CHARTER HALL GROUP — Annual Report 2011

Aug 24, 2011

Appendix 4E Preliminary Financial Report

APPENDIX 4E

Preliminary Financial Report for the year ended 30 June 2011

Name of Entity:

Charter Hall Group (CHC) comprising the stapling of ordinary shares in Charter Hall Limited (CHL) (ACN 113 531 150) and units in Charter Hall Property Trust (CHPT) (ARSN: 113 339 147)

Results for announcement to the market

Results for announcement to the market
	12 months to 30 June 2011 12 months to 30 June 2010 Variance $m $m (%)
Revenue from ordinary activities*	109.6 68.3 60.5
Profit from ordinary activities after tax attributable to stapled security holders	52.3 6.8 669.1
Operating earnings attributable to security holders**	60.4 35.8 68.7

• The composition of revenue from ordinary activities is detailed in note 6 of the preliminary financial report.

** Operating earnings is used by management to measure the profitability of the Group. It represents the profit under Australian Accounting Standards adjusted for fair value adjustments, impairment of assets, gains or losses on sale of investments, acquisition costs and non-cash items such as share-based benefits expense, amortisation and tax benefit.

	12 months to 30 June 2011 12 months to 30 June 2010 *Variance cps cps (%)
Basic earnings per security attributable to stapled security holders	17.85 3.22 454.3
Diluted earnings per security attributable to stapled security holders	17.06 3.67 364.9
Operating earnings per security attributable to stapled security holders	20.60 16.83 22.4

• *** Restated for the one for four security consolidation.

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Appendix 4E Preliminary Financial Report

Results for announcement to the market (continued)

Distributions	30 June 2011	30 June 2010
Final distribution in respect of a: CHPT unit CHL share Interim distribution in respect of a: CHPT unit CHL share Total	8.50¢ - 8.00¢ - 16.50¢	6.40¢ - 6.40¢ - 12.80¢*
Record date for determining entitlements to the distribution Payment date	30 June 2011 25 August 2011

• The 30 June 2010 interim and final distributions per security have been restated for a change in accounting policy and one for four security consolidation which occurred during the year – refer note 1 of the preliminary financial report.

The Group has a Distribution Reinvestment Plan (DRP) under which unitholders may elect to have all or part of their distribution entitlements satisfied by the issue of new units rather than being paid in cash. This plan has been suspended during the year.

	2011	2010
Earnings per security and operating earnings
Earnings per security per note 39 (cents)	17.85	3.22
Operating earnings per security per note 5 (cents)	20.60	16.83
Earnings used in the calculation of operating earnings per security ($‘000s)	60,422	35,781
Weighted average number of ordinary securities used in the calculation of operating
earnings per security (‘000s) (note 39)	293,254	212,540
Reconciliation of statutory profit with operating earnings

Reconciliation of statutory profit with operating earnings
	$’000	$’000
Statutory profit after tax attributable to stapled security holders of Charter Hall Group	52,338	6,840
Fair value adjustments	3,896	37,413
Net gain on re-measurement of equity interests	(16,726)	(59,725)
(Gain)/loss on sale of investments, property and derivatives	(3,350)	5,476
Impairment of management rights	19,171	-
Impairment of goodwill	-	15,328
Business combination transaction costs	-	6,636
Non-operating (income)/losses from equity accounted investments	1,773	22,573
Security-based benefits expense	4,090	1,317
Amortisation	950	734
Income tax benefit	(2,556)	(950)
Finance costs due to unwinding of discount on contingent consideration	836	-
Foreign exchange loss	-	139
Operating earnings	60,422	35,781

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Appendix 4E Preliminary Financial Report

Results for announcement to the market (continued)

The Group recorded a statutory profit after tax attributable to stapled security holders for the financial year of $52.3 million compared to a profit of $6.8 million in 2010. After adding back fair value adjustments, impairment of assets, gains on sale and other non-cash including the security-based benefit expense, the Group generated Operating earnings of $60.4 million compared to $35.8 million in 2010.

Operating earnings per security (OEPS) of 20.60 cents rose from 16.83 cents in 2010, largely due to the improved earnings within the Group’s property investment and property funds management segments, following the acquisition in March 2010 of the management rights of the majority of the Macquarie Group Limited’s core real estate management platform and the co-investment in funds, primarily Charter Hall Office REIT (CQO) and Charter Hall Retail REIT (CQR). As a result, the distribution per security (DPS) increased from 12.80 cents to 16.50 cents.

Net Tangible Assets per Security (NTA) has remained consistent with 30 June 2010 at $2.21 per security.

Funds Under Management (FUM) has increased from $10.2 billion at 30 June 2010 to $10.7billion at year end as a result of organic growth and acquisitions during the year, including CQR’s acquisition of a portfolio of eight Woolworths properties.

Gearing has increased from 6.63% at 30 June 2010 to 8.12% at 30 June 2011, largely due to borrowings used to fund the acquisition of additional CQO units in March 2011.

	2011	2010
Revenue including minority interests ($ million)	109.6	68.3
Profit after tax to stapled securityholders ($ million)	52.3	6.8
Operating earnings attributable to stapled securityholders($ million)(1)	60.4	35.8
Distributions to stapled securityholders ($ million)	48.5	29.8
Operating earnings per stapled security (OEPS) (cents)(1)(2)	20.60	16.83
Statutory earnings per stapled security (EPS) (cents)	17.85	3.22
Distribution per stapled security (cents)(2)	16.50	12.80
Total assets ($ million)	957.6	976.2
Total liabilities ($ million)	175.6	165.2
Net assets ($ million)	781.9	811.0
Net assets attributable to stapled securityholders ($ million)	749.8	760.4
Securities on issue ($ million)(2)	293.8	290.6
NTA per stapled security ($)(2)	2.21	2.21
Gearing – borrowings to total assets(3)	8.12%	6.63%
Funds under management ($ billion)	10.7	10.2

(1) – Excludes fair value adjustments, impairment of assets, gains on sale of investments and non-cash items such as security-based benefits expense, amortisation, tax benefit and acquisition costs.

(2) – Calculation excludes stapled securities issued under the Executive Loan Security Plan in accordance with AASB 2 Sharebased Payment s.

(3) – Calculation is net of cash.

Refer to the attached Balance Sheet, Statement of Comprehensive Income and Cash Flow Statement for further detail.

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Appendix 4E Preliminary Financial Report

Review of operations

Charter Hall Group is a diversified property group with a fully integrated business model. The Group has three business activities that contribute to overall performance: property investment, property funds management and development investment.

The Group has delivered a strong result for the year, with its funds and business activities continuing to deliver on stated strategies and taking advantage of the improving Australian market. The Group delivered $60.4 million (FY10: $35.8 million) of operating earnings, with property investment contributing $36.1 million (FY10: $27.0 million), property funds management contributing $20.5 million (FY10: $7.7 million) and development investment contributing $3.8 million (FY10: $1.1 million).

Property investment

Together with its investment partners, the Group has acquired approximately $1.1 billion of property in Australia this year, ensuring its investors have the opportunity to benefit from improving commercial property fundamentals. This includes the Group’s recent purchase of a 50% interest in an office development site at 685 La Trobe Street, Melbourne and CQR’s acquisition, in partnership with Telstra Super, of eight shopping centres from Woolworths Limited for $266 million.

Property funds management

The property funds management business has three sources of equity: listed, wholesale and retail investors.

Charter Hall Office REIT (CQO) and Charter Hall Retail REIT (CQR) have made positive progress on their strategies of reweighting to Australia and together have refinanced almost $2.1 billion of debt during the year, extending their debt maturity profiles. Unitholders are benefiting from the proactive management approach and improving property fundamentals through solid growth in distributions, with CQO and CQR having increased their distributions by 19% and 6.7% respectively on the prior period.

Development investment

The Group’s development investments comprise a 50% interest in Commercial and Industrial Property Pty Ltd (CIP), an industrial development business, together with an investment in CHOFs 4 and 5. CIP contributed $4.0 million (FY10: $1.5 million) of operating earnings to the Group and CHOFs 4 and 5 incurred a loss of $0.2million (FY10: loss $0.4 million), resulting in a combined contribution to operating earnings of $3.8 million (FY10: $1.1 million).

The development team has made progress on the delivery of its $1.8 billion development pipeline, proceeding on two office developments and one retail redevelopment. The team has also commenced construction at the $600 million Little Bay Cove residential project in Sydney, being undertaken with TA Global Berhad, a listed Malaysian residential development and investment group.

Following is an update of the managed funds in which the Group has a co-investment:

Charter Hall Office REIT (CQO) - $3.6 billion FUM, CHPT interest 10.0% (13.3% including interest to be acquired under Fir Tree Capital unit transfer agreement, subject to satisfaction of conditions precedent)

The CQO portfolio comprises 33 high grade office assets located in major business districts in Australia and the United States. With a 30 June 2011 valuation of $3.4billion and a blended average capitalisation rate of 7.67%, CQO’s Australian portfolio of 19 assets recorded a $50 million increase in value over the year to $1.9 billion at 30 June 2011. For the US portfolio, the contracted net sale price of $1.57 billion has been adopted for the portfolio book value at 30 June 2011.

Consistent with the ongoing strategy of reweighting to Australia, on 3 August 2011 CQO announced that it had executed a contract for the sale of its entire US portfolio (closing being subject to satisfaction of customary conditions precedent and third party consents).

CQO finalised its exit from its non-core offshore markets with the sale of the Japanese portfolio in February 2011 and Berlin post balance date, CQO also exchanged contracts to sell NCR House, North Sydney in July 2011 for $57.3 million with settlement due in September 2011.

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Appendix 4E Preliminary Financial Report

Review of operations (continued)

Charter Hall Office REIT (continued)

CQO executed new leases across almost 218,000 sqm or 18% of the portfolio during the year, with robust demand seeing terms agreed over 27% of the Australian portfolio, the strongest in the last 6 years. Major new deals included Telstra at the Argus Centre, Melbourne (23,482 sqm), the Australian Taxation Office at Moonee Ponds (22,000 sqm approx.) and Gilbert & Tobin at 2 Park St, Sydney (9,280 sqm).

Other key results for the year include Australian occupancy of 96% and United States occupancy of 82%, and a portfolio weighted average lease expiry of 5.1 years.

Charter Hall Retail REIT (CQR) - $2.0 billion FUM, CHPT interest 8.2%

CQR’s investment strategy is to invest in predominantly grocery anchored neighbourhood and sub-regional shopping centres. The REIT’s portfolio comprises assets across Australia and offshore, predominantly anchored by the dominant national grocery businesses in Australia.

Asset revaluations of CQR’s portfolio at 30 June 2011 saw its value increase by 0.6% to $1.9 billion, with the overall weighted average capitalisation rate decreasing by seven basis points. The occupancy of the Australian portfolio at 30 June 2011 was 98.8%, with same property net operating income growth of 3.8%, highlighting the non-discretionary nature of CQR’s portfolio.

Since March 2010, CQR has acquired or contracted to acquire 15 Australian properties valued at $571 million, utilising proceeds from the sale of its non-core, offshore holdings, in the US and New Zealand.

Core Plus Office Fund (CPOF) – $1.4 billion FUM, CHPT interest 16%

CPOF has continued to focus on investment fundamentals and strengthen its balance sheet throughout the 2011 financial year. With occupancy of 98% and a long lease expiry profile of six years, CPOF is positioned to take advantage of an improving commercial real estate market.

Continued tenant demand coupled with an upswing in demand from private, institutional and international investors for quality assets across the Australian market is a positive sign for a sustained recovery across the majority of office markets. Following independent valuation of the entire portfolio across December and June quarters of this financial year, CPOF has a current weighted average capitalisation rate of 7.73%.

Core Plus Industrial Fund (CPIF) - $0.5 billion FUM, CHPT interest 21%

CPIF has undertaken independent valuations on the entire portfolio over the December and June half year periods. The current weighted average capitalisation rate of the portfolio is 8.24%, with a WALE of 11.5 years, underpinned by strong tenant covenants with, for example, 25, 16 and 13 year leases to Woolworths, Coles, and Volkswagen respectively.

CPIF has demonstrated a solid performance in what has been a challenging market environment, by outperforming the IPD Industrial index by 3.2% over three years. On 22 September 2010, CPIF purchased a prominent 200,000 sqm industrial site, which will be developed to provide a new 46,000 square metre facility for Woolworths.

The above performance, acquisitions such as the new Volkswagen and Woolworths facilities and overall quality of the portfolio have enabled management to raise an additional $73 million of equity with a further $65 million in due diligence during the year.

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Appendix 4E Preliminary Financial Report

Review of operations (continued)

Charter Hall Direct Retail Fund (DRF) - $0.2 billion FUM, CHPT interest 49% and CHH interest 16%

DRF is an unlisted property fund which invests directly in quality retail properties with a current portfolio of six retail shopping centres located in established markets in New South Wales, Victoria, Queensland and New Zealand.

At 30 June 2011, this portfolio benefited from an occupancy rate of 99% and a weighted average lease expiry of 6.7 years.

A product disclosure statement was issued in December 2010, opening the fund for investment by retail investors following a restructure which included renaming the fund from its former name, Charter Hall Core Plus Retail Fund (CPRF).

As part of the restructure, the fund’s existing finance facilities were successfully refinanced for a further duration of three years and Charter Hall Group assumed 100% economic ownership of two assets located in Mentone. One of these assets, the Mentone development site jointly owned with Harvey Norman, was then sold for $44 million ($22 million - 50% Charter Hall Group interest), with Charter Hall Group retaining ownership of the Mentone Showrooms investment, valued at $15.8 million.

Charter Hall Diversified Property Fund (DPF) - $0.2 billion FUM, CHPT interest 36%

DPF is an unlisted property fund with rolling seven year review events that primarily invests in a diversified portfolio of Australian direct properties.

At 30 June 2011, excluding the Coles Distribution Centre, the fund is anchored by five quality office and three quality industrial properties located in established markets throughout Sydney, Melbourne and Perth, which benefited from an occupancy rate of 91% and a weighted average lease expiry of 4.1 years.

Ahead of the fund’s first review event to be held on or around 14 October 2012, ordinary investors approved the sale of the fund’s 25% interest in the Coles Distribution Centre, Perth Airport property at a unitholder meeting held in May 2011. The sale will be settled progressively prior to 31 December 2011, with the proceeds being used to reduce gearing and provide a capital return to equity investors.

Charter Hall Direct Property Fund (CHDPF) - $0.5 billion FUM, CHPT interest 4%

CHDPF is an open-ended unlisted property fund that primarily invests in a diversified portfolio of Australian direct properties.

At 30 June 2011, the fund is anchored by nine quality office properties located in established markets throughout Sydney, Melbourne and Brisbane, which benefited from an occupancy rate of 96% and a weighted average lease expiry of 4.3 years with leases to over 120 tenants. In the year to 30 June 2011, all of the fund’s direct properties were assessed by independent valuations. The weighted average cap rate was 8.5%.

During the year, the fund refinanced its debt facilities, consolidating its existing two debt facilities, into a new $240 million loan facility expiring in September 2013. The new debt facility was provided by two major Australian banks and an international bank. This positioned the fund to reopen for investor applications with the issue of a new product disclosure statement in December 2010 and provide ongoing six-monthly withdrawal offers.

Charter Hall Umbrella Fund (CHUF) - $0.2 billion FUM, CHPT interest 25%

CHUF is an unlisted fund with investments predominantly in Charter Hall Group managed funds. CHUF provides exposure to a portfolio of 55 office, industrial and retail properties across Australia and New Zealand, with a WALE of 8.1 years and a current occupancy of 95%.

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Appendix 4E Preliminary Financial Report

Review of operations (continued)

Opportunity funds update

Property market conditions have improved for development projects that are positioned to capitalise on reduced supply and growing demand from both tenants and institutional investors. While positive property fundamentals remain in place, a range of global risk factors are providing headwinds for financial markets. Positive progress is being made on the CHOF projects and we expect to raise third party capital this year on an Opportunistic mandate.

Charter Hall Opportunity Fund 4 (CHOF4) - $0.1 billion FUM, CHL interest 3%

CHOF4 is fully allocated with diversity across eight projects and a forecast gross equity IRR of 17%. This fund’s mandate is to identify, acquire and deliver property development and value-add opportunities across various sectors, including commercial, industrial, household retail and infill residential sectors located primarily in the major cities on the eastern seaboard of Australia.

Home HQ North Shore is now 100% leased and has been recognised as a market leading Household Retail Centre with the following awards:

2010 Urban Taskforce Development Excellence Award – Winner of Best Adaptive Reuse. 2010 UDIA NSW Austral Bricks Awards for Excellence – Winner of Best Retail/Commercial Development. 2010 Master Builders Association Excellence in Construction Awards – Winner of Best Adaptive Reuse. 2011 Property Council of Australia Finalist – Adaptive Reuse.

An agreement for Lease (AFL) is awaiting execution with Bunnings for a 2,200 sqm trade store on part of the Gepps X Trade Centre Site in Adelaide. Agents have been appointed to work on the exit from this project through a sale of the balance of the site.

Charter Hall Opportunity Fund 5 (CHOF5) - $0.9 billion FUM, CHL interest 15%

CHOF5 was launched in early 2007. The fund's mandate is to identify, acquire and deliver property development and value-add opportunities across various sectors, including commercial, industrial, retail, bulky goods retail and infill residential sectors located primarily in capital cities and metropolitan markets across Australia and New Zealand.

Construction is nearing completion for The Warehouse Group facility (6,300 sqm) and Mitre 10 Mega facility (11,000 sqm) at Home HQ Hastings, New Zealand. An Agreement for Lease (AFL) has been signed with Fishing Camping Outdoors for a 1,400 sqm facility and discussions with other potential tenants continue.

Little Bay Cove secured a joint development sponsorship arrangement with TA Global Berhad, a listed Malaysian residential development and investment group during the year. The Stage 1 Works, which includes remediation, earthworks and creation of the estate, are progressing well. Development applications on super-lots 2, 4 and 5 have been lodged with Council. Marketing and sales agents have been appointed and are working towards a October 2011 sales launch.

Construction of the Aquilo townhouse development in Mentone, Victoria is progressing well, with the first seven townhouses in stage 1 scheduled for settlement in September 2011. 100 out of 119 townhouses have been exchanged (84%).

Construction of the Lacrosse Apartments in Docklands, Melbourne is progressing, with nine levels of the 21 level building structure completed. 308 of the 312 apartments have been exchanged (99%).

AFL documentation has been executed with Leighton Contractors for 76% of the Work Zone project in Perth. A Guaranteed Maximum Price, Design and Construct construction contract has been agreed within the feasibility allowance. Construction finance is progressing, with the project scheduled for completion in August 2013.

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Appendix 4E Preliminary Financial Report

Significant matters

Significant matters of the Group during the year, in addition to the review of operations above, were as follows:

• On 25 November 2010, the Group completed a security consolidation on a one for four basis. Where the consolidation of a holding resulted in a fractional security, that fraction was rounded up to the next whole security. The consolidation of securities resulted in the reduction of securities on issue from 1,225,365,088 to approximately 306,341,272 securities, resulting in a corresponding increase in pre-consolidation metrics including price and NTA per unit by a factor of four. As the share consolidation did not involve a return of capital to shareholders, there have been no direct impacts on the Group’s market capitalisation or net assets. Prior period comparative information, where shown on a per share basis, has been restated to a post consolidation basis, unless otherwise stated.

