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Charter Hall Group

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Financial calendar	IFC
Highlights	2
Year in review	3
About us	4
Chairman’s review	6
Joint Managing Directors’ review	8
Our strategy	10

Financial year 2013 calendar

Estimated interim distribution announced
and securities/units trade ex-distribution Half year results	December 2012 February 2013
Interim distribution paid	February 2013
Estimated fnal distribution announced
and securities/units trade ex-distribution	June 2013
Full year results	August 2013
Final distribution paid	August 2013
Annual General Meeting	November 2013

Our performance	12
Sustainability	14
The Board	16
Investor information	18
Corporate governance statement	20
Financial report	29

Annual General Meeting

The 2012 Annual General Meeting will be held at The Westin Hotel, Level 6 Heritage Ballroom, No.1 Martin Place, Sydney, on Thursday, 8 November 2012 at 2.30pm

Front cover: This page: Allianz Centre Windsor Marketplace 2 Market Street Windsor Sydney New South Wales New South Wales

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Charter Hall Group
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With $9.4 billion in assets under management across listed and unlisted funds, Charter Hall owns and manages 184 office, industrial and retail properties, comprising 2.3 million square metres of net lettable area, generating a gross rental income of $817 million from almost 3,000 tenants.

Annual Report 2012

Highlights

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Left to right:
Paul Altschwager,
Chief Financial
Officer and
Tim Carr, Group
Financial Controller
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Year in review

October 2011

July 2011

Estate works commence at CHOF5’s 40 Creek Street secures Charter Hall and TA Global’s Fitness First Platinum following an $600 million Little Bay Cove active six months of leasing activity residential project in Sydney. across the Brisbane building with approximately 5,525 square metres of space being leased. August 2011

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Charter Hall increases its stake in CQR to 10%.

Charter Hall Direct Industrial Fund is named the ‘Best new unlisted property fund of the year’ by Property Investment Research.

130 Stirling Street Trust (CHIF7) unitholders receive notice of the revaluation of the Trust, resulting in its NTA rising from $0.95 to $1.13 per unit with a distribution upgrade from 8% to 9% p.a.

November 2011

The first soil is turned at CHOF5’s new A-grade commercial office development in Perth, WorkZone, marking the official commencement of construction works.

Leighton Contractors commits to 21,149 square metres in Charter Hall Opportunity Fund No.5’s (CHOF5) new $230 million A-grade office development, WorkZone in Perth.

CQR extends its NAB multi-currency debt facility to October 2016.

The Independent Directors of CQR and CQO, with assistance from Ernst & Young, complete a review of their corporate governance and fee arrangements.

Charter Hall Retail REIT (CQR) acquires Albany Creek Shopping Centre in Brisbane for $40.1 million.

Charter Hall Office REIT (CQO) contracts to sell 100% of its interests in its United States portfolio.

One of Charter Hall’s founders, Cedric Fuchs, retires from the Board. Mr Fuchs remains with Charter Hall Group as an executive director of Charter Hall Direct Property Management Limited, the responsible entity of the Group’s direct funds business.

The Independent Directors of CQO receive an indicative, highly conditional, non-binding and confidential proposal from a Macquarie Capital-led consortium to acquire for cash all of CQO issued units, other than those held by Charter Hall Group.

Charter Hall’s Core Plus Office Fund completes a $200 million equity raising.

September 2011

December 2011

Charter Hall announces the appointment of Paul Altschwager as Chief Financial Officer for the Group.

Charter Hall exchanges contracts to sell Mentone Showrooms in Mentone, Victoria for $16.7 million to a private investor.

January 2012

CQR refinances its $250 million A$CMBS facility.

CQR settles the acquisition of Lansell Plaza, a sub-regional shopping centre located in the Bendigo suburb of Kangaroo Flat in Victoria for $32.5 million.

A consortium consisting of Public Sector Pension Investment Board (PSP) and an entity owned by the Government of Singapore Investment Corporation (GIC) enter into the Scheme Implementation Agreement with CQO to acquire all of the issued units of CQO, other than those owned by Charter Hall Group.

February 2012

Charter Hall’s Core Plus Industrial Fund completes its $150 million equity raising.

Charter Hall and CQR donate $10,000 in Coles vouchers to flood impacted communities in Moree, Queensland through its Balo Square shopping centre.

March 2012

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Charter Hall’s Core Plus Industrial Fund acquires a 50% freehold interest in the Metcash Regional Distribution Centre in Perth, Western Australia for $61.5 million and signs a new $200 million syndicated debt facility.

April 2012

CQO de-lists from the ASX and becomes a Charter Hall managed unlisted fund, named Charter Hall Office Trust (CHOT).

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CHOT and Cbus Property’s premium grade office project at 171 Collins Street, Melbourne secures its third major lease pre-commitment with Egon Zehnder International joining BHP Billiton and Evans & Partners.

CQR acquires a 50% interest in Wanneroo Central Shopping Centre in Perth, Western Australia for $35 million in a 50/50 retail partnership managed by Charter Hall.

May 2012

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Charter Hall Direct Property launches a new single property syndicate, 144 Stirling Street, Perth, Western Australia with a first year forecast income yield of 8.85%.

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Charter Hall’s Core Plus Office Fund acquires the remaining 50% interest in 225 St Georges Terrace, Perth, Western Australia for $96 million. The equity utilised for this acquisition was sourced from the Fund’s $200 million capital raising which was completed in late 2011.

The first release apartments at Charter Hall and TA Global’s Little Bay Cove development are 94% presold.

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Scott Dundas is appointed Fund Manager of CQR.

Charter Hall’s Direct Industrial Fund acquires its fifth asset, the Woolworths National Distribution Centre in Hoppers Crossing, Victoria for $39.5 million.

Charter Hall’s 130 Stirling Street office building in Perth, Western Australia achieves a 5.5 Star NABERS Rating without greenpower, demonstrating the benefits of the Group’s active property management approach.

David Deverall is appointed to the Charter Hall Board as a non-executive director.

CQR refinances itsЄ€81 million German debt facility.

June 2012

Charter Hall announces a distribution of 9.1 cents per security (cps) for the half year ended 30 June 2012. The total distribution per security for the year ended 30 June 2012 was 18.2cps, a 10.0% increase on the 16.5cps for the corresponding year ended June 2011.

Over the past year, Charter Hall has been one of the industry’s strongest performing A-REITs, outperforming the S&P/ASX 200 A-REIT Accumulation Index by 7.4% with a total return of 14.6% (as at 31 July 2012).

Annual Report 2012

About us

Charter Hall is one of Australia’s leading fully integrated property groups, with over 20 years’ experience managing high quality property on behalf of institutional, wholesale and retail clients.

We have a $9.4 billion[1] predominantly Australian property portfolio focused on the core real estate sectors of office, industrial and retail. We are the largest third party manager of Australian office and supermarket anchored retail centre assets, with the third largest managed industrial property portfolio.

As an integrated property group, our 260 property specialists deliver professional services across the full property spectrum from investment management to property management and development.

We believe sustainability is a key element to good business. By ensuring our actions are not only commercially sound but that they make a difference to our people, our customers and the environment in which we work and live, we can contribute in a positive way.

Western Australia

20 properties

Office 6 Industrial 3 Retail 11

Stapled Security

Charter Hall Group (ASX:CHC)

Charter Hall Property Trust (CHPT)

Charter Hall Limited (CHL)

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Property Investment Funds Management Development Investment
Total co-investments: $530m Book value: $99m Total co-investments: $67m
$101m co-investment $99m book value (intangible) $28m investment
Listed Fund Investment management CIP
$2.0bn FUM Asset management 50% interest
Property management
Development management
$314m co-investment Leasing services $29m co-investment
Wholesale Unlisted Funds Transaction services Wholesale Opportunistic
$5.5bn FUM Investments in CHOF4 and CHOF5
$115m co-investment $10m investment
Retail Investor Funds 685 La Trobe
$1.9bn FUM 50% interest
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At 31 August 2012

Charter Hall Group

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South Australia
6 properties
Office 3
Retail 3
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Victoria
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32 properties
Office 13
Industrial 9
Retail 10
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Queensland
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33 properties
Office 7
Industrial 10
Retail 16
New South Wales
66 properties
Office 26
Industrial 6
Retail 34
Australian Capital Territory
5 properties
Office 1
Retail 4
Tasmania
5 properties
Office 1
Industrial 1
Retail 3
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Charter Hall has 17 offshore assets via its managed funds which will be marketed for sale in the short to medium term

Annual Report 2012

On behalf of the Board of Directors, I am pleased to present Charter Hall Group’s 2012 Annual Report. Despite uncertain economic conditions, Charter Hall had an active year delivering on our strategy of accessing, deploying and managing equity investment in office, industrial and retail properties within Australia.

The sale of CQO’s US portfolio, and subsequent privatisation of CQO, consolidated our property funds management platform. We also achieved an 8% reduction in net operating expenses; improved our EBITDA margin (before specific items) by 420 basis points to 31.8%; and delivered $23 million in funds management earnings this year.

It was pleasing to see active property and debt management in the co-investment portfolio lift the earnings yield by 70 basis points to 7.1%. By 30 June 2012, on balance sheet debt was reduced to zero.

Charter Hall currently has total funds under management of $9.4 billion, securing over $1 billion in additional equity across our managed funds platform, with a further $319 million added since the end of the financial year.

Our Australian assets have grown in line with our strategy to focus on the domestic market, where we have competitive advantages, with our Australian properties now under management increasing to $8.9 billion, from $8.5 billion 12 months ago.

Charter Hall now manages 184 office, industrial and retail properties comprising 2.3 million square metres of lettable area, currently generating gross rental income of $817 million from almost 3,000 tenants.

