall Education Trust5
Total investments in associates
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
OWNERSHIP INTEREST
CARRYING AMOUNT
2019
%
19.0
–
–
6.7
15.7
9.2
1.9
16.2
15.2
13.1
2018
%
–
16.4
–
7.9
15.7
13.8
2.8
18.7
20.4
–
2019
$’m
25.4
–
0.6
26.0
275.6
263.7
105.9
61.1
27.2
299.6
200.8
142.6
1,376.5
1,402.5
2018
$’m
–
30.8
1.6
32.4
244.1
246.4
148.8
58.3
42.4
327.6
195.2
–
1,262.8
1,295.2
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 23.
2 The entity has a 31 December balance date.
3 Fair value at the ASX closing price as at 30 June 2019 was $311.7 million (30 June 2018: $315.6 million).
4 Fair value at the ASX closing price as at 30 June 2019 was $245.9 million (30 June 2018: $208.6 million).
5 Fair value at the ASX closing price as at 30 June 2019 was $143.7 million (30 June 2018: $nil).
(b) Critical judgements
Investments in associates are accounted for at either fair value through profit or loss or by using the equity method. 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.
(c) Summarised movements in carrying amounts of associates accounted for at fair value through profit or loss
Opening balance
Investment
Net gain on investment in associates at fair value
Return of capital
Disposal of units
Closing balance
64
CHARTER HALL GROUP
CHARTER HALL PROPERTY
TRUST GROUP
2019
$’m
32.4
25.4
0.8
(1.4)
(31.2)
26.0
2018
$’m
29.7
1.3
1.4
–
–
32.4
2019
$’m
32.4
25.4
0.8
(1.4)
(31.2)
26.0
2018
$’m
29.7
1.3
1.4
–
–
32.4
Directors’ Report and Financial Report (d) 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
Divestments
Return of Capital
Closing balance
CHARTER HALL GROUP
CHARTER HALL PROPERTY
TRUST GROUP
2019
$’m
1,336.6
202.5
125.5
(80.8)
1.7
(135.7)
(11.3)
1,438.5
2018
$’m
1,218.1
62.5
140.5
(74.1)
0.3
–
(10.7)
1,336.6
2019
$’m
1,262.8
199.7
111.1
(73.9)
0.7
(114.5)
(9.4)
1,376.5
2018
$’m
1,147.3
62.5
133.3
(69.9)
0.3
–
(10.7)
1,262.8
(e) 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
Charter Hall
Long WALE
REIT
$’m
2019
Summarised balance sheet:
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Summarised statement of comprehensive income:
Revenue
Profit/(loss) for the year from continuing operations
Other comprehensive income
Total comprehensive income
2018
Summarised balance sheet:
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Summarised statement of comprehensive income:
Revenue
Profit/(loss) for the year from continuing operations
Profit from discontinued operations
Other comprehensive income/(loss)
Total comprehensive income
17.8
3,063.6
157.8
1,249.5
1,674.1
105.7
243.9
–
243.9
23.4
2,860.7
45.9
1,274.1
1,564.1
140.8
206.5
(12.4)
–
194.1
86.8
2,821.5
95.6
1,012.0
1,800.7
202.0
53.1
1.5
54.6
117.2
2,652.3
93.6
979.4
1,696.5
221.0
146.4
–
2.2
148.6
104.8
5,401.5
73.3
1,301.7
4,131.3
254.8
373.5
1.1
374.6
178.9
4,239.8
83.4
1,212.0
3,123.3
204.6
386.6
–
(1.1)
385.5
18.7
1,886.3
45.2
538.4
1,321.4
85.6
69.6
–
69.6
49.5
1,345.5
24.4
430.3
940.3
69.0
83.3
–
–
83.3
65
Charter Hall Group Annual Report 2019 Notes to the Consolidated Financial Statements
For the year ended 30 June 2019
2 Investments in associates continued
(f) Reconciliation of net assets of associates to carrying amounts of equity accounted investments
Charter Hall Group
2019
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 income
Distributions received/receivable
Divestment
Return of capital
Closing balance
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 income/(loss)
Distributions received/receivable
Return of capital
Closing balance
Charter Hall
Office Trust
$’m
Charter Hall
Retail REIT
$’m
Charter Hall
Prime Office
Fund
$’m
Charter Hall
Long WALE
REIT
$’m
1,674.1
15.7%
262.8
0.9
263.7
246.4
–
38.4
–
(11.7)
–
(9.4)
263.7
1,564.1
15.7%
245.6
0.8
246.4
212.9
25.0
29.2
–
(10.0)
(10.7)
246.4
1,800.7
16.2%
291.7
7.9
299.6
327.6
–
9.7
0.1
(20.5)
(17.3)
–
299.6
1,696.5
18.7%
317.2
10.4
327.6
321.2
–
27.3
0.4
(21.3)
–
327.6
4,131.3
7.1%
293.3
(2.2)
291.1
258.8
17.5
28.0
0.2
(13.4)
–
–
291.1
3,123.3
8.4%
262.4
(3.6)
258.8
236.4
–
35.7
(0.1)
(13.2)
–
258.8
1,321.4
15.2%
200.9
(0.1)
200.8
195.2
27.2
12.5
–
(13.7)
(20.4)
–
200.8
940.3
20.4%
191.8
3.4
195.2
166.0
24.6
16.8
–
(12.2)
–
195.2
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.
66
Directors’ Report and Financial Report Charter Hall Property Trust Group
2019
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 income
Distributions received/receivable
Divestment
Return of capital
Closing balance
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 income/(loss)
Distributions received/receivable
Return of capital
Closing balance
Charter Hall
Office Trust
$’m
Charter Hall
Retail REIT
$’m
Charter Hall
Prime Office
Fund
$’m
Charter Hall
Long WALE
REIT
$’m
1,674.1
15.7%
262.8
0.9
263.7
246.4
–
38.4
–
(11.7)
–
(9.4)
263.7
1,564.1
15.7%
245.6
0.8
246.4
212.9
25.0
29.2
–
(10.0)
(10.7)
246.4
1,800.7
16.2%
291.7
7.9
299.6
327.6
–
9.7
0.1
(20.5)
(17.3)
–
299.6
1,696.5
18.7%
317.2
10.4
327.6
321.2
–
27.3
0.4
(21.3)
–
327.6
4,131.3
6.7%
276.8
(1.2)
275.6
244.1
17.5
26.4
0.2
(12.6)
–
–
275.6
3,123.3
7.9%
246.7
(2.6)
244.1
223.0
–
33.7
(0.1)
(12.5)
–
244.1
1,321.4
15.2%
200.9
(0.1)
200.8
195.2
27.2
12.5
–
(13.7)
(20.4)
–
200.8
940.3
20.4%
191.8
3.4
195.2
166.0
24.6
16.8
–
(12.2)
–
195.2
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.
(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 capital expenditure contracted for at the reporting date but not recognised as liabilities was
$471.1 million (2018: $604.1 million) relating to investment properties.
67
Charter Hall Group Annual Report 2019 Notes to the Consolidated Financial Statements
For the year ended 30 June 2019
3 Investments in joint ventures
(a) Carrying amounts
All joint ventures are incorporated and operate in Australia. Refer to Note 34(e) for accounting policy information relating to
joint ventures.
Unless otherwise noted all joint ventures have a 30 June year end.
OWNERSHIP INTEREST
CARRYING AMOUNT
Charter Hall Group
Name of entity
Accounted for at fair value through profit or loss:
Unlisted
CHAB Office Trust
Principal activity
2019
%
2018
%
Property investment
50.0
–
Equity accounted
Unlisted
Brisbane Square Wholesale Fund
Long WALE Hardware Partnership1
Charter Hall Prime Retail Fund
Retail Partnership No. 6 Trust
Other joint ventures
Total investments in joint ventures
Property investment
Property investment
Property investment
Property investment
16.8
13.5
29.4
20.0
16.8
13.0
38.0
20.0
2019
$’m
47.6
47.6
104.8
96.5
56.6
35.9
22.0
315.8
363.4
2018
$’m
–
–
102.1
85.5
45.7
36.7
10.5
280.5
280.5
1 Ownership interest is calculated as the weighted average holding of BP Fund 1, BP Fund 2 and TTP Wholesale Fund.
OWNERSHIP INTEREST
CARRYING AMOUNT
Charter Hall Property Trust Group
Name of entity
Accounted for at fair value through profit or loss:
Unlisted
CHAB Office Trust
Principal activity
2019
%
2018
%
Property investment
50.0
–
Equity accounted
Unlisted
Brisbane Square Wholesale Fund
Long WALE Hardware Partnership1
Charter Hall Prime Retail Fund
Retail Partnership No. 6 Trust
Other joint ventures
Total investments in joint ventures
Property investment
Property investment
Property investment
Property investment
16.8
13.5
29.4
20.0
16.8
13.0
38.0
20.0
1 Ownership interest is calculated as the weighted average holding of BP Fund 1, BP Fund 2 and TTP Wholesale Fund.
2019
$’m
47.6
47.6
104.8
96.5
56.6
35.9
10.9
304.7
352.3
2018
$’m
–
–
102.1
85.5
45.7
36.7
10.5
280.5
280.5
68
Directors’ Report and Financial Report (b) Critical judgements
Investments in joint ventures are accounted for at either fair value through profit or loss or by using the equity method. CHPT
designates investments in joint ventures 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.
(c) Summarised movements in carrying amounts of associates accounted for at fair value through profit or loss
Opening balance
Investment
Net loss on investment in associates at fair value
Closing balance
CHARTER HALL GROUP
CHARTER HALL PROPERTY
TRUST GROUP
2019
$’m
–
48.0
(0.4)
47.6
2018
$’m
–
–
–
–
2019
$’m
–
48.0
(0.4)
47.6
2018
$’m
–
–
–
–
(d) 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
Share of movement in reserves
Transfer to held for sale
Closing balance
CHARTER HALL GROUP
CHARTER HALL PROPERTY
TRUST GROUP
2019
$’m
280.5
35.2
21.5
(20.4)
–
(0.3)
(0.7)
–
315.8
2018
$’m
258.5
34.1
28.6
(27.6)
7.3
(2.7)
–
(17.7)
280.5
2019
$’m
280.5
24.4
18.4
(17.9)
–
–
(0.7)
–
304.7
2018
$’m
239.0
34.2
25.1
(15.1)
–
(2.7)
–
–
280.5
(e) 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
$nil (2018: $58.5 million).
Brisbane Square Wholesale Fund’s (BSWF) capital expenditure contracted for at the reporting date but not recognised as liabilities
was not considered material (2018: $28.6 million). BSWF’s contingent liabilities at the reporting date was $nil (2018: $83.4 million)
relating to potential capital works.
69
Charter Hall Group Annual Report 2019 Notes to the Consolidated Financial Statements
For the year ended 30 June 2019
4 Revenue
Investment management revenue1
Property services revenue1
Development revenue2
Gross rental income
Other revenue
Recovery of property and fund-related expenses
Interest
Distributions/Dividends3
Other investment-related revenue
Total other revenue
Total revenue4
CHARTER HALL GROUP
CHARTER HALL PROPERTY
TRUST GROUP
2019
$’m
210.3
52.6
53.5
8.6
325.0
46.3
4.4
2.8
–
53.5
2018
$’m
144.3
56.7
–
5.4
206.4
33.6
4.0
2.2
–
39.8
378.5
246.2
2019
$’m
–
–
–
8.6
8.6
–
15.0
4.2
9.7
28.9
37.5
2018
$’m
–
–
–
5.4
5.4
–
4.2
3.1
11.6
18.9
24.3
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 Revenue from the Group’s development investments forms part of the development segment earnings, see Note 1.