• On 11 March 2011, the Group increased its ownership in CQO to 10%, by exercising its first right of refusal to acquire a portion of Macquarie Bank Limited group’s holding in CQO. The Group acquired 1.3% of CQO units at a price of $3.18 per unit, a total acquisition price of $19.7 million. This acquisition was funded from cash reserves and undrawn debt capacity.

• On 16 May 2011, the Group executed a $75 million corporate debt facility with Westpac Banking Corporation, which was subsequently extended to $100 million on 29 June 2011. This facility has a three year term, and has enabled the repayment of existing drawn debt, the cancellation of an undrawn $50 million debt facility with Macquarie Bank, enhanced liquidity and added additional flexibility to pursue opportunities to grow the business and capitalise on the property market recovery.

• On 25 May 2011, the Group announced the acquisition of a 50% interest in an office development at 685 La Trobe Street, Melbourne from Flagship (La Trobe) Pty Ltd for $5 million and has entered into a development agreement with Flagship to jointly undertake the development of this project once a substantial leasing precommitment is secured. The proposed development will include 35,000 sqm of prime office space over 12 levels. It will also include 1,000 sqm of retail space and 151 car parks. The building is targeting a 5 Star Green Star As-Built and 4.5 Star NABERS energy ratings.

• On 21 June 2011, the Group entered into an agreement to increase its stake in CQO by 3.3%, taking its total holding to 13.3%, through a Unit Transfer Agreement (UTA) with Fir Tree Capital. Under the UTA, completion will be effected when at least 80% of the proceeds from the CQO US asset sale program are returned to unitholders. The acquisition price of the units under the UTA will represent a 5.64% discount to CQO’s proforma Australian net tangible assets as at 30 June 2011. The Group will fund the acquisition through existing liquidity or proceeds received from the CQO US asset sale and subsequent special distribution.

• At 30 June 2011, the Group applied a write-down of $19.2 million to the carrying value of its intangible management rights. The lower value reflects management’s current assessment of the recoverable amount of these assets taking into account the present value of future expected cash flows following CQO’s announced disposal of its US assets, discounted using a risk weighted discount rate. As a result, the carrying value of the intangible management rights in CQO has decreased to $47.0 million (2010: $66.2 million).

• On 26 June 2011, Orange Capital, Luxor and Point Lobos issued a notice calling a CQO unitholder meeting for 27 July 2011, to consider a resolution to change the Responsible Entity of CQO from Charter Hall Office Management Limited (CHOML) to Moss Capital Funds Management Limited. The resolution was voted upon at the unitholder meeting and the unitholders voted against the resolution, retaining CHOML as the responsible entity of the REIT.

Refer to preliminary financial report note 37 for events occurring after the reporting date.

Undistributed Income

Refer attached preliminary financial report (Note 28: Reserves and accumulated losses).

Net Tangible Assets

	Current year	Previous corresponding year
Net tangible asset backing per unit1	$2.21	$2.21

1 Under the listing rules NTA Backing must be determined by deducting from total tangible assets all claims on those assets ranking ahead of the ordinary securities (ie: all liabilities, preference shares, outside equity interest etc).

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Appendix 4E Preliminary Financial Report

Control gained or lost over entities during the year

The Group gained 100% control of the following entities during the year:

• CH La Trobe Trust

• Charter Hall Asset Services Europe Sp z.o.o

Details of Associates and Joint Venture entities

Refer attached preliminary financial report (Note 35: Investments in Associates and Note 36: Investments in Joint Ventures).

Other significant information

For additional information regarding the results of Charter Hall Group for the year ended 30 June 2011 please refer to the Full Year Results – Media Release and Full Year Results – Presentation lodged with the ASX. Attached with this Appendix 4E is a copy of the unaudited Preliminary Financial Report for the year ended 30 June 2011.

Accounting standards used by foreign entities

International Financial Reporting Standards

Segment results:

Refer attached preliminary financial report (Note 5: Segment reporting).

Performance Trends:

Refer to Significant features of operating performance above.

Other factors:

Refer to Other significant information (above).

Audit

This report is based on accounts to which one of the following applies: (tick one)

	The accounts have been audited. (refer attached financial statements)		The accounts have been subject to review. (refer attached financial statements)
	The accounts are in the process of being audited orsubject toreview.		The accounts have not yet been audited or reviewed.

Page 9

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CHARTER HALL GROUP ARSN 113 339 147

PRELIMINARY FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2011 (UNAUDITED)

Charter Hall Group Preliminary Financial Report for the year ended 30 June 2011

Important notice

This preliminary financial report has been prepared and issued by Charter Hall Limited (ABN 57 113 531 150) and Charter Hall Funds Management Limited (ABN 31 082 991 786, AFSL 262861) (CHFML) as Responsible Entity of the Charter Hall Property Trust (together, the Charter Hall Group or Group). The information contained in this report has been compiled to comply with legal and regulatory requirements and to assist the recipient in assessing the performance of the Group independently and does not relate to, and is not relevant for, any other purpose.

This report is not intended to be and does not constitute an offer or a recommendation to acquire any securities in the Charter Hall Group. The receipt of this report by any person and any information contained herein or subsequently communicated to any person in connection with the Charter Hall Group is not to be taken as constituting the giving of investment, legal, or tax advice by the Charter Hall Group, their related bodies corporate, their directors or employees to any such person. Each recipient should consult their own counsel, accountant, and other advisers as to legal, tax, business, financial and other considerations in relation to the Charter Hall Group.

Neither the Charter Hall Group, their related bodies corporate, directors, employees nor any other person who may be taken to have been involved in the preparation of this preliminary financial report represents or warrants that the information contained in this report, provided either orally or in writing to a recipient in the course of its evaluation of the Charter Hall Group or the matters contained in this preliminary financial report, is accurate or complete.

Historical performance is not a reliable indicator of future performance. Due care and attention have been exercised in the preparation of forecast information, however, forecasts, by their very nature, are subject to uncertainty and contingencies, many of which are outside the control of the Group. Actual results may vary from any forecasts, and any variation may be materially positive or negative.

CHFML does not receive fees in respect of the general financial product advice it may provide; however, entities within the Charter Hall Group receive fees for operating the Trust in accordance with its constitution. Entities within the Group may also receive fees for managing the assets of, and providing resources to the Trust. For more detail on fees, see this preliminary financial report.

© Charter Hall

2

Charter Hall Group

Preliminary financial report for the year ended 30 June 2011

Contents

Contents	Contents
Consolidated income statement		2
Consolidated statement of comprehensive income		3
Consolidated balance sheet		4
Consolidated statement of changes in equity		5
Consolidated cash flow statement		6
Notes to the preliminary financial report		7
1	Summary of significant accounting policies	7
2	Financial risk management	19
3	Critical accounting estimates and judgements	23
4	Parent entity financial information	24
5	Segment information	25
6	Revenue	28
7	Expenses	28
8	Fair value adjustments	29
9	Income tax benefit	29
10	Distributions paid and payable	30
11	Current assets – cash and cash equivalents	31
12	Current assets – trade and other receivables	31
13	Current assets – investment property held for sale	34
14	Non-current assets – investments in associates at fair value through profit or loss	34
15	Derivative financial instruments	34
16	Inventories	35
17	Non-current assets – investments accounted for using the equity method	36
18	Non-current assets – intangible assets	36
19	Non-current assets – property, plant and equipment	37
20	Non-current assets – investment properties	37
21	Non-current assets – deferred tax assets	39
22	Trade and other payables	39
23	Current liabilities – provisions	40
24	Non-current liabilities – borrowings	40
25	Non-current liabilities – deferred tax liabilities	44
26	Non-current liabilities – provisions	44
27	Contributed equity	45
28	Reserves and accumulated losses	46
29	Non-controlling interest	48
30	Key management personnel disclosures	48
31	Remuneration of auditors	49
32	Commitments	49
33	Related parties	50
34	Controlled entities	51
35	Investments in associates	53
36	Investments in joint ventures	57
37	Events occurring after the reporting date	60
38	Reconciliation of profit/(loss) after tax to net cash inflow from operating activities	60
39	Earnings per security	61
40	Security-based benefits	62
41	Deed of cross guarantee	64

1

Charter Hall Group

Preliminary financial report for the year ended 30 June 2011

Consolidated income statement		2011	2010
			(restated)
	Note	$'000	$'000
Revenue	6	109,594	68,262
Net gain on remeasurement of equity interests	35(b)	16,726	59,725
Investment property expenses		(4,795)	(4,703)
Depreciation	7	(1,545)	(672)
Employee benefits expense		(57,593)	(29,648)
Finance costs	7	(8,111)	(6,471)
Business combination transaction costs		-	(6,636)
Foreign exchange gain/(loss)		29	(174)
Share of net gain/(loss) of associates accounted for using the equity method		30,396	(6,209)
Gain/(loss) on sale of investments, property and derivatives		3,350	(5,827)
Impairment of management rights	7	(19,171)	-
Impairment of goodwill	7	-	(15,328)
Fair value adjustments	8	(3,213)	(50,762)
Occupancy costs		(2,491)	(1,300)
Legal and consulting costs		(1,864)	(358)
Other expenses		(8,741)	(4,438)
Profit/(loss) before income tax		52,571	(4,539)
Income tax benefit	9	2,666	950
Profit/(loss) after income tax		55,237	(3,589)
Profit/(loss) after tax attributable to:
Profit attributable to stapled securityholders of Charter Hall Group		52,338	6,840
Netgain/(loss)attributable to non-controllinginterest in Direct Retail Fund(DRF)		2,899	(10,429)
		55,237	(3,589)
Profit/(loss) after tax attributable to stapled securityholders of
Charter Hall Group
Equity holders of Charter Hall Limited		(5,493)	(25,169)
Equityholders of Charter Hall PropertyTrust(non-controllinginterest)		57,831	32,009
Profit after tax attributable to stapled securityholders of
Charter Hall Group		52,338	6,840
			Restated
		Cents	Cents
Charter Hall Group earnings per stapled security
Basic earnings per security	39	17.85	3.22
Diluted earningsper security	39	17.06	3.67

The 30 June 2010 earnings per stapled security have been restated for the change in accounting policy and security consolidation which occurred during the year.

The above consolidated income statement should be read in conjunction with the accompanying notes.

2

Charter Hall Group

Preliminary financial report for the year ended 30 June 2011

Consolidated statement of comprehensive income	2011	2010
		(restated)
	$'000	$'000
Profit/(loss) after income tax for the year	55,237	(3,589)
Other comprehensive income for the year:
Exchange differences on translation of foreign operations	(19,677)	4,650
Total comprehensive income for theyear	35,560	1,061
Attributable to:
Equity holders of Charter Hall Limited	(10,835)	(25,146)
Equityholders of Charter Hall PropertyTrust(non-controllinginterest)	43,455	36,637
Comprehensive income attributable to stapled securityholders of Charter Hall Group	32,620	11,491
Net comprehensivegain/(loss)attributable to non-controllinginterests in DRF	2,940	(10,430)
Total comprehensive income for theyear	35,560	1,061

The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.

3

Charter Hall Group

Preliminary financial report for the year ended 30 June 2011

Consolidated balance sheet		2011	2010	1 July 2009
			(restated)	(restated)
	Note	$'000	$'000	$'000
Assets
Current assets
Cash and cash equivalents	11	26,266	28,380	1,923
Trade and other receivables	12	43,438	48,361	17,082
Investmentproperties held for sale	13	921	45,000	-
Total current assets		70,625	121,741	19,005
Non-current assets
Trade and other receivables	12	9,400	3,750	5,307
Investment in associates at fair value through profit or loss	14	78,445	73,739	210,256
Inventories	16	7,450	-	-
Investments accounted for using the equity method	17	517,707	446,336	247,875
Property, plant and equipment	19	3,167	3,592	2,304
Investment properties	20	159,518	202,118	15,770
Intangible assets	18	99,994	119,164	-
Deferred tax assets	21	11,255	5,721	3,946
Other assets		-	-	295
Total non-current assets		886,936	854,420	485,753
Total assets		957,561	976,161	504,758
Liabilities
Current liabilities
Trade and other payables	22	58,061	55,018	14,221
Provisions	23	834	749	222
Total current liabilities		58,895	55,767	14,443
Non-current liabilities
Trade and other payables	22	12,106	11,270	-
Borrowings	24	101,862	91,228	14,220
Deferred tax liabilities	25	1,129	1,273	852
Derivative financial instruments	15	407	4,754	-
Provisions	26	1,217	879	25
Total non-current liabilities		116,721	109,404	15,097
Total liabilities		175,616	165,171	29,540
Net assets		781,945	810,990	475,218
Equity
Equity holders of Charter Hall Limited
Contributed equity	27	9,503	9,427	6,383
Reserves	28(a)	(47,547)	(44,658)	(45,997)
Accumulated losses	28(b)	(62,329)	(61,698)	(36,530)
Parent entity interest	28	(100,373)	(96,929)	(76,144)
Equity holders of Charter Hall Property Trust
(non-controllinginterest)	29	850,191	857,290	551,362
Interest attributable to stapled securityholders of Charter Hall Group		749,818	760,361	475,218
Non-controlling interest in DRF	29	32,127	50,629	-
Total equity		781,945	810,990	475,218

The above consolidated balance sheet should be read in conjunction with the accompanying notes.

4

Charter Hall Group

Preliminary financial report for the year ended 30 June 2011

Consolidated statement of changes in equity

	Contributed equity Reserves Accumulated losses Total Non- controlling interest Total equity $'000 $'000 $'000 $'000 $'000 $'000 Attributable to owners of Charter Hall Group
Balance at 1 July 2009 (restated)	634,308 (45,997) (113,093) 475,218 - 475,218
Profit/(loss) for the year Other comprehensive income	- - 6,840 6,840 (10,429) (3,589) - 4,651 - 4,651 (1) 4,650
Total comprehensive income for the year	- 4,651 6,840 11,491 (10,430) 1,061
Transactions with equity holders in their capacity as equity holders: Non-controlling interest in DRF - - - - 64,825 64,825 Contributions of equity, net of transaction costs 302,137 - - 302,137 - 302,137 Distribution paid and payable - - (29,802) (29,802) (3,766) (33,568) Security-based benefits reserve - 1,317 - 1,317 - 1,317
302,137 1,317 (29,802) 273,652 61,059 334,711
Balance at 1 July 2010(restated) 936,445 (40,029) (136,055) 760,361 50,629 810,990
Proft for the year - - 52,338 52,338 2,899 55,237 Other comprehensive income - (19,718) - (19,718) 41 (19,677)
Total comprehensive income for the year - (19,718) 52,338 32,620 2,940 35,560
Transactions with equity holders in their capacity as equity holders: Contributions of equity, net of transaction costs 7,516 - - 7,516 ‐ 7,516 Transactions with non-controlling interests - (6,300) - (6,300) (18,939) (25,239) Distribution paid and payable - - (48,469) (48,469) (2,503) (50,972) Transfer from accumulated losses - 4,663 (4,663) - - - Security-based benefits reserve - 4,090 - 4,090 - 4,090
7,516 2,453 (53,132) (43,163) (21,442) (64,605)
Balance at 30 June 2011 943,961 (57,294) (136,849) 749,818 32,127 781,945

The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

5

Charter Hall Group

Preliminary financial report for the year ended 30 June 2011

Consolidated cash flow statement		2011	2010
	Note	$'000	$'000
Cash flows from operating activities
Receipts from customers		107,836	60,105
Payments to suppliers and employees		(72,932)	(34,714)
		34,904	25,391
Interest received		2,901	4,965
Interest paid		(7,494)	(6,135)
Distributions and dividends from investments		28,471	14,622
Net cash inflow from operating activities	38	58,782	38,843
Cash flows from investing activities
Payments for property, plant and equipment		(1,128)	(1,999)
Proceeds on disposal of investment property		97,548	97,653
Payment for inventory		(7,450)	-
Payments for investment properties		(14,778)	-
Payments for business combination		(280)	(100,193)
Investments in associates		(75,670)	(218,562)
Proceeds on disposal of investments in associates		439	29,700
Loans to associates		(1,250)	(2,000)
Payments for acquisition of non-controlling interests		(30,076)	-
Cash from DRF reconsolidated		-	5,983
Net cash outflow from investing activities		(32,645)	(189,418)
Cash flows from financing activities
Proceeds from issues of securities and other equity securities		-	304,982
Payment on settlement of derivative financial instruments		(4,388)	(9,826)
Proceeds from borrowings		48,510	-
Repayment of borrowings		(37,658)	(91,549)
Security issue transaction costs		-	(7,250)
Distributionspaid to securityholders		(35,030)	(19,325)
Net cash(outflow)/inflow from financing activities		(28,566)	177,032
Net (decrease)/increase in cash and cash equivalents		(2,429)	26,457
Cash and cash equivalents at the beginning of the year		28,380	1,923
Effect of exchange rate changes on cash and cash equivalents		315	-
Cash and cash equivalents at the end of theyear	11	26,266	28,380

The above consolidated cash flow statement should be read in conjunction with the accompanying notes.

6

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

1 Summary of significant accounting policies

(a) Basis of preparation

This preliminary general purpose financial report has been prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board, Urgent Issues Group Interpretations and the Corporations Act 2001.

The principal accounting policies adopted in the preparation of the consolidated preliminary financial report for the year ended 30 June 2011 are set out below. These policies have been consistently applied to the years presented, unless otherwise stated. The preliminary financial report is for the consolidated entity consisting of Charter Hall Limited (CHL or the Company) and its controlled entities, including Charter Hall Funds Management Limited (Responsible Entity) as responsible entity for Charter Hall Property Trust (CHPT) (together the Group). CHL has been identified as the parent entity in relation to the stapling that occurred on 6 June 2005, which is the date of the initial public offering (IPO). The results and equity, not directly owned by CHL, of CHPT have been treated and disclosed as a non-controlling interest. Whilst the results and equity of CHPT are disclosed as a non-controlling interest, the stapled securityholders of CHL are the same as the stapled securityholders of CHPT. The results and equity of the Charter Hall Direct Retail Fund (DRF) not directly owned by the Group have been treated and disclosed as a non-controlling interest.

On 6 June 2005, CHL acquired Charter Hall Holdings Pty Ltd (CHH). Under the terms of AASB 3 Business Combinations, CHH was deemed to be the accounting acquirer in this business combination. This transaction has therefore been accounted for as a reverse acquisition under AASB 3. Accordingly, the consolidated financial report of the Group has been prepared as a continuation of the consolidated financial statements of CHH. CHH, as the deemed acquirer, has acquisition accounted for CHL as at 6 June 2005.

Compliance with IFRSs

Compliance with Australian Accounting Standards ensures that the financial report complies with International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board (IASB). Consequently, this financial report have been prepared in accordance with and comply with IFRS as issued by the IASB.

Historical cost convention

This preliminary financial report has been prepared under the historical cost convention, as modified by the revaluation of investment properties, financial assets and liabilities (including derivative financial instruments) held at fair value through profit or loss.

Critical accounting estimates

The preparation of the preliminary financial report in conformity with Australian Accounting Standards requires the use of certain critical accounting estimates and management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the preliminary financial report, are disclosed in note 3.