Committed to corporate governance

Charter Hall continues to focus on maintaining the highest levels of corporate governance standards in all our managed funds. Charter Hall’s Board supported an independent review of both Charter Hall Retail and Office REITs’ corporate governance arrangements and fees structures conducted by Ernst & Young, who concluded that corporate governance arrangements were already of a high standard. Charter Hall Retail REIT Board adopted a number of refinements suggested as part of this review.

We continue to operate our managed funds with a governance framework that sees the Funds’ boards and investment committees comprise an Independent Chairman, where applicable, and a majority of independents, whilst Investor Representative Committees also exist for the wholesale pooled funds.

Charter Hall Office Trust

The Proposal by a Consortium, comprising Reco Ambrosia Pte Ltd (an affiliate of the Government of Singapore Investment Corporation (Realty) Pte Ltd) and the Public Sector Pension Investment Board (of Canada) to acquire all units in CQO, other than those held by Charter Hall, was approved at the March unitholder meeting of CQO.

All conditions precedent were met, including the completion of the sale of CQO’s remaining United States properties, and the Scheme was implemented on 30 April 2012. CQO was de-listed from the Australian Securities Exchange and renamed Charter Hall Office Trust, becoming one of the Charter Hall managed wholesale partnerships.

Providing a scalable business

During the year, we restructured our business to better align the business model and the Group’s organisational goals. Charter Hall now comprises Investment Management and Property Services divisions. This restructure provides a scalable operating model that focuses on our key client groups (fund investors and tenants) and our securityholders. The restructure saw a resizing of some areas of the business, which will result in cost savings whilst ensuring the business is focused on its domestic platform.

Board changes

This financial year, one of our founders, Cedric Fuchs, retired as an Executive Director. On behalf of all stakeholders, I pay tribute to Cedric for his remarkable contribution to the business. Cedric continues in his role as an executive director on the Charter Hall Direct Property Board and as a member of the Group’s managed fund investment committees.

I am also pleased to welcome David Deverall to the Board, who joined us in May this year as a Non-Executive Director. David is CEO of Hunter Hall International Limited, Australia’s largest dedicated ethical investment manager that focuses on responsible investment in undervalued companies. David brings extensive experience in financial services, funds management and strategy to the Group.

Due to an illness in his family, Glenn Fraser retired as a Non-Executive Director in August 2012. Glenn, who was Chairman of the Audit & Risk Committee, served as a Board member for seven years, making a significant contribution. We will miss his constructive and balanced approach. On behalf of all stakeholders, I thank him for this contribution and wish him and his family well for the future.

Outlook

While the Australian economy and the equities market continue to be impacted by global economic uncertainty, Charter Hall’s annuity style earnings offer investors a reliable source of income, from its property funds management and co-investment portfolio. The Board and management are committed to maximising returns for our clients invested in our managed funds, and in turn maximising returns for Charter Hall securityholders. I pay tribute to and thank Charter Hall’s outstanding staff, Board and management, and thank our securityholders and all stakeholders for their continued support. We all look forward to delivering continuing positive results in the year ahead.

Despite uncertain economic conditions, we have had an active year delivering on our strategy of accessing, deploying and managing equity investment in office, industrial and retail properties within Australia.

Chairman Kerry Roxburgh

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In a market that continues to be impacted by the global economic uncertainty, Charter Hall has continued to deliver on its strategic objectives.

During the 2012 financial year, we secured over $1 billion in equity, including $800 million of replacement equity for the privatisation of Charter Hall Office REIT (CQO) (now referred to as Charter Hall Office Trust (CHOT)). We have seen this momentum continue since year end, with the Group securing more than $319 million in additional equity including the establishment of a new retail partnership with a global institutional partner and across the unlisted retail funds platform.

Results

We are pleased to report that operating earnings before specific items increased 4.4% to 21.5 cents per security (cps) or $63.6 million, and while operating earnings after specific items and statutory profit after tax were impacted by various non-cash and specific items, the underlying business continues to perform well. The full year distribution was 18.2cps, a 10% increase over the prior financial year.

A full provision of $14.2 million (4.7cps) for the CHOF4 performance fee clawback, a further 2.0cps for the CHOF5 inventory write down at the Little Bay Cove development project, together with the 3.4cps mark to market loss for interest rate derivatives in a number of funds, reduced net tangible assets per security to $2.13 at 30 June 2012.

Importantly, 97% of EBITDA was generated from core property investments and property funds management, and 89% was derived from annuity style income, providing the Group with improved quality of earnings in the current market.

Development investment will continue to represent a minor contribution, being 3% in financial year 2012 and potentially lower in financial year 2013, as capital is recycled into recurrent earnings activities.

Growing our Australian property FUM

We have continued to focus on our strategy to reweight our managed funds’ portfolios to Australia with domestic funds now representing 95% of total FUM. Australian FUM has grown by 11% per annum since June 2010.

Our total FUM declined from $10.7 billion at 30 June 2011 to $9.4 billion today, following the $1.7 billion sale of CQO’s United States portfolio and a number of offshore sales within Charter Hall Retail REIT (CQR). CQR’s remaining offshore assets have been identified for sale.

We have continued to see strong institutional and retail investor interest in Australian property with particular interest from foreign institutional capital. Charter Hall has utilised its deep market relationships to secure over $1.3 billion of equity since 30 June 2011, with $926 million invested by offshore investors. Utilising this equity, the Group and its managed funds acquired approximately $500 million of quality core properties during the year.

Enhancing our property portfolios

We continue to actively manage our property portfolios, having leased and renewed almost 250,000 square metres of lettable floor space, driving an improvement in the overall occupancy and like-for-like income growth during the year.

Our development team has also progressed a number of projects within our off balance sheet $1.3 billion development book and pipeline, with more than $800 million within core funds across 14 projects.

Realising equity from development investments We are focused on realising equity for wholesale investors and the Group from our opportunistic funds. The Group expects to realise more than $40 million of equity from its development investments over the next two years as completed projects are sold.

The redeployment of these equity co-investments into recurrent earnings yield co-investments will be accretive to Group earnings and will assist in achieving our strategic objective to increase annuity income streams within the Group.

Active capital management approach Active capital management remains a focus evidenced by the refinancing of $3.0 billion of debt across our managed funds during the year which delivered an increased weighted average debt maturity of 3.1 years and a substantially lower weighted average cost of debt.

We also realised $68 million of equity from our co-investments, reinvesting $41 million into higher return investments. We will look to recycle a further $112 million of equity over the next two years.

Outlook

We remain focused on accessing, deploying and managing equity in the core property sectors of office, industrial and retail. Charter Hall is in a unique position in that we access equity across unlisted retail, unlisted wholesale and listed sources; and with the Australian market continuing to see strong capital inflows, we are well placed to capture these inflows to invest in high quality property. Subject to unforeseen events, we expect operating earnings for the financial year ended 30 June 2013 to be in the range of 22.5 to 23.0 cents per security, representing 5% to 7% growth over financial year 2012.

We are committed to maintaining the strong momentum achieved this financial year through our continued focus on accessing equity from multiple sources; deploying this equity into quality, accretive investment opportunities in the core property sectors of office, retail and industrial; and utilising Charter Hall’s fully integrated property services platform to actively manage our extended portfolio. We look forward to providing a strong and sustainable total return through our focus on growing property income and capital returns for our securityholders and clients.

We look forward to providing a strong and sustainable total return through our focus on growing property income and capital returns for our securityholders and clients.

Joint Managing Director Joint Managing Director David Harrison David Southon

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Our strategy

With a focus on the core property sectors of office, industrial and retail, our strategy is to access, deploy and manage equity invested in these sectors to create value and provide growing income and capital returns for our clients and Charter Hall’s securityholders.

Our key competitive advantages include: ◆ Access – our scale in the core real estate sectors enables us to attract further equity from multiple sources, including listed, pooled wholesale, partnership wholesale and direct retail, expanding our business reach for investors

◆ Deploy – with deep industry relationships and offices around Australia, we have strong market penetration, creating value for our clients by securing attractive acquisition opportunities

◆ Manage – with over 260 property specialists, we provide the full spectrum of property services including property funds management; asset management; leasing; property management; and development services, to actively manage our properties and create value

Given property’s cyclical nature, our investment in these core sectors ensures our business benefits through the macroeconomic cycles. This allows us to generate sustainable returns with a high income yield component, consistent with the investment appetite of investors in the real estate asset class.

Our FY13 strategic objectives

◆ Source equity to invest into core real estate sectors, targeting growth in the Australian funds under management platform by 6% to 10% per annum

◆ Realise and recycle $112 million of capital in property and development investments over the next two years

◆ Enhance return on equity through a disciplined recycling strategy

◆ Drive further growth in property investment portfolio yield and capital value

◆ Diversify sources of debt funding for our managed funds platform

◆ Continue to capitalise on our scalable operating platform to service our funds under management growth

Left to right: Andrew Glass, Head of Wholesale Pooled Funds and Nick Kelly, Head of Investor Relations

Our performance

Property investment

Charter Hall co-invests in the majority of its managed funds, strongly aligning the Group with our investors. Our property investment portfolio is well diversified across the core property sectors of office, industrial and retail, and is leased to high calibre Australian tenants such as Wesfarmers, Woolworths, Citigroup, BHP Billiton and Australian Government.

The Group’s $530 million co-investment delivered an annualised income yield of 7.1%, up from 6.4% in the last financial year, as a result of the active management of the properties and the refinancing of debt facilities within our managed funds. Importantly, property investment represents 61% of the Group’s EBITDA.