3 Represents the distribution of income from investments in associates accounted for at fair value by the Group and Charter Hall Property Trust Group.
4 Revenue excludes share of net profits of equity accounted associates and joint ventures.
(a) Critical judgements
Critical judgements and estimates are made by the Group in respect of recognising performance fee revenue. Detailed
calculations and an assessment of the risks associated with the recognition of the fee are completed to inform the assessment
of the appropriate revenue to recognise. 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.
5 Expenses
CHARTER HALL GROUP
2019
$’m
116.3
–
6.8
6.5
129.6
3.3
4.1
11.1
7.2
6.8
32.5
2018
$’m
101.6
1.3
1.7
6.3
110.9
3.0
3.5
6.4
6.0
6.1
25.0
CHARTER HALL PROPERTY
TRUST GROUP
2019
$’m
2018
$’m
–
–
–
–
–
–
–
3.2
–
1.3
4.5
–
–
–
–
–
–
–
2.2
0.1
1.1
3.4
Profit before income tax includes the following specific expenses:
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
70
Directors’ Report and Financial Report 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
Decrease in deferred tax assets for entities outside the tax consolidated group
(b) Reconciliation of income tax expense 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
Other adjustments
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
CHARTER HALL GROUP
2019
$’m
30.4
18.0
0.4
48.8
5.5
12.4
0.1
18.0
285.6
85.7
(43.8)
6.9
48.8
(1.6)
(3.1)
(4.7)
2018
$’m
25.6
0.6
0.3
26.5
(1.1)
1.7
–
0.6
277.7
83.3
(53.0)
(3.8)
26.5
(1.1)
(0.3)
(1.4)
CHARTER HALL PROPERTY
TRUST GROUP
2019
$’m
2018
$’m
–
–
–
–
–
–
–
–
145.8
43.8
(43.8)
–
–
–
–
–
–
–
–
–
–
–
–
–
176.2
53.0
(53.0)
–
–
–
–
–
(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 below in Note 6(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 2019, the Group has approximately $11.4 million (2018: $12.5 million) of tax effected unrecognised income tax losses.
At 30 June 2019, the Group has approximately $21.5 million (2018: $12.7 million) of tax effected unrecognised capital tax losses.
71
Charter Hall Group Annual Report 2019 Notes to the Consolidated Financial Statements
For the year ended 30 June 2019
6 Income tax expense continued
(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. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable
tax regulation is subject to interpretation and establishes provision where appropriate on the basis of amounts expected to be
paid to the tax authorities.
Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets
are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted for each jurisdiction.
The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the
deferred tax asset or liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they
arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit
or taxable profit or loss.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future
taxable amounts will be available to utilise those temporary differences and losses.
Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of
investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences
and it is probable that the differences will not reverse in the foreseeable future.
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.
7 Distributions/Dividends paid and payable
Ordinary stapled securities
Final ordinary distribution of 10.7 cents and ordinary dividend of 6.5 cents
per stapled security for the six months ended 30 June 2019 payable on
30 August 2019
Interim ordinary distribution of 8.3 cents and interim ordinary dividend of
8.2 cents per stapled security for the six months ended 31 December 2018
paid on 28 February 2019
Final ordinary distribution of 10.7 cents and ordinary dividend of 5.5 cents per
stapled security for the six months ended 30 June 2018 paid on 31 August 2018
Interim ordinary distribution of 9.4 cents and interim ordinary dividend of 6.2 cents
per stapled security for the six months ended 31 December 2018 paid on
28 February 2018
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
2019
$’m
80.1
76.8
–
–
156.9
3.0
159.9
2018
$’m
2019
$’m
2018
$’m
–
–
75.5
72.6
148.1
0.8
148.9
49.8
38.7
–
–
88.5
3.0
91.5
–
–
49.8
43.8
93.6
0.8
94.4
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.
Franking credits available in the parent entity (Charter Hall Limited) for dividends payable in subsequent financial years based
on a tax rate of 30% (2018: 30%) are $51.9 million (2018: $35.7 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.
72
Directors’ Report and Financial Report 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
2019
Cents
2018
Cents
2019
Cents
2018
Cents
19.5
31.0
50.5
19.4
30.7
50.1
16.1
37.6
53.7
16.0
37.4
53.4
n/a
31.0
n/a
n/a
30.7
n/a
n/a
37.6
n/a
n/a
37.4
n/a
Basic earnings per stapled security is determined by dividing profit attributable to the stapled security holders 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.
(c) Reconciliations of earnings used in calculating earnings
per stapled security
Equity holders of Charter Hall Limited
Profit attributable to the ordinary stapled securityholders of the Group used
in calculating basic and diluted earnings per stapled security
91.9
75.0
n/a
235.3
250.2
144.3
2019
$’m
2018
$’m
2019
$’m
2018
$’m
n/a
175.2
(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
2019
Number
2018
Number
2019
Number
2018
Number
465,777,131
465,777,131
465,777,131
465,777,131
2,382,547
1,290,887
2,381,990
420,802
2,382,547
1,290,887
2,381,990
420,802
469,450,565
468,579,923
469,450,565
468,579,923
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.
73
Charter Hall Group Annual Report 2019 Notes to the Consolidated Financial Statements
For the year ended 30 June 2019
9 Receivables and other assets
Current
Trade receivables
Loans to associates and joint ventures
Distributions receivable
Contract assets
Other receivables and assets
Non-current
Loans to associates and joint ventures
Loan receivable from Charter Hall Limited
Other receivables and assets
Note
25(e)
34(b)
25(e)
CHARTER HALL GROUP
CHARTER HALL PROPERTY
TRUST GROUP
2019
$’m
38.7
52.3
31.8
52.1
2.5
177.4
9.2
–
1.8
11.0
2018
$’m
29.7
25.8
41.0
–
2.4
98.9
–
–
–
–
2019
$’m
2.9
38.9
30.8
–
–
72.6
–
42.1
–
42.1
2018
$’m
5.9
16.3
27.4
–
0.8
50.4
–
–
–
–
(a) Bad and doubtful trade receivables
During the year, the Charter Hall Group and Charter Hall Property Trust Group incurred $nil expense (2018: $nil) in respect
of provisions for expected credit losses.
(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 23 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
2019
$’m
38.7
–
–
–
38.7
2018
$’m
29.7
–
–
–
29.7
2019
$’m
2.9
–
–
–
2.9
2018
$’m
5.9
–
–
–
5.9
As at 30 June 2019, Charter Hall Group had trade receivables of $nil (2018: $nil) past due but not impaired. Charter Hall Property
Trust Group had $nil (2018: $nil) receivables past due but not impaired.
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 expected credit losses is processed based on historical default percentages and
current observable data including forecasts of economic conditions. 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.
(d) Changes in accounting policies
The Group adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers from 1 July 2018.
The adoption of these standards had no material impact on the Group’s financial position or results and no retrospective
adjustments were required. The impact of these new standards is described in more detail in Notes 34(a) and 34(b).
74
Directors’ Report and Financial Report 10 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 with its carrying amount being $17.7 million. In July 2018, the Group entered into a
binding agreement to sell its interest in 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.
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.
11 Investment properties
(a) Carrying amounts
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 including acquisition costs
Fair value and other adjustments
Disposals
Closing balance
CHARTER HALL GROUP
CHARTER HALL PROPERTY
TRUST GROUP
2019
$’m
63.4
60.1
(0.9)
(4.1)
118.5
2018
$’m
40.4
28.9
(0.4)
(5.5)
63.4
2019
$’m
63.4
60.1
(0.9)
(4.1)
118.5
2018
$’m
40.4
28.9
(0.4)
(5.5)
63.4
Key valuation assumptions used in the determination of the investment properties’ fair value and the Group’s valuation policy are
disclosed Note 24(d).
(b) 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:
Due within one year
Due between one and five years
Over five years
CHARTER HALL GROUP
CHARTER HALL PROPERTY
TRUST GROUP
2019
$’m
7.2
29.6
20.2
57.0
2018
$’m
4.4
17.8
20.0
42.2
2019
$’m
7.2
29.6
20.2
57.0
2018
$’m
4.4
17.8
20.0
42.2
75
Charter Hall Group Annual Report 2019 Notes to the Consolidated Financial Statements
For the year ended 30 June 2019
12 Business combination
On 7 November 2018, the Group acquired 100% of the issued shares in Folkestone Limited (ASX: FLK, delisted 8 November 2018).
Folkestone shareholders received from Charter Hall $1.354 cash per share, which equates to a purchase consideration of
$205.0 million. Charter Hall also issued 1.5 million CHC service rights to Folkestone management which vest over three years.
Details of the purchase consideration, the provisional fair value of net assets acquired and goodwill are as follows:
Purchase consideration – cash paid
The fair value of the assets and liabilities recognised as a result of the acquisition are as follows:
Assets
Cash and cash equivalents
Loans to associated entities
Receivables and other financial assets
Inventories
Investment in equity accounted investments
Management rights
Liabilities
Payables and other financial liabilities
Short term-borrowings
Long term-borrowings
Net deferred tax liabilities
Net identifiable assets acquired
Add: goodwill
(a) Goodwill
Note
2
12(a) 13
CHARTER HALL
GROUP
2019
$’m
205.0
12.9
30.0
5.3
28.5
111.0
57.3
(10.9)
(19.9)
(10.0)
(9.1)
195.1
9.9
205.0
Goodwill is attributable to the leading position in social infrastructure, expected synergies and the increased diversity of sources
of equity available to the Group following the acquisition of Folkestone Limited.
(b) Revenue and profit contribution
Folkestone contributed revenues of $62.0 million and net profit of $21.4 million to the Group for the period 7 November 2018 to
30 June 2019. If the acquisition had occurred on 1 July 2018, total revenue for the Group, combining Charter Hall and Folkestone,
would have been $386.0 million and net profit would have been $240.8 million, excluding fair value adjustments relating to the
business combination.
(c) Acquisition-related costs
Acquisition-related costs of $1.8 million are included in administration and other expenses in profit or loss.
76
Directors’ Report and Financial Report 13 Intangible assets
The Charter Hall Group acquisition of Folkestone Limited (as outlined in Note 12) resulted in the Group securing the management
rights to Folkestone’s real estate management platform, including management rights classified as indefinite life due to the open
ended nature of the funds totalling $49.1 million. The remaining rights acquired of $8.2 million have been classified as finite life
and will be amortised over the life of the funds to which they related.