Change in accounting policy

The Board resolved to equity account the investments in Charter Hall Core Plus Office Fund and Charter Hall Core Plus Industrial Fund from 1 July 2010. Previously, an election had been made to fair value these investments in accordance with AASB 128 Investments in Associates and AASB 139 Financial Instruments: Recognition and Measurement .

The change in accounting policy was in response to recent sales of units in these funds transacted on the basis of the net tangible assets of the investments rather than their unit price. Equity accounting provides a more reliable and more relevant valuation of these investments.

The new policy has been applied retrospectively and comparative information in relation to the 2010 financial year has been restated accordingly. The following adjustments were made:

7

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

1 Summary of significant accounting policies (continued)

Consolidated balance sheet (extract)

Consolidated balance sheet (extract)			30 June 2010
	30 June 2010	Restatements	(restated)
	$’000	$’000	$’000
Non-current assets
Investments accounted for using the equity method	290,033	156,303	446,336
Investment in associates at fair value through profit or loss	242,157	(168,418)	73,739
Net assets	823,105	(12,115)	810,990
Equity
Equity holders of Charter Hall Property Trust (non-controlling interest)
Retained earnings impact	869,405	(12,115)	857,290
Total equity	823,105	(12,115)	810,990
Consolidated balance sheet (extract)			1 July 2009
	1 July 2009	Restatements	(restated)
	$’000	$’000	$’000
Non-current assets
Investments accounted for using the equity method	43,258	204,617	247,875
Investment in associates at fair value through profit or loss	433,621	(223,365)	210,256
Net assets	493,966	(18,748)	475,218
Equity
Equity holders of Charter Hall Property Trust (non-controlling interest)
Retained earnings impact	570,110	(18,748)	551,362
Total equity	493,966	(18,748)	475,218
Consolidated income statement (extract)			2010
	2010	Restatements	(restated)
	$’000	$’000	$’000
Revenue	77,333	(9,071)	68,262
Share of net loss of associates and joint venture accounted for
using the equity method	(1,426)	(4,783)	(6,209)
Loss on sale of investments, property and derivatives	(10,880)	5,053	(5,827)
Fair value adjustments	(66,196)	15,434	(50,762)
Loss before income tax	(11,172)	6,633	(4,539)
Net loss after income tax	(10,222)	6,633	(3,589)
Profit for the year
Attributable to:
Equity holders of Charter Hall Property Trust	25,376	6,633	32,009

8

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

1 Summary of significant accounting policies (continued)

Group earnings per stapled security			2010
	2010	Restatements	(restated)
	Cents	Cents	Cents
Basic earnings per security on profit attributable to stapled securityholders	0.08	3.14	3.22
Diluted earnings per security on profit attributable to stapled securityholders	0.80	2.87	3.67

The earnings per unit have been restated for the change in accounting policy and the one for four unit consolidation.

(b) Principles of consolidation

(i) Controlled entities

The consolidated preliminary financial report incorporates the assets and liabilities of controlled entities of Charter Hall Limited, including CHPT, as at 30 June 2011 and their results for the year then ended.

Controlled entities are all those entities over which the Group has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one-half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity.

Controlled entities are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.

The acquisition method of accounting is used to account for acquisition of controlled entities by the Group (refer to note 1(g)).

Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction involves impairment of the asset transferred. Accounting policies of controlled entities have been changed where necessary to ensure consistency with the policies adopted by the Group.

Non-controlling interests in the results and equity of controlled entities are shown separately in the consolidated income statement, consolidated statement of comprehensive income, consolidated balance sheet and consolidated statement of changes in equity respectively.

(ii) Associates

Associates are entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for in the consolidated preliminary financial report using the equity method of accounting after initially being recognised at cost, or as financial assets at fair value through profit or loss.

Where the equity method of accounting is used, the Group’s share of its associates’ post-acquisition profits or losses is recognised in the income statement, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. Dividends receivable from associates are recognised in the consolidated preliminary financial report as a reduction in the carrying amount of the investment.

When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured long-term receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.

Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group.

For investments in associates accounted for as financial assets at fair value through profit or loss, investments are carried at fair value with gains or losses arising from changes in the fair value being presented in the income statement within ‘fair value adjustments’ in the year in which they arise. Distribution income from investments in associates accounted at fair value through profit or loss is recognised in the income statement as part of revenue.

(iii) Joint ventures

Joint venture entities

Investment in joint venture entities over which the Group exercised joint control are accounted for in the consolidated preliminary financial report using the equity method after initially being recognised at cost. Under the equity method, the Group’s share of the profits or losses of each relevant joint venture entity is recognised in the income statement, and the share of post-acquisition movements in reserves is recognised in other comprehensive income. Details relating to the joint venture entities are set out in note 36.

9

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

1 Summary of significant accounting policies (continued)

(b) Principles of consolidation (continued)

Profit and losses on transactions establishing the joint venture entity and transactions with the joint venture are eliminated to the extent of the Group’s ownership interest until such time as they are realised by the joint venture entity on consumption or sale. However, a loss on the transaction is recognised immediately if the loss provides evidence of a reduction in the net realisable value of assets, or an impairment loss.

Jointly controlled assets

The proportionate interests in the assets, liabilities, income and expenses of a joint venture activity have been incorporated in the preliminary financial report under the appropriate headings. Details of the joint venture are set out in note 36.

(c) Segment reporting

Segment information is presented on the same basis as that used for internal reporting purposes.

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board.

(d) Foreign currency translation

(i) Functional and presentation currency

Items included in the preliminary financial report are measured using the currency of the primary economic environment in which the Group operates (the functional currency). The preliminary financial report is presented in Australian Dollars which is the Group’s functional and presentation currency.

(ii) Group companies

The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

• Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;

• Income and expenses for each income statement are translated at average exchange rates; and

• All resulting exchange differences are recognised in other comprehensive income. If an entity is sold, the proportionate share of exchange differences would be transferred out of equity and recognised in the income statement.

Functional currencies and the relevant exchange rates are as follows:

	2011	2010
Spot rate
US Dollar	1.0713	0.8532
NZ Dollar	1.2965	1.2362
Euro	0.7401	0.6943
British Pounds	0.6692	0.5679
Average rate
US Dollar	0.9856	0.8804
NZ Dollar	1.3041	1.2255
Euro	0.7242	0.6329
British Pounds	0.6205	0.5565

(e) Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of returns, trade allowances and amounts collected on behalf of third parties. Revenue is recognised for the major business activities as follows:

(i) Rental income

Rental income from operating leases represents income earned from the rental of properties (inclusive of outgoings recovered from tenants) and is recognised on a straight-line basis over the lease term. Rental income relating to straightlining is included as a component of the net gain from fair value adjustments on investment properties. The portion of operating lease income in a reporting period relating to fixed increases in operating lease rentals in future years is recognised as a separate component of investment properties.

10

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

1 Summary of significant accounting policies (continued)

(e) Revenue recognition (continued)

(ii) Management fees

Management fees are brought to account on an accruals basis and, if not received at the reporting date, are reflected in the balance sheet as a receivable.

Where management fees are derived in respect of an acquisition or disposal of property, the fees are recognised where it is probable that criteria for entitlement will be met.

(iii) Performance fees

Performance fees are only recognised when it is probable that a fee will be received. Detailed calculations are completed and the risks associated with the fee are assessed when deciding when it is appropriate to recognise revenue. Further information is provided in the critical accounting estimates.

(iv) Interest income

Interest income is recognised on a time proportion basis using the effective interest method. When a receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loans is recognised using the original effective interest rate.

(v) Dividends/distributions

Dividends/distributions are recognised as revenue when the right to receive payment is established.

(f) Income tax

The year’s income tax expense or benefit is the tax payable on the current year’s taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the preliminary financial report, and to unused tax losses.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the Company’s controlled entities and associates operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provision where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted for each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss.

Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.

Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

Current and deferred tax is recognised in profit or loss, except to the extent that it related to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.

11

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

1 Summary of significant accounting policies (continued)

(g) Business combinations

The acquisition method of accounting is used to account for all business combinations, including business combinations involving entities or businesses under common control, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred also includes the fair value of any contingent consideration arrangement and the fair value of any pre-existing equity interest in the subsidiary. Acquisitionrelated costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest's proportionate share of the acquiree’s net identifiable assets.

The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisitiondate fair value of any previous equity interest in the acquiree over the fair value of the Group’s share of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the subsidiary acquired and the measurement of all amounts has been reviewed, the difference is recognised directly in profit or loss as a bargain purchase.

Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions.

Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognised in profit or loss.

(h) Impairment of assets

Assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable.

An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. In assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units).

Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.

(i) Cash and cash equivalents

Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet.

(j) Trade receivables

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost, less provision for doubtful debts. Trade receivables are due for settlement no more than 30 days from the date of recognition.

Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectable are written off. A provision for doubtful receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial. The amount of the provision is recognised in the income statement.

(k) Investments and other financial assets

Classification

The Group classifies its investments in the following categories: financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, and available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition and, in the case of assets classified as held-to-maturity, re-evaluates this designation at each reporting date.

(i) Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are financial assets held for long-term investment. Their treatment is discussed at note 1b(ii). Derivatives are also included unless they are designated as hedges.

12

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

1 Summary of significant accounting policies (continued)

(k) Investments and other financial assets (continued)

(ii) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of selling the receivable. They are included in current assets, except for those with maturities greater than 12 months after the reporting date, which are classified as non-current assets. Loans and receivables are included in receivables in the balance sheet (note 12).

(iii) Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group’s management has the positive intention and ability to hold to maturity.

(iv) Available-for-sale financial assets

Available-for-sale financial assets, comprising principally marketable equity securities, are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the reporting date.

Recognition and derecognition

Regular purchases and sales of investments are recognised at trade-date – the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value and transaction costs are expensed in the income statement. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership.

Subsequent measurement

Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables and held-to-maturity investments are carried at amortised cost using the effective interest method. Gains or losses arising from changes in the fair value of financial assets at fair value through profit or loss, excluding interest and dividend income, are presented in the income statement in the year in which they arise.

The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models making maximum use of market inputs and relying as little as possible on entity-specific inputs. Further details on how the fair value of financial instruments is determined are disclosed in note 1(m) and note 2.

Impairment

The Group assesses at each reporting date whether there is objective evidence that a financial asset or group of financial assets is impaired. In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of a security below its cost is considered in determining whether the security is impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in the income statement – is removed from equity and recognised in the income statement. Impairment losses recognised in the income statement on equity instruments classified as available-for-sale are not reversed through the income statement.

(l) Derivatives

Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting date. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as either:

• (1) Hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedge); or

(2) Hedges of the cash flows of recognised assets and liabilities and highly probable forecast transactions (cash flow hedges).

The fair values of various derivative financial instruments used for hedging purposes are disclosed in note 15.

(i) Derivatives that do not qualify for hedge accounting

Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instruments that do not qualify for hedge accounting are recognised immediately in the income statement and are included in fair value adjustment gains/(losses). The fair value previously recognised for hedges which are no longer effective is amortised over the remaining period of the hedge.

13

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

1 Summary of significant accounting policies (continued)

(m) Fair value estimation

The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes.

The fair value of financial instruments traded in active markets is based on quoted market prices at the reporting date. The quoted market price used for financial assets held by the Group is the current bid price; the appropriate quoted market price for financial liabilities is the current ask price.

The fair value of financial instruments that are not traded in an active market is determined using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each reporting date. Quoted market prices or dealer quotes for similar instruments are used for long-term debt instruments held. Other techniques, such as estimated discounted cash flows, are used to determine fair value for the remaining financial instruments. The fair value of interest-rate swaps is calculated as the present value of the estimated future cash flows. The fair value of forward exchange contracts is determined using forward exchange market rates at the reporting date.

The nominal value less estimated credit adjustments of trade receivables and payables approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments.

(n) Inventories

Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

(o) Plant and equipment

Plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of plant and equipment.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial year in which they are incurred.

Depreciation on other assets is calculated using the straight-line method to allocate their cost or revalued amounts, net of their residual values, over their estimated useful lives, as follows:

• Furniture, fittings and equipment 3 - 8 years

• Fixtures 6 - 8 years  Software 3 - 5 years

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (note 1(h)).

Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the income statement.

(p) Investment properties

Investment properties comprise investment interests in land and buildings (including integral plant and equipment) held for long-term rental yields and not occupied by the Group. This includes properties that are under construction for future use as investment properties. Investment properties are carried at fair value, which is based on active market prices adjusted, if necessary, for any differences in the nature, location and condition of the specific asset. The Group aims to have properties valued externally on a regular basis.

The carrying amount of investment properties recorded in the balance sheet includes components relating to lease incentives and assets relating to fixed increases in operating lease rentals in future years. Changes in fair values are recorded in the income statement as part of fair value adjustments.

(q) Intangibles

(i) Management rights

Management rights are not amortised as they have an indefinite life. Management rights are tested for impairment annually, or more frequently if events or changes in circumstances indicate that they might be impaired, and are carried at cost less accumulated impairment losses. Management rights are allocated to cash-generating units for the purpose of impairment testing.

14

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

1 Summary of significant accounting policies (continued)

(r) Trade and other payables

These amounts represent liabilities for goods and services provided to the Group prior to the end of year which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition.

(s) Borrowings

Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the income statement over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities, which are not incremental cost relating to the actual draw-down of the facility, are recognised as a reduction in the borrowings and amortised on a straight-line basis over the term of the facility.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date.

(t) Borrowing costs

Borrowing costs associated with the construction of a qualifying asset, including interest expense, are capitalised as part of the cost of that asset during the year of time that is required to complete and prepare the asset for its intended use or sale. Other borrowing costs are expensed.

(u) Provisions

Provisions for legal claims are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. Provisions are not recognised for future operating losses.

(v) Employee benefits

(i) Wages and salaries and annual leave

Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within 12 months of the reporting date are recognised in other payables in respect of employees’ services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled.

(ii) Long service leave

Liabilities for other employee entitlements which are not expected to be paid or settled within 12 months of reporting date are accrued in respect of all employees at present values of future amounts expected to be paid, based on a projected weighted average increase in wage and salary rates. Expected future payments are discounted using interest rates on national government securities with terms to maturity that match, as closely as possible, the estimated future cash outflows.

(iii) Retirement benefit obligations

Contributions to employee defined contribution superannuation funds are recognised as an expense as they become payable.

(iv) Security-based benefits

Security-based compensation benefits are provided to employees via the Charter Hall Limited Executive Loan Security Plan (ELSP) and the Charter Hall Performance Rights and Options Plan (PROP). Information relating to these schemes is set out in note 40.

The fair value at grant date is independently determined using a Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the security price at grant date and expected price volatility of the underlying security, the expected dividend yield and the risk free interest rate for the term of the option.

The fair value of the securities granted is adjusted to reflect market vesting conditions, but excludes the impact of any non-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of securities that are expected to vest. At each reporting date, the entity revises its estimate of the number of securities that are expected to vest. The employee benefit expense recognised each year takes into account the most recent estimate.

Upon the vesting of securities and repayment of the loan, the balance of the security-based benefits reserve relating to those securities is transferred to equity and the proceeds received, net of any directly attributable transaction costs, are credited to equity.

(v) Bonus plans

The Group recognises a liability and an expense for amounts payable to employees. The Group recognises a provision where contractually obliged or where there is a past practice that has created a constructive obligation.

15

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

1 Summary of significant accounting policies (continued)

(v) Employee benefits (continued)

(vi) Termination benefits

Termination benefits are payable when employment is terminated before the normal retirement date, or when an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after the reporting date are discounted to present value.

(w) Contributed equity

Ordinary stapled securities are classified as equity. Incremental costs directly attributable to the issue of new securities or options are shown in equity as a deduction, net of tax, from the proceeds.

(x) Distributions

Provision is made for the amount of any distribution declared, being appropriately authorised and no longer at the discretion of the entity, on or before the end of the year but not distributed at reporting date.

(y) Earnings per security

(i) Basic earnings per security

Basic earnings per security is calculated by dividing the profit attributable to equity holders of the Group, excluding any costs of servicing equity other than ordinary stapled securities, by the weighted average number of ordinary securities outstanding during the year, adjusted for bonus elements in ordinary stapled securities issued during the year.

(ii) Diluted earnings per security

Diluted earnings per security adjusts the figures used in the determination of basic earnings per stapled security to take into account the effect of interest and other financing costs after income tax associated with dilutive potential ordinary securities and the weighted average number of stapled securities assumed to have been issued in relation to dilutive potential stapled securities.

Following the consolidation of units during the year, the comparative information for basic earnings per unit and diluted earnings per unit has been restated to a post unit consolidated basis.

(z) Goods and Services Tax (GST)

Revenues, expenses and assets (with the exception of receivables) are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense.

Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the balance sheet.

Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flows.

(aa) Rounding of amounts

The Company is of a kind referred to in Class Order 98/100 (as amended), issued by the Australian Securities and Investments Commission, relating to the ‘rounding off’ of amounts in the preliminary financial report. Amounts in the preliminary financial report have been rounded to the nearest thousand dollars in accordance with that Class Order, unless otherwise indicated.

16

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

1 Summary of significant accounting policies (continued)

(ab) New accounting standards and UIG interpretations

Certain new accounting standards and interpretations have been published that are not mandatory for year ended 30 June 2011 reporting periods. The impact of these new standards and interpretations (to the extent relevant to the Group) is set out below.

• (i) AASB 9 Financial Instruments & AASB 2009-11 Amendments to Australian Accounting Standards arising from AASB 9 and AASB 2010-7 Amendments to Australian Accounting Standards arising from AASB 9 (effective from 1 January 2013)

AASB 9 Financial Instruments addresses the classification and measurement of financial assets. The standard is not applicable until 1 January 2013 but is available for early adoption. AASB 9 only permits the recognition of fair value gains and losses in other comprehensive income if they relate to equity investments that are not traded. Fair value gains and losses on available-for-sale debt investments, for example, will therefore have to be recognised directly in the statement of comprehensive income. The Group has not yet decided when to adopt AASB 9. However, management does not expect this will have a significant impact on the Group’s consolidated preliminary financial report as the Group does not hold any available-for-sale investments.

• (ii) Revised AASB 124 Related Party Disclosures and AASB 2009-12 Amendments to Australian Accounting Standards (effective from 1 January 2011)

In December 2009, the AASB issued a revised AASB 124 Related Party Disclosures . It is effective for accounting periods beginning on or after 1 January 2011 and must be applied retrospectively. The amendment clarifies and simplifies the definition of a related party and removes the requirement for government-related entities to disclose details of all transactions with the government and other government-related entities. The Group will apply the amended standard from 1 July 2011. When the amendments are applied, the Group will need to disclose information about transactions between its subsidiaries and its associates. However, there will be no impact on any of the amounts recognised in the consolidated preliminary financial report.

• (iii) AASB 2010-6 Amendments to Australian Accounting Standards – Disclosures on Transfers of Financial Assets (effective from 1 July 2011)

Amendments made to AASB 7 Financial Instruments : Disclosures in November 2010 introduce additional disclosures in respect of risk exposures arising from transferred financial assets. The amendments will affect particularly entities that sell, factor, securitise, lend or otherwise transfer financial assets to other parties. These amendments are not expected to have any significant impact on the Group’s disclosures. The Group intends to apply the amendment from 1 July 2011.