Property funds management

In line with our strategy to reweight our managed funds portfolios to Australia, Charter Hall has $9.4 billion in funds under management at 31 August 2012. Only $0.5 billion of this is offshore property, following the disposal of almost $2.5 billion in non-core offshore assets within Charter Hall Office REIT’s (now Charter Hall Office Trust) portfolio and Charter Hall Retail REIT’s portfolio.

Importantly, given our focus on the Australian market, our domestic funds management platform is $8.9 billion in total, representing 94% of total funds under management, having grown 4% since June 2011.

97% of our earnings is derived from core property investments and property funds management

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Property Investment 61%
Property Funds Management 36%
Development Investment 3%
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Portfolio performance

As an integrated property group, Charter Hall provides end to end property services for our funds and portfolios, from investment management to asset and property management services, with our growth in funds under management driving fee income from this platform.

Revenue from these property services averaged 78 basis points (annualised) up from the last financial year, with 76% being derived from annuity style revenue.

$1.3 billion[1] of equity raised across our managed funds since 30 June 2011

During the year, we secured over $1 billion of equity from institutional and retail investors. Along with the privatisation of Charter Hall Office REIT, which is now managed as an unlisted wholesale fund on behalf of two foreign institutional investors, this has enabled us to acquire $500 million of quality Australian office, supermarket anchored retail and industrial properties within our managed funds. This in turn builds our domestic funds under management platform.

Key acquisitions included the four additional retail centres within Charter Hall Retail REIT and four properties within our wholesale unlisted funds.

Australian funds under management has grown by 4% since June 2011

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Retail
Listed 11% CAGR over two years
Wholesale 4% growth since June 2011
June 2010
June 2011
Today
$bn 0 2 4 6 8 10
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1. At 31 August 2012

Charter Hall Group

Since year end, we have raised $319 million through the establishment of a new retail partnership for the acquisition of the $164 million Bay Village Shopping Centre with a global institutional partner; and across the unlisted retail funds platform. Our Direct Industrial Fund closed oversubscribed at $120 million and 144 Stirling Street Trust has closed raising $32 million within three months of its launch. Charter Hall was also appointed manager of PFA Diversified Property Trust in July 2012, which has increased our unlisted retail funds under management to $1.9 billion.

Enhancing our portfolios

The Group continues to look for opportunities to enhance our managed investment funds’ portfolios and we are currently undertaking 19 development projects across our $1.3 billion development book and pipeline. The 171 Collins Street office project in Melbourne, being developed within the Charter Hall Office Trust as a 50/50 joint venture with Cbus Property, is progressing well and was recently awarded a 6 star Green Star – Office Design (v2) Certified Rating from the Green Building Council of Australia. The building is due for completion in mid-2013 with BHP Billiton, Evans & Partners and Egon Zehnder International committing to 47% of space.

Development investment

Given continued challenging conditions within the opportunistic sector, we are focusing on repatriating the remaining $42.8 million of equity

invested in our opportunistic funds, Charter Hall Opportunity Fund No.4 (CHOF4) and Charter Hall Opportunity Fund No.5 (CHOF5), over the next two years. As previously announced to the market, a full provision of $14.2 million (4.7 cents per security) for the CHOF4 performance fee clawback was made in financial year 2012.

The Group has recently contracted for sale the completed office development at 40 Creek Street, Brisbane and has settled on more than 81% of residential apartments within the now completed Lacrosse Stage 1, Melbourne. These properties are both owned by CHOF5 in which Charter Hall has a 15% interest.

The Little Bay Cove residential development in Sydney has been impacted by the challenging market conditions, with the land being revalued during the year. The Group’s exposure to the development is 15% through CHOF5, which has resulted in a $7.1 million impairment in the Group’s investment. The Group continues to deliver the estate works for the project, however we are currently in dispute with our development alliance partner on an allocation of the 28 housing lots and 10 development superlots between the parties post completion of this work.

The national industrial pre-lease developer, Commercial & Industrial Property Pty Limited, in which Charter Hall has a 50% interest, continues to provide the Group with a strategic off-market source of industrial investment for its funds and contributed $1.5 million of earnings after tax to the Group.

Strong equity inflows into our managed funds

Wholesale pooled funds Wholesale partnerships Direct funds Total	Equity secured during FY12 ($m) 176 800 52 1,028	Equity secured since balance date ($m)
		8
		78
		2331
		319

1. Includes $185 million secured as part of the PFA platform

Annual Report 2012

Sustainable business

To maximise our customer and investor satisfaction through operational excellence and by delivering long-term value.

Aligning our business operations with our stakeholders’ long-term interests
Keeping stakeholders well informed at all times
Longevity of business success
Being a trusted partner by stakeholders

Environment

To actively work to reduce our consumption of natural resources.

To improve the energy efficiency of our managed properties and reduce carbon emissions
To conserve water in our managed properties
To reduce the waste produced
To improve the environmental performance of our properties
Enhancing corporate governance practices
✓ Increase the transparency of our sustainability performance disclosure
✓ Monitor satisfaction through tenant surveys across our commercial and industrial portfolios
✓ Participate in sustainability ratings to enable benchmarking of our approach and performance
✓ Continue to implement the UN Principles of Responsible Investment
Aligned our management team and people’s KPIs with our updated business objectives
Completed an Independent Review of our Code of Conduct
Embedded environmental, social and governance issues into our business objectives
✓ Improve the coverage of our environmental performance data and refine metrics and targets to allow greater transparency of reporting
✓ Complete energy road maps for all asset classes where we have operational control
✓ Continue to integrate sustainability considerations into our asset business plans
Benchmarked environmental performance of all managed commercial and retail assets
Completed energy road maps for all commercial assets
Included sustainability action plans in all commercial and retail asset business plans
Launched Charter Hall Advantage, our platform for tenant engagement and communication

◆ Expanded our sustainability reporting through Charter Hall Group’s Corporate Responsibility & Sustainability (CR&S) Report 2012, to be released in December 2012

Responded to Carbon Disclosure Project 2012
Progress our stakeholder engagement approach to provide greater consistency and better inform our business
Further the accuracy and consistency of our CR&S reporting and seek third-party assurance in 2013
Upgrade our website to provide an improved interface for our stakeholders with Charter Hall
Launch our revised Code of Conduct to ensure we instil our ethics and values across our people
Continue to review our corporate governance policies and framework against industry standards
Reduce energy usage by 4% and water usage by 2.5% in our retail funds in 2013
Establish energy and water performance targets for all commercial assets
Complete NABERS Energy ratings on all eligible retail centres
Improve the coverage and robustness of our waste recycling data
Track the carbon emissions associated with our business travel
Undertake a review of our supplier chain to determine opportunities to influence CR&S outcomes

Our people

To create a safe and engaging environment that attracts, develops, retains and supports our people.

Attract, retain and develop high performance teams
Respect and accept differences

Community

To make a positive contribution to the communities where we work.

Contributing to our local communities
Engaging with communities local to our development activities
Protect the mental health and well-being of our employees
Foster a zero harm environment
✓ Build on our career and development opportunities for all employees
✓ Sustain a high performance workforce through robust performance management

✓ Continue to drive sustainability as a strategic imperative by including sustainability performance objectives for all employees

✓ Appoint a Charitable Steering Committee and develop a formal charitable giving program to positively contribute to our local communities

✓ Develop a community involvement strategy for our retail centres
✓ Continue to implement the local charity support program by our new development projects

✓ Diversity remains a priority. Develop targeted programs to address any barriers to diversity at each stage of the employee lifecycle

Established a learning and development framework for all employees with 3.64 courses attended per employee
Over 75% of our people attended sustainability workshops to increase their understanding of sustainability issues
Implemented a talent review and succession planning process

◆ Reviewed and updated our performance management system to strengthen alignment with Charter Hall’s strategic objectives

Aligned our organisational structure to meet our strategic objectives
Charitable Steering Committee developed a charitable giving framework for the Group
Donated over $228,000 to good causes through our charitable giving program
Raised over $56,000 through our development projects local charity support program
Launched a Charter Hall workplace giving program for all employees
Implemented a volunteer program that provides an additional paid leave day each year
Developed a Diversity and Inclusive strategy including targets for increasing women in leadership positions
Implemented online safety incident reporting tool across our retail business
Develop leaders who effectively build skills, knowledge and engagement, and consistently deliver on our Group strategy
Continue to provide opportunities for our people to develop their roles and future careers
Develop an efficient and effective recruitment framework to attract high calibre talent

◆ Create a remuneration strategy that drives performance, is consistent and fair, and is competitive in terms of employee attraction and retention

◆ Improving the success of Charter Hall’s volunteer program by increasing the number of volunteer opportunities available to our employees

Increase staff participating in our workplace giving program
Improve our internal communications and staff awareness of community programs
Further evolve our community involvement strategy for our retail centres
Continue to measure employee engagement and create a common understanding of the vision and values
Create a work environment that recognises, respects and values differences
Establish a cross-divisional OHS Steering Committee and strategy
Review OHS capabilities and develop a training plan

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The Board

Kerry Roxburgh Chairman Age: 70

Kerry joined the Charter Hall Board in August 2005 and became Chairman in October 2005. He is also Chair of the Nomination Committee, a member of the Audit, Risk and Compliance Committee and a member of the Investment Committee. Kerry has some 50 years of business experience, most notably as co-founder of E*TRADE Australia (where he was CEO and Chairman) and Executive Director of the Hong Kong Bank of Australia Group (where he was Head of Corporate Finance and Executive Chairman of James Capel Australia). Prior to this, he practised as a Chartered Accountant. Kerry is currently the Lead Independent Non-Executive Director of Ramsay Health Care Ltd, a Non-Executive Director of the Medical Indemnity Protection Society Group and of MIPS Insurance. He is the Chairman of Tyro Payments, of Tasman Cargo Airlines and TEKTUM. He is the Deputy Chairman of Marshall Investments. Kerry is also a Member of the Advisory Boards of AON Insurance and of Built Pty Ltd. Kerry is a Practitioner Member of the Stockbrokers Association of Australia, and holds a Bachelor of Commerce degree, and an MBA.