Indefinite life intangibles – management rights
Charter Hall Retail REIT
Opening and closing balance
Charter Hall Education Trust
Opening balance
Additions
Closing balance
Other indefinite life intangibles
Opening balance
Additions
Closing balance
Total indefinite life intangibles
Finite life intangibles – management rights
Opening balance
Additions
Amortisation charge
Closing balance
At balance date – finite life intangibles
Cost
Additions
Accumulated amortisation
Total finite life intangibles
Goodwill
Folkestone Limited
Opening balance
Additions
Closing balance
Total intangible assets
CHARTER HALL GROUP
2019
$’m
42.3
–
46.4
46.4
12.6
2.7
15.3
104.0
7.8
8.2
(4.1)
11.9
50.3
8.2
(46.6)
11.9
–
9.9
9.9
125.8
2018
$’m
42.3
–
–
–
12.6
–
12.6
54.9
10.5
–
(2.7)
7.8
50.3
–
(42.5)
7.8
–
–
–
62.7
CHARTER HALL PROPERTY
TRUST GROUP
2019
$’m
2018
$’m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
77
Charter Hall Group Annual Report 2019 Notes to the Consolidated Financial Statements
For the year ended 30 June 2019
13 Intangible assets continued
(a) Critical judgements
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.
(b) Intangibles – indefinite life assets
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.
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;
• post-tax discount rate range of 6–12% (2018: 14–16%);
• growth after three years of 2–3% (2018: 2–3%) per annum; and
• terminal value multiple of 10 times earnings (2018: 7–8 times).
Impairment is tested at the cash generating unit (CGU) level being each fund which generates management fee income.
(c) Management Rights – finite life assets
Management rights with a fixed life are amortised using the straight line method over their useful life ranging from one to ten years.
14 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
Unearned revenue
Other
CHARTER HALL GROUP
2019
$’m
1.5
20.6
2.2
22.8
33.2
10.6
15.6
1.3
60.7
2018
$’m
1.6
12.9
0.9
13.8
17.2
8.1
0.6
1.9
27.8
Net deferred tax liabilities
(37.9)
(14.0)
CHARTER HALL PROPERTY
TRUST GROUP
2019
$’m
2018
$’m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1 Tax losses are held by Charter Hall Opportunity Fund No. 5 (CHOF5), 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.
(a) Critical judgements
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.
78
Directors’ Report and Financial Report 15 Trade and other liabilities
Current
Trade and other liabilities
Long service leave provision
Dividend/Distribution payable
Employee benefits liability
Non-current
Loan payable to Charter Hall Limited
Long service leave provision
Lease incentive liability
CHARTER HALL GROUP
CHARTER HALL PROPERTY
TRUST GROUP
2019
$’m
19.3
2.2
80.1
35.1
136.7
–
2.1
3.8
5.9
2018
$’m
9.0
1.5
75.5
28.2
114.2
–
1.6
5.3
6.9
2019
$’m
5.9
–
49.8
–
55.7
–
–
–
–
2018
$’m
0.8
–
49.8
–
50.6
17.7
–
–
17.7
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 or expected to be settled 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.
16 Borrowings
Current assets
Movement in fair value of bonds commitment attributable to the hedged position
Current liabilities
Loans – related parties
Non-current liabilities
Bonds
Cash advance facilities (DCSF)
Less: unamortised transaction costs
CHARTER HALL GROUP
CHARTER HALL PROPERTY
TRUST GROUP
2019
$’m
–
7.5
268.2
32.3
(3.0)
297.5
2018
$’m
2.2
–
–
5.4
(1.8)
3.6
2019
$’m
–
–
268.2
32.3
(3.0)
297.5
2018
$’m
2.2
–
–
5.4
(1.8)
3.6
79
Charter Hall Group Annual Report 2019 Notes to the Consolidated Financial Statements
For the year ended 30 June 2019
16 Borrowings continued
(a) Borrowings
Charter Hall Group
The Group’s debt platform includes the following:
• Unsecured $200.0 million credit facility plus an additional $20.0 million unsecured facility to support the bank guarantees with
maturity extended to May 2024.
• US$175 million (A$231.5 million at issue date) bonds issued through a US Private Placement which was fully funded in August 2018
and matures in August 2028.
– In May 2018, the Group entered into A$/US$ cross currency interest rate swap agreements that hedge the Group’s exposure to
foreign currency and interest rate fluctuations arising from the bonds issuance. The swap agreements entitle the Group to repay
the bonds at A$231.5 million in August 2028. At 30 June 2019, the carrying amount of the bonds at the prevailing spot rate was
A$268.2 million including a fair value adjustment of A$19.0 million. The carrying amount is offset by the fair value of the swap.
– The swap agreements also 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 August 2028.
•
In January 2019, the Group entered into interest rate swap agreements which hedge the Group’s exposure to interest rate
fluctuations on a notional principal amount of A$100.0 million. The swap agreements entitle the Group to receive floating
interest and pay a fixed rate at quarterly intervals. The agreements mature in February 2024.
At 30 June 2019, drawn borrowings of $231.5 million (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.
DCSF Facility
The fund has two revolving debt facilities of A$50.5 million (30 June 2018: A$25.0 million) and NZ$7.0 million (30 June 2018:
NZ$7.0 million), secured against the fund’s investment properties (see Note 11). The facilities have a maturity date of October 2023.
At 30 June 2019, drawn borrowings of A$26.6 million (30 June 2018: $nil) and NZ$6.0 million (30 June 2018: NZ$6.0 million) had
been utilised under these facilities respectively.
(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 drawn (excluding hedged foreign exchange movements subsequent to the related debt drawing date and
DCSF) net of cash, divided by total assets net of cash, derivative assets and DCSF.
The gearing ratio of the Charter Hall Group and Charter Hall Property Trust Group at 30 June 2019 was 5.7% (30 June 2018: 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.
80
Directors’ Report and Financial Report (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.
Movement
in derivates
and foreign
exchange
$’m
Movement
in borrowing
costs
$’m
Opening
balance
$’m
Movement
in cash
$’m
Closing
balance
$’m
Charter Hall Group
2019
Bank debt
Loans – related parties
Derivative financial instruments hedging debt
Borrowing costs
Fair value of USPP commitment
Cash
2018
Bank debt
Derivative financial instruments hedging debt
Borrowing costs
Fair value of USPP commitment
Cash
Charter Hall Property Trust Group
2019
Bank debt
Derivative financial instruments hedging debt
Borrowing costs
Funding received from/(paid) to Charter Hall Limited
Fair value of USPP commitment
Cash
2018
Bank debt
Derivative financial instruments hedging debt
Borrowing costs
Funding to (paid)/received from Charter Hall Limited
Fair value of USPP commitment
Cash
5.4
–
1.4
(1.8)
(2.2)
(94.9)
(92.1)
–
–
–
–
(174.4)
(174.4)
5.4
1.4
(1.8)
17.7
(2.2)
(32.8)
(12.3)
–
–
–
(73.2)
–
(53.4)
(126.6)
–
–
(35.6)
–
2.2
–
(33.4)
–
1.4
–
(2.2)
–
(0.8)
–
(35.6)
–
–
2.2
–
(33.4)
–
1.4
–
–
(2.2)
–
(0.8)
–
–
–
(1.2)
–
–
(1.2)
–
–
(1.8)
–
–
(1.8)
–
–
(1.2)
–
–
–
(1.2)
–
–
(1.8)
–
–
–
(1.8)
295.1
7.5
–
–
–
(19.0)
283.6
5.4
–
–
–
79.5
84.9
295.1
–
–
(59.8)
–
(17.2)
218.1
5.4
–
–
90.9
–
20.6
116.9
300.5
7.5
(34.2)
(3.0)
–
(113.9)
156.9
5.4
1.4
(1.8)
(2.2)
(94.9)
(92.1)
300.5
(34.2)
(3.0)
(42.1)
–
(50.0)
171.2
5.4
1.4
(1.8)
17.7
(2.2)
(32.8)
(12.3)
81
Charter Hall Group Annual Report 2019 Notes to the Consolidated Financial Statements
For the year ended 30 June 2019
17 Derivative financial instruments
Non-current assets
Cross currency interest rate swaps
Non-current liabilities
Cross currency interest rate swaps
Interest rate swaps
CHARTER HALL GROUP
CHARTER HALL PROPERTY
TRUST GROUP
2019
$’m
40.3
40.3
–
6.1
6.1
2018
$’m
–
–
1.4
–
1.4
2019
$’m
40.3
40.3
–
6.1
6.1
2018
$’m
–
–
1.4
–
1.4
Key valuation assumptions used in the determination of the fair value of derivative financial instruments and the Group’s valuation
policy are disclosed note 24(c).
18 Contributed equity
(a) Movements in ordinary stapled security capital
Details
Opening balance at 1 July 2017
Buyback and issuance of securities for exercised performance
and service rights1
Tax recognised directly in equity
Closing balance at 30 June 2018
Less: transaction costs on stapled security issues
Closing balance per accounts at 30 June 2018
Buyback and issuance of securities for exercised performance
and service rights2
Tax recognised directly in equity
Closing balance at 30 June 2019
Closing balance per accounts at 30 June 2019
Weighted
average
issue price
Charter Hall
Limited
$’m
285.0
Charter Hall
Property
Trust
$’m
1,456.9
$2.83
$2.25
(0.4)
1.1
285.7
–
285.7
(0.6)
1.6
286.7
286.7
(3.3)
–
1,453.6
(0.1)
1,453.5
(5.0)
–
1,448.5
1,448.5
Number of
securities
465,777,131
–
–
465,777,131
–
465,777,131
1
–
465,777,132
465,777,132
Total
$’m
1,741.9
(3.7)
1.1
1,739.3
(0.1)
1,739.2
(5.6)
1.6
1,735.2
1,735.2
1
2
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.
1,121,489 stapled securities bought on-market at an average value of $7.20, offset by the exercise of 857,738 performance rights with a fair value of $1.41 and
263,751 service rights with an average value of $4.97.
(b) Ordinary stapled securities
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.
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.
(c) 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.
82
Directors’ Report and Financial Report 19 Reserves
Business combination reserve
Security-based benefits reserve
Cash flow hedge reserve
Foreign currency basis reserve
Transactions with non-controlling interests
Other reserves
Charter Hall Limited
Charter Hall Property Trust
(a) Business combination reserve
CHARTER HALL GROUP
CHARTER HALL PROPERTY
TRUST GROUP
2019
$’m
(52.0)
11.2
2.5
(0.2)
0.8
6.1
(31.6)
(34.8)
3.2
(31.6)
2018
$’m
(52.0)
4.9
0.9
–
0.4
1.6
(44.2)
(45.1)
0.9
(44.2)
2019
$’m
–
–
2.5
(0.2)
0.8
0.1
3.2
–
3.2
3.2
2018
$’m
–
–
0.9
–
0.4
(0.4)
0.9
–
0.9
0.9
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.
20 Non-controlling interests
During the year, the Group reduced its holding in the Charter Hall Direct Diversified Consumer Staples Fund from 61.3% to 41.9%
(2018: from 100% to 61.3%). The proceeds on redemption were $20.0 million (2018: $12.4 million), received in cash.
The difference between the redemption proceeds and amount transferred to non-controlling interests of $0.5 million
(2018: $0.3 million) has been recognised directly in equity.