• (iv) AASB 2010-8 Amendments to Australian Accounting Standards – Deferred Tax: Recovery of Underlying Assets (effective from 1 January 2012)

In December 2010, the AASB amended AASB 112 Income Taxes to provide a practical approach for measuring deferred tax liabilities and deferred tax assets when investment property is measured using the fair value model. AASB 112 requires the measurement of deferred tax assets or liabilities to reflect the tax consequences that would follow from the way management expects to recover or settle the carrying amount of the relevant assets or liabilities, that is through use or through sale. The amendment introduces a rebuttable presumption that investment property which is measured at fair value is recovered entirely by sale. The Group will apply the amendment from 1 July 2012. Management is currently evaluating the impact of the amendments.

17

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

1 Summary of significant accounting policies (continued)

(ac) Leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases (note 32). Payments made under operating leases are charged to the income statement on a straight-line basis. Lease income from operating leases is recognised in income on a straight-line basis over the lease term.

(ad) Parent entity financial information

The financial information for the parent entity, Charter Hall Limited, disclosed in note 4, has been prepared on the same basis as the consolidated preliminary financial report, except as set out below.

(i) Investments in controlled entities, associates and joint venture entities

Investments in controlled entities, associates and joint venture entities are accounted for at cost in the financial statements of Charter Hall Limited. Dividends received from controlled entities, associates and joint venture entities are recognised in the parent entity’s profit or loss, rather than deducted from the carrying amount of these investments.

(ii) Tax consolidation legislation

The head entity, Charter Hall Limited, and the controlled entities in the tax consolidated group, continue to account for their own current and deferred tax amounts. These tax amounts are measured as if each entity in the tax consolidated group continues to be a stand alone taxpayer in its own right.

In addition to its own current and deferred tax amounts, Charter Hall Limited also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group.

Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the Group. Details about the tax funding agreement are disclosed in note 9.

Any difference between the amounts assumed and amounts receivable or payable under the tax funding agreement are recognised as a contribution to (or distribution from) wholly owned tax consolidated entities.

(iii) Receivables and payables

Trade amounts receivable from controlled entities in the normal course of business and other amounts advanced on commercial terms and conditions are included in receivables. Similarly, amounts payable to controlled entities are included in payables.

18

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

2 Financial risk management

The Group’s activities expose it to a variety of financial risks; market risk (price risk, interest rate risk, and foreign exchange risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group uses derivative financial instruments such as interest rate swaps to hedge certain risk exposures.

Risk management is carried out by Group Treasury and the Joint Managing Directors in consultation with senior management, the Audit, Risk and Compliance Committee and the Board of Directors. The Managing Directors identify, evaluate and hedge financial risks in close co-operation with the finance department. The Board provides guidance for overall risk management, as well as covering specific areas, such as mitigating price, interest rate and credit risks, the use of derivative financial instruments and investing excess liquidity.

(a) Market risk

(i) Unlisted units price risk

The Group is exposed to unlisted units price risk. This arises from investments in unlisted property funds managed by the Group. These funds invest in direct property. Charter Hall manages all the funds that the Group invests in and its staff have a sound understanding of the underlying property values and trends that give rise to price risk. The carrying value of investments in associates at fair value through profit or loss is measured with reference to the funds’ unit prices which are determined in accordance with the funds’ respective constitutions. The key determinant of the unit price is the underlying property values which are approved by the Board and the Valuation Sub-Committee of the Board.

The table below illustrates the potential impact a change in unlisted unit prices by +/-10% would have on the Group’s profit and equity. The movement in the price variable has been determined based on management’s best estimate, having regard to a number of factors, including historical levels of price movement, historical correlation of the Group’s investments with the relevant benchmark and market volatility. However, actual movements in the price may be greater or less than anticipated due to a number of factors. As a result, historic price variations are not a definitive indicator of future price variations.

			-10%			+10%
2011	Carrying
	amount	Profit		Equity	Profit		Equity
	$’000	$’000		$’000	$’000		$’000
Assets
Investment in associates at fair value
through profit or loss	78,445	(7,845)		(7,845)	7,845		7,845
			-10%			+10%
2010	Carrying
	amount	Profit		Equity	Profit		Equity
	$’000	$’000		$’000	$’000		$’000
Assets
Investment in associates at fair value
throughprofit or loss	73,739	(7,374)		(7,374)	7,374		7,374

(ii) Cash flow and fair value interest rate risk

As the Group has no significant long-term interest-bearing assets, the Group’s income and operating cash receipts are not materially exposed to changes in market interest rates.

The Group’s interest rate risk arises from borrowings of $101,862,000 (2010: $91,228,056). Borrowings drawn at variable rates expose the Group to cash flow interest rate risk. Borrowings drawn at fixed rates expose the Group to fair value interest rate risk. The Group’s policy is to fix the rates for between 50-100% of core borrowings over the next three years and up to 100% thereafter and to fix up to 100% of its non-core borrowings. Core borrowings are defined as being the level of borrowings that are expected to be held for a period of more than two years. At year end 38% (2010: 44%) of total borrowings had fixed interest rates through the use of derivatives.

19

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

Financial risk management (continued)

(ii) Cash flow and fair value interest rate risk

The Group manages its cash flow interest rate risk by using floating-to-fixed interest rate swaps. Such interest rate swaps have the economic effect of converting borrowings from floating rates to fixed rates. Generally, the Group raises long-term borrowings at floating rates and swaps them into fixed rates that are lower than those available if the Group borrowed at fixed rates directly. Under the interest rate swaps, the Group agrees with other parties to exchange, at specified intervals (mainly quarterly), the difference between fixed contract rates and floating-rate interest amounts calculated by reference to the agreed notional principal amounts. Refer to note 12(d) for interest rate sensitivity analysis on assets and note 24(c) for sensitivity analysis for liabilities.

(a) Market risk (continued)

(iii) Foreign exchange risk

The Group is exposed to foreign exchange risk arising principally from its equity accounted investments in Charter Hall Retail REIT and Charter Hall Office REIT.

These investments have offshore operations in the US, Europe and New Zealand and manage their foreign exchange exposures principally through the use of offsetting borrowings in related foreign currencies and through the use of derivative financial instruments. Any residual unhedged risk remains in the foreign currency translation reserve of these funds and the Group’s equity accounted share of movements in these reserves are recognised in the foreign currency translation reserve of the Group.

The table below illustrates the potential impact a change in foreign exchange rates of +/-10% would have on the Group’s profit and equity:

	2011		2010
	Profit	Equity	Profit	Equity
	$'000	$'000	$'000	$'000
US dollars
+ 10.0%	324	(6,448)	1,048	(365)
- 10.0%	(394)	6,554	(1,738)	(14)
Euros
+ 10.0%	58	(566)	82	(260)
- 10.0%	(66)	699	(327)	89
NZ dollars
+ 10.0%	26	(23)	(214)	(896)
- 10.0%	(32)	26	236	1,067

(b) Credit risk

The Group has policies in place to ensure that sales of services are made to customers with an appropriate credit history.

Over half of the Group’s income is derived from management fees and performance fees from related parties.

Approximately 16% (2010: 27%) of the Group’s income is derived from rental properties; all tenants are assessed for credit worthiness, taking into account their financial position, past experience and other factors.

Refer to note 12(c) for more information on credit risk.

Derivative counterparties and cash transactions are limited to high credit quality financial institutions. The Group has policies that limit the amount of credit exposure to any one financial institution.

20

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

Financial risk management (continued)

(c) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash, the availability of funding through an adequate amount of committed credit facilities and the ability to close-out market positions. Due to the dynamic nature of the underlying businesses, the Group aims at maintaining flexibility in funding by keeping committed credit lines available.

Maturities of financial liabilities

The table below analyses the contracted maturity of the Group’s financial liabilities at 30 June 2011. The amounts disclosed in the table are the contractual undiscounted cash flows, except for interest rate swaps:

	Carrying	Less than	Between 1	Between 2			Total
	amount	1 year	and 2 years	and 5 years	Over 5	years	cash flows
2011	$’000	$’000	$’000	$’000		$’000	$’000
Trade and other payables	58,061	58,061	-	-		-	58,061
Contingent consideration payable	12,106	-	13,841	-		-	13,841
Borrowings	101,862	4,739	4,739	104,446		-	113,924
Interest rate swaps	407	-	224	183		-	407
	172,436	62,800	18,804	104,629		-	186,233
	Carrying	Less than	Between 1	Between 2			Total
	amount	1 year	and 2 years	and 5 years	Over 5	years	cash flows
2010	$’000	$’000	$’000	$’000		$’000	$’000
Trade and other payables	55,018	55,018	-	-		-	55,018
Contingent consideration payable	11,270	-	-	15,000		-	15,000
Borrowings	91,228	4,992	92,527	-		-	97,519
Interest rate swaps	4,754	1,273	1,313	3,801	2,523		8,910
	162,270	61,283	93,840	18,801	2,523		176,447

(d) Fair value measurements

The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes.

AASB 7 Financial Instruments: Disclosures requires disclosure of fair value measurements by level of the following fair value measurement hierarchy:

• (i) Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities;

(ii) Level 2 – Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices); and

(iii) Level 3 – Inputs for the asset or liability that are not based on observable market data (unobservable inputs).

21

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

2 Financial risk management (continued)

The following tables present the Group’s financial assets and financial liabilities measured and recognised at fair value.

	Level 1	Level 2	Level 3	Total
2011	$’000	$’000	$’000	$’000
Assets
Investment in associates at fair value through profit or loss	-	-	78,445	78,445
Total assets	-	-	78,445	78,445
Liabilities
Derivative financial instruments	-	407	-	407
Contingent considerationpayable	-	-	12,106	12,106
Total liabilities	-	407	12,106	12,513
	Level 1	Level 2	Level 3	Total
2010	$’000	$’000	$’000	$’000
Assets
Investment in associates at fair value throughprofit or loss	-	-	73,739	73,739
Total assets	-	-	73,739	73,739
Liabilities
Derivative financial instruments	-	4,754	-	4,754
Contingent considerationpayable	-	-	11,270	11,270
Total liabilities	-	4,754	11,270	16,024

The following tables present the changes in level 3 instruments for the year:

	Investment in
	associates at
	fair value	Contingent
	through profit	consideration
	or loss	payable
2011	$’000	$’000
Opening balance	73,739	11,270
Additions	5,454	-
Disposals	(439)	-
Gain/(loss) recognised inprofit and loss	(309)	836
Closing balance	78,445	12,106

22

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

2 Financial risk management (continued)

2 Financial risk management (continued)
		Investment in
		associates at
	Note	fair value through profit	Contingent consideration
		or loss	payable
2010		$’000	$’000
Opening balance		210,256	-
DRF consolidated	35	(139,888)	-
Purchases		14,824	-
Losses recognised in profit and loss		(11,453)	-
Liability recognised during year		-	11,270
Closingbalance		73,739	11,270

The carrying amounts of current trade receivables and payables approximate their fair values due to their short-term nature. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. The fair value of current borrowings approximates the carrying amount, as the impact of discounting is not significant.

3 Critical accounting estimates and judgements

Estimates and judgements are continually evaluated and are based on experience and other factors, including expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances.

(a) Critical accounting estimates and assumptions

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates or assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below:

(i) Estimated value of investments

Critical judgements are made by the Group in respect of the fair value of investments in associates (note 35) and investment properties (note 20). These investments are reviewed regularly for impairment by reference to external independent property valuations and market conditions, using generally accepted market practices.

The reported fair values of investment properties reflects market conditions at the end of the reporting period. While this represents best estimates as at the reporting date, actuals sales prices may be higher or lower than the most recent valuations. This is particularly relevant in periods of market illiquidity or uncertainty.

(ii) Estimated performance fees

Critical judgements are made by the Group in respect of recognising performance fee revenue. Performance fees are only recognised when it is probable that a fee will be received. Detailed calculations are completed and the risks associated with the fee are assessed when deciding when it is appropriate to recognise revenue.

(iii) Tax losses

The Group has not recognised tax losses from previous years as it does not currently consider these to be probable of recovery against future taxable income of the tax consolidated group. In prior years, the Group has only recognised losses to the extent to which it believed these were recoverable at each reporting date.

(iv) Impairment testing

Critical judgements are made by the Group in assessing the carrying value of management rights acquired. The management rights are considered to having an indefinite useful life if there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the entity.

(v) Classification of investments in associates

The Group has determined that it is appropriate for investments in wholesale and listed funds to be equity accounted and investments in unlisted retail funds to be recognised at fair value through profit or loss.

23

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

4 Parent entity financial information

(a) Summary financial information

The individual financial statements for the parent entity, Charter Hall Limited, show the following aggregate amounts:

	2011	2010
	$’000	$’000
Balance sheet
Current assets	6,127	5,932
Total assets	308,981	256,790
Current liabilities	-	-
Total liabilities	355,874	282,709
Shareholders' equity
Issued capital	10,965	9,427
Reserves
Security-based benefits reserve	1,717	1,717
Foreign currency translation reserve	18	18
Accumulated losses	(59,593)	(37,081)
	(46,893)	(25,919)
Loss for the year	(20,517)	(18,428)
Total comprehensive income/(loss)	(20,517)	(18,410)

(b) Contingent liabilities of the parent entity

As at 30 June 2011, the parent entity had no contingent liabilities (2010: nil).

(c) Contractual commitments

As at 30 June 2011, the parent entity had no contractual commitments (2010: nil).

(d) Going concern

Although the parent entity shows net liabilities there is no reason to believe that it will not be able to pay its liabilities as and when they fall due. CHL has loan facilities provided by CHPT which has significant net assets and which, together with CHL, forms part of the Charter Hall Group stapled entity. At 30 June 2011, the amounts drawn under these facilities totals $355.9 million and are not repayable until 31 July 2018.

(e) Deed of cross guarantee

CHL and Charter Hall Holdings Pty Ltd are parties to a deed of cross guarantee under which each company guarantees the debts for the other. A consolidated income statement, statement of comprehensive income and balance sheet are disclosed in note 41.

24

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

5 Segment information

(a) Description of segments

Management has determined the operating segments based on the reports reviewed by the Board that are used to make strategic decisions.

The Board has identified the following three reportable segments, the performance of which it monitors separately.

Property investment

This segment comprises interests in investment properties and listed/unlisted property funds. The property investment division has the profit result of the DRF investment identified separately for management.

Funds management and corporate

The segment comprises funds management services, development management services and other property services.

Development investment

The segment comprises property development activities of the Group.

(b) Segment information provided to the Board

The operating segments identified by the Board for the reportable segments for the year ended 30 June 2011 are as follows:

Funds

		Funds
	Property	management	Development		Combined
	**investment **	and corporate	investment	DRF (100%)	Group
2011	$’000	$’000	$’000	$’000	$’000
Total net rental income	-	-	-	15,052	15,052
Total investment income	31,599	-	-	-	31,599
Total rental and property income	31,599	-	-	15,052	46,651
Net development income	-	-	3,769	-	3,769
Total corporate income	-	85,497	-	-	85,497
Total income	31,599	85,497	3,769	15,052	135,917
Operating expenses	(472)	(64,806)	-	(796)	(66,074)
Earnings before interest, tax, depreciation
and amortisation (EBITDA)	31,127	20,691	3,769	14,256	69,843
Depreciation	-	(1,545)	-	-	(1,545)
Earnings before interest and tax (EBIT)	31,127	19,146	3,769	14,256	68,298
Interest income	192	1,339	-	996	2,527
Interest expense	(1,451)	-	-	(6,665)	(8,116)
Operating earnings (including 100% of DRF)	29,868	20,485	3,769	8,587	62,710
Non-controlling interest	-	-	-	(2,288)	(2,288)
Operating earnings	29,868	20,485	3,769	6,299	60,422
Number of securities (‘000)					293,254
Operating earnings per security (EPS)					20.60cps
Number of securities for dividend per security	(DPS) (‘000)				293,756
DPS					16.50cps

Geographical segments are immaterial as the vast majority of the Group’s income is from Australian sources.

The Group does not derive income of more than 10% from any one source.

25

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

5 Segment information (continued)

(b) Segment information (continued)

The reportable segments for the year ended 30 June 2010 are as follows:

Funds

		Funds
	Property	management	Development		Combined
	investment	and corporate	investment	DRF (100%)	Group
2010 (restated)	$’000	$’000	$’000	$’000	$’000
Total net rental income	422	242	-	13,420	14,084
Total investment income	18,965	(402)	-	-	18,563
Total rental and property income	19,387	(160)	-	13,420	32,647
Net development income	-	-	1,130	-	1,130
Total corporate income	120	41,193	-	-	41,313
Total income	19,507	41,033	1,130	13,420	75,090
Operatingexpenses	(219)	(33,100)	-	(624)	(33,943)
EBITDA	19,288	7,933	1,130	12,796	41,147
Depreciation	-	(672)	-	-	(672)
EBIT	19,288	7,261	1,130	12,796	40,475
Interest income	627	438	-	3,692	4,757
Interest expense	(731)	-	-	(5,414)	(6,145)
Operating earnings (including 100% of DRF)	19,184	7,699	1,130	11,074	39,087
Non-controllinginterest	-	-	-	(3,306)	(3,306)
Operating earnings	19,184	7,699	1,130	7,768	35,781
Number of securities (‘000)					212,540
Operating EPS					16.83cps
Number of securities for DPS (‘000)					290,595
DPS					12.80cps

Comparatives have been restated in accordance with AASB 133 Earnings Per Share to reflect the change in accounting policy and security consolidation during the year.

The reconciliation of income per the segment notes for 2011 and 2010 to the income statement is below:

	2011	2010
		(restated)
	$’000	$’000
Total income per segment note	135,917	75,090
Add: investment property expenses	4,084	4,703
Add: interest income	1,675	4,757
Less: equity accounted profit in funds management segment	(3,763)	(1,130)
Less: equity accounted profit in property investment segment	(28,354)	(15,232)
Add: other	35	74
Revenue per income statement	109,594	68,262

Operating earnings is used by management to measure the profitability of the Group. It represents the profit under Australian Accounting Standards adjusted for fair value adjustments, impairment of assets, gains or losses on sale of investments, acquisition costs and non-cash items such as security-based benefits expense, amortisation and tax benefit.

26

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

5 Segment information (continued)

(b) Segment information provided to the Board (continued)

The calculation of operating earnings by adjusting for amounts in the income statement excluding the non-controlling interest in DRF is shown below:

	Excluding non-	Including non-	Excluding non-	Including non-
	controlling	controlling	controlling	controlled
	interest	interest	interest	interest
	2011	2011	2010	2010
			(restated)	(restated)
	$’000	$’000	$’000	$’000
Statutory profit after tax attributable to stapled
securityholders of Charter Hall Group	52,338	55,237	6,840	(3,589)
Fair value adjustments (note 8)	3,896	3,213	37,413	50,762
Net gain on re-measurement of equity interests	(16,726)	(16,726)	(59,725)	(59,725)
(Gain)/loss on sale of investments, property and derivatives	(3,350)	(3,350)	5,476	5,827
Impairment of management rights	19,171	19,171	-	-
Impairment of goodwill	-	-	15,328	15,328
Business combination transaction costs	-	-	6,636	6,636
Non-operating (income)/losses from equity accounted
investments	1,773	1,722	22,573	22,573
Security-based benefits expense	4,090	4,090	1,317	1,317
Amortisation	950	1,183	734	734
Income tax benefit	(2,556)	(2,666)	(950)	(950)
Finance costs due to unwinding of discount on contingent
consideration	836	836	-	-
Foreign exchange loss	-	-	139	174
Operating earnings	60,422	62,710	35,781	39,087
Basic weighted average number of securities per note 39	293,253,621		212,540,278
Operating earnings per security (excluding non-controlling
interest)	20.60 cents		16.83 cents

Assets and liabilities have not been reported on a separate basis as the chief operating decision maker is provided with consolidated information.