Roy Woodhouse Deputy Chairman Age: 65

Roy joined the Charter Hall Board as Deputy Chairman in July 2004. Roy is a member of the Remuneration and Human Resources Committee, the Nomination Committee, and the Investment Committee. Roy worked for the Baillieu family for 30 years in various senior executive capacities including Director of L.J. Hooker, Managing Director of Knight Frank Australia and Chairman of Knight Frank Asia Pacific. Roy co-founded KFPW, a joint venture with PwC specialising in outsourcing. Roy is Chairman of National Recycling Company and is a Fellow of the Australian Institute of Company Directors (AICD).

Anne Brennan

Non-Executive Director Age: 51

Anne joined the Charter Hall Board in October 2010, and is presently the Chair of the Remuneration and Human Resources Committee and a member of the Audit, Risk and Compliance Committee. With over 25 years’ professional experience, Anne has held a variety of senior management and executive roles in large corporates and professional services firms. She has particular expertise in mergers and acquisitions, financial management, treasury, audit, risk management, tax, investor relations and ASX and statutory reporting. Anne is currently a Director of Argo Investments Ltd, Echo Entertainment Ltd, Myer Holdings Ltd and Nufarm Ltd. Anne holds a Bachelor of Commerce (Hons), is a Fellow of the Institute of Chartered Accountants Australia, and is a Fellow of the AICD.

David Deverall Non-Executive Director Age: 46

David joined the Charter Hall Board in May 2012, and is presently a member of the Audit, Risk and Compliance Committee. He has extensive experience in financial services, funds management and strategy, having held previous positions as CEO of Perpetual Ltd, Chairman and Director of The Financial Services Council, and Group Head of Funds Management and Head of Strategy at Macquarie Group. David has recently been appointed CEO of Hunter Hall International Ltd, and remains Managing Director of Deverall Advisory, a consulting firm he founded. David holds an MBA and a Bachelor of Engineering (Mechanical), and is a member of the AICD.

Glenn Fraser Non-Executive Director Age: 55

Glenn joined the Charter Hall Board in April 2005, and until August 2012 was Chairman of the Audit, Risk and Compliance Committee. Glenn specialises in infrastructure and property projects, and is a member of Transfield Holdings Advisory Board, having been instrumental in Transfield Holdings’ acquisition of its interest in Charter Hall and its expansion and listing in 2005. Glenn holds a Bachelor of Commerce, and is a member of the Institute of Chartered Accountants and the AICD. Glenn retired from the Board on 15 August 2012 due to family reasons.

Charter Hall Group

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Peter Kahan Non-Executive Director Age: 53

Peter joined the Charter Hall Board in October 2009, following an investment in Charter Hall by The Gandel Group. Peter is the Deputy Chairman and a director of Gandel and has over 18 years of property and funds management experience. He joined Gandel in 1994, became the Group’s Finance Director in 2001 and was CEO from 2007 to 2012. Prior to this, Peter worked as a Chartered Accountant and held senior financial roles in various industry sectors. Peter holds Bachelor of Commerce and Bachelor of Accountancy degrees and is a member of the Institute of Chartered Accountants Australia and the AICD.

Colin McGowan Non-Executive Director Age: 66

Colin joined the Charter Hall Board in April 2005, and is presently the Chair of the Group’s Valuation Committee, and is a member of the Remuneration and Human Resources Committee, the Nomination Committee, and the Group’s Investment Committee. Colin was formerly CEO of the listed AMP Diversified Property Trust, Executive Vice President of Bankers Trust (AUS), founding Fund Manager of the BT Property Trust and founding Fund Manager of Advance Property Fund. Colin is a qualified valuer, a Fellow of the Australian Property Institute and a Senior Fellow of Finsia.

David Harrison Joint Managing Director Age: 46

David joined the Charter Hall Board as Joint Managing Director in August 2006. He is a member of the Group’s Valuation Committee and Investment Committee, and holds various roles for Charter Hall related entities. He has over 25 years of property industry experience. David is jointly responsible for all aspects of the Charter Hall business, with specific focus on investment management, corporate transactions and property investment activities. He also substantially contributes to investment origination, capital raisings and structuring of transactions. David is directly responsible for overseeing the operation of the investment management divisions, including the listed REITs, wholesale unlisted and retail unlisted divisions, together with investor relations. David is a Director of responsible entities Charter Hall Retail Management Limited, Charter Hall Office Management Limited, and Charter Hall Direct Property Management Limited.

David Southon Joint Managing Director Age: 46

As a co-founder of Charter Hall, David joined the Charter Hall Board as Joint Managing Director in August 2006. He is a member of the Group’s Valuation Committee and Investment Committee, is Chair of the Diversity Committee, and holds various roles for Charter Hall related entities. He has over 25 years of property industry experience. David is jointly responsible for all aspects of the Charter Hall business, and is primarily responsible for overseeing wholesale opportunistic funds, the operation of the development services division, project origination, project strategy and the formulation and implementation of Group’s strategy. David is a Director of responsible entities Charter Hall Retail Management Limited, Charter Hall Office Management Limited, and Charter Hall Direct Property Management Limited, and is a member of the opportunistic Funds’ Investment Committees.

Annual Report 2012

How do I invest in Charter Hall?

Charter Hall Group securities are listed on the Australian Securities Exchange (ASX:CHC). Securityholders will need to use the services of a stockbroker or an online broking facility to invest in Charter Hall.

Where can I find more information about Charter Hall?

Charter Hall’s website, www.charterhall.com.au contains extensive information on our Board and management team, corporate governance, sustainability, our property portfolio and all investor communications including distribution and tax information, and reports and presentations. The website also provides information on the broader Charter Hall Group including other managed funds available for investment.

You can also register your details on our website to receive ASX announcements by an email alert as they are being released. To register your details, please visit our website at http://www.charterhall.com.au/ Subscribe-to-ASX-releases.

Can I receive my Annual Report electronically?

Charter Hall provides its annual report in both PDF and online formats (HTML). You can elect via your Investor login to receive notification that this report is available online. Alternatively, you can elect to receive the report in hard copy.

Can I receive my distribution via direct credit rather than cheque?

You can receive your distribution payment efficiently and safely by having it direct credited to your bank account. If you wish to receive your distribution by direct credit, please complete the appropriate form which can be obtained from and returned to the registry, or alternatively update your details directly online at www.charterhall. com.au at ‘Check your holding online’ in the Investor Centre.

Can I reinvest my distribution?

The Distribution Reinvestment Plan (DRP) allows you to have your distributions reinvested in additional securities in Charter Hall, rather than having your distributions paid to you. In recognition of the Group’s strong liquidity position, however, the DRP facility has been suspended. If and when Charter Hall reinstates a DRP, we will notify all securityholders.

Do I need to supply my Tax File Number?

You are not required by law to supply your Tax File Number (TFN), Australian Business Number (ABN) or exemption. However, if you do not provide these details, withholding tax may be deducted at the highest marginal rate from your distributions. If you wish to provide your TFN, ABN or exemption, please contact Link Market Services on 1300 303 063 or your sponsoring broker. You can also update your details directly online at www.charterhall.com. au at ‘Check your holding online’ in the Investor Centre.

How do I complete my annual tax return for the distributions I receive from Charter Hall?

At the end of each financial year, we issue securityholders with an Annual Taxation Statement. This statement includes information required to complete your tax return. The distributions paid in February and August are required to be included in your tax return for the financial year the income was earned, that is, the distribution income paid in August 2012 should be included in your 2012 financial year tax return.

How do I make a complaint?

Securityholders wishing to lodge a complaint should do so in writing and forward it to the Compliance Manager, Charter Hall Group at the address shown in the Directory.

In the event that a complaint cannot be resolved within a reasonable time frame (usually 45 days) or you are not satisfied with our response, you can seek assistance from the Financial Ombudsman Service (FOS), an independent dispute resolution scheme available to those investors who have first raised their complaint with us and who remain dissatisfied. FOS’s contact details are below:

Financial Ombudsman Service GPO Box 3 Melbourne Vic. 3001

Tel: 1300 780 808 Fax: +61 3 9613 6399 Email: [email protected] Website: www.fos.org.au

Corporate governance statement

Our commitment to corporate governance

Charter Hall Group (comprising Charter Hall Limited and the Charter Hall Property Trust, listed jointly on the ASX as a stapled security) (the Group or Charter Hall) is committed to delivering strong and sustainable returns (through property investment and management) to securityholders and investors. The Board of Charter Hall recognises the importance of good governance in achieving these corporate objectives, in discharging its responsibilities to all stakeholders and in addressing the broader role of being a good corporate citizen.

Charter Hall’s governance framework is designed to ensure that the Group is effectively managed, statutory obligations are met, and Charter Hall’s culture of corporate integrity is reinforced. Due consideration has been given to the ASX Corporate Governance Principles and Recommendations (2nd Edition) published in June 2012 by the ASX Corporate Governance Council , and the Group confirms full adherence to these principles and recommendations for FY12 (the reporting period).

This statement provides a summary of the corporate governance practices, systems and processes in place within Charter Hall, which were followed throughout the reporting period.

Charter Hall’s key corporate policies can be found on its website at www.charterhall.com.au (Charter Hall’s website).