CHARTER HALL GROUP
CHARTER HALL PROPERTY
TRUST GROUP
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 income/(loss)
Total comprehensive income
Comprehensive income allocated to non-controlling interest
2019
$’m
2.2
0.8
1.4
118.6
33.5
85.1
86.5
50.3
8.7
2.6
0.2
2.8
1.6
2018
$’m
34.4
0.4
34.0
63.4
5.3
58.1
92.1
35.6
4.2
3.3
(0.5)
2.8
1.0
2019
$’m
2.2
0.8
1.4
118.6
33.5
85.1
86.5
50.3
8.7
2.6
0.2
2.8
1.6
2018
$’m
34.4
0.4
34.0
63.4
5.3
58.1
92.1
35.6
4.2
3.3
(0.5)
2.8
1.0
83
Charter Hall Group Annual Report 2019 Notes to the Consolidated Financial Statements
For the year ended 30 June 2019
21 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
Audit and review of financial reports for DCSF
Other assurance services
Other assurance services for DCSF
Total remuneration for audit services
(b) Taxation services
PricewaterhouseCoopers – Australian Firm
Taxation services
PricewaterhouseCoopers – New Zealand Firm
Taxation services for DCSF
PricewaterhouseCoopers – United States 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
2019
$
2018
$
2019
$
2018
$
367,497
38,723
103,617
1,882
511,719
290,829
30,000
10,000
–
330,829
6,961
38,723
–
1,882
47,566
6,961
30,000
–
–
36,961
135,370
57,222
34,520
1,132
13,164
17,006
13,164
17,006
78,846
227,380
–
74,228
–
47,684
–
18,138
–
36,990
36,990
76,698
53,252
129,950
–
–
–
–
–
–
22 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 of 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
Foreign exchange movements
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 in net deferred income tax
Net cash inflow from operating activities
CHARTER HALL GROUP
CHARTER HALL PROPERTY
TRUST GROUP
2019
$’m
236.8
4.1
–
5.7
6.9
(2.7)
(0.2)
–
7.6
0.2
(61.9)
37.8
36.2
(4.2)
193.9
2018
$’m
251.2
2.7
(7.3)
4.6
1.8
–
(0.8)
(0.3)
0.3
–
(3.8)
3.0
81.1
(3.0)
167.3
2019
$’m
145.8
–
–
1.0
–
(3.7)
(0.2)
–
7.6
0.2
(12.3)
11.0
40.8
–
108.6
2018
$’m
176.2
–
–
0.3
–
–
(0.8)
(0.3)
0.3
–
(3.5)
(0.8)
74.6
–
96.8
Distributions and interest income received on investments has been classified as cash flow from operating activities.
84
Directors’ Report and Financial Report
23 Capital and financial risk management
(a) Capital risk management
The key capital risk management objective of the Group and CHPT 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 Group and CHPT 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.
(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.
85
Charter Hall Group Annual Report 2019 Notes to the Consolidated Financial Statements
For the year ended 30 June 2019
23 Capital and financial risk management continued
(b) Financial risk management continued
(i) Market risk continued
Unlisted unit price risk continued
The following table illustrates the potential impact a change in unlisted unit prices by +/–10% would have on the Group and CHPT’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.
Charter Hall Group
2019
Assets – Charter Hall Group
Investments in associates at fair value through profit or loss
Investments in joint ventures at fair value through profit or loss
2018
Assets – Charter Hall Group
Investments in associates at fair value through profit or loss
Charter Hall Property Trust Group
2019
Assets – Charter Hall Property Trust Group
Investments in associates at fair value through profit or loss
Investments in joint ventures at fair value through profit or loss
2018
Assets – Charter Hall Property Trust Group
Investments in associates at fair value through profit or loss
10%
Impact on
Profit
and Equity
$’m
Carrying
amount
$’m
26.0
47.6
32.4
26.0
47.6
32.4
2.6
4.8
3.2
2.6
4.8
3.2
The impact on equity is the same as the impact on profit. The impact of a -10% change is the reverse of the impact shown for a +10% change.
Cash flow and fair value interest rate risk
The Group has long-term interest-bearing assets from unsecured loans receivable to development partners of $22.6 million. This
exposure is not considered to be material to the Group.
CHPT has a loan receivable from 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 25(e) for further details.
The Group’s and CHPT’s external interest rate risk arises from the debt facilities disclosed in Note 16. Borrowings drawn at variable
rates expose both the Group and CHPT to cash flow interest rate risk. Borrowings drawn at fixed rates expose both the Group and
CHPT to fair value interest rate risk. The Group’s and CHPT’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.
Interest rate risk exposure
(ii)
The Group’s and CHPT’s external interest rate risk arises from the debt facilities disclosed in Note 16 bearing a variable interest rate.
In addition, CHPT’s exposure arises from an unsecured stapled loan maturing on 30 June 2021 receivable from Charter Hall Limited
bearing a variable interest rate.
86
Directors’ Report and Financial Report Interest rate sensitivity analysis
The following tables illustrate the potential impact a change in interest rates of +/–1% would have on the Group and CHPT’s profit and
equity, resulting from changes in Australian interest rates applicable at 30 June 2019, with all other variables remaining constant.
Charter Hall Group
2019
Financial assets
Cash and cash equivalents
Financial liabilities
Borrowings
Total increase/(decrease)
2018
Financial assets
Cash and cash equivalents
Financial liabilities
Borrowings
Total increase/(decrease)
Charter Hall Property Trust Group
2019
Financial assets
Cash and cash equivalents
Loan receivable from Charter Hall Ltd
Financial liabilities
Borrowings
Total increase/(decrease)
2018
Financial assets
Cash and cash equivalents
Financial liabilities
Loan payable to Charter Hall Ltd
Borrowings
Total increase/(decrease)
Effective
interest rate
Fair value
$’m
1%
Impact on
Profit
and Equity
$’m
Carrying
amount
$’m
1.8%
113.9
113.9
3.9%
300.5
300.5
1.8%
4.7%
94.9
5.4
94.9
5.4
1.8%
7.7%
50.0
42.1
50.0
42.1
4.7%
300.5
300.5
1.8%
7.8%
4.7%
32.8
17.7
5.4
32.8
17.7
5.4
1.1
1.8
2.9
0.9
(0.1)
0.8
0.5
0.4
1.8
2.7
0.3
(0.2)
(0.1)
–
The impact on equity is the same as the impact on profit. The impact of a -1% change is the reverse of the impact shown for a +1% change.
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.
The effect of changes in interest rates on the Group’s and CHPT’s profit and equity shown in the table above is mainly impacted by
a change in interest payable on floating rate interest, offset by changes in the fair value of derivative financial instruments hedging
this exposure.
(iii) Foreign exchange risk
The Group’s and CHPT’s principal exposure to foreign exchange risk arises from its investments in foreign subsidiaries
and exposure to bond 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.
87
Charter Hall Group Annual Report 2019
Notes to the Consolidated Financial Statements
For the year ended 30 June 2019
23 Capital and financial risk management continued
(b) Financial risk management continued
(iv) Hedge accounting of derivatives
Where all relevant criteria are met, hedge accounting is applied to remove the accounting mismatch between the hedging
instrument and the hedged item. See Note 17 for derivatives held by the Group.
The Group’s accounting policy for its fair value and cash flow hedges is set out in Note 34(a).
Hedge effectiveness is determined at the inception of the hedge relationship, and through periodic prospective effectiveness
assessments to ensure that an economic relationship exists between the hedged item and hedging instrument.
The Group hedges 100% of its foreign denominated debt. The Group enters into cross currency interest rate swaps that have
similar critical terms as the hedged item, such as payment dates, maturities and notional amount. The Group uses the hypothetical
derivative method to assess effectiveness. Hedge ineffectiveness may occur due to credit/debit value adjustments and differences
in critical terms between the hedging instrument and the hedged item.
Hedging instruments used by the Group
Cross currency interest rate swaps currently in place cover 100% (2018: 100%) of the foreign denominated debt outstanding. The
payable variable AUD interest rates of the swaps are 2.0% (2018: 2.0%) above the 90-day bank bill swap rate which at the end of
the reporting period was 1.2% (2018: 2.1%) and the receivable USD fixed rates of the loans are 4.6% (2018: 4.6%).
Interest rate swaps currently in place cover 43.2% (2018: n/a) of debt outstanding (including debt hedged into AUD). The payable
fixed AUD interest rate of the swaps currently in place are 2.1% (2018: n/a) and the receivable is the 90-day bank bill swap rate.
See Note 16(a) for further details of swaps held by the Group.
Effects of hedge accounting on the financial position and performance
The effects of the cross currency interest rate swaps on the Group’s financial position and performance are as follows:
CHARTER HALL GROUP
CHARTER HALL PROPERTY
TRUST GROUP
2019
2018
2019
2018
40.3
231.5
(1.4)
231.5
(1.4)
231.5
August-2028 August-2028 August-2028 August-2028
1:1
(1.4)
2.2
1:1
41.7
(38.8)
1:1
41.7
(38.8)
1:1
(1.4)
2.2
40.3
231.5
Cross currency interest rate swaps
Carrying amount
Notional amount
Maturity date
Hedge ratio
Change in fair value of outstanding hedging instruments since 1 July
Change in value of hedged item used to determine hedge effectiveness
88
Directors’ Report and Financial Report (c) Credit risk
The Group and CHPT have policies in place to ensure that sales of services are made to customers with appropriate credit
histories to minimise risk of default. A default is when the counterparty fails to fulfil its obligations under the terms of the financial
asset causing financial loss to the Group and CHPT.
The Group derives 58.6% of its income from management fees, transaction and other fees from related parties. A further 28.3% of
the 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.
CHPT derives 78.2% of its income 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 the Group and CHPT are assessed for creditworthiness, taking
into account their financial position, past experience and other factors. Refer to Note 9(c) for more information on credit risk.
Derivative counterparties and cash transactions are limited to high credit quality financial institutions. The Group and CHPT have
policies that limit the amount of credit exposure to any one financial institution.
The Group and CHPT applies the AASB 9 simplified approach to measuring expected credit losses which involves a lifetime
expected loss allowance for all trade and other financial assets. The Group considers its financial asset balances to be low risk
and thus the methodology has not resulted in the recognition of an impairment of any financial assets.
The loss allowances for trade and other financial assets are based on assumptions about risk of default and expected loss rates.
The Group uses judgement in making these assumptions, based on the Group’s history, existing market conditions as well as
forward looking estimates at the end of each reporting period.
(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 Group and CHPT aim at maintaining flexibility in funding by keeping committed credit lines available.
Maturities of financial liabilities
The following table provides the contractual maturity of the Group’s and CHPT’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.
89
Charter Hall Group Annual Report 2019 Notes to the Consolidated Financial Statements
For the year ended 30 June 2019
23 Capital and financial risk management continued
(d) Liquidity risk continued
Charter Hall Group
2019
Trade and other payables
Borrowings
Derivative financial instruments
Net contractual amounts payable/(receivable)
Total financial liabilities
2018
Trade and other payables
Borrowings
Derivative financial instruments
Net contractual amounts payable/(receivable)
Total financial liabilities
Charter Hall Property Trust Group
2019
Trade and other payables
Borrowings
Derivative financial instruments
Net contractual amounts payable/(receivable)
Total financial liabilities
2018
Trade and other payables
Borrowings
Derivative financial instruments
Net contractual amounts payable/(receivable)
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
142.6
308.0
6.1
456.7
121.1
5.4
1.4
127.9
55.7
300.5
6.1
362.3
68.3
5.4
1.4
75.1
136.7
7.5
2.2
146.4
114.2
–
6.4
120.6
55.7
–
2.2
57.9
50.6
–
6.4
57.0
2.1
32.3
8.2
42.6
2.3
5.4
(2.9)
4.8
–
32.3
8.2
40.5
–
5.4
(2.9)
2.5
3.8
268.2
–
272.0
4.6
–
5.2
9.8
–
268.2
–
268.2
–
–
5.2
5.2
142.6
308.0
10.4
461.0
121.1
5.4
8.7
135.2
55.7
300.5
10.4
366.6
50.6
5.4
8.7
64.7
Offsetting financial assets and liabilities
The Group is a party to the master 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 2019, there was a gross liability position of $nil (2018: $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.