27

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

6 Revenue

	2011	2010
	$'000	$'000
Sales revenue
Gross rental income	17,716	18,768
Management andperformance fees	85,491	40,951
	103,207	59,719
Other revenue
Interest	2,862	4,804
Distributions/dividends*	3,525	3,739
	6,387	8,543
Total revenue	109,594	68,262
* The Group owns 36.4% (2010: 31.9%) of Charter Hall Diversified Property Fund, 24.9% (2010: 24.9%) of Charter Hall Umbrella Fund and
3.5% (2010: 3.5%) of Charter Hall Direct Property Fund, which are all accounted for at fair value. This represents the distribution of income from
these Funds.

7 Expenses

	Note		2011	2010
			$’000	$’000
Profit before income tax includes the following specific expenses:
Depreciation
Plant and equipment			1,545	672
Amortisation			1,183	734
Finance costs
Interest and finance charges paid/payable			7,275	6,471
Finance costs due to unwinding of discount on contingent consideration			836	-
Defined contribution superannuation expense			2,023	1,218
Rent expense relating to operating leases
Minimum leasepayments			1,483	771
Impairment of management rights		18	19,171	-
Impairment ofgoodwill			-	15,328

28

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

8 Fair value adjustments

		2011	2010
	Note	$'000	$'000
Investment properties	20	(2,518)	(38,592)
Investment in associates at fair value through profit or loss	14,35(b)	(309)	(11,453)
Derivative financial instruments		(386)	(717)
		(3,213)	(50,762)

9 Income tax benefit

(a) Income tax benefit

(a) Income tax benefit
		2011	2010
	Note	$’000	$’000
Current tax expense		218	442
Deferred income tax benefit		(3,341)	(1,354)
Overprovided inprioryears		457	(38)
		(2,666)	(950)
Deferred income tax benefit comprises:
Increase in deferred tax assets	21	(3,231)	(1,775)
Decrease in deferred tax liabilities	25	(110)	421
		(3,341)	(1,354)
(b) Numerical reconciliation of income tax benefit to prima facie tax payable
Profit/(loss)before income tax expense		52,571	(4,539)
Prima facie tax expense/(benefit) at the Australian tax rate of 30%		15,771	(1,362)
Tax effect of amounts which are not deductible/(taxable) in calculating taxable
income:
Charter Hall Property Trust income		(18,932)	(5,030)
Non assessable income		(5,164)	-
Entertainment		45	42
Share-based payments expense		1,227	395
Impairment loss		‐	89
Losses not recognised		2,437	4,082
Movement in deferred tax benefits due to acquisition		-	212
Sundry items		222	5
Tax on LTI interest		623	483
Non-taxable dividends		711	172
Over provided in prior years		457	(38)
Difference in overseas tax rates		(63)	-
Income tax benefit		(2,666)	(950)

29

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

9 Income tax benefit (continued)

(c) Tax consolidation legislation

Charter Hall Limited and its wholly owned Australian controlled entities have implemented the tax consolidation legislation with effect from 1 July 2003. The accounting policy in relation to this legislation is set out in note 1(f).

On adoption of the tax consolidation legislation, the entities in the tax consolidated group entered into a tax sharing agreement which, in the opinion of the Directors, limits the joint and several liability of the wholly owned entities in the case of a default by the head entity, Charter Hall Limited.

The entities have also entered into a tax funding agreement under which the wholly owned entities fully compensate Charter Hall Limited for any current tax payable assumed and are compensated by Charter Hall Limited for any current tax receivable and deferred tax assets relating to unused tax losses or unused tax credits that are transferred to Charter Hall Limited under the tax consolidation legislation. The funding amounts are determined by reference to the amounts recognised in the wholly owned entities’ financial statements.

The amounts receivable/payable under the tax funding agreement are due upon receipt of the funding advice from the head entity, which is issued as soon as practicable after the end of each financial year. The head entity may also require payment of interim funding amounts to assist with its obligations to pay tax instalments. The funding amounts are recognised as current intercompany receivables or payables.

(d) Tax losses

	2011	2010
	$’000	$’000
Unused tax losses for which no deferred tax asset has been recognised	12,071	13,607
Potential tax benefit @ 30%	3,621	4,082

Based upon the completion of the June 2010 income tax return, the actual carried forward tax losses (unbooked) was calculated to be $1,184,000. This was a reduction of $2,898,000 on the previously disclosed carried forward losses (unbooked) in the 30 June 2010 financial statements of $4,082,000.

10 Distributions paid and payable

	2011	2010
	$'000	$'000
a) Ordinary securities
Interim ordinary distribution for the six months ended 31 December 2010
of 8.00 cents per security paid on 28 February 2011	24,507	-
Final ordinary distribution for the six months ended 30 June 2011
of 8.50 cents per security expected to be paid on 25 August 2011	26,039	-
Interim ordinary distribution for the six months ended 31 December 2009
of 6.40 cents * per security paid on 26 February 2010	-	12,009
Final ordinary distribution for the six months ended 30 June 2010
of 6.40 cents * per security paid on 27 August 2010	-	19,404
Total distributions paid and payable	50,546	31,413
Less: distributionspaid to holders of LTI securities	(2,077)	(1,611)
	48,469	29,802

• Six monthly distributions of 1.60 cents per security restated to reflect the one for four security consolidation.

30

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

10 Distributions paid and payable (continued)

Distributions paid in cash or satisfied by the issue of securities under the distribution reinvestment plan for the year ended 30 June were as follows:

	2011	2010
	$'000	$'000
Paid in cash	50,546	20,552
Satisfied by issue of securities	-	10,861

Franking credits available in the parent entity for subsequent financial years based on a tax rate of 30% (2010: 30%) are $3,339,951 (2010: $3,285,368).

11 Current assets – cash and cash equivalents

	2011	2010
	$'000	$'000
Cash at bank and on hand	26,266	23,896
Deposits at call	-	4,484
	26,266	28,380

(a) Cash at bank and on hand

These amounts earn floating interest rates of between nil and 4.7% (2010: 4.0% and 4.4%).

(b) Deposits at call

These amounts earned floating interest rates of between 4.2% and 4.8% (2010: 4.2% and 4.8%).

12 Current assets – trade and other receivables

12 Current assets – trade and other receivables
		2011	2010
	Note	$'000	$'000
Current
Trade receivables		22,035	19,970
		22,035	19,970
Loans to key management personnel		706	5,145
Distributions receivable		11,556	8,955
Other receivables		7,922	13,705
Prepayments		1,219	586
		43,438	48,361
Non-current
Loans to key management personnel		4,400	-
Loans to joint ventures	33	5,000	3,750
		9,400	3,750

31

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

12 Current assets – trade and other receivables (continued)

(a) Bad and doubtful trade receivables

In the year, the Group incurred nil expense/benefit (2010: $nil) in respect of provisioning for bad and doubtful trade receivables.

(b) Fair values

The fair values and carrying values of non-current receivables of the Group are as follows:

		2011			2010
	Carrying			Carrying
	amount		Fair value	amount		Fair value
	$'000		$'000	$'000		$'000
Loans to key management personnel	5,106		5,106	5,145		5,145
Loans tojoint ventures	5,000		5,000	3,750		3,750

(c) Interest rate risk

The Group’s exposure to interest rate risk and the effective weighted average interest rate by maturity period is set out in the following tables:

			Fixed	interest	**maturing **	in:
	Floating		Over	Over	Over	Over			Non-
	interest	1 year	1 to 2	2 to 3	3 to 4	4	to 5	**Over **	interest
	rate	or less	years	years	years	years		**5 years **	bearing	Total
2011	$'000	$'000	$'000	$'000	$'000	$'000		$'000	$'000	$'000
Cash	26,266	-	-	-	-		-	-	-	26,266
Trade receivables	-	-	-	-	-		-	-	22,035	22,035
Loans to key management
personnel	-	706	-	4,400	-		-	-	-	5,106
Loans to joint ventures	-	-	-	-	5,000		-	-	-	5,000
Distributions receivable	-	-	-	-	-		-	-	11,556	11,556
Other receivables	-	-	-	-	-		-	-	7,922	7,922
	26,266	706	-	4,400	5,000		-	-	41,513	77,885
Weighted average interest rate	3.36%	12.50%		12.50%	12.00%

32

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

12 Current assets – trade and other receivables (continued)

(c) Interest rate risk (continued)

			Fixed	interest	maturingin:
	Floating		Over	Over	Over	Over		Non-
	interest	1 year	1 to 2	2 to 3	3 to 4	4 to 5	Over	interest
	rate	or less	years	years	years	years	5 years	bearing	Total
2010	$'000	$'000	$'000	$'000	$'000	$'000	$'000	$'000	$'000
Cash	28,380	-	-	-	-	-	-	-	28,380
Trade receivables	-	-	-	-	-	-	-	12,831	12,831
Loans to key management personnel	-	5,145	-	-	-	-	-	-	5,145
Loans to joint ventures	-	-	-	-	3,750	-	-	-	3,750
Distributions receivable	-	-	-	-	-	-	-	8,955	8,955
Other receivables	-	-	-	-	-	-	-	20,844	20,844
	28,380	5,145	-	-	3,750	-	-	42,630	79,905
Weighted average interest rate	4.00%	3.20%			12.00%

(d) Interest rate sensitivity analysis

The following table illustrates the potential impact a change in interest rates of +/-1% would have on the Group’s profit after tax and equity.

			-1%			+1%
	Carrying amount	Profit		Equity	Profit		Equity
	$’000	$’000		$’000	$’000		$’000
2011
Assets
Cash and cash equivalents	26,266	(263)		(263)	263		263
Total increase/(decrease)	26,266	(263)		(263)	263		263
2010
Assets
Cash and cash equivalents	28,380	(284)		(284)	284		284
Total increase/(decrease)	28,380	(284)		(284)	284		284

(e) Credit risk

There is a limited concentration of credit risk with respect to current and non-current receivables, as the Group has a large number of customers. Refer to note 2 for more information on the risk management policy of the Group.

The ageing of trade receivables at the reporting date was as follows:

	2011	2010
	$’000	$’000
1 to 3 months	19,356	9,719
3 to 6 months	348	1,237
More than 6 months	2,331	1,875
	22,035	12,831

The receivables are considered past due but not impaired.

The carrying value approximates fair value.

33

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

13 Current assets – investment property held for sale

	2011	2010
	$’000	$’000
Mentone residential properties*	921	-
Bluewater Square, Redcliffe	-	45,000
	921	45,000

• The properties held for sale at 30 June 2011 were sold in July 2011 at book value.

14 Non-current assets – investments in associates at fair value through profit or loss

	Note	2011	2010
			(restated)
		$’000	$’000
Investments in associates	35	78,445	73,739
Opening balance		73,739	210,256
Additions		5,454	14,824
Disposals		(439)	-
Devaluations	8	(309)	(11,453)
DRF consolidated		-	(139,888)
Closingbalance		78,445	73,739
Shares and units in associates	35	78,445	73,739

Changes in fair values of investments in associates at fair value through profit or loss are recorded in fair value adjustments in the income statement.

These investments comprise units in certain unlisted Charter Hall managed funds which have been designated at fair value through profit or loss.

Information about the Group’s material exposure to share and unit price risk is provided in note 2(a)(i).

15 Derivative financial instruments

15 Derivative financial instruments
	2011	2010
	$’000	$’000
Non-current liabilities
Interest rate swapcontracts	407	4,754
	407	4,754

(a) Instruments used by the Group

The Group utilises derivative financial instruments to hedge exposure to fluctuations in interest rates in accordance with the Group’s financial risk management policies (refer to note 2).

Interest rate swap contracts

It is policy to protect up to 100% of bank loans from exposure to increasing interest rates. Accordingly, the Group has previously entered into interest rate swap contracts under which it is obliged to receive interest at variable rates and to pay interest at fixed rates. All swaps have been entered into by DRF, which is consolidated.

Swaps currently in place cover 38% (2010: 44%) of the loan principal outstanding. The fixed interest rates in 2011 ranged between 6.84% and 7.48% (2010: between 6.46% and 7.5%) for AUD swaps (including margin and line fees). There is one NZD swap which has a rate of 3.9% (2010: 7.5%).

34

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

15 Derivative financial instruments (continued)

At reporting date, the notional principal amounts and periods of expiry of the interest rate swap contracts are as follows:

				2011	2010
				$’000	$’000
1	-	2	years	18,203	-
2	-	3	years	20,000	-
4	-	5	years	-	20,000
7	-	8	years	-	20,223
				38,203	40,223

The contracts require settlement of net interest receivable or payable each 90 days. The settlement dates coincide with the dates on which interest is payable on the underlying debt. The contracts are settled on a net basis.

The amount of fair value adjustments on hedges recorded directly in the income statement was a loss of $386,000 (2010: loss of $716,265).

(b) Credit risk exposures

Credit risk arises from the potential failure of counterparties to meet their obligations under the respective contracts at maturity. This arises with amounts receivable from unrealised gains on derivative financial instruments.

The Group undertakes its transactions in interest rate contracts only with investment grade financial institutions.

(c) Interest rate risk exposures

Refer to note 24(c) for the Group’s exposure to interest rate risk on interest rate swaps.

Interest rate swaps with a notional principal amount of $40.2 million (2010: $138.50 million) were terminated during the year, resulting in a realised gain of $345,323 (2010: $391,064).

16 Inventories

		2011	2010
	Type	$'000	$'000
Non-current
685 La Trobepropertydevelopment	Office	7,450	-
		7,450	-

35

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

17 Non-current assets – investments accounted for using the equity method

		2011	2010
			(restated)
	Note	$’000	$’000
Investments in associates	35	470,083	419,702
Investments injoint venture entities	36	47,624	26,634
		517,707	446,336

(a) Investments in associates

These investments represent units in listed and unlisted Charter Hall managed funds which are accounted for in the consolidated preliminary financial report using the equity method of accounting, excluding commitments to acquire units disclosed in note 32.

(b) Investments in joint venture entities

These investments represent joint venture interests in Australian and overseas joint ventures which are accounted for in the consolidated preliminary financial report using the equity method of accounting.

18 Non-current assets – intangible assets

In the prior year, the Group completed a transaction to acquire the majority of Macquarie Group’s core real estate management platform in March 2010. This transaction was structured to secure the management rights (i.e. future management fee revenue) of Macquarie Office Trust (renamed Charter Hall Office REIT), Macquarie CountryWide Trust (renamed Charter Hall Retail REIT) and Macquarie Direct Property Fund (renamed Charter Hall Direct Property Fund). The excess of consideration paid over net tangible assets acquired represents the value of these management rights. Management considers that the management rights have an indefinite life as there are no finite terms in the underlying agreements and the Group has no intention to cease managing these Funds. As a result, the management rights are not being amortised.

being amortised.
	2011	2010
	$’000	$’000
Management rights	99,994	119,164

The carrying value of the management rights is supported by value-in-use calculations. These calculations use cash flow projections based on financial budgets approved by management covering a five-year period. Cash flows beyond the five-year period are extrapolated using estimated growth rates appropriate for the business. Impairment is tested at the cash-generating unit (CGU) level for each CGU. Each individual CGU is considered to be a fund which generates management fee income.

Key assumptions used for value-in-use calculations are as follows:

• Discount rate range of 13-18% (2010: 12.5%) which is in excess of the Group’s weighted average cost of capital as a result of the management platform carrying more risk than the return on property investment cash flows;

• Growth over the next five years of 3% (2010: 5%) per annum; and

• Terminal value multiple of 7.0 times earnings (2010: 7.0 times) which is slightly lower than the acquisition multiple of 7.7 times earnings.

At 30 June 2011, the Group applied a write-down of $19.2 million to the carrying value of its intangible management rights. The lower value reflects management’s current assessment of the recoverable amount of these assets taking into account the present value of future expected cash flows following CQO’s announced disposal of its US assets discounted using a risk weighted discount rate. As a result, the carrying value of the intangible management rights in CQO has decreased to $47.0 million (2010: $66.2 million).

The sensitivity of management’s value-in-use calculations to potential adverse movements in the key assumptions is as follows:

• A 1% increase in discount rates would result in a further $2.0 million impairment in CQO management rights;

• A 1% decrease in growth rate would result in a further $1.6 million impairment in CQO management rights; and

• A 1.0 times decrease in terminal value multiple would result in a further $1.4 million impairment in CQO management rights.

Applying the above sensitivities to management rights values of Charter Hall Retail REIT and other unlisted funds would not result in any impairment to the carrying value of these rights.

36

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

19 Non-current assets – property, plant and equipment

		Furniture, fittings	Furniture, fittings	Furniture, fittings
			and equipment		Fixtures		Software		Total
				$'000	$'000			$'000	$'000
Year ended 30 June 2010
Opening net book amount				705	833			766	2,304
Additions				907		-	1,058		1,965
Depreciation charge				(395)	(65)			(217)	(677)
Closingnet book amount				1,217	768		1,607		3,592
At 30 June 2010
Cost				2,365	1,073		1,824		5,262
Accumulated depreciation				(1,148)	(305)			(217)	(1,670)
Net book amount				1,217	768		1,607		3,592
Year ended 30 June 2011
Opening net book amount				1,217	768		1,607		3,592
Additions				662		-		473	1,135
Disposals				(15)		-		-	(15)
Depreciation charge				(367)	(52)		(1,126)		(1,545)
Closingnet book amount				1,497	716			954	3,167
At 30 June 2011
Cost				2,993	1,073		2,300		6,366
Accumulated depreciation				(1,496)	(357)		(1,346)		(3,199)
Net book amount				1,497	716			954	3,167
20 Non-current assets – investment properties
						Independent		Book	Book
				Independent			valuation	value	value
		%		Date	valuation		amount	2011	2010
Property	Type	Owned	acquired		date		$'000	$'000	$'000
61 Nepean Hwy, Mentone(1)	Residential	50	15/06/2005		N/A		N/A	-	770
Mentone Showrooms, Mentone	Bulky retail	100	03/07/2008		30/09/2009		18,300	15,800	18,300
								15,800	19,070
DRF properties
Home HQ, Nunawading	Bulky retail	50	03/07/2008		30/06/2011		31,000	31,000	62,000
Bunnings, Stafford	Bulky retail	100	20/06/2007		30/06/2011		18,750	18,750	18,500
Foodtown, Auckland, NZ	Retail	100	06/07/2007		30/06/2011		18,203	18,203	19,617
Home HQ, Ipswich	Retail	100	14/08/2007		30/06/2011		27,000	27,065	27,000
Menai Central, Menai	Retail	100	22/02/2008		30/06/2011		37,000	37,000	34,700
Mentone Centre, Mentone	Property sold	during the year			N/A		N/A	-	21,210
33 Windorah St, Stafford	Bulky retail	100	20/07/2010		30/06/2011		11,700	11,700	21
								143,718	183,048
								159,518	202,118

(1) Property reclassified as held for sale during the year (refer note 13). It has not had an independent valuation as the value was determined by Directors based on the contracted disposal value.