Corporate governance foundations

The Board

The Board of Charter Hall is committed to effectively representing and promoting the Group, and thereby adding long-term value to all securityholders. The Board is accountable to securityholders for the management of Charter Hall’s business and affairs and as such is responsible for the overall strategy, governance and performance of the Group.

To clarify the roles and responsibilities of directors and management, and to assist the Board in discharging its responsibilities, Charter Hall has established a governance framework which sets out the functions reserved to the Board and provides for the delegation of functions to Board Committees and management. Those functions and responsibilities reserved to the Board are set out in the Board Charter, which is available to view in the ‘Corporate Governance’ section of Charter Hall’s website.

The Board has delegated day-to-day management functions to the Joint Managing Directors, and senior executives, who are required to work within authority limits and delegations set out in a ‘Delegations of Authority’ document. This document is approved by the Board, and is an internal working document.

Non-executive directors have been appointed under a formal letter which sets out the key terms and conditions of that appointment. Each Joint Managing Director has a formal job description and letter of appointment which sets out his duties and obligations, rights, responsibilities and entitlements.

Charter Hall Group

Governance framework

The diagram below summarises Charter Hall’s governance framework, including the functions reserved for the Board and those carried out by the standing Board Committees.

Charter Hall Board

Formally delegates certain functions to Board Committees and to Management via formal Board and Committee charters.

Directly retains responsibility for a range of matters including:

overseeing the Group’s strategic direction
monitoring the operational and financial position and performance of the Group
overseeing the Group’s risk management framework
setting the financial and informational reporting requirements from Management to the Board
reporting to securityholders and the ASX
monitoring the effectiveness of, and compliance with, policies governing the operation of the Group
reviewing and approving the annual operating budgets
determining dividend policy and approving dividends
approving decisions concerning the capital of the Group
overseeing and evaluating the performance of the Joint Managing Directors and other senior executives in the context of the Group’s strategies and objectives
Audit, Risk and Remuneration and Human Nomination Committee Compliance Committee Resources Committee Key functions: Key functions: Key functions: To review and make To oversee and review: To review and make recommendations on: recommendations on:
◆ the internal control and ◆ Board size and composition accountability systems ◆ executive remuneration and ◆ criteria for Board
◆ the financial reporting incentive policies membership process, including ◆ remuneration for ◆ appointment and significant accounting non-executive directors re-election of directors
issues and judgements ◆ executive contracts ◆ Board succession
◆ the appointment and ◆ key executive appointments performance of the Auditor, and terminations
including the scope and effectiveness of audits ◆ employee equity
◆ the internal systems of risk based plans management and control ◆ talent management and (ensuring that material succession planning business risks are identified) ◆ key human resources
◆ compliance processes policies and practices to meet legislative and ◆ diversity and regulatory requirements inclusion objectives
Joint Managing Directors Risk Management
Chief Financial Officer Other senior executives Company Secretary Framework

Annual Report 2012

Corporate governance statement

Board Committees

The Board has established three standing Board Committees to assist the Board in the execution of its responsibilities. Each Committee operates under a specific charter, which can be found in the ‘Corporate Governance’ section of Charter Hall’s website.

In accordance with their respective charters, each Board Committee must have at least three non-executive members, be comprised of a majority of ‘independent’ directors, and be chaired by an ‘independent’ non-executive director. Director independence is discussed on page 24 of this statement.

During the reporting period, the membership of each Board Committee was as follows:

Board Committee Audit,Risk and Compliance Remuneration and Human Resources Nomination	Membership
	Glenn Fraser(Chair),Anne Brennan,KerryRoxburgh
	Anne Brennan(Chair),Colin McGowan,RoyWoodhouse,Peter Kahan(alternate member)
	Kerry Roxburgh (Chair), Roy Woodhouse, Colin McGowan, Peter Kahan (alternate member)

The membership of the Board Committees will change from time to time, depending on the needs of the Board and the directors’ rotation policy.

Following Glenn Fraser’s retirement from the Board on 15 August 2012, the membership of each Board Committee was revised to the following:

Board Committee Audit,Risk and Compliance Remuneration and Human Resources Nomination	Membership
	Anne Brennan(ActingChair),KerryRoxburgh,David Deverall
	Anne Brennan(Chair),Colin McGowan,Peter Kahan
	Kerry Roxburgh (Chair), Roy Woodhouse, Colin McGowan, Peter Kahan (alternate member)

The membership of the Board Committees remains under review as the Board seeks to fill the non-executive director position left vacant by the departure of Glenn Fraser.

The number of Board and Board Committee meetings held during the reporting period and the number of meetings that were attended by each of the directors is presented in the Directors’ Report on page 41 of this Annual Report.

Management

The Board has delegated the responsibility for day-to-day management of the Group to the Joint Managing Directors, who are assisted by an executive management team. The diagrams below present the executives who report to the Joint Managing Directors.

David Harrison has specific responsibility for the investment management divisions of the Group, David Southon has specific responsibility for the service divisions of the Group, and they share responsibility for all shared services.

				David Harrison
			Joint Managing Director

	Shared Services*					Investment Management		Divisions*

People		Finance & IT		Direct Property	Wholesale		Wholesale	Retail REIT	Investor
Natalie Devlin		Paul		Richard	Pooled Funds		Partnerships	Scott Dundas	Relations
		Altschwager		Stacker	Andrew Glass		Adrian Taylor		Nick	Kelly

Heads of the Investment Management Divisions and Shared Services form the executive management team.

				David Southon
			Joint Managing Director

	Shared Services*					Investment Management		Divisions#

People		Finance & IT		Marketing &	Asset		Property	Development	Advisory,
Natalie Devlin		Paul		Communications	Management		Management	Management	Transactions
		Altschwager							& Leasing

Heads of the Service Divisions are not part of the executive management team.

Charter Hall Group

The Joint Managing Directors must consult with the Chairman or Deputy Chairman on any matters which the Managing Directors consider are of such a sensitive, extraordinary or strategic nature as to warrant attention of the Board, regardless of value.

The authorisation thresholds for the control of expenditure and capital commitments have been established and are defined in the Group’s internal ‘Delegations of Authority’ document.

Performance of senior executives

The Group defines its senior executives as the Joint Managing Directors and its executive management team (identified above as the divisional heads of shared services and investment management). The senior executives are the Key Management Personnel (KMPs) listed in the Remuneration Report, which forms part of the Directors’ Report.

A combination of financial and non-financial key performance indicators (KPIs) are used to monitor senior executive performance. Details of the KPIs used for the Joint Managing Directors in FY12 are set out in the Remuneration Report on page 48 of this Annual Report.

The individual performance of the Joint Managing Directors is formally assessed on a bi-annual basis by the Board, based upon advice from the Remuneration and Human Resources Committee. All KPIs are carefully considered by the Remuneration and Human Resources Committee, which evaluates the performance of each Joint Managing Director individually and makes recommendations to the Board.

Executives reporting to the Joint Managing Directors are assessed bi-annually against financial and non-financial KPIs. Assessments are made by either or both of the Joint Managing Directors depending on the reporting lines. Executive performance results are reported to the Remuneration and Human Resources Committee and the Board.

This performance evaluation process was in place, and was followed, for the reporting period.

Each senior executive has a formal job description and a letter of appointment that sets out his/her duties and obligations, rights, responsibilities and entitlements. Compliance with the Group’s Code of Conduct is mandatory for all employees and directors.

Senior executives are provided with access to continuing education to update and enhance their skills and knowledge.

An induction program exists for new senior executives to ensure they gain an understanding of the Group’s financial position, strategies, operations and risk management policies, as well as the responsibilities and roles of the Board and Management.

Board structure

Charter Hall aims to maintain a Board that comprises directors with a broad range of skills, expertise and experience who are able to effectively understand and manage the issues arising in Charter Hall’s business activities, and to review and challenge the performance of Management to optimise the Group’s performance.

Throughout the reporting period, the Board was comprised of two executive directors and six non-executive directors. Of those six non-executive directors, a majority were independent directors (‘independence’ is discussed on page 24 of this statement). David Deverall joined the Board as a seventh non-executive and independent director on 7 May 2012. Glenn Fraser retired from the Board on 15 August 2012.

Name KerryRoxburgh RoyWoodhouse Anne Brennan David Deverall Glenn Fraser* David Harrison Peter Kahan Colin McGowan David Southon	Position Chairman,Non-Executive Director DeputyChairman,Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Joint ManagingDirector,Executive Director Non-Executive Director Non-Executive Director Joint Managing Director, Executive Director	Independent (Yes/No) Yes Yes Yes Yes Yes No No Yes No	Appointed
			12 April 2005
			6 April 2005
			6 October 2010
			7 May2012
			6 April 2005
			30 August 2006
			1 October 2009
			6 April 2005
			30 August 2006

Glenn Fraser retired from the Board on 15 August 2012 for family reasons.

Details of the background, particular qualifications, expertise and period of service of each director are set out in the Directors’ Report on pages 38 to 40 of this Annual Report.

Annual Report 2012

Corporate governance statement

The Chairman of the Board

The Chairman is responsible for leadership of the Board and for the efficient organisation and conduct of the Board. The Chairman seeks effective contributions from all directors and promotes constructive and respectful relations between directors, and between the Board and Management. The role of the Chairman is further defined in the Board’s Charter, which is available to view under the ‘Corporate Governance’ section of Charter Hall’s website.

Director independence

The Board considers that a director is independent if he/she is independent of Management and free of any business or other relationship that could materially interfere with, or could reasonably be perceived to materially interfere with, the exercise of unfettered and independent judgement. Directors are required to declare their interests and the Board evaluates the materiality of any interests or relationships that could be perceived to compromise independence on a case by case basis, having regard to the circumstances of each director.