90
Directors’ Report and Financial Report
24 Fair value measurement
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.
(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:
•
•
•
• Derivatives (Note 17).
Investments in associates at fair value through profit and loss (Note 2).
Investments in joint ventures at fair value through profit and loss (Note 3).
Investment properties (Note 11).
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).
91
Charter Hall Group Annual Report 2019 Notes to the Consolidated Financial Statements
For the year ended 30 June 2019
24 Fair value measurement continued
(a) Recognised fair value measurement continued
The following table presents the Charter Hall Group’s and Charter Hall Property Trust Group’s assets and liabilities measured
and recognised at fair value:
Charter Hall Group
2019
Investments in joint ventures at fair value through profit and loss
Investments in associates at fair value through profit and loss
Investment properties
Derivative financial instruments
Total assets
Derivative financial instruments
Total liabilities
2018
Investments in associates at fair value through profit and loss
Investment properties
Total assets
Derivative financial instruments
Total liabilities
Charter Hall Property Trust Group
2019
Investments in joint ventures at fair value through profit and loss
Investments in associates at fair value through profit and loss
Investment properties
Derivative financial instruments
Total assets
Derivative financial instruments
Total liabilities
2018
Investments in associates at fair value through profit and loss
Investment properties
Total assets
Derivative financial instruments
Total liabilities
Level 1
$’m
Level 2
$’m
Level 3
$’m
47.6
–
–
–
47.6
–
–
–
–
–
–
–
47.6
–
–
–
47.6
–
–
–
–
–
–
–
–
–
–
40.3
40.3
(6.1)
(6.1)
–
–
–
(1.4)
(1.4)
–
–
–
40.3
40.3
(6.1)
(6.1)
–
–
–
(1.4)
(1.4)
–
26.0
118.5
–
144.5
–
–
32.4
63.4
95.8
–
–
–
26.0
118.5
–
144.5
–
–
32.4
63.4
95.8
–
–
Total
$’m
47.6
26.0
118.5
40.3
232.4
(6.1)
(6.1)
32.4
63.4
95.8
(1.4)
(1.4)
47.6
26.0
118.5
40.3
232.4
(6.1)
(6.1)
32.4
63.4
95.8
(1.4)
(1.4)
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.
(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.
92
Directors’ Report and Financial Report The fair value of interest rate swaps is determined using forward interest 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
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 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:
2019
2018
Term
Discounted Cash
Flow (DCF) method
Income capitalisation
method
Gross market rent
Adopted
capitalisation
rate
(% p.a.)
5.3–7.3
6.0–7.8
Fair value
$’m
118.5
63.4
Adopted
terminal
yield
(% p.a.)
5.3–9.5
6.3–9.9
Adopted
discount
rate
$’m
6.8–8.5
6.8–9.5
Definition
A method in which a discount rate is applied to future expected income streams to estimate the present value.
A valuation approach that provides an indication of value by converting future cash flows to a single current capital value.
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
Discount rate
A percentage return applied to the expected net income following a hypothetical sale at the end of the cash flow period.
A rate of return used to convert a future monetary sum or cash flow into present value.
Movements 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.
93
Charter Hall Group Annual Report 2019 Notes to the Consolidated Financial Statements
For the year ended 30 June 2019
25 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 26.
(c) Key management personnel
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
CHARTER HALL PROPERTY
TRUST GROUP
2019
$’000
3,051
1,270
3,828
62
1,654
5
–
9,870
2018
$’000
4,564
1,121
4,391
110
1,204
11
417
11,818
2019
$’000
–
–
–
–
–
–
–
–
2018
$’000
–
–
–
–
–
–
–
–
Detailed remuneration disclosures are provided in the Remuneration Report on pages 35 to 50.
(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
2019
$’000
8,527
2,192
76,922
102,263
60,956
495
123
4,341
11,167
5,950
2,006
115
15,187
16,205
2,646
–
309,095
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
–
234,646
CHARTER HALL PROPERTY
TRUST GROUP
2019
$’000
2018
$’000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
9,695
9,695
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
11,599
11,599
In June 2019, the Group sold inventory held on balance sheet to BP Fund 2, a joint venture, for consideration of $38.9 million,
settled by the issuance of a loan from the Group to BP Fund 2 for the same amount at a 6% p.a. coupon for up to 364 days.
94
Directors’ Report and Financial Report The following balances arising through the normal course of business were due from related parties at balance date:
Associates
Management fee receivables
Other receivables
Joint ventures
Management fee receivables
Other receivables
Other
Management fee receivables
Other receivables
(e) Loans to/(from) related parties
Loans to joint ventures
Opening balances
Loan balances from acquisition of Folkestone
Loans advanced
Loan repayments received
Interest received/receivable
Closing balance
Loans from joint ventures
Opening balances
Loans advanced
Closing balance
Loans to other related parties
Opening balances
Loan balances from acquisition of Folkestone
Loans advanced
Loan repayments received
Interest received/receivable
Closing balance
Loans from other related parties
Opening balances
Loans advanced
Closing balance
Loans to/(from) Charter Hall Limited
Opening balances
Loans advanced
Loan repayments received
Interest received/receivable
Closing balance
CHARTER HALL GROUP
2019
$’000
10,582
64,417
491
3,156
1,579
3,387
83,612
2018
$’000
8,535
11,570
636
3,067
924
1,301
26,033
CHARTER HALL PROPERTY
TRUST GROUP
2019
$’000
2018
$’000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
CHARTER HALL GROUP
CHARTER HALL PROPERTY
TRUST GROUP
2019
$’000
25,800
8,954
39,203
(26,550)
156
47,563
–
3,647
3,647
–
21,010
321
(8,339)
981
13,973
–
3,852
3,852
–
–
–
–
–
2018
$’000
8,500
–
17,800
(500)
–
25,800
–
–
–
750
–
–
(750)
–
–
–
–
–
–
–
–
–
–
2019
$’000
16,300
–
38,900
(16,300)
19
38,919
–
–
–
–
–
–
–
–
–
–
–
–
2018
$’000
–
–
16,300
–
–
16,300
–
–
–
750
–
–
(750)
–
–
–
–
–
(17,686)
457,963
(411,488)
14,372
43,161
73,175
163,688
(256,952)
2,403
(17,686)
No provisions for expected credit losses 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 2019, amounted to a weighted average rate of 7.7% (2018: 8.3%).
95
Charter Hall Group Annual Report 2019 Notes to the Consolidated Financial Statements
For the year ended 30 June 2019
25 Related parties continued
(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 $2,723,000 (2018: $1,917,000). At 30 June 2019, related fees payable amounted to $1,081,000 (2018: $471,000).
26 Controlled entities
(a) Critical judgements
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.
(b) Principal controlled entities of the Charter Hall Group
The Group’s principal subsidiaries where the majority of activities are undertaken as at 30 June 2019 are set out below. The country
of incorporation or registration is also their principal place of business, unless otherwise stated.
Country of
incorporation Principal activity
Australia
Australia
Australia
Name of entity
Controlled entities of Charter Hall Limited
Charter Hall Holdings Pty Limited
Charter Hall Opportunity Fund No. 5
Folkestone Limited
Controlled entities of Charter Hall Holdings Pty Ltd
Charter Hall Direct Property Management Limited
Charter Hall Funds Management Limited
Charter Hall Investment Management Limited
Charter Hall Retail Management Limited
Charter Hall WALE Limited
Charter Hall Wholesale Management Limited
Controlled entities of Charter Hall Property Trust
Australia
Charter Hall Co-Investment Trust
Australia
Charter Hall Co-Investment Trust 2
Charter Hall Co-Investment Trust 3
Australia
Charter Hall Direct Diversified Consumer Staples Fund Australia
Australia
CHPT RP2 Trust
Australia
Australia
Australia
Australia
Australia
Australia
Property management
Property development
Property management
Responsible entity
Responsible entity
Responsible entity
Responsible entity
Responsible entity
Responsible entity
Property investment
Property investment
Property investment
Property investment
Property investment
(c) Principal controlled entities of the Charter Hall Property Trust Group
Country of
incorporation Principal activity
Name of entity
Controlled entities of Charter Hall Property Trust
Australia
Charter Hall Co-Investment Trust
Australia
Charter Hall Co-Investment Trust 2
Australia
Charter Hall Co-Investment Trust 3
Charter Hall Direct Diversified Consumer Staples Fund Australia
Australia
CHPT RP2 Trust
Property investment
Property investment
Property investment
Property investment
Property investment
96
Class of
securities
2019
%
2018
%
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Class of
securities
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100
93
100
100
100
100
100
100
100
100
100
100
42
100
2019
%
100
100
100
42
100
100
93
–
100
100
100
100
100
100
100
–
–
61
100
2018
%
100
–
–
61
100
Directors’ Report and Financial Report 27 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 activities and objectives 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
Loans to related parties
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
2019
$’m
7.4
31.8
38.9
–
78.1
22.6
73.6
1,754.3
1,850.5
1,928.6
2018
$’m
1.1
41.0
25.8
17.7
85.6
–
32.4
1,617.2
1,649.6
1,735.2
2019
$’m
0.2
30.8
–
–
31.0
–
73.6
1,681.3
1,754.9
1,785.9
2018
$’m
–
27.4
–
–
27.4
–
32.4
1,543.2
1,575.6
1,603.0
Total funds under management in unconsolidated structured entities
30,425.6
21,457.2
29,808.0
21,457.2
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 25 for further information.
No financial support has been provided to the funds beyond the loans disclosed in the above table.
28 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
2019
$’m
4.8
15.0
1.0
20.8
2018
$’m
4.1
15.0
2.4
21.5
2019
$’m
–
–
–
–
2018
$’m
–
–
–
–
Commitments are payable in relation to non-cancellable operating leases contracted for at the balance sheet date but not
recognised as liabilities.
97
Charter Hall Group Annual Report 2019 Notes to the Consolidated Financial Statements
For the year ended 30 June 2019
28 Commitments continued
(b) Contractual commitments
At 30 June 2019 the Group had no contractual commitments. At 30 June 2018 the Group had committed to issue
US$175 million (A$231.5 million) of bond notes, the notes; were issued in August 2018. Refer to Note 16 for details.
(c) Capital commitments
Charter Hall Group
The Group has capital expenditure and a funding guarantee contracted for at the reporting date but not recognised as liabilities
of $44.0 million relating to a development joint venture.
The Group had no contracted commitments as at 30 June 2018.
Charter Hall Property Trust Group
The Trust Group had no contracted capital commitments as at 30 June 2019 (2018: $nil).
29 Contingent liabilities
In relation to a development agreement, there are a number of conditions that, should they arise, require the Group to purchase
land at a pre-determined minimum price of $20.0 million (2018: $nil).