37

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

20 Non-current assets – investment properties (continued)

A reconciliation of the carrying amount at the beginning and end of the current and previous years is set out below:

	2011	2010
	$’000	$’000
At fair value
Opening balance	202,118	15,770
Assets reconsolidated - DRF	-	277,516
Acquisitions and additions	15,610	4,597
Lease incentives paid	34	3,020
Lease incentives amortised	(682)	(292)
Disposals	(53,205)	(15,000)
Transferred to held for sale	(921)	(45,000)
Net loss from fair value adjustment	(2,518)	(38,592)
Foreign currencyexchange(loss)/gain	(918)	99
Closing balance at 30 June	159,518	202,118

(a) Amounts recognised in the income statement for investment properties

a) Amounts recognised in the income statement for investment properties
	2011	2010
	$’000	$’000
Rental income	17,716	18,768
Direct operating expenses from property that generated rental income	(4,795)	(4,703)
	12,921	14,065

(b) Valuation basis

The basis of the valuation of investment properties is fair value being based on a discounted cash flow calculation or capitalisation approach. The valuations had a weighted average capitalisation rate of 8.46% (2010: 8.35%), a weighted average vacancy rate of 1.5% (2010: 4%) and a weighted average rent review of 3.37% (2010: 3.64%).

38

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

21 Non-current assets – deferred tax assets

21 Non-current assets – deferred tax assets
	Note	2011	2010
		$’000	$’000
Deferred tax assets comprises temporary differences attributable to:
Employee benefits		3,256	1,022
Investments in associates		4,221	-
Tax losses		-	4,699
Management rights		2,842	-
Other		936	-
		11,255	5,721
A reconciliation of the carrying amount of deferred tax assets at the
beginning and end of the current and previous years is set out below:
Opening balance		5,721	3,946
Deferred tax benefit
Charged to income statement	9	3,231	1,775
Charged to other comprehensive income		8	-
Charged directlyto equityreserves		2,295	-
Closingbalance		11,255	5,721
Deferred tax assets to be recovered within 12 months		4,192	-
Deferred tax assets to be recovered after more than 12 months		7,063	5,721
		11,255	5,721
22 Trade and other payables
		2011	2010
		$’000	$’000
Current liabilities
Trade payables		1,926	7,508
Accruals		4,337	542
Distribution payable		25,458	19,535
GST payable		1,681	1,316
Annual leave payable		2,209	2,252
Deferred consideration payable for business combination		14,300	14,580
Employee benefits payable		7,345	5,313
Otherpayables		805	3,972
		58,061	55,018
All current liabilities are expected to be settled within 12 months.
		2011	2010
		$’000	$’000
Non-current liabilities
Contingent considerationpayable		12,106	11,270

39

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

22 Trade and other payables (continued)

(i) Contingent consideration payable

On 1 March 2010, the Group completed a transaction to acquire the majority of Macquarie Group’s core real estate management platform comprising the management of two listed and three unlisted real estate funds and co-investments in Macquarie Office Trust (renamed Charter Hall Office REIT), Macquarie Country Wide Trust (renamed Charter Hall Retail REIT) and Macquarie Direct Property Fund (renamed Charter Hall Direct Property Fund).

In the event that certain cumulative revenue targets are achieved by the offshore platform (being the people, entities and businesses that generate revenue outside of Australia, New Zealand and Japan) between 1 March 2010 and 28 February 2013, additional purchase consideration of up to $15,000,000 may be payable in cash.

The potential undiscounted amount payable under the agreement is between $0 (for cumulative revenues below $21,425,000), and $15,000,000 (for cumulative revenues above $42,850,000).

The fair value of the contingent consideration at 30 June 2011 of $12,105,593 was estimated by applying a 13% discount rate to expected payments of $13,840,189 payable from July 2012 onwards.

(ii) Deferred consideration payable for business combination

The sale to Charter Hall by Macquarie Group of all shares in Macquarie Countrywide Management Limited (renamed Charter Hall Retail Management Limited) and Macquarie Direct Property Management Limited (renamed Charter Hall Direct Property Management Limited) is expected to complete during the quarter ending 30 September 2011 once all consents have been received.

23 Current liabilities – provisions

23 Current liabilities – provisions
	2011	2010
	$’000	$’000
Employee benefits – longservice leave	834	749
	834	749

(a) Movements in provisions

Refer to note 26 for the movement in provisions and split between current and non-current.

24 Non-current liabilities – borrowings

24 Non-current liabilities – borrowings
	2011	2010
	$’000	$’000
Secured
Bank loans drawn
DRF	69,953	92,111
Charter Hall Property Trust	33,010	-
Unamortised borrowingcosts	(1,101)	(883)
Total non-current borrowings	101,862	91,228

The DRF loan comprises a $55.0 million NAB facility and a $15.5 million share of a $64.0 million joint venture Westpac facility. Amounts drawn under the NAB facility are potentially repayable if the Fund defaults on payments of interest or principal or allows:

• The ratio of total liabilities to total assets to exceed 55% or the ratio of debt to secured property values to exceed 50%; or

• The ratio of EBIT to interest expense to fall below 1.75 times or the ratio of net rental income to interest to fall below 1.65 times.

Amounts drawn under the Westpac facility are potentially repayable if the Fund defaults on payments of interest or principal or allows:

• The ratio of debt to secured property assets to exceed 60%; or

• The ratio of net rental income to interest to fall below 1.6 times.

40

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

24 Non-current liabilities – borrowings (continued)

Amounts drawn under the $100.0 million Charter Hall Property Trust loan are potentially repayable if the Trust defaults on payments of interest or principal or allows:

• The ratio of debt to total assets to exceed 35%;

• The ratio of debt to EBITDA to exceed 4 times; or

• The ratio of EBIT to gross interest to fall below 3 times.

The DRF bank loan is secured by a floating charge over all the assets of DRF and by a mortgage over the investment properties held by DRF. The Charter Hall Property Trust loan is secured over the Trust’s investment in listed and unlisted funds, excluding 22,500,000 units of the Trust’s investment in Charter Hall Core Plus Office Fund. The carrying amounts of assets pledged as security for borrowings are:

funds, excluding 22,500,000 units of the Trust’s investment in Charter Hall The carrying amounts of assets pledged as security for borrowings are:	Core Plus Office Fund.
	2011	2010
	$’000	$’000
Current
Floating charge
Cash and cash equivalents	2,324	1,456
Receivables	1,831	4,692
First mortgage
Investmentpropertyheld for sale	-	45,000
Total current assetspledged as security	4,155	51,148
Non-current
First mortgage
Investment properties	143,718	201,348
Investment in associates	478,412	-
Investment injointlycontrolled entities	18,700	-
Total non-current assetspledged as security	640,830	201,348
Total assetspledged as security	644,985	252,496

(a) Financing arrangements

The Group had unrestricted access at reporting date to the following lines of credit:

	2011	2010
	$’000	$’000
Total facilities	170,500	300,000
Used at reporting date	102,963	92,111
Unused at reporting date	67,537	207,889

The Group’s $50 million NAB debt facility was due to expire in July 2011. This has been refinanced with a new $75 million Westpac facility in May 2011 and increased to $100 million in June 2011. This facility expires in May 2014.

DRF had a facility of $250 million with NAB which was due to expire in July 2011. This debt facility was refinanced in December 2010. Under the terms of the refinance, the facility has a limit of $55 million and an expiry date of 30 November 2013. A second debt facility in DRF was financed in December 2010. The facility was entered into with the Charter Hall Retail Joint Venture Trust, Lake Macquarie Trust, Mount Hutton Trust and DRF. This facility expires on 30 November 2013. Under the terms of the facility, DRF’s share of the debt is $15.5 million.

41

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

24 Non-current liabilities – borrowings (continued)

b) Interest rate risk exposures

The following table sets out the Group’s exposure to interest rate risk, including the contractual repricing dates and the effective weighted average interest rate by maturity period.

Exposures arise predominantly from liabilities bearing variable interest rates as the Group intends to hold fixed rate liabilities to maturity.

to maturity.
			Fixed interest		**maturing **	in:
	Floating		Over	Over	Over	Over		Non-
	interest	1 year	1 to 2	2 to 3	3 to 4	4 to 5	Over	interest
	rate	or less	years	years	years	years	5 years	bearing	Total
2011	$'000	$'000	$'000	$'000	$'000	$'000	$'000	$'000	$'000
Trade and other payables	-	-	-	-	-	-	-	58,061	58,061
Contingent consideration payable	-	-	-	-	-	-	-	12,106	12,106
Borrowings	101,862	-	-	-	-	-	-	-	101,862
Interest rate swaps	(38,203)	-	18,203	20,000	-	-	-	-	-
	63,659	-	18,203	20,000	-	-	-	70,167	172,029
Weighted average interest rate	4.63%		4.71%	4.71%

			Fixed	interest	maturing	in:
	Floating		Over	Over	Over	Over		Non-
	interest	1 year	1 to 2	2 to 3	3 to 4	4 to 5	Over	interest
	rate	or less	years	years	years	years	5 years	bearing	Total
2010	$'000	$'000	$'000	$'000	$'000	$'000	$'000	$'000	$'000
Trade and other payables	-	-	-	-	-	-	-	55,018	55,018
Contingent consideration payable	-	-	-	-	-	-	-	11,270	11,270
Borrowings	91,228	-	-	-	-	-	-	-	91,228
Interest rate swaps	(40,223)	-	-	-	-	20,000	20,223	-	-
	51,005	-	-	-	-	20,000	20,223	66,288	157,516
Weighted average interest rate	3.99%					7.04%	7.84%

42

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

24 Non-current liabilities – borrowings (continued)

(c) Interest rate sensitivity analysis

The following table illustrates the potential impact a change in interest rates of +/-1% would have on the Group’s profit after tax and equity.

and equity.
			-1%			+1%
	Carrying amount	Profit		Equity	Profit		Equity
	$’000	$’000		$’000	$’000		$’000
2011
Liabilities
Trade and other payables	58,061	-		-	-		-
Contingent consideration payable	12,106	-		-	-		-
Borrowings	101,862	1,019		1,019	(1,019)		(1,019)
Derivative financial instruments	407	(1,771)		(1,771)	469		469
Total increase/(decrease)	172,436	(752)		(752)	(550)		(550)
			-1%			+1%
	Carrying amount	Profit		Equity	Profit		Equity
	$’000	$’000		$’000	$’000		$’000
2010
Liabilities
Trade and other payables	55,018	-		-	-		-
Contingent consideration payable	11,270	-		-	-		-
Borrowings	91,228	912		912	(912)		(912)
Derivative financial instruments	4,754	(2,617)		(2,617)	1,766		1,766
Total increase/(decrease)	162,270	(1,705)		(1,705)	854		854

(d) Fair value

The carrying amounts and fair values of borrowings at reporting date are:

		2011			2010
	Carrying			Carrying
	amount		Fair value	amount		Fair value
	$’000		$’000	$’000		$’000
On-balance sheet
Non-traded financial liabilities
Bank loans	101,862		102,963	91,228		92,111

Fair value is inclusive of costs which would be incurred on settlement of a liability.

(i) On-balance sheet

The fair value of borrowings is based upon market prices where a market exists or by discounting the expected future cash flows by the current interest rates for liabilities with similar risk profiles.

(e) Capital risk management

Gearing is a measure used to monitor levels of debt capital used by the business to fund its operations. This ratio is calculated as interest bearing debt divided by tangible assets with both net of cash and cash equivalents.

The gearing ratio at 30 June 2011 was 8.12% (2010: 6.63%). Debt covenants are monitored regularly to ensure compliance and reported to the debt provider on a six monthly basis. The Group Treasurer is responsible for negotiating new debt facilities and compliance with covenants.

43

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

25 Non-current liabilities – deferred tax liabilities

	Note	2011	2010
		$’000	$’000
Deferred tax liabilities comprises temporary differences attributable to:
Prepayments		-	296
Accrued revenue		4	316
Depreciation on New Zealand property, plant and equipment		-	661
Contingent consideration payable		868	-
Investment in associates		198	-
Other		59	-
		1,129	1,273
A reconcilation of the carrying amount of deferred tax liabilities at the
beginning and end of the current and previous years is set out below:
Opening balance		1,273	852
Deferred tax benefit
Charged to income statement	9	(110)	421
Charged to other comprehensive income		(34)	-
Closingbalance		1,129	1,273
Deferred tax liabilities to be settled within 12 months		931	-
Deferred tax liabilities to be settled after more than 12 months		198	1,273
		1,129	1,273
26 Non-current liabilities – provisions
		2011	2010
		$’000	$’000
Employee benefits – longservice leave		1,217	879
(a) Movements in provisions
Movements in employee benefits provisions are set out below:
		2011	2010
		$’000	$’000
Long service leave
Opening balance		1,628	247
Additionalprovisions recognised		423	1,381
Closingbalance		2,051	1,628
Current		834	749
Non-current		1,217	879
Total		2,051	1,628

44

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

27 Contributed equity

		2011	2010	2011	2010
	Note	Securities	Securities	$'000	$'000
(a) Security capital(1)
Ordinary securities - fully paid	(b),(c),(h)	293,755,894	290,595,601	943,961	936,445
		293,755,894	290,595,601	943,961	936,445

(b) Movements in ordinary security capital

(b) Movements in ordinary security capital
		Number of		2011	2010
Details	Notes	securities	Issueprice(3)	$'000	$'000
Opening balance		698,040,044			634,308
Add back LTI securities reversed in prior year(2)		50,343,595			73,179
Distribution Re-Investment plan issue August 2009	(d)	2,210,371	$0.47		1,044
Distribution Re-Investment plan issue February 2010	(d)	4,995,460	$0.67		3,342
Institutional placement	(e)	35,624,778	$0.70		24,937
Entitlement offer	(f)	300,237,026	$0.65		195,154
Macquarieplacement	(g)	121,272,558	$0.70		84,891
Balance at 30 June 2010		1,212,723,832			1,016,855
Less: Transaction costs on security issues					(7,231)
Less: LTI securities reversed(2)		(50,343,595)			(73,179)
Balance per accounts at 30 June 2010		1,162,380,237		936,445	936,445
Add back LTI securities reversed last year(2)		50,343,595		73,179
Distribution Re-Investmentplan issue August 2010	(d)	12,641,256	$0.59	7,516
Balance before consolidation		1,225,365,088		1,017,140
Consolidation at one for four	(h)	(919,023,274)
Balance at 30 June 2011		306,341,814		1,017,140
Less: LTI securities reversed(2)		(12,585,920)		(73,179)
Balanceper accounts at 30 June 2011		293,755,894		943,961	936,445
Charter Hall Limited				9,503	9,427
Charter Hall PropertyTrust				934,458	927,018
				943,961	936,445

(1) This includes security capital of Charter Hall Limited and Charter Hall Property Trust which are stapled. Refer to note 1 for details of the accounting for this stapling arrangement.

(2) Securities issued under the Charter Hall Limited Executive Loan Security Plan have been issued in trust and have a corresponding loan given to the employee. Under AASB 2: Share-based Payments , the loan, interest received on the loan, securities and the distribution paid and payable are derecognised for the preparation of the preliminary financial report.

(3) Security issue prices for transactions occurring pre October 2010 are stated on a pre security consolidation basis.

45

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

27 Contributed equity (continued)

(c) Ordinary securities

Ordinary securities entitle the holder to participate in distributions/dividends and the proceeds on winding up of the Trust/Company in proportion to the number of and amounts paid on the securities held. The securities issued under the placement in the previous year were fully paid with no entitlement to the distribution at 30 June 2010.

On a show of hands, every holder of ordinary securities present at a meeting in person or by proxy is entitled to one vote, and upon a poll each security is entitled to one vote.

(d) Distribution Re-Investment plan

The Company has established a Distribution Re-Investment plan (DRP) under which holders of ordinary securities may elect to have all or part of their distribution satisfied by the issue of new ordinary securities rather than by being paid in cash. Securities are issued under the plan at a discount to the market price. The DRP was active for the 31 December 2009 and 30 June 2010 distributions. After these dates, the DRP became inactive.

(e) Institutional placement

On 1 March 2010, 35,624,778 securities were issued at $0.70 as part of an institutional placement.

(f) Entitlement offer

On 1 March 2010, 227,913,824 securities and on 16 March 2010, 72,323,202 securities were issued as part of a 2 for 5 entitlement offer. The price was $0.65 per security.

(g) Placement

On 1 March 2010, 121,272,558 securities were issued at $0.70 as part of an institutional placement.

(h) Consolidation

In October 2010, the Group completed a consolidation of its securities on the basis of one new security for every four preconsolidation securities. Where the consolidation of a holding resulted in a fractional security, that fraction was rounded up to the next whole security. The consolidation of securities resulted in the Group reducing its total securities on issue from 1,225,365,088 to 306,341,814 units. Accordingly, there has been a corresponding increase in pre-consolidation metrics including price, earnings and net tangible assets per security by a factor of four.

Prior year comparative information, where shown on a per security basis, has been restated to a post security consolidation basis, unless stated otherwise.

28 Reserves and accumulated losses

(a) Reserves

	2011	2010
	$’000	$’000
Business combination reserve	(52,000)	(52,000)
Security-based benefits reserve	-	7,367
Transactions with non-controlling interests	(6,300)	-
Foreign currencyreserve	(10,451)	4,604
	(68,751)	(40,029)
Charter Hall Limited and controlled entities	(59,004)	(44,658)
Charter Hall PropertyTrust	(9,747)	4,629
	(68,751)	(40,029)

46

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

28 Reserves and accumulated losses (continued)

(a) Reserves (continued)

	2011	2010
Movements:	$’000	$’000
Business combination reserve
Openingand closingbalance	(52,000)	(52,000)
Security-based benefits reserve
Opening balance	7,367	6,050
Expense relatingto LTI scheme	4,090	1,317
Closing balance	11,457	7,367
Transactions with non-controlling interests
Opening balance	-	-
DRF acquisitionpremium	(6,300)	-
Closing balance	(6,300)	-
Foreign currency reserve
Opening balance	4,604	(47)
Translation	(19,718)	4,651
Transfer to accumulated losses	4,663	-
Closing balance	(10,451)	4,604

(i) Security-based payments reserve

The security-based payments reserve is used to recognise the fair value of securities issued under the ELSP and rights and options issued under the PROP.

(ii) Business combination reserve

This reserve relates to the reverse acquisition at IPO in 2005. This is the amount that relates to the investment in CHH that is not eliminated by paid in capital. No goodwill is recognised as this transaction is the result of a reverse acquisition.

(iii) Foreign currency reserve

Exchange differences arising on translation of foreign controlled entities and the Group’s share of foreign exchange differences arising from its equity accounted investments are recognised in other comprehensive income as described in note 1(d) and accumulated in a separate reserve within equity. The cumulative amount is reclassified to profit or loss when the net investment is disposed of.