Directors are expected to be meticulous in their disclosure of any material personal or family contract or relationship. Directors must also strictly adhere to constraints on their participation and voting in relation to matters in which they may have an interest, in accordance with the Corporations Act and the Group’s policies.

The Board regularly assesses whether directors are independent, and each director is required to provide information relative to this assessment. It is noted that David Harrison and David Southon, due to their employment by the Group in an executive capacity, are not independent. In addition, Peter Kahan is considered not to be independent due to his role as Deputy Chairman and director of The Gandel Group, a substantial securityholder of Charter Hall.

Independent decision making

Directors are entitled to seek independent professional advice at the expense of the Group as required in the furtherance of their duties and in relation to their functions (including their Board Committee functions), subject to an estimate of costs being first approved by the Chairman or Deputy Chairman as reasonable.

Non-executive directors of the Board meet regularly without Management present, in order to consider matters independently of Management.

Director appointments

The Nomination Committee reviews, and where appropriate, makes recommendations to the Board on the size and composition of the Board, including assessment of necessary and desirable competencies of Board members. The Committee’s Charter is available to view under the ‘Corporate Governance’ section of Charter Hall’s website.

The Committee has adopted composition and membership criteria for the Board. A majority of the directors on the Board must be ‘independent’. Directors are to encompass an appropriate range of qualifications and expertise. Directors nominated for election require approval of the Board and must stand for re-election at the next General Meeting of securityholders.

Also, guidelines have been adopted for director selection and nomination to the Board. Foremost is integrity, particular expertise (sector and functional) and the degree to which he/she complements the skill set of the existing Board members, his/her reputation and standing in the market, and in the case of prospective independent directors, the actual and perceived independence from Charter Hall.

Presently, the Board and the Nomination Committee have engaged the services of an external adviser to assist in the development of a Board skills matrix. This matrix is used to identify any gaps in the skills and experience of the directors on the Board for the purposes of identifying the search and assessment criteria for new directors.

The Committee’s current membership is set out on page 22 of this statement and the independence of the members is provided on page 23 of this statement. Details of the Committee’s meetings for the reporting period, and the attendance by members, are provided in the Directors’ Report on page 41 of this Annual Report.

Board performance

The following structures are in place to support the Group’s directors in performing their duties:

an induction program for new directors on the Board;
a formal annual performance self-assessment of the Board, Board Committees, and individual directors, externally facilitated this year; and
access by directors to continuing education to ensure that their skills and knowledge are updated and enhanced.

The procedure for evaluating Board performance (for the reporting period) required each director to complete an externally facilitated performance evaluation. These evaluations were submitted to an independent party who collated and provided summarised and individual results to the Chairman, who then distributed the results to the full Board. An external consulting firm was engaged for this process. Based on the results of the survey and the Chairman’s feedback, the Board as a whole discussed and analysed Board and Committee performances during the year, and directors engaged in one-on-one sessions with the Chairman. These discussions and sessions enabled the directors to consider suggestions for change and/or improvement.

To ensure that directors are well-placed to discharge their duties effectively, they are provided in advance of Board meetings with papers containing sufficient information to enable informed discussion of all agenda items.

Access to information

The Joint Managing Directors, senior executives and the Company Secretary supply the Board with regular reports and information to enable the Board to discharge its duties. Directors are entitled to request additional information where they consider such information is necessary to make informed decisions.

Company Secretary

The Company Secretary plays an important role in supporting the effectiveness of the Board by ensuring that Board policy and procedures are followed, and coordinating the timely completion and dispatch of the Board agenda and briefing material.

All directors have access to the Company Secretary.

The appointment and removal of the Company Secretary is a matter for decision by the Board as a whole.

The Company Secretary is accountable to the Board, through the Chairman, on all governance matters.

Charter Hall Group

Ethical and responsible decision making

Charter Hall is committed to being a good corporate citizen and has a robust framework of policies in place to achieve this.

Code of conduct

The Board has adopted a Code of Conduct which forms the basis for expected behaviour by Board members and all staff. It is the framework that provides the foundation for maintaining and enhancing the Group’s reputation. The objective of the Code is to ensure that directors, other stakeholders and the broader community can be confident that the Group conducts its affairs honestly and in accordance with ethical values and practices.

The Code sets the standards for dealing ethically with employees, investors, customers, regulatory bodies and the financial and wider community, and the responsibility and accountability of individuals for reporting and investigating reports of unethical behaviour.

In addition to this, in order to deal specifically with the responsibility and accountability of individuals for reporting and investigating reports of fraudulent and unethical practices, Charter Hall has adopted a Fraud Risk Management Policy.

Staff are trained regularly on matters pertaining to ethical behaviour in the workplace. Topics covered during the reporting period included the key aspects of the Code, as well as a refresher course on fraud risk management, insider trading prohibitions and anti-money laundering and counter-terrorism financing.

A summary of Charter Halls’ Code of Conduct and the Fraud Risk Management Policy are available to view under the ‘Corporate Governance’ section of Charter Hall’s website. A full copy of the Charter Hall Code of Conduct is also available upon request from the Company Secretary.

Managing conflicts

Charter Hall has implemented a governance framework to safeguard the interests of investors in the investment vehicles, which at times may conflict with those of Charter Hall as sponsor of related vehicles. As part of this framework, the Group has established a Related Party Transactions Policy for identifying and managing conflicts.

The Policy provides guidance on the management of conflicts of interest arising between Charter Hall managed vehicles and their related parties and requires that:

related party transactions are identified and conducted on arm’s length terms;
related party transactions are tested by reference to whether they meet market standards; and
decisions about transactions between Charter Hall managed vehicles and Charter Hall or its affiliates are made by independent members of the Board or Investment Committees (where they have been appointed).

The Policy also contains detailed guidelines for the Board in dealing with conflicts, including that:

Board members declare their interests as required under the Corporations Act, ASX Listing Rules and other general law requirements;
Board members with a material personal interest in a matter are not to be present at a Board meeting during consideration of the matter and subsequent vote unless the Board (excluding the relevant Board member) resolves otherwise; and
Board members with a conflict not involving a material personal interest may be required to absent themselves from the relevant deliberations of the Board.

The Policy is available to view under the ‘Corporate Governance’ section of Charter Hall’s website.

The Group also has a conflicts protocol for dealing with competing deals (e.g. acquisitions, leasing). Such deals may arise out of the fact that Charter Hall is also the manager of other listed and unlisted vehicles and the Group may transact with them from time to time, or share staff or information with other Charter Hall companies or managed vehicles.

Personal conflicts that might arise generally for directors and staff are covered by the Code of Conduct referred to earlier in this statement.

Securities trading

The Group has in place a Securities Trading Policy which regulates the manner in which directors, senior executives and all staff involved in the management of the Group can deal in Charter Hall securities. The Policy specifies the periods in which personal trading is not permitted, the restrictions that apply to directors and senior executives, and the procedures for obtaining prior clearance for trading (when a blackout is not in effect).

Staff compliance with the Policy is monitored under Charter Hall’s risk management framework. The Policy is subject to annual review by the Board, and has been lodged with the ASX.

The Securities Trading Policy is available to view under the ‘Corporate Governance’ section of Charter Hall’s website.

Sustainability

Charter Hall is committed to playing a leading role in achieving a sustainable future and the Board has adopted a Sustainability Policy which forms the basis for integrating environmental and social governance issues into the Group’s activities. This Policy is available to view under the ‘About Us’ section of Charter Hall’s website. In addition, Charter Hall’s sustainability objectives are outlined on page 14 of this Annual Report.

Diversity

The Board is committed to fostering a diverse and inclusive workforce in pursuit of the achievement of Charter Hall’s corporate goals. Charter Hall considers diversity in the workplace as respecting and valuing differences based on a wide range of personal characteristics including gender, age and ethnicity, as well as diversity of thought and background.

Charter Hall believes that people with different experiences, backgrounds and perspectives can provide unique viewpoints and innovative solutions from which the business can benefit. In particular, the promotion of greater gender diversity broadens the pool for recruitment of high quality directors and employees, is likely to support employee retention, encourage greater innovation, allows the Group to connect with its diverse client base, provides it with a balanced perspective, and is a socially and economically responsible governance practice.

The Board has adopted a Diversity and Inclusion Policy, which is available to view under the ‘Corporate Governance’ section of Charter Hall’s website. This Policy, initially adopted in November 2010, was reviewed and updated by the Board during the reporting period.

Management has established a Diversity Committee, comprising senior executives within the Group and chaired by one of the Joint Managing Directors. The aim of this Committee is to implement the specific diversity strategies and objectives of the Board.

Annual Report 2012

Corporate governance statement

FY12

As at 30 June 2012, the proportion of women on the Board was 11%, in senior management was 18%, and across the Group was 49%. During the reporting period, the following work was achieved against the objectives set by the Board:

Objective Selecting and appointing directors from a diversepool of talent Recruitment of senior executives Addressing impediments to diversity Identify, support and develop talented individuals with leadership potential across spectrum of gender, ethnicity and age Identifying ways to entrench diversity as a cultural priority across the Group Setting targets for women’s participation in the Board, senior management and across all business	Achievements
	◆Developed and implemented an appointment process for future directors taking into account diversityof background andgender
	◆Defned and implemented a recruitment process which considers diversity of background as well as skills and experience
	◆Implemented Appropriate Workplace Behaviour for all employees ◆Updated the parental leave policy ◆Created a workingfrom homepolicy
	◆Developed and implemented a learning and development framework for all employees ◆Developed Study Assistance, External Training and Professional Membership policies
	◆Reviewed and implemented changes to the Diversity and Inclusion Committee composition to create a greater focus on diversity and inclusion ◆Progress has been made in terms of achieving this objective through the achievement of the objectives above ◆Further focus on integratingdiversityas a culturalprioritywill continue in FY13
	◆Targets were set by the Board for increasing women in leadership, management and in business related roles

Our focus for FY13

The Board has adopted the following objectives, which Management (through its Diversity Committee) will implement over a three year period up to 2015:

increase the percentage of women in leadership and business related roles; and
promote a culture that values diversity, inclusion and flexibility.