30 Security-based benefits expense
(a) Charter Hall – Performance Rights and Options Plan (PROP)
2016
Number
1,085,276
–
–
–
1,085,276
2017
Number
–
998,453
–
–
998,453
2018
Number
2019
Number
Total
Number
–
–
871,739
–
871,739
–
–
–
1,015,843
1,015,843
1,085,276
998,453
871,739
1,015,843
3,971,311
(227,538)
–
(180,089)
(20,786)
(28,262)
(18,546)
–
–
(435,889)
(39,332)
(857,738)
–
–
–
–
–
–
–
–
–
–
–
797,578
344,548
–
–
344,548
(16,616)
–
(193,494)
(134,438)
–
–
824,931
–
353,091
–
353,091
–
(5,964)
–
(129,313)
217,814
–
1,015,843
(857,738)
2,638,352
–
–
1,748,977
1,748,977
344,548
353,091
1,748,977
2,446,616
–
–
(16,616)
(5,964)
–
–
1,748,977
(193,494)
(263,751)
1,966,791
Charter Hall Group and
Charter Hall Property Trust Group
Performance rights
Rights issued 30/11/15
Rights issued 25/11/16
Rights issued 23/11/17
Rights issued 28/11/18
Performance rights issued
Number of rights forfeited/lapsed
Prior years
Current year
Number of rights vested
Current year
Closing balance
Service rights
Rights issued 25/11/16
Rights issued 23/11/17
Rights issued 28/11/18
Service rights issued
Number of rights forfeited/lapsed
Prior years
Current year
Number of rights vested
Prior years
Current year
Closing balance
98
Directors’ Report and Financial Report
(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
(c) Option inputs
CHARTER HALL GROUP
CHARTER HALL PROPERTY
TRUST GROUP
2019
$’m
6.8
2018
$’m
1.7
2019
$’m
–
2018
$’m
–
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 FY2019 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
28/11/2018
$7.08
$5.09
18.2%
4.5%
2.1%
CHC
Service
rights –
Deferred STI
28/11/2018
$7.08
$6.69
16.6%
4.5%
2.1%
CHC
Service
rights –
Deferred
28/11/2018
$7.08
$6.84
16.5%
4.5%
2.1%
CHC
Service
rights –
Sign-on
28/11/2018
$7.08
$6.53
17.4%
4.5%
2.1%
CQR
Service
rights –
Deferred STI
28/11/2018
$4.55
$4.21
14.0%
6.2%
2.1%
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 (2018: $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 $406,000
(2018: $371,000) was recognised in relation to this plan during the year. For the GESP, the cost of the stapled securities bought
on-market to settle the award liability is included in employee benefits expense.
(e) Accounting policy
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). For market-based performance rights, 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
rights, 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 rights 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 rights that are expected to vest. For non-market based performance rights, the fair value at
grant date is independently valued using the Black-Scholes methodology. At each reporting date, the entity revises its estimate of
the number of rights 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.
99
Charter Hall Group Annual Report 2019 Notes to the Consolidated Financial Statements
For the year ended 30 June 2019
31 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, have been prepared on the same basis as the
Group’s financial statements:
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
2019
$’m
105.1
90.8
41.2
41.2
286.7
(53.6)
(183.5)
49.6
32.6
32.6
2018
$’m
139.2
151.1
45.7
66.6
285.7
(53.6)
(147.6)
84.5
68.0
68.0
2019
$’m
37.3
1,711.6
74.0
306.1
1,448.5
2.3
(45.3)
1,405.5
251.7
251.7
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
Notwithstanding the net current liability, Charter Hall Property Trust has total net assets of $1.4 billion and liquidity through the
inter-staple loan with Charter Hall Limited.
(b) Contingent liabilities of the parent entity
Charter Hall Limited and Charter Hall Property Trust had no contingent liabilities as at 30 June 2019 (2018: $nil) other than the bank
guarantees provided for under the bank facility held by Charter Hall Property Trust (refer to Note 16(a)).
(c) Contractual commitments
As at 30 June 2019, Charter Hall Limited had no contractual commitments (2018: $nil).
As at 30 June 2019, Charter Hall Property Trust had no contractual commitments. As at 30 June 2018, Charter Hall Property Trust
was committed to issue US$175 million (A$231.5 million) of bond notes as disclosed in Note 28.
100
Directors’ Report and Financial Report 32 Deed of cross guarantee
Charter Hall Group
Charter Hall Limited (CHL) and its wholly owned subsidiaries, Charter Hall Holdings Pty Ltd (CHH) and Folkestone Limited (FLK),
are parties to a deed of cross guarantee under which each company guarantees the debts of the others. By entering into the
deed, CHH and FLK have 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. FLK was added by assumption deed
to the deed of cross guarantee from 3 May 2019.
(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 CHL, CHH and FLK.
Statement of comprehensive income
Revenue
Net gain on sale of investments
Employee benefits expense
Depreciation and amortisation
Finance costs
Share of net profit of associates accounted for using the equity method
Other expenses
Profit before income tax
Income tax expense
Profit for the year
Equity accounted fair value movements
Other comprehensive income for the year
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
2019
$’000
295.9
43.4
(136.0)
(7.4)
(17.3)
5.3
(44.1)
139.8
(29.8)
110.0
4.0
4.0
(47.6)
110.0
(68.5)
(6.1)
2018
$’000
233.0
–
(110.9)
(6.2)
(6.6)
3.5
(16.5)
96.3
(24.6)
71.7
–
–
(64.8)
71.7
(54.5)
(47.6)
101
Charter Hall Group Annual Report 2019 Notes to the Consolidated Financial Statements
For the year ended 30 June 2019
32 Deed of cross guarantee continued
(b) Balance sheet
Set out below is a consolidated balance sheet of the closed group consisting of CHL, CHH and FLK.
Assets
Current assets
Cash and cash equivalents
Receivables and other assets
Assets classified as held for sale
Total current assets
Non-current assets
Receivables and other assets
Inventory
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 liabilities
Total current liabilities
Non-current liabilities
Trade and other liabilities
Loans due to Charter Hall Property Trust
Investments in controlled entities
Net loans due to related entities
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Accumulated losses
Total equity
102
2019
$’m
52.0
97.4
–
149.4
55.7
1.8
–
15.1
182.4
22.1
76.0
353.1
502.5
91.1
91.1
5.9
42.1
12.6
77.2
23.5
161.3
252.4
250.1
286.7
(30.5)
(6.1)
250.1
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
88.0
88.0
6.9
–
–
60.0
6.0
72.9
160.9
193.1
285.7
(45.0)
(47.6)
193.1
Directors’ Report and Financial Report •
33 Events occurring after the reporting date
The following events have occurred subsequent to 30 June 2019:
• The Group entered into a partnership agreement to acquire
a 16.8% share of the Charter Hall platform’s acquisition
of 100% of the freehold interest in 242 Exhibition Street,
Melbourne. The Group’s total investment on settlement
in the first half of FY20 is expected to be $68.5 million.
In August 2019, two of Charter Hall’s managed wholesale
trusts, in partnership with GIC, acquired the leasehold of
Chifley Tower, 2 Chifley Square, Sydney. Charter Hall will
assume the asset, property and development management
of 100% of the Tower, increasing the Group’s funds under
management (FUM) by approximately $1.8 billion.
In August 2019, a partnership created by Charter Hall
comprising its managed Long WALE REIT (ASX: CLW), a
domestic super fund and the Group acquired a 49% stake
in a Property Trust created to own a $1.4 billion portfolio of
Telstra Exchanges leased to Telstra Corporation (ASX: TLS)
on long term leases with an average initial lease term (WALE)
of 21 years plus multiple options, with annual CPI +0.5% rent
reviews. The Charter Hall managed partnership’s 49% stake
has a value of $700 million and Charter Hall will invest 21.8%
or $76 million of equity in the partnership.
•
Except for the matters discussed above, no other matter
or circumstance has arisen since 30 June 2019 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.
34 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 2019 are set out below. These policies
have been consistently applied to the years presented, unless
otherwise stated.
Changes in accounting policies
The Group adopted AASB 9 Financial Instruments and AASB
15 Revenue from Contracts with Customers from 1 July 2018.
The adoption of these standards has no material impact on
the Group’s financial position or results and no retrospective
adjustments were required. The impact of these new standards
and revised policies are described below.
(a) AASB 9 Financial Instruments
The Group has adopted AASB 9 from 1 July 2018, which resulted
in changes to accounting policies but no adjustments to the
amounts recognised in the financial statements. In accordance
with the transitional provisions in AASB 9, the Group has
applied AASB 9 retrospectively but has elected not to restate
comparative information. As a result, the comparative information
provided continues to be accounted for in accordance with the
Group’s previous accounting policies. These policies can be
found in the Group’s Financial Statements for the year ended
30 June 2018, available on the ASX’s or the Group’s websites:
www.charterhall.com.au.
AASB 9 replaces the provisions of AASB 139 Financial Instruments:
Recognition and Measurement that relate to the recognition,
classification and measurement of financial assets and financial
liabilities; derecognition of financial instruments; impairment
of financial assets and hedge accounting. AASB 9 also
significantly amends other standards dealing with financial
instruments such as AASB 7 Financial Instruments: Disclosures.
Classification and measurement
On 1 July 2018, the Group assessed the business models which
apply to its financial assets at the date of initial application of
AASB 9 and has classified its financial instruments accordingly.
No changes to valuations were applied on application of AASB
9 as the affected assets were measured at amortised cost at
under AASB 139 and will continue to be measured at amortised
cost under AASB 9.
Impairment of financial assets
The Group has the following types of financial assets which
are subject to AASB 9’s new expected credit loss model:
• Trade receivables and contract assets for services provided;
and
• Related party balances outstanding, including
convertible bonds.
The Group has revised its impairment methodology to be
consistent with the requirements of AASB 9. The Group
considers its financial asset balances, which are all held at
amortised cost, to be low risk and thus the methodology
has not resulted in the recognition of an impairment of any
financial assets.
103
Charter Hall Group Annual Report 2019 Notes to the Consolidated Financial Statements
For the year ended 30 June 2019
34 Summary of significant accounting policies
continued
Accounting policies
(i) Trade and other receivables
Trade and other receivables are recognised initially at fair value
and subsequently measured at amortised cost, less provision
for expected credit losses. Trade receivables are due for
settlement no more than 21 days from the date of recognition.
Expected credit losses in relation to trade receivables are
reviewed on an ongoing basis.
Debt instruments
The Group assesses on a forward-looking basis the expected
credit loss associated with its debt instruments carried at
amortised cost. The impairment methodology applied depends
on whether there has been a significant increase in credit risk.
(iv) Derivatives and hedge accounting
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.
(ii) Other financial assets
Classification
The Group classifies its other financial assets as being
measured either:
• at fair value through other comprehensive income or through
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.
profit or loss; or
• at amortised cost.
The means by which the assets are measured depends upon
how they are managed and the contractual terms of the
cash flows.
Measurement
At initial recognition, the Group measures a financial asset at
its fair value plus, in the case of a financial asset not at fair
value through profit or loss, transaction costs that are directly
attributable to the acquisition of the financial asset. Transaction
costs of financial assets carried at fair value through profit or
loss are expensed in profit or loss.