(b) Accumulated losses

Movements in accumulated losses were as follows:

Movements in accumulated losses were as follows:
	2011	2010
		(restated)
	$’000	$’000
Opening balance	(136,055)	(113,093)
Net profit for the year	52,338	6,840
Distributions	(48,469)	(29,802)
Transfer from foreign currencytranslation reserve	(4,663)	-
Closingbalance	(136,849)	(136,055)
Charter Hall Limited and controlled entities	(62,329)	(61,698)
Charter Hall PropertyTrust	(74,520)	(74,357)
	(136,849)	(136,055)

47

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

29 Non-controlling interest

The preliminary financial report includes the financial statements for the consolidated entity consisting of Charter Hall Limited and its controlled entities including Charter Hall Property Trust (CHPT). Charter Hall Limited has been identified as the parent entity in relation to the stapling. The results and equity, not directly owned by CHL, of CHPT have been treated and disclosed as a non-controlling interest. Whilst the results and equity of CHPT are disclosed as non-controlling interest, the stapled securityholders of CHL are the same as the stapled securityholders of CHPT.

		2011	2010
	Note	$’000	$’000
Interest in:
Contributed equity	27(b)	934,458	927,018
Reserves	28(a)	(9,747)	4,629
Accumulated losses	28(b)	(74,520)	(74,357)
Equity holders of CHPT(non-controlling interest)		850,191	857,290

The Group has consolidated 100% of the net assets and results of DRF. However, 34.63% (2010: 33.96%) of DRF is owned by non-controlling unitholders. Their non-controlling interest in the total equity of DRF is as follows:

Contributed equity	68,056	86,995
Reserves	(330)	(371)
Accumulated losses	(35,599)	(35,995)
Other non-controlling interest in DRF	32,127	50,629

30 Key management personnel

(a) Directors

The following persons were Directors of Charter Hall Limited during the year:

Kerry Roxburgh	- Chairman and Non-Executive Independent Director
Roy Woodhouse	- Deputy Chairman and Non-Executive Independent Director
Anne Brennan	- Non-Executive Independent Director (appointed 6 October 2010)
Patrice Derrington	- Non-Executive Independent Director (resigned 10 November 2010)
Glenn Fraser	- Non-Executive Independent Director
Cedric Fuchs	- Executive Director
David Harrison	- Joint Managing Director
Peter Kahan	- Non-Executive Director
Colin McGowan	- Non-Executive Independent Director
David Southon	- Joint Managing Director

(b) Other key management personnel

The following persons also had authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, during the year. The number of other key management personnel in the year ended 30 June 2011 was seven (2010: seven).

Name	Position	Employer
J Bakker	Group Chief Financial Officer	Charter Hall Holdings Pty Ltd
A Glass	Head of Wholesale Investment Funds Management	Charter Hall Holdings Pty Ltd
N Kelly	Head of Investor Relations	Charter Hall Holdings Pty Ltd
S Sewell	Chief Executive Officer – Charter Hall Retail REIT	Charter Hall Holdings Pty Ltd
R Stacker	Chief Executive Officer – Charter Hall Direct Property	Charter Hall Holdings Pty Ltd
A Taylor	Chief Executive Officer – Charter Hall Office REIT	Charter Hall Holdings Pty Ltd
M Winnem	Head of Wholesale Opportunistic Funds Management	Charter Hall Holdings Pty Ltd

48

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

31 Remuneration of auditors

During the year, the following fees were paid or payable for services provided by the auditor of the Group, its related practices and non-related audit firms:

	2011	2010
	$	$
(a) Audit services
PricewaterhouseCoopers Australian firm
Audit and review of financial reports	387,791	257,849
Non-PricewaterhouseCoopers audit firms for audit services
Ernst & Young	-	59,035
W F White & Co	1,940	5,510
Total remuneration for audit services	389,731	322,394
(b) Taxation services
PricewaterhouseCoopers Australian firm
Tax compliance services, including review of company income tax returns	55,050	25,920
Non-PricewaterhouseCoopers firms for taxation services(Ernst & Young)	163,659	130,920
Total remuneration for taxation services	218,709	156,840
(c) Advisory services
PricewaterhouseCoopers Australian firm
Long-term incentive plan structure	53,525	9,000
Due diligence for equity raising and acquisition	-	380,000
Non-PricewaterhouseCoopers firms for advisory services
Ernst & Young	5,200	33,269
Total remuneration for advisory services	58,725	422,269

The Group’s policy is to employ PricewaterhouseCoopers (PwC) on assignments additional to statutory audit duties where PwC’s expertise and experience with the Group are important. These assignments are principally tax advice and investigating accountant’s reports, reporting on acquisitions, or where PwC is awarded assignments on a competitive basis. It is the Group’s policy to seek competitive tenders for all major consulting projects.

32 Commitments

(a) Lease commitments: Group as lessee

Commitments in relation to leases contracted for at the reporting date but not recognised as liabilities, payable:

	2011	2010
	$’000	$’000
Within one year	1,476	1,311
Later than oneyear but not later than fiveyears	8,088	8,966
Commitment fees from associates	9,564	10,277
(b) Capital commitments
Expenditure contracted for at the reporting date but not recognised as liabilities is as follows:
	2011	2010
	$'000	$'000

Investment property
Payable:
Within one year	-	1,550

49

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

32 Commitments (continued)

(c) Commitments: Investment in associates

On 21 June 2011, Charter Hall Group entered into a Unit Transfer Agreement (UTA) to acquire an additional 3.3% stake in CQO from New York based hedge fund Fir Tree capital. The stake acquired under the UTA and the Group’s existing stake will bring total Group ownership in CQO to 13.3%.

Under the UTA, settlement and completion of the transfer of the CQO sale units will be effected when at least 80% of the proceeds from the Charter Hall Office Management Limited announced CQO US asset sale program are returned to CQO unit holders. Fir Tree Capital will receive any return of capital implemented by CQO prior to settlement under the UTA. In the event that up to 20% of the US assets by value have not been sold and the net proceeds from the assets sold have been returned to unit holders, Fir Tree Capital will receive its pro rate share of the 30 June 2011 net book value of the unsold assets together with any subsequent adjustment based on the realised value of those assets.

The acquisition of the CQO sale units under the UTA will represent a 5.64% discount to CQO’s proforma Australian NTA as at 30 June 2011. On 3 August 2011, CQO provided a proforma Australian NTA per unit of $2.62. Assuming this NTA per unit, the commitment to acquire Fir Tree Capital’s 3.3% stake is approximately $40.0 million. This will be funded from the proceeds of the return of capital by CQO of approximately $53.0 million.

33 Related parties

(a) Parent entity

The parent entity within the Group is Charter Hall Limited.

(b) Controlled entities

Interests in controlled entities are set out in note 34.

(c) Key management personnel

Key management personnel are set out in note 30.

(d) Transactions with related parties

The following income was earned from related parties during the year:

The following income was earned from related parties during the year:
	2011	2010
	$	$
Accounting fees	4,155,000	1,567,000
Marketing fees	113	-
Management and performance fees from associates	39,208,306	24,078,267
Transaction fees from associates	17,389,370	4,509,418
Commitment fees from associates	‐	119,775
Property management fees from associates	20,806,449	3,037,846

Transactions with associates and joint ventures are disclosed in note 35 and note 36 respectively.

(e) Loans to/from related parties

	2011	2010
	$	$
Loans to joint ventures
Opening balance	3,750,000	1,750,000
Loans advanced	1,250,000	2,000,000
Interest charged	594,658	221,342
Interest received	(594,658)	(221,342)
Closing balance	5,000,000	3,750,000

No provisions for doubtful debts have been raised in relation to any outstanding balances, and no expense has been recognised in respect of bad or doubtful debts due from related parties.

50

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

34 Controlled entities

The consolidated preliminary financial report incorporates the assets, liabilities and results of the following controlled entities in accordance with the accounting policy described in note 1(b):

(a) Details of controlled entities

(a) Details of controlled entities
			Equity holding
	Country of	Class of	2011	2010
Name of entity	incorporation	securities	%	%
Controlled entities of Charter Hall Limited
Charter Hall Holdings Pty Limited	Australia	Ordinary	100	100
Charter Hall CUB Pty Ltd	Australia	Ordinary	100	100
CH La Trobe Trust	Australia	Ordinary	100	-
Controlled entities of Charter Hall Holdings Pty Ltd
Charter Hall (NZ) Pty Limited	Australia	Ordinary	100	100
Charter Hall Funds Management Limited	Australia	Ordinary	100	100
Bowvilla Pty Limited	Australia	Ordinary	100	100
Charter Hall Holdings Real Estate Pty Limited	Australia	Ordinary	100	100
Frolish Pty Limited	Australia	Ordinary	100	100
Stelridge Pty Limited	Australia	Ordinary	100	100
Visokoi Pty Limited	Australia	Ordinary	100	100
Bieson Pty Limited	Australia	Ordinary	100	100
Sandkilt (No 2) Pty Limited	Australia	Ordinary	100	100
Charter Hall Real Estate, Inc	USA	Ordinary	100	100
Charter Hall Office Management Limited	Australia	Ordinary	100	100
Charter Hall Asset Services Limited	Australia	Ordinary	100	100
Charter Hall Real Estate Europe Limited	UK	Ordinary	100	100
Charter Hall Asset Services Europe Sp z.o.o	Poland	Ordinary	100	-
Charter Hall Retail Management Limited(1)	Australia	-	-	-
Charter Hall Direct Property Management Limited(1)	Australia	-	-	-
Controlled entities of Charter Hall Holdings Real Estate Pty Ltd
Charter Hall Holdings Real Estate (Vic) Pty Limited	Australia	Ordinary	100	100
Controlled entities of Charter Hall Asset Services Limited
Charter Hall Real Estate Management Services Pty Limited	Australia	Ordinary	100	100
Charter Hall Real Estate Management Services (WA) Pty Limited	Australia	Ordinary	100	100
Charter Hall Real Estate Management Services (VIC) Pty Limited	Australia	Ordinary	100	100
Charter Hall Real Estate Management Services (TAS) Pty Limited	Australia	Ordinary	100	100
Charter Hall Real Estate Management Services (SA) Pty Limited	Australia	Ordinary	100	100
Charter Hall Real Estate Management Services (ACT) Pty Limited	Australia	Ordinary	100	100
Charter Hall Real Estate Management Services (NSW) Pty Limited	Australia	Ordinary	100	100
Charter Hall Real Estate Management Services (QLD) Pty Limited	Australia	Ordinary	100	100
Controlled entities of Charter Hall Real Estate Inc
CHREI US Office LLC	USA	Ordinary	100	100
CHREI US Retail LLC	USA	Ordinary	100	100

(1) The purchase of all shares of these is expected to complete during the quarter ending 30 September 2011. Although Charter Hall does not own the shares of these entities, Charter Hall has economic control of these entities and hence they are consolidated.

51

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

34 Controlled entities (continued)

			Equity holding
	Country of	Class of	2011	2010
Name of entity	incorporation	securities	%	%
Controlled entities of Charter Hall Property Trust
Charter Hall Direct Retail Fund(1) (formerly Charter Hall Core Plus Retail Fund)	Australia	Ordinary	66	66
Charter Hall Co-Investment Trust	Australia	Ordinary	100	100
Charter Hall Special Situations Office Fund	Australia	Ordinary	100	100

(1) In 2008, CHPT sold down its interest in DRF from 100% to 62% (current interest is 66%). At that time it was considered that CHPT did not control the fund and therefore did not consolidate DRF into its financial statements. However, on 8 December 2009, Charter Hall announced that based on discussions with ASIC the Group would consolidate its interest in DRF from 1 July 2009. Subsequently, the Group has announced its intention to sell down its interest in DRF.

Charter Hall Co-Investment Trust is an entity which was set up by Charter Hall Property Trust to hold its investments in Charter Hall Office REIT (CQO), Charter Hall Retail REIT (CQR) and Charter Hall Direct Property Fund (CHDPF).

Special Situations Office Fund is currently inactive, but will likely be used for Charter Hall’s next unlisted fund.

			Equity holding
	Country of	Class of	2011	2010
Name of entity	incorporation	securities	%	%
Controlled entities of Charter Hall Direct Retail Fund
Core Plus Retail Fund New Zealand	Australia	Ordinary	100	100
Redcliffe Retail Property Trust	Australia	Ordinary	100	100
Belconnen Retail Warehouse Trust	Australia	Ordinary	100	100
Box Hill Retail Warehouse Trust	Australia	Ordinary	100	100
Nerang Retail Warehouse Trust	Australia	Ordinary	100	100
Nowra Retail Warehouse Trust	Australia	Ordinary	100	100
Penrith Retail Warehouse Trust	Australia	Ordinary	100	100
Stafford Retail Warehouse Trust	Australia	Ordinary	100	100
Ipswich Retail Property Trust	Australia	Ordinary	100	100
Rothwell Retail Property Trust	Australia	Ordinary	100	100
Mentone Property Trust	Australia	Ordinary	100	100
Charter Hall MMN Property Trust	Australia	Ordinary	100	100
CPRF Gepps X Trust	Australia	Ordinary	100	100
CPRF Gepps 109 Trust	Australia	Ordinary	100	100
CPRF MSN PropertyTrust	Australia	Ordinary	100	100

52

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

35 Investments in associates

(a) Carrying amounts

Information relating to associates is set out below.

		Ownership	interest
		2011	2010	2011	2010
Name of entity	Principal activity	%	%	$'000	$'000
Accounted for at fair value through profit or loss
Unlisted
Charter Hall Diversified Property Fund	Property investment	36.4%	31.9%	26,964	22,068
Charter Hall Umbrella Fund	Property investment	24.9%	24.9%	40,612	41,578
Charter Hall Direct Property Fund	Property investment	3.5%	3.5%	10,438	9,787
Macquarie Property Income Fund	Property investment	-	4.6%	-	306
Charter Hall PropertySecurities Fund	REIT securities investment	1.4%	-	431	-
				78,445	73,739
Equity accounted:
Unlisted
Charter Hall Opportunity Fund 4	Property development	3.0%	3.0%	1,218	1,254
Charter Hall Opportunity Fund 5	Property development	15.0%	15.0%	31,286	24,670
Charter Hall Core Plus Office Fund	Property investment	16.2%	16.8%	110,428	104,314
Charter Hall Core Plus Industrial Fund	Property investment	21.3%	25.0%	53,281	51,989
Listed
Charter Hall Office REIT	Property investment	10.0%	7.5%	185,681	155,149
Charter Hall Retail REIT	Propertyinvestment	8.2%	7.4%	88,189	82,326
				470,083	419,702

The above associates are incorporated in Australia.

The investments in Charter Hall Diversified Property Fund, Charter Hall Umbrella Fund and Charter Hall Direct Property Fund are held by Charter Hall Property Trust and are accounted for at fair value through the profit or loss (note 14). The investment in Charter Hall Diversified Property Fund consists of units which represent a 19.6% (2010: 19.6%) interest but also an additional investment in the form of bridging equity of $19.9 million (2010: $15.0 million), which is 16.8% (2010: 12.3%).

The investments in Macquarie Property Income Fund and Charter Hall Property Securities Fund are held by controlled entities of Charter Hall Limited and are accounted for at fair value through the profit or loss (note 14).

The investments in Charter Hall Opportunity Funds 4 and 5 held by Charter Hall Limited are equity accounted in the consolidated preliminary financial report (note 17). The investments in Charter Hall Core Plus Office Fund, Charter Hall Core Plus Industrial Fund, Charter Hall Office REIT and Charter Hall Retail REIT are held by Charter Hall Property Trust and are equity accounted (note 17). The carrying value of these investments is supported by value in use calculations. Refer to note 32 for details of commitments relating to acquisition of further units in Charter Hall Office REIT.

53

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

35 Investments in associates (continued)

(b) Movements in carrying amounts

• (i) Investments at fair value through profit or loss

	2011	2010
	$'000	$'000
Charter Hall Diversified Property Fund
Opening balance	22,068	22,319
Investment	4,900	5,989
Fair value adjustment	(4)	(6,240)
Closingbalance	26,964	22,068
Charter Hall Umbrella Fund
Opening balance	41,578	48,049
Investment	-	76
Fair value adjustment	(966)	(6,547)
Closingbalance	40,612	41,578
Charter Hall Direct Property Fund
Opening balance	9,787	-
Investment	-	8,454
Fair value adjustment	651	1,333
Closingbalance	10,438	9,787
Macquarie Property Income Fund
Opening balance	306	-
Investment	119	307
Fair value adjustment	14	(1)
Disposal of units	(439)	-
Closingbalance	-	306
Charter Hall Property Securities Fund
Opening balance	-	-
Investment	435	-
Fair value adjustment	(4)	-
Closingbalance	431	-
Charter Hall Direct Retail Fund (formerly Charter Hall Core Plus Retail Fund)
Opening balance	-	139,888
Eliminated on consolidation	-	(139,888)
Closingbalance	-	-
Total investments at fair value through profit or loss
Opening balance	73,739	210,256
Investment	5,454	14,824
Fair value adjustment	(309)	(11,453)
Disposal of units	(439)	-
Eliminated on consolidation	-	(139,888)
Closing balance	78,445	73,739

54

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

35 Investments in associates (continued)

(b) Movements in carrying amounts (continued)

• (ii) Equity accounted investments

(ii) Equity accounted investments
	2011	2010
	$'000	$'000
Charter Hall Opportunity Fund 4
Opening balance	1,254	2,951
Investment	-	714
Share of (loss)/profit after income tax	(26)	150
Distributions received/receivable	(10)	(2,561)
Closingbalance	1,218	1,254
Charter Hall Opportunity Fund 5
Opening balance	24,670	15,328
Investment	7,605	10,440
Share of loss after income tax	(989)	(1,116)
Reserves	-	18
Closingbalance	31,286	24,670
Charter Hall Core Plus Office Fund
Opening balance	104,314	146,702
Share of profit/(loss) after income tax	11,415	(2,599)
Distributions received/receivable	(5,516)	(5,329)
Disposal of units	-	(34,460)
Gain on remeasurement of equityinterest	215	-
Closingbalance	110,428	104,314
Charter Hall Core Plus Industrial Fund
Opening balance	51,989	57,915
Share of profit/(loss) after income tax	3,770	(2,184)
Distributions received/receivable	(2,935)	(3,742)
Gain on remeasurement of equityinterest	457	-
Closingbalance	53,281	51,989
Charter Hall Office REIT
Opening balance	155,149	‐
Investment	37,031	111,458
Gain on remeasurement of equity interest	14,239	48,353
Share of profit/(loss) after income tax	5,688	(5,613)
Distributions received/receivable	(9,424)	(3,105)
Reserves	(17,002)	4,056
Closingbalance	185,681	155,149

55

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

35 Investments in associates (continued)

(b) Movements in carrying amounts (continued)

(ii) Equity accounted investments (continued)

(ii) Equity accounted investments (continued)
Charter Hall Retail REIT
Opening balance	82,326	-
Investment	7,425	69,335
Gain on remeasurement of equity interest	1,815	11,372
Share of profit after income tax	4,928	3,615
Distributions received/receivable	(6,177)	(2,568)
Reserves	(2,128)	572
Closingbalance	88,189	82,326
Total equity accounted investments
Opening balance	419,702	222,896
Investment	52,061	191,947
Share of (loss)/profit after income tax	24,786	(7,747)
Distributions received/receivable	(24,062)	(17,305)
Reserves	(19,130)	4,646
Disposal of units	-	(34,460)
Gain on remeasurement of equity interests	16,726	59,725
Closing balance	470,083	419,702
(c) Fair value of listed investments in associates
	2011	2010
	$'000	$'000
Charter Hall Office REIT	165,397	91,359
Charter Hall Retail REIT	79,705	61,408

Fair value represents market value of CQO and CQR units as at 30 June 2011 and 2010.