To achieve these objectives in the forthcoming financial year, Charter Hall will be focusing on the following diversity and inclusion strategies:

Strategy LeadershipAccountability Recruitment Communication Development	Actions
	Leaders to drive diversityoutcomes and appropriate behaviours
	Integrate Charter Hall’s diversitycommitment into everyaspect of recruitment
	Communicate diversity policyand initiatives internallyand externally
	Leadership development on diversity and targeted programs for women

Charter Hall will measure its success in achieving its targets through:

employee data such as workforce profile data, learning and development, talent and succession, flexible work practices and recruitment data;
annual external benchmarking of the Group’s diversity initiatives and targets against our competitors;
employee surveys to invite better understanding of what it takes to create a diverse and inclusive workplace; and
engagement, retention and progression of an increased number of women in our business.

Charter Hall Group

Financial integrity

The Board has set in place a structure of review and authorisation to ensure that the Group’s financial information is presented truthfully and factually.

Audit, Risk and Compliance Committee

The Audit, Risk and Compliance Committee is responsible for assisting the Board in discharging its responsibilities to safeguard the integrity of Charter Hall’s financial reporting and the system of internal control. A key component of the Committee’s role is to provide advice and recommendations to the Board with respect to the accounting, audit, financial and risk management practices of the Group.

The Committee’s Charter is reviewed annually by the Board, and is available to view under the ‘Corporate Governance’ section of Charter Hall’s website.

The Board regularly assesses and has determined that members of the Audit, Risk and Compliance Committee, collectively have an appropriate level of financial and property industry expertise to discharge their responsibilities.

External Auditor

The Board has appointed PricewaterhouseCoopers (PwC) as the Group’s Auditor. PwC is expected to carry out its responsibilities in accordance with Australian law and audit firm policy in respect of partner rotation.

The Auditor is invited to attend meetings of the Audit, Risk and Compliance Committee, and also meets privately with Committee members at least twice a year.

In order to ensure the independence of the Auditor, the Board has adopted an Auditor Independence Policy requiring that:

the Auditor remain independent from Charter Hall;
the Auditor monitor its independence and report to the Board every six months on its continuing independence;
non-audit assignments undertaken by the Auditor are in accordance with the Policy; and
all non-audit assignments are reported to the Audit, Risk and Compliance Committee.

The Auditor attends the Group’s annual general meeting and is available to answer securityholder questions on the conduct of the audit, and the preparation and content of the Auditor’s Report.

Charter Hall’s Auditor Independence Policy is available to view under the ‘Corporate Governance’ section of Charter Hall’s website.

Internal Audit

The Board places considerable importance on maintaining a strong control environment through an organisation structure with clearly drawn lines of accountability and authority. At this time, Charter Hall has not implemented an internal audit function; however, the Board has agreed with Management that an internal audit function (whether internally based or provided through an external service provider) will be introduced in FY13.

Disclosure

Charter Hall strives to provide timely, open and accurate information to all stakeholders, including securityholders, regulators and the wider investment community. This includes presenting a balanced approach to disclosure. Charter Hall has a Continuous Disclosure and Communications Policy which summarises the internal processes to ensure compliance with ASX Listing Rules and Australian law in respect of continuous disclosure.

The Policy includes procedures for dealing with potentially price-sensitive information, including referral to the Joint Managing Directors and Company Secretary, and the Board where necessary, for a determination as to the appropriate disclosure required.

Charter Hall’s Company Secretary is the ASX liaison person.

The Continuous Disclosure and Communications Policy is available to view under the ‘Corporate Governance’ section of Charter Hall’s website.

Securityholder communication

Charter Hall’s Continuous Disclosure and Communications Policy also contains information on the methods of providing timely and relevant information to securityholders, including:

the right for investors to receive an Annual Report and updates which keep them informed of Charter Hall’s performance and operations;
placement under the ‘News Centre’ section of Charter Hall’s website of market-sensitive information in the form of ASX announcements or webcasts. Investors also have the ability under this section of the website to register to receive email alerts on the Group’s announcements to the ASX;
placement under the ‘Investor Centre’ section of Charter Hall’s website of distribution and tax information, unit price performance, financial results information including the results webcast, investor presentations, past and current reports to securityholders and past securityholder meeting information; and
presentations to investor roadshows that are required to be lodged with the ASX are uploaded to the ‘News Centre’ section of Charter Hall’s website.

Charter Hall is required to hold an Annual General Meeting of securityholders, which is typically held between October and November. A full copy of the notice of meeting, including an explanatory memorandum on the resolutions, is placed under the ‘Investor Centre’ section of Charter Hall’s website. For securityholders who are unable to attend formal meetings to vote, proxies may be lodged online, by mail or by facsimile. Meetings are also webcast.

Charter Hall’s Continuous Disclosure and Communications Policy is available to view under the ‘Corporate Governance’ section of Charter Hall’s website. Recent Annual Reports and financial results are available to view under the ‘Investor Centre’ section of Charter Hall’s website. Recent ASX announcements and investor webcasts are available to view under the ‘News Centre’ section of Charter Hall’s website.

Annual Report 2012

Corporate governance statement

Risk management

Management has implemented a Risk Management Framework (Framework) under the oversight of the Audit, Risk and Compliance Committee and the Board. This Framework sets the overall approach to risk management at Charter Hall and the functional elements of monitoring, assessment and reporting, as well as key participant responsibilities.

In accordance with its Charter, the Committee is responsible for reviewing and reporting to the Board on the internal control and risk management systems of Charter Hall and assessing the information presented by Management. In addition, the Committee regularly assesses the adequacy of the Framework including Charter Hall’s compliance plans and systems, financial control systems and risk management policies and systems.

Charter Hall’s Risk and Compliance Manager is responsible for daily risk and compliance processes across the business and monitors the efficiency of the Framework (including compliance systems) on an ongoing basis. The aim is to ensure that appropriate procedures, staff education and reporting arrangements are in place to support the Framework’s objectives.

Management conducts an annual Operational Risk Self-Assessment (ORSA) where key risks and controls are considered and their effectiveness assessed. The results of this assessment are reported to the Audit, Risk and Compliance Committee and the Board.

During the reporting period, Management reported to the Audit, Risk and Compliance Committee on the manner in which it manages its material risks, the effectiveness of the Framework and the results of the annual ORSA.

The Board places considerable importance on maintaining a strong control environment through an organisational structure with clearly drawn lines of accountability and authority. In addition, the Board considers that an internal audit function would be beneficial to the Group, and is committed to implementing this function (internally or via external resources) within FY13.

A summary of the Group’s Risk Management Framework is available to view under the ‘Corporate Governance’ section of Charter Hall’s website.

JMDs and CFO assurance

The Board has received assurance from the Joint Managing Directors and Chief Financial Officer that the Group’s consolidated financial statements are founded on a sound system of risk management and internal control and that the system is operating in all material respects in relation to financial reporting risks. This assurance is supported by a review and sign-off process from senior managers on the key items that make up the risk management and control systems.

Remuneration

The Board has established a Remuneration and Human Resources Committee to assist the Board in implementing the Group’s human resources strategies. The Committee operates under a Charter approved by the Board, is comprised of only non-executive directors with a majority being ‘independent’, and is chaired by an independent director.

Broadly, the Committee is responsible for reviewing and making recommendations to the Board in respect of executive remuneration and incentive policies, equity based incentive schemes, diversity and inclusion objectives, talent management and succession planning and policies and procedures (covering recruitment, retention, performance measurement and termination). The Committee also reviews the remuneration of the non-executive directors, all key appointments and terminations to the executive management team (and other divisional heads), and the standard contractual terms applicable to Management. Stakeholder engagement is also a focus, as well as the disclosure of Charter Hall’s remuneration framework in public materials, such as this Annual Report.

From a policy perspective, the Committee assists the Board in ensuring that:

an appropriate human resources strategy is implemented to enable Charter Hall to deliver on its business strategy;
remuneration policies and practices are in line with strategic goals and enables Charter Hall to attract and retain high calibre executives and directors who will create value for securityholders;
directors and executives are fairly and responsibly remunerated having regard to the performance of Charter Hall, the performance of the executives and the general remuneration environment;
Charter Hall has effective policies and procedures to attract, motivate and retain talented individuals to meet its needs; and
people policies and practices align with Charter Hall’s vision, values and overall objectives, comply with the relevant legislation, reflect current governance and mitigate against operational, financial and reputational risk.

The Committee’s current membership is set out on page 22 of this statement and the independence of members is discussed on page 23 of this statement. Details of meetings held and attendance by each Committee member are contained in the Directors’ Report on page 41 of this Annual Report.

From time to time the Committee may commission the assistance of external consultants to ensure the Group’s remuneration policies remain appropriate, follow best practice and address the requirements of the Group’s stakeholders.

Charter Hall’s Head of People and the Joint Managing Directors support the Committee by the provision of requested information and advice and are invited to attend meetings from time to time.

Charter Hall distinguishes the structure of non-executive directors’ remuneration from that of executive directors and senior executives. Further information is provided in the Remuneration Report on pages 41 to 64 of this Annual Report.

The Remuneration and Human Resources Committee’s Charter is available to view under the ‘Corporate Governance’ section of Charter Hall’s website.