Debt instruments
Subsequent measurement of debt instruments depends on the
Group’s business model for managing the asset and the cash
flow characteristics of the asset. Presently all the Group’s debt
instruments are classified under amortised cost.
Assets that are held for collection of contractual cash flows
where those cash flows represent solely payments of principal
and interest are measured at amortised cost. A gain or loss on
a debt investment that is subsequently measured at amortised
cost and is not part of a hedging relationship is recognised
in profit or loss when the asset is derecognised or impaired.
Interest income from these financial assets is included in
finance income using the effective interest rate method.
(iii) Impairment
Trade receivables
For trade receivables, the Group applies the simplified
approach to providing for expected credit losses prescribed
by AASB 9, which requires the use of the lifetime expected
credit loss provision for all trade receivables from initial
recognition of the receivables.
Any impairment loss is recognised through the consolidated
statement of comprehensive income.
104
The full fair value of a hedging derivative is classified as a
non-current asset or liability when the remaining maturity of the
hedged item is more than 12 months; it is classified as a current
asset or liability when the remaining maturity of the hedged
item is less than 12 months.
The Group’s derivatives in place as at 30 June 2018 qualified as
fair value and cash flow hedges under AASB 9. The Group’s risk
management strategies and hedge documentation are aligned
with the requirements of AASB 9 and these relationships are
therefore treated as continuing hedges.
Fair value hedges that qualify for hedge accounting
The gain or loss relating to interest payments on interest rate
swaps hedging fixed rate borrowings is recognised in profit or
loss within finance costs. Changes in the fair value of derivative
hedging instruments and 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 that qualify for hedge accounting
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’.
Directors’ Report and Financial Report Derivatives that do not qualify for hedge accounting
For derivative instruments that do not qualify for hedge
accounting, changes in the fair value of the derivative
instrument are recognised immediately in profit or loss.
(b) AASB 15 Revenue from Contracts with Customers
The Group adopted AASB 15 from 1 July 2018, which resulted
in changes in accounting policies as outlined below, but no
material impact on the Group’s financial position or results. The
Group adopted the simplified transition approach under which
no retrospective adjustments were required. As a result, the
comparative information provided continues to be accounted
for in accordance with the Group’s previous accounting
policies. These policies can be found in the Group’s Financial
Statements for the year ended 30 June 2018, available on the
ASX’s or the Group’s websites: www.charterhall.com.au.
Accounting policies
The amount of revenue recognised in each period is based
on the delivery of performance obligations and when control
has been transferred to customers in accordance with the
principles set out in AASB 15. Where the Group enters into
contracts with multiple service components, judgement is
applied to determine whether the components are:
• distinct – accounted for as separate performance
obligations;
• not distinct – combined with other promised services until
a distinct bundle is identified; or
• part of a series of distinct services that are substantially the
same and have the same pattern of transfer to the customer.
For each performance obligation identified, it is determined
whether revenue is recognised at a point in time or over time.
Revenue is recognised over time if:
• the customer simultaneously receives and consumes the
benefits provided over the life of a contract as the services
are performed;
• the customer controls the asset that the Group is creating
or enhancing; or
• the Group’s performance does not create an asset with an
alternative use to the Group and has an enforceable right
to payment for performance completed to date.
At contract inception, the Group estimates the consideration
to which it expects to be entitled and has rights to receive
under the contract. Variable consideration, where the Group’s
performance could result in further revenue, is only included to
the extent that it is highly probable that a significant reversal of
revenue recognised will not occur.
In assessing the amount of consideration to recognise, key
judgements and assumptions are made on a forward-looking
basis where required.
To the extent revenue has not been received at reporting date,
a receivable is recognised in the consolidated balance sheet.
Investment Management revenue
Fund management fees are received for performance
obligations fulfilled over time with revenue recognised
accordingly. Fund management fees are determined in
accordance with relevant agreements for each fund, based
on the fund’s periodic (usually monthly or quarterly) Gross
Asset Value (GAV).
Generally, invoicing of funds for management fees occurs on
a quarterly basis and are receivable within 21 days.
Performance fees are for performance obligations fulfilled over
time and for which consideration is variable. The fees for each
applicable fund are determined in accordance with the relevant
agreement which stipulates out-performance of a benchmark
over a given period.
Performance fee revenue is recognised to the extent that it
is highly probable that the amount of variable consideration
recognised will not be significantly reversed when the uncertainty
is resolved. Detailed calculations and an assessment of the risks
associated with the recognition of the fee are completed to
inform the assessment of the appropriate revenue to recognise.
Invoicing of funds for performance fees occurs in accordance
with the contractual performance fee payment date.
A contract asset is recognised in the consolidated balance
sheet at each reporting date in line with revenue recognised
where the right to receive consideration remains conditional
on future performance.
Transaction fee revenue is recognised at a point in time upon
fulfillment of the performance obligation. This is usually the
point at which control of the underlying asset being transacted
has transferred to the buyer.
Transaction fees are invoiced when the performance obligation
has been fulfilled and are receivable within 21 days.
Property Services revenue
Property services primarily include property management,
development management, leasing, facilities and project
management. Revenue is recognised either over time or at a
point in time depending on the terms of the specific agreement
for each type of service. Invoicing of funds for property services
fees occurs on a monthly or quarterly basis and are receivable
within 21 days.
Recovery of property and fund-related expenses revenue
Accounting, marketing and property management services
provided to managed funds are charged as an expense
recovery. Revenue is recognised over time as the performance
obligations are fulfilled. Invoicing of funds for expense
recoveries occurs on a monthly or quarterly basis depending
on the recovery type and are receivable within 21 days.
105
Charter Hall Group Annual Report 2019 Notes to the Consolidated Financial Statements
For the year ended 30 June 2019
34 Summary of significant accounting
policies continued
(b) AASB 15 Revenue from Contracts with Customers
continued
Development revenue
Revenue from the sale of inventory is recognised when control
has been transferred to the customer. Where inventory has
been recognised in relation to the enhancement of an asset
controlled by the customer, revenue from the sale of that
inventory is recognised over time. Revenue is calculated by
reference to the total consideration expected to be received
in exchange for fulfilling the performance obligations under
the contract. Any variable consideration is constrained to the
amount that is highly probable to not significantly reverse.
Revenue is recognised based on the most appropriate method
that depicts the transfer of goods and services to the customer,
generally the ‘cost to cost’ method.
Proceeds from the sale of inventory is invoiced and receivable
in accordance with the relevant terms of the contract.
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 2019 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:
(c) 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 affects the recognition, measurement, presentation
and disclosure of the Group’s current leases as lessee. The
standard removes the current distinction between operating
and financing leases and requires recognition of a right-of-use
asset along with a lease liability in the Consolidated Balance
Sheet. The Consolidated Statements of Comprehensive Income
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 metrics such as Earnings Before Interest,
Tax, Depreciation and Amortisation (EBITDA) will change.
The Group will adopt the standard in the financial year beginning
1 July 2019, applying the simplified transition approach and
will not restate comparative amounts for the year prior to first
adoption. The Group estimates recognition of lease liabilities of
$12.5 million and right-of-use assets to be $9.8 million. Overall,
the net decrease to opening retained earnings on 1 July 2019 will
be $2.7 million.
Significant accounting policies
(d) Controlled entities
The Charter Hall Group (Group or CHC) is a ‘stapled’ entity
comprising Charter Hall Limited (Company or CHL) and its
controlled entities, and Charter Hall Property Trust (Trust) and
its controlled entities (CHPT 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.
106
Directors’ Report and Financial Report Group references in accounting policies
The accounting policies 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 and joint ventures at fair value
through profit or loss – measured at fair value;
investments in financial assets held at fair value – measured
at fair value; and
•
• derivative financial instruments.
(e) 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 2019
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 or by using the equity
method. On initial recognition, the Group elects to account for
investments in associates at either fair value through profit or
loss or by 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.
(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.
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.
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.
107
Charter Hall Group Annual Report 2019 Notes to the Consolidated Financial Statements
For the year ended 30 June 2019
34 Summary of significant accounting
(g) Employee benefits
policies continued
(e) Principles of consolidation continued
(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.
(f) 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 currency translation
On consolidation, exchange differences arising from the
translation of borrowings, and other financial instruments
designated as hedges of such investments, are recognised
in other comprehensive income.
108
(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. 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.
(iv) 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.
(v) 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.
(h) Inventories
Work in progress and finished goods are stated at the lower
of cost and net realisable value; this includes the costs of
acquisition, development and other holding costs such as
capitalised interest and tax.
(i)
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.
Directors’ Report and Financial Report 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.
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 24(d).
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.
(j) 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.
Gains and losses on disposals are determined by comparing
proceeds with carrying amount. These are included in the
consolidated statement of comprehensive income.
(k) Impairment of non-monetary 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.
(l) 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 interests’
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.
109
Charter Hall Group Annual Report 2019 Notes to the Consolidated Financial Statements
For the year ended 30 June 2019
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.
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.
(n) 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.
(o) Comparative information
Where necessary, comparative information has been adjusted
to conform with changes in presentation in the current year.
(p) 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.
34 Summary of significant accounting
policies continued
(l) Business combinations continued
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.
(m) 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.
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.
110
Directors’ Report and Financial Report Directors’ Declaration to Securityholders
For the year ended 30 June 2019
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 54 to 110 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 2019 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 32 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 32.
Note 34(d) 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
20 August 2019
111
Charter Hall Group Annual Report 2019 Independent Auditor’s Report
For the year ended 30 June 2019
Independent auditor’s report
To the stapled securityholders of Charter Hall Limited and Charter Hall Property Trust
Report on the audit of the financial reports
Our opinion
In our opinion:
The accompanying financial reports of Charter Hall Group and Charter Hall Property Trust Group are
in accordance with the Corporations Act 2001, including:
(a)
giving a true and fair view of Charter Hall Group’s and Charter Hall Property Trust Group’s
financial positions as at 30 June 2019 and of their financial performance for the year then ended
(b)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
What we have audited
We have audited the accompanying financial reports of Charter Hall Group and Charter Hall Property
Trust Group which comprise:
•
•
•
•
•
•
•
the consolidated balance sheets as at 30 June 2019
the consolidated statements of comprehensive income for the year then ended
the consolidated statement of changes in equity – Charter Hall Group for the year then ended
the consolidated statement of changes in equity – Charter Hall Property Trust Group for the
year then ended
the consolidated cash flow statements for the year then ended
the notes to the consolidated financial statements, which include a summary of significant
accounting policies
the directors’ declaration to securityholders.
The Charter Hall Group comprises Charter Hall Limited and the entities it controlled at year end or
from time to time during the financial year and Charter Hall Property Trust and the entities it
controlled at year end or from time to time during the financial year. The Charter Hall Property Trust
Group comprises Charter Hall Property Trust and the entities it controlled at year end or from time to
time during the financial year.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s responsibilities for the audit of the financial
reports section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
PricewaterhouseCoopers, ABN 52 780 433 757
One International Towers Sydney, Watermans Quay, Barangaroo, GPO BOX 2650, SYDNEY NSW 2001
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au
Level 11, 1PSQ, 169 Macquarie Street, Parramatta NSW 2150, PO Box 1155 Parramatta NSW 2124
T: +61 2 9659 2476, F: +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
112
Directors’ Report and Financial Report
Independence
We are independent of Charter Hall Group and Charter Hall Property Trust Group in accordance with
the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of
the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional
Accountants (the Code) that are relevant to our audit of the financial reports in Australia. We have also
fulfilled our other ethical responsibilities in accordance with the Code.