(d) Share of equity accounted associates’ profits or losses

(d) Share of equity accounted associates’ profits or losses
	2011	2010
	$'000	$'000
Profit before income tax	32,083	13,607
Income tax expense	(1,748)	(1,431)
Profit after income tax	30,335	12,176

56

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

35 Investments in associates (continued)

(e) Summarised financial information of associates

		Group's	share of:
	Assets	Liabilities	Revenues	Profit/(loss)
	$'000	$'000	$'000	$'000
2011
Charter Hall Diversified Property Fund	55,979	30,009	5,332	1,979
Charter Hall Umbrella Fund	37,957	648	1,982	2,226
Charter Hall Direct Property Fund	18,320	7,800	1,834	1,344
Charter Hall Opportunity Fund 4	3,756	2,538	201	(26)
Charter Hall Opportunity Fund 5	46,964	15,678	2,844	(989)
Charter Hall Core Plus Office Fund	220,889	110,461	15,739	11,415
Charter Hall Core Plus Industrial Fund	94,925	41,644	10,801	3,770
Charter Hall Office REIT	322,713	137,032	23,055	5,688
Charter Hall Retail REIT	157,069	68,880	17,388	4,928
	958,572	414,691	79,176	30,335
2010
Charter Hall Diversified Property Fund	49,506	28,909	5,171	(3,884)
Charter Hall Umbrella Fund	37,896	617	2,257	(3,880)
Charter Hall Direct Property Fund	15,850	7,279	578	16
Macquarie Property Income Fund	644	284	15	29
Charter Hall Opportunity Fund 4	3,942	2,653	3,982	150
Charter Hall Opportunity Fund 5	45,402	20,769	211	1,116
Charter Hall Core Plus Office Fund	197,601	93,287	19,238	(1,252)
Charter Hall Core Plus Industrial Fund	101,729	45,668	10,932	(2,473)
Charter Hall Office REIT	272,535	117,420	7,082	(5,613)
Charter Hall Retail REIT	145,068	62,721	4,812	3,615
	870,173	379,607	54,278	(12,176)

36 Investments in joint ventures

(a) Carrying amounts

Information relating to joint ventures is set out below and at note 17.

		Ownership	interest	Consolidated
		2011	2010	2011	2010
Name of company	Principal activity	%	%	$’000	$’000
Unlisted
Commercial and Industrial Property Pty Ltd	Property development	50%	50%	28,843	26,517
Maguire Macquarie Management LLC	Asset management	50%	50%	-	-
Macquarie-Regency Management LLC	Asset management	50%	50%	26	117
Reliance Investment Management Pty Limited	Investment management	50%	-	55	-
Charter Hall Retail JV Trust	Propertyinvestment	50%	-	18,700	-
				47,624	26,634

57

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

36 Investments in joint ventures

(b) Movements in carrying amounts

(b) Movements in carrying amounts
	2011	2010
	$'000	$'000
Commercial and Industrial Property Pty Limited
Opening balance	26,517	24,979
Investment	-	-
Share of profit after income tax	3,984	1,538
Dividends received/receivable	(1,658)	-
Closingbalance	28,843	26,517
Maguire Macquarie Management LLC
Openingbalance	-	-
Closingbalance	-	-
Macquarie-Regency Management LLC
Opening balance	117	-
Investment	-	117
Share of profit after income tax	221	-
Dividends received/receivable	(312)	-
Closingbalance	26	117
Reliance Investment Management Pty Limited
Opening balance	-	-
Investment	281	-
Share ofprofit after income tax	(226)	-
Closingbalance	55	-
Charter Hall Retail JV Trust
Opening balance	-	-
Investment	18,534	-
Share of profit after income tax	1,631	-
Distribution received/receivable	(1,465)	-
Closingbalance	18,700	-

58

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

36 Investments in joint ventures (continued)

(c) Carrying value of joint venture entity

	2011	2010
	$'000	$'000
Commercial and Industrial PropertyPtyLimited	28,843	26,517

External valuers were engaged to provide an indicative estimate of Charter Hall Limited’s 50% equity investment in Commercial and Industrial Property Pty Ltd as at 30 June 2009. The valuation methodology used was Value In Use (VIU) (in accordance with the requirements of AASB 136) and three different scenarios in relation to growth prospects were considered. Management adopted the base case scenario which had a value in use at that time of $24,979,044.

In accordance with our accounting policy (note 1(h)), consideration was given to the fair value less cost to sell (FVLCTS) method but management believe VIU gives the most accurate recoverable amount and resulted in a higher recoverable amount.

The base case scenario for assessing value in use has been updated by management at 30 June 2011 and includes an expected gross profit in line with forecast FY12 gross profit of $6 million with a growth factor of 5% and discount rate of 15% through to the end of the forecast period.

There has been no impairment or reversal of impairment in the year ended 30 June 2011 (2010: nil).

(d) Share of joint venture’s revenue, expenses and results

(d) Share of joint venture’s revenue, expenses and results
	2011	2010
	$'000	$'000
Revenues	83,055	43,079
Expenses	(75,732)	(40,873)
Profit before income tax	7,323	2,206
(e) Share of joint venture’s assets and liabilities
	2011	2010
	$'000	$'000
Current assets	19,775	11,256
Non-current assets	35,809	3,799
Total assets	55,584	15,055
Current liabilities	8,985	2,328
Non-current liabilities	21,726	6,605
Total liabilities	30,711	8,933
Net assets	24,873	6,122

59

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

37 Events occurring after the reporting date

Since 30 June 2011, the following matters have arisen:

• On 26 June 2011, Orange Capital, Luxor and Point Lobos issued a notice calling a CQO unitholder meeting for 27 July 2011, with a resolution to change the Responsible Entity of CQO from Charter Hall Office Management Limited (CHOML) to Moss Capital Funds Management Limited. The resolution was voted upon at the unitholder meeting and the unitholders voted against the resolution, retaining CHOML as the responsible entity of the REIT.

• On 18 July 2011, the Responsible Entity of CQO (CHOML) announced a corporate governance review. The review will examine the existing governance framework between Charter Hall Group and the Responsible Entity and will provide recommendations on appropriate corporate governance arrangements and a fee structure for the REIT that is consistent with current best practice models for ASX-listed trusts, including unitholders voting on the appointment of non-executive Directors of the Responsible Entity. The recommendations will be considered at the Annual General Meeting.

• On 3 August 2011, CQO announced it had exchanged contracts to sell 100% of the US portfolio for a gross price of US$1.71 billion. The closing of the sale of each US property (or CQO’s interest in each property) is subject to customary closing conditions including receipt of lender consents and other third party consents. The Board expects to provide a return of capital via a pro-rata special distribution to unitholders of net sales proceeds.

Except for the matters discussed above, no other matter or circumstance has arisen since 30 June 2011 that has significantly affected, or may significantly affect:

• (a) the Group's operations in future financial years; or

• (b) the results of those operations in future financial years; or

• (c) the Group's state of affairs in future financial years.

38 Reconciliation of profit/(loss) after tax to net cash inflow from operating activities

	2011	2010
	$'000	$'000
Profit/(loss) after tax for the year	55,237	(3,589)
Depreciation and amortisation	1,545	1,406
Non-cash employee benefits expense - security-based benefits	4,090	1,317
(Gain)/loss on sale of investments, property and derivatives	(3,350)	5,827
Net gain on remeasurement of equity interests	(16,726)	(59,725)
Fair value adjustments	3,213	50,762
Impairment of goodwill	-	15,328
Impairment of management rights	19,171	-
Change in operating assets and liabilities, net of effects from purchase of controlled entity
(Increase)/decrease in trade debtors	(1,565)	1,390
Increase in accrued revenue	(661)	(3,975)
Decrease in other operating assets	5,205	10,948
(Decrease)/increase in trade creditors	(3,992)	8,693
Increase in accrued expenses	3,798	45
Net income receivable from investment in associates and joint venture entities	(4,789)	8,180
Increase in other operating liabilities	276	3,186
Decrease in provision for deferred income tax	(2,670)	(950)
Net cash inflow/(outflow) from operating activities	58,782	38,843

Dividend and interest income received on investments has been classified as cash flow from operating activities.

60

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

39 Earnings per security

39 Earnings per security
	2011	2010
		(restated)
	Cents	Cents
(a) Basic earnings per stapled security
Basic earnings attributable to the stapled securityholders of Charter Hall Group	17.85	3.22
(b) Diluted earnings per security
Diluted earnings attributable to the stapled securityholders of Charter Hall Group	17.06	3.67
	2011	2010
	$’000	$’000
(c) Reconciliations of earnings used in calculating earnings per security
Profit attributable to the ordinary equity holders of the Group used in
calculating basic earnings per security	52,338	6,840
Interest received from LTI securities	2,077	1,611
Profit attributable to the ordinary equity holders of the Group used in
calculating diluted earnings per security	54,415	8,451
(d) Weighted average number of securities used as the denominator
	2011	2010
	Number	Number
Weighted average number of ordinary securities used as the denominator in calculating
basic earnings per security	293,253,621	212,540,278
Adjustments for calculation of diluted earnings per security:
Performance rights	3,480,731	1,408,542
Service rights	206,340	-
Options	9,482,030	3,657,826
Securities issued under the Charter Hall Limited Executive Loan SecurityPlan(ELSP)	12,585,920	12,585,920
Weighted average number of ordinary securities and potential ordinary securities used
as the denominator in calculating diluted earnings per security	319,008,642	230,192,566

The comparatives have been restated in accordance with AASB 133 Earnings Per Share for the change in accounting policy and security consolidation.

(e) Information concerning the classification of securities

(i) Performance rights and options issued under the Charter Hall Performance Rights and Options Plan

The performance rights and options are unquoted securities and conversion to stapled securities, and vesting to executives, is subject to service and performance conditions.

(ii) Securities issued under the Charter Hall Limited Executive Loan Security Plan

Securities issued under the Charter Hall Limited Executive Loan Security Plan have been issued in trust and have corresponding loans granted to employees. Under AASB 2: Share-based Payments , the loan, interest received on the loan, securities and the distribution paid and payable are derecognised for the preparation of the preliminary financial report but recognised for the calculation of diluted earnings per security.

61

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

40 Security-based benefits

(a) Charter Hall - Executive Loan Security Plan (ELSP) (legacy plan)

The ELSP was suspended on 1 July 2009.

The establishment of the Charter Hall Limited Executive Loan Security Plan was approved by the Board in the process of the initial public offering. Staff who were eligible to participate in the plan were determined by the Joint Managing Directors in discussion with the Board.

Securities were granted under the plan at market value and were purchased with a loan to the employee. Recourse on the loan is limited to the value of the securities. The securities are intended to vest over a three year period in equal portions subject to performance and service conditions. The amount of interest due on the loan is equivalent to the amount of the distribution receivable on the underlying securities.

Distributions on the loan securities are paid to Charter Hall Limited as interest receivable on the loan provided to employees.

As ELSP members do not hold securities in their own name, the plan manager seeks instructions from plan members on their voting intentions. The plan manager distributes a voting instruction form to collate responses and completes the ELSP’s proxy form for lodgement with the share registry.

Set out below are summaries of securities granted under the plan:

Set out below are summaries of securities granted under the plan:
	2011	2010
	Number	Number
Opening balance (number of securities)	50,343,597	50,343,595
Other	-	2
Impact of consolidation at one for four	(37,757,677)	‐
	12,585,920	50,343,597

During the year, nil (2010: 4,500,000) securities were forfeited by ELSP members but have been retained in the plan.

(b) Charter Hall - Performance Rights and Options Plan (PROP)

In 2008, the Board engaged external advisers to gain a market perspective on long term incentive (LTI) arrangements. The Board, in consultation with the independent remuneration consultants, resolved in the prior year to replace the ELSP and utilise the PROP as the Group’s LTI.

The performance rights and options are unquoted securities and conversion to stapled securities, and vesting to executives, is subject to service and performance conditions.

subject to service and performance conditions.
	2009	2010	2011	Total
	Number	Number	Number	Number
Performance rights
Rights issued on 22/12/08	407,242	-	-	407,242
Rights issued on 13/11/09	-	1,562,250	-	1,562,250
Rights issued on 18/6/10	-	644,625	-	644,625
Rights issued on 6/9/10	-	-	863,345	863,345
Rights issued on 11/11/10	-	-	465,388	465,388
Rights originally issued	407,242	2,206,875	1,328,733	3,942,850
Number rights forfeited/lapsed in prior years	-	(69,467)	-	(69,467)
Number rights forfeited/lapsed in current year	(27,094)	(40,000)	(7,693)	(74,787)
Number rights vested in prior year	-	-	-	-
Number rights vested in currentyear	-	-	-	-
Closing balance	380,148	2,097,408	1,321,040	3,798,596

62

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

40 Security-based benefits (continued)

40 Security-based benefits (continued)
	2009	2010	2011	Total
	Number	Number	Number	Number
Service rights
Rights issued on 6/9/10	-	-	316,377	316,377
Rights originally issued	-	-	316,377	316,377
Number rights forfeited/lapsed in prior years	-	-	-	-
Number rights forfeited/lapsed in current year	-	-	(51,096)	(51,096)
Number rights vested in prior year	-	-	-	-
Number rights vested in current year	-	-	-	-
Closing balance	-	-	265,281	265,281
Options
Options issued on 4/11/09 at $1.94	-	4,088,078	-	4,088,078
Options issued on 13/11/09 at $1.94	-	1,497,036	-	1,497,036
Options issued on 18/6/10 at $2.80	-	1,611,656	-	1,611,656
Options issued on 6/9/10 at $2.44	-	-	2,035,649	2,035,649
Options issued on 11/11/10 at $2.44	-	-	1,163,464	1,163,464
Options issued on 19/1/11 at $2.35	-	-	123,397	123,397
Options originally issued	-	7,196,770	3,322,510	10,519,280
Number options forfeited/lapsed in prior years	-	-	-	-
Number options forfeited/lapsed in current year	-	(391,472)	(19,232)	(410,704)
Number options vested in prior year	-	-	-	-
Number options vested in current year	-	-	-	-
Closing balance	-	6,805,298	3,303,278	10,108,576

(c) Expenses arising from security-based benefits transactions

Total expenses arising from security-based benefits transactions recognised during the year as part of employee benefit expense were as follows:

	2011	2010
	$'000	$'000
Performance rights and options plan	4,090	1,317

The model inputs for the Black-Scholes method for assessing the fair value at loan date for the ELSP securities and PROP rights and options issued during the year ended 30 June 2011 include the following:

Grant date	07/08/08	10/10/08	19/11/08	22/12/08	13/11/09	18/06/10	06/09/10	11/11/10	11/01/11
Security price at
grant date *	$3.46	$2.64	$1.64	$1.20	$2.40	$2.80	$2.44	$2.44	$2.35
Loan value per
security *	$4.16	$4.16	$4.16	$4.16	$1.94	$2.80	$2.44	$2.44	$2.35
Expiry of loan	06/08/13	09/08/13	18/11/13	21/12/13	01/07/14	18/06/15	06/09/15	06/09/15	06/09/16
Expected price
volatility	23.68%	22.75%	58.06%	59.49%	40.00%	40.00%	40.00%	40.00%	40.00%
Risk-free interest
rate	5.85%	4.28%	3.72%	3.19%	5.50%	5.50%	5.50%	5.50%	5.50%

• Security prices for prior years have been restated for the unit consolidation during the year.

63

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

41 Deed of cross guarantee

Charter Hall Limited and Charter Hall Holdings Pty Ltd are parties to a deed of cross guarantee under which each company guarantees the debts of the other. By entering into the deed, the wholly owned entities have been relieved from the requirement to prepare financial statements and directors’ report under Class Order 98/1418 (as amended) issued by the Australian Securities and Investments Commission.

(a) Consolidated income statement, statement of comprehensive income and summary of movements in consolidated accumulated losses

The above companies represent a ‘closed group’ for the purposes of the Class Order and, as there are no other parties to the deed of cross guarantee that are controlled by Charter Hall Limited, they also represent the ‘extended closed group’.

Set out below is a consolidated income statement, a consolidated statement of comprehensive income and a summary of movements in consolidated accumulated losses for the year of the closed group consisting of Charter Hall Limited and Charter Hall Holdings Pty Ltd.

Hall Holdings Pty Ltd.
	2011	2010
	$’000	$’000
Income statement
Revenue from continuing operations
Revenue	60,783	40,250
Depreciation	(1,506)	(666)
Employee benefits expense	(43,899)	(25,949)
Finance costs	(16,565)	(26,377)
Business combination transaction costs	-	(6,636)
Foreign exchange (loss)/gain	(407)	1
Share of net loss of associates accounted for using the equity method	2,742	572
Gain on sale of investments, property and derivatives	793	-
Impairment of goodwill	(19,171)	-
Fair value adjustments	(10,742)	(295)
Occupancy costs	(1,934)	-
Legal and consulting costs	(1,195)	-
Other expenses	(4,687)	(4,267)
Loss before income tax	(35,788)	(23,367)
	2011	2010
	$’000	$’000
Statement of comprehensive income
Loss after income tax for the year	(28,541)	(20,376)
Other comprehensive income for the year:
Exchange differences on translation of foreign operations	(18)	18
Total comprehensive income for the year	(28,559)	(20,358)
Summary of movements in consolidated accumulated losses
Accumulated losses at the beginning of the financial year	(52,721)	(32,345)
Loss for theyear	(28,541)	(20,376)
Accumulated losses at the end of the financial year	(81,262)	(52,721)

64

Charter Hall Group

Notes to the consolidated preliminary financial report for the year ended 30 June 2011

41 Deed of cross guarantee (continued)

(b) Balance sheet

Set out below is a consolidated balance sheet of the closed group consisting of Charter Hall Limited and Charter Hall Holdings Pty Ltd.

Pty Ltd.
	2011	2010
	$’000	$’000
Assets
Current assets
Cash and cash equivalents	12,501	11,610
Trade and other receivables	39,011	32,937
Total current assets	51,512	44,547
Non-current assets
Trade and other receivables	5,000	5,145
Investments accounted for using the equity method	61,402	52,559
Investment in associates at fair value through profit or loss	15,461	-
Investments in controlled entities	75,455	47,305
Property, plant and equipment	3,159	3,561
Investment property	15,800	-
Intangible assets	99,994	119,164
Deferred tax assets	10,767	21,500
Total non-current assets	287,038	249,234
Total assets	338,550	293,781
Liabilities
Current liabilities
Trade and other payables	77,786	28,529
Provisions	816	749
Total current liabilities	78,602	29,278
Non-current liabilities
Trade and other payables	12,106	11,270
Loans from Charter Hall Property Trust	355,874	324,933
Deferred tax liabilities	872	15,330
Provisions	1,086	879
Total non-current liabilities	369,938	352,412
Total liabilities	448,540	381,690
Net liabilities	(109,990)	(87,909)
Equity
Contributed equity	9,503	9,427
Reserves	(38,231)	(44,615)
Accumulated losses	(81,262)	(52,721)
Total equity	(109,990)	(87,909)

The closed group has net liabilities but has access to debt facilities provided by Charter Hall Property Trust (CHPT) which, together with CHL, forms part of the Charter Hall Group stapled entity. At 30 June 2011, the amounts drawn under these facilities totals $355.9 million and are not repayable until 31 July 2018.

65