Our audit approach
An audit is designed to provide reasonable assurance about whether the financial reports are free from
material misstatement. Misstatements may arise due to fraud or error. They are considered material if
individually or in aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of the financial reports.
We tailored the scope of our audit to ensure that we performed enough work to be able to give an
opinion on the financial reports as a whole, taking into account the operational and management
structure of Charter Hall Group and Charter Hall Property Trust Group, their accounting processes
and controls and the industry in which they operate.
Materiality
For the purpose of our audit of Charter Hall Group we used overall materiality of $11.06 million, which represents
approximately 5% of Charter Hall Group’s operating earnings.
• We applied this threshold, together with qualitative considerations, to determine the scope of our audit and
the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on the
financial report as a whole.
• We chose operating earnings (an adjusted profit metric) as the benchmark because, in our view, it is a
generally accepted industry metric against which the performance of Charter Hall Group is regularly
measured.
• We utilised a 5% threshold based on our professional judgement, noting it is within the range of commonly
acceptable profit-related materiality thresholds.
113
Charter Hall Group Annual Report 2019
Independent Auditor’s Report
For the year ended 30 June 2019
Audit scope
• Our audit focused on where Charter Hall Group and Charter Hall Property Trust Group made subjective
judgements; for example, significant accounting estimates involving assumptions and inherently uncertain
future events.
•
The group audit team identified separate components of Charter Hall Group and Charter Hall Property Trust
Group representing individually financially significant equity accounted investments. Component audit
teams assisted the Group engagement team to perform an audit of those components.
• At both the Charter Hall Group and Charter Hall Property Trust Group level, audit procedures were
performed over group transactions and financial report disclosures.
•
The work performed by component audit teams, together with the additional audit procedures performed at
each group level provided us with sufficient evidence for our opinion on the financial reports as a whole.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the financial reports for the current period. The key audit matters were addressed in the
context of our audit of the Charter Hall Group and Charter Hall Property Trust Group financial reports
as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these
matters. Further, any commentary on the outcomes of a particular audit procedure is made in that
context. We communicated the key audit matters to the Audit, Risk and Compliance Committee.
Key audit matter
How our audit addressed the key audit matter
Investments accounted for using the equity
method
(Refer to note 2 and 3)
Charter Hall Group and Charter Hall Property Trust
Group invest in certain underlying funds managed by
Charter Hall Group. These funds comprise listed and
unlisted funds which invest across a range of office,
industrial, retail and diversified property portfolios.
These investments are typically classified as Associates
or Joint Ventures as the investor is considered to have
significant influence or joint control.
Investments in Associates and Joint Ventures
contribute a significant proportion of total income and
total assets. Given the significance of these investments
to the results and consolidated balance sheets of Charter
Hall Group and Charter Hall Property Trust Group, we
consider this to be a key audit matter. These investments
are presented in the Consolidated Statements of
Comprehensive Income and Consolidated Balance Sheets
respectively as follows:
•
Share of net profit of investments accounted
To assess the carrying amount of investments
accounted for using the equity method our audit
included the following procedures, amongst others:
• Updating our understanding of market
conditions relating to the investments and
discussing with management the particular
circumstances affecting the investments
where required
•
For financially significant components we
instructed component auditors to perform a
full scope audit of the financial results of the
component and, amongst other things, we:
o Met with component auditors to
update our understanding of the
components and their environments
o Reviewed, through inquiry, the
component auditors overall audit
strategy and plan
o Considered the results of the
component auditor’s work including
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Directors’ Report and Financial Report
Key audit matter
How our audit addressed the key audit matter
•
for using the equity method (Charter Hall
Group $146.2 million and Charter Hall
Property Trust Group $128.8 million)
Investments accounted for using the equity
method (Charter Hall Group $1,754.3 million
and Charter Hall Property Trust Group
$1,681.2 million)
Australian Accounting Standards require that these
investments are initially recognised at cost and adjusted
thereafter for the post-acquisition change in the
investor's share of the investee's total comprehensive
income and distributions.
Revenue recognition – performance fees and
development management fees
(Refer to note 4)
Charter Hall Group revenue for the year ended 3o June
2019 was $378.5 million. This revenue is substantially
derived from funds management activities and includes
investment management fees, development management
fees, performance fees, transaction fees and property
services revenue.
Australian Accounting Standards requires variable
revenue, such as performance fees, to be recognised only
to the extent that it is highly probable that a significant
reversal in the amount of cumulative revenue recognised
will not occur.
We considered revenue recognition to be a key audit
matter in relation to performance fees and development
management fees due to the:
•
Increased judgement required by Charter Hall
Group and the complexity in the recognition of
revenue, particularly as it relates to the chance
of reversal, and measurement, particularly as it
relates to variable consideration
• Financial significance of revenue to the Charter
Hall Group results.
the review, through inquiry, of a
sample of audit documentation.
• Reperforming the equity method of
accounting calculations for a sample of
material investments by reference to
underlying investee financial information
• For a sample of material acquisitions made
during the year, agreeing certain transaction
details to appropriate source documents and
considering the relevant accounting
classification of the investment in accordance
with Australian Accounting Standards
• Assessing the carrying value of a sample of
equity accounted investments for impairment
indicators by reference to the investor's share
of the investee's net assets or market
capitalisation for listed investments as
appropriate.
Our audit procedures included evaluating the design
and implementation of a sample of relevant controls
relating to the recognition and measurement of
revenue.
Through inquiry with management and the audit work
performed, we considered and assessed the
appropriateness of revenue recognition for a sample of
fees including performance fees and development
management fees.
We read a sample of contracts with customers to
determine if the performance obligations were
performed over time or at a point in time.
For a sample of contracts, including those with
performance fees, we tested the estimated variable
consideration by:
• Agreeing the key inputs in Charter Hall
Group’s calculations to source documents,
where possible
• Assessing the factors Charter Hall Group
considered to evaluate the probability of a
revenue reversal.
For a sample of contracts, including those with
development management fees, we:
• Recalculated the contracted transaction price
115
Charter Hall Group Annual Report 2019
Independent Auditor’s Report
For the year ended 30 June 2019
Key audit matter
How our audit addressed the key audit matter
• Assessed Charter Hall Group’s allocation of
the transaction price to the multiple
performance obligations within the contract
• Assessed the appropriateness of Charter Hall
Group’s measurement of progress towards the
performance obligation.
For a sample of impairment tests performed by
Charter Hall Group, our audit included the following
procedures, amongst others, in conjunction with PwC
valuation experts:
• We evaluated cash flow forecasts, including
performing tests over the mathematical
accuracy of the underlying calculations and
comparing forecasts to approved budgets
• We compared the current year (2019) results
with figures included in the forecasts made in
the prior period (2018) to assess the historical
reliability of Charter Hall Group's forecasting
process
• We considered the methodology applied and
assessed the appropriateness of key
assumptions used in light of Australian
Accounting Standards, general industry
valuation practice and factors specific to the
underlying cashflows.
For a sample of the management rights acquired as
part of the Folkestone Limited business combination,
together with PwC valuation experts we considered the
methodology applied and assessed the appropriateness
of key assumptions used including discount rate,
growth rate and terminal value multiples.
We also considered whether there were any
impairment indicators in relation to the management
rights held over a sample of the finite life funds by
reference to the underlying performance of the funds
and the related fee revenue.
Carrying value of indefinite life management
rights
(Refer to note 13)
Charter Hall Group's intangible assets comprise
management rights in relation to managed funds. These
assets had a carrying value of $103.9 million at 3o June
2019. This balance has increased during the year as a
result of the acquisition of management rights acquired
as part of the Folkestone Limited business combination.
A number of these management rights are considered to
have indefinite useful lives and accordingly an annual
impairment test is required by Australian Accounting
Standards.
Charter Hall Group performed an impairment test for
each of the management rights assets with indefinite
useful lives by calculating the value in use of each asset.
We considered the valuation of indefinite life intangible
assets a key audit matter because of the:
•
•
judgement required by Charter Hall Group to
estimate the recoverable amount of indefinite
life management rights
sensitivity of Charter Hall Group’s assessment to
changes in key assumptions such as growth
rates, discount rates, and terminal value
multiples.
The impairment tests performed by Charter Hall Group
during the financial year concluded that no impairment
was required on the carrying value of any indefinite life
management rights asset.
For the management rights that are considered to have a
finite life, Charter Hall Group concluded that there were
no impairment indicators at 30 June 2019.
116
Directors’ Report and Financial Report
Other information
The directors of Charter Hall Limited and the directors of Charter Hall Funds Management Limited,
the Responsible Entity of Charter Hall Property Trust (collectively referred to as “the directors”) are
responsible for the other information. The other information comprises the information included in
the annual report for the year ended 30 June 2019, but does not include the financial reports and our
auditor’s report thereon. Prior to the date of this auditor's report, the other information we obtained
included the Directors Report. We expect the remaining other information to be made available to us
after the date of this auditor's report.
Our opinion on the financial reports does not cover the other information and accordingly we do not
and will not express any form of assurance conclusion thereon.
In connection with our audit of the financial reports, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the financial
reports or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
If, based on the work we have performed on the other information that we obtained prior to the date of
this auditor’s report, we conclude that there is a material misstatement of this other information, we
are required to report that fact. We have nothing to report in this regard.
When we read the other information not yet received, if we conclude that there is a material
misstatement therein, we are required to communicate the matter to the directors and use our
professional judgement to determine the appropriate action to take.
Responsibilities of the directors for the financial reports
The directors are responsible for the preparation of the financial reports that gives a true and fair view
in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such
internal control as the directors determine is necessary to enable the preparation of the financial
reports that gives 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 Charter Hall Group and Charter Hall Property Trust Group 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 reports.
117
Charter Hall Group Annual Report 2019
Independent Auditor’s Report
For the year ended 30 June 2019
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 37 to 50 of the Directors’ Report for the
year ended 30 June 2019.
In our opinion, the remuneration report of Charter Hall Limited for the year ended 30 June 2019
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
E A Barron
Partner
Sydney
20 August 2019
118
Directors’ Report and Financial Report
Securityholder Analysis
A. Distribution of equity stapled securityholders as at 13 September 2019
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
Stapled
securities held
445,576,224
2,462,774
6,953,740
4,303,032
5,477,809
1,003,552
465,777,131
2,498
% of issued
stapled
securities
95.66
0.53
1.49
0.92
1.18
0.22
100.00
0.00
B. Top 20 registered equity securityholders as at 13 September 2019
Rank Name
1
2
3
4
5
6
7
8
9
10
11
12
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
CITICORP NOMINEES PTY LIMITED
NATIONAL NOMINEES LIMITED
BNP PARIBAS NOMINEES PTY LTD
CITICORP NOMINEES PTY LIMITED
BNP PARIBAS NOMS PTY LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
AMP LIFE LIMITED
MILTON CORPORATION LIMITED
BNP PARIBAS NOMS (NZ) LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED-GSCO ECA
A/C designation
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