Charter Hall Group

Financial report for the year ended 30 June 2012

Annual Report 2012

Directors’ report	31
Auditor’s independence declaration	67
Consolidated statements of comprehensive income	68
Consolidated balance sheets	70
Consolidated statement of changes in equity – Charter Hall Group	72
Consolidated statement of changes in equity – Charter Hall Property Trust Group	73
Consolidated cash fow statements	74
1. Summary of signifcant accounting policies	75
2. Financial risk management	82
3. Critical accounting estimates and judgements	87
4. Parent entity fnancial information	88
5. Segment information	89
6. Revenue	93
7. Expenses	93
8. Fair value adjustments	94
9. Income tax beneft	94
10. Distributions paid and payable	95
11. Cash and cash equivalents	96
12. Trade and other receivables	96
13. Assets classifed as held for sale	99
14. Investments in associates at fair value through proft or loss	100
15. Derivative fnancial instruments	100
16. Inventories	101
17. Investments accounted for using the equity method	101
18. Intangible assets	101
19. Property, plant and equipment	102
20. Investment properties	103
21. Deferred tax assets	104
22. Trade and other payables	105
23. Provisions	106
24. Borrowings	106
25. Deferred tax liabilities	111
26. Provisions – non-current	112
27. Contributed equity	112
28. Reserves and accumulated losses	114
29. Non-controlling interest	115
30. Key management personnel	116
31. Remuneration of auditors	120
32. Commitments	121
33. Contingent liabilities	121
34. Related parties	122
35. Controlled entities	123
36. Investments in associates	126
37. Investments in joint ventures	132
38. Events occurring after the reporting date	135
39. Reconciliation of proft after tax to net cash infow from operating activities	135
40. Earnings per security	136
41. Security-based benefts	137
42. Deed of cross guarantee	140
Directors’ declaration	142
Independent auditor’s report to stapled securityholders of
Charter Hall Group and unitholders of Charter Hall Property Trust Group	143
Unitholder analysis	145
Corporate directory	147

Charter Hall Group

Directors’ report for the year ended 30 June 2012

The Directors of Charter Hall Limited and the Directors of Charter Hall Funds Management Limited, the Responsible Entity of Charter Hall Property Trust, present their report together with the consolidated financial report of the Charter Hall Group (Group or CHC) and the consolidated financial report of the Charter Hall Property Trust Group (Charter Hall Property Trust Group or CHPT) for the year ended 30 June 2012, and the independent auditor’s report thereon. The financial report of the Group comprises Charter Hall Limited (Company or CHL) and its controlled entities, which include Charter Hall Funds Management Limited as the responsible entity of Charter Hall Property Trust (Trust). The financial report of the Charter Hall Property Trust Group comprises the Trust and its controlled entities.

Charter Hall Limited and Charter Hall Funds Management Limited have identical boards of directors. The term Board hereafter should be read as a reference to both these Boards.

The units in the Trust are ‘stapled’ to the shares in the Company. A stapled security comprises one Company share and one Trust unit. The stapled securities cannot be traded or dealt with separately.

Directors

The following persons were Directors of the Group during the whole of the year and up to the date of this report, unless noted otherwise:

Kerry Roxburgh – Chairman and Non-Executive Independent Director
Roy Woodhouse – Deputy Chairman and Non-Executive Independent Director
Anne Brennan – Non-Executive Independent Director
David Deverall – Non-Executive Independent Director (appointed 7 May 2012)
Glenn Fraser – Non-Executive Independent Director (resigned 15 August 2012)
Cedric Fuchs – Executive Director (resigned 24 November 2011)
David Harrison – Joint Managing Director
Peter Kahan – Non-Executive Director
Colin McGowan – Non-Executive Independent Director
David Southon – Joint Managing Director

Principal activities

During the year the principal continuing activities of the Group consisted of:

(a) Property investment;
(b) Property funds management; and
(c) Development investment.

No significant changes in the nature of the activities of the Group occurred during the year.

Distributions – Charter Hall Group

Distributions paid/declared to members during the year were as follows:

Distributions – Charter Hall Group Distributions paid/declared to members during the year were as follows:
Interim ordinary distribution for the six months ended 31 December 2011 of 9.10 centsper security paid on 23 February2012 Final ordinary distribution for the six months ended 30 June 2012 of 9.10 centsper security paid on 28 August 2012 Interim ordinary distribution for the six months ended 31 December 2010 of 8.00 centsper security paid on 28 February2011 Final ordinary distribution for the six months ended 30 June 2011 of 8.50 centsper security paid on 25 August 2011	2012 $’000 26,888 26,951 – – 53,839	2011 $’000
		–
		–
		23,500
		24,969
		48,469

Annual Report 2012

Directors’ report for the year ended 30 June 2012

Distribution Re-investment Plan (DRP)

The DRP was not in operation during the year.

Review and results of operations

The Group recorded a statutory profit after tax attributable to stapled securityholders for the financial year of $16.7 million compared to a profit of $52.3 million in 2011.

Operating earnings amounted to $54.8 million for the financial year compared to $60.4 million in 2011. Operating earnings before specific items related to the sale of Charter Hall Office REIT (CQO) US assets net of closure costs of the US office, costs of retaining the management rights, organisational restructure costs and provision for Charter Hall Opportunity Fund 4 performance fee clawback amounted to $63.6 million, an increase of 5.3% over the prior period.

Operating earnings is a financial measure which represents the profit/(loss) under Australian Accounting Standards adjusted for fair value adjustments, impairment of assets, gains or losses on sale of investments, acquisition costs, non-operating movements in equity accounted investments, and non-cash items such as security-based benefits expense, amortisation and tax expense/(benefit).

The inclusion of operating earnings as a measure of the Group’s profitability provides investors with the same basis that is used internally for evaluating operating segment performance. Operating earnings is used by the Board to make strategic decisions and as a guide to assessing an appropriate distribution to declare.

The operating earnings information included in the table below has not been subject to any specific audit procedures by our auditor but has been extracted from Note 5: Segment information of the accompanying financial report.

Reconciliation of operating earnings to statutory proft Operatingearnings before specifc items Specifc items1 Operating earnings Fair value adjustments on derivatives2 Fair value adjustments on investments andproperty,includingremeasurementgains2 Inventorywritedown2 Transfer from reserves of cumulative FX losses on disposal of foreign investments2 Impairment of management rights Security-based benefts expense Other2 Statutory proft after tax attributable to stapled securityholders	2012 $’000 63,586 (8,741) 54,845 (9,933) (2,034) (5,814) (12,176) – (2,338) (5,872) 16,678	2011 $’000
		60,422
		–
		60,422
		2,141
		14,239
		(664)
		(871)
		(19,171)
		(4,090)
		332
		52,338

Specific items include $16.0 million fee revenue related to sale of Charter Hall Office REIT (CQO) US assets net of $4.0 million closure costs of the US office, $2.9 million costs of retaining the management rights, $3.9 million organisational restructure costs and $14.2 million provision for Charter Hall Opportunity Fund 4 (CHOF4) performance fee clawback which is then reduced by $0.3 million being the Group’s 3% equity share of the clawback receivable in CHOF4.
These items include the Group’s share of non-operating movements in equity accounted investments, including losses on sale of offshore investment properties of $2.0 million and amortisation charges of $2.4 million (including amortisation of management rights).

Basic weighted average number of securitiesper note 40(’000s) Basic earningsper stapled security per note 40(cents) Operatingearningsper stapled securitybefore specifc itemsper note 5(cents) Operatingearningsper stapled security per note 5(cents)	295,625 5.64 21.51 18.55	293,254
		17.85
		20.60
		20.60

Charter Hall Group

The 30 June 2012 financial results with comparatives are summarised as follows:

Charter Hall Group 2012 2011 123.6 109.6 16.7 52.3 5.64 17.85 63.6 60.4 21.5 20.6 54.8 60.4 18.6 20.6 53.8 48.5 18.2 16.5 877.8 957.6 121.4 175.6 728.9 749.8 296.2 293.8 2.46 2.55 630.2 649.8 2.13 2.21 1.45% 8.12% 8.9 10.7 8.5 8.5	Charter Hall Property Trust Group	Charter Hall Property Trust Group
2012 123.6 16.7 5.64 63.6 21.5 54.8 18.6 53.8 18.2 877.8 121.4 728.9 296.2 2.46 630.2 2.13 1.45% 8.9 8.5	2012 53.3 36.1 12.21 N/A N/A N/A N/A 53.8 18.2 775.5 84.8 650.2 296.2 2.20 650.2 2.20 4.27% N/A N/A	2011
		35.3
		57.8
		19.72
		N/A
		N/A
		N/A
		N/A
		48.5
		16.5
		1,032.3
		135.0
		850.2
		293.8
		2.89
		850.2
		2.89
		9.44%
		N/A
		N/A

Gross revenue does not include share of net profits of associates of $2.9 million (2011: profit of $30.4 million) or gains on sale of investments in 2011 of $3.4 million.
Excludes fair value adjustments on investment property, financial assets and financial instruments, gains on sale of investments, non-operating movements in equity accounted investments, and non-cash items such as net gain on remeasurement of equity interests, security-based benefits expense, amortisation and income tax expense/(benefit).
Excludes non-controlled interest in DRF.
Excludes stapled securities issued under the Executive Loan Security Plan in accordance with AASB 2 Share-based Payments .
Gearing is calculated by using debt net of cash divided by total assets net of cash.

Annual Report 2012

Directors’ report for the year ended 30 June 2012

Review and results of operations (continued)

Distribution per stapled security (DPS) has increased from 16.5 cents in FY11 to 18.2 cents in FY12.

Net Tangible Assets per stapled security (NTA) has decreased from $2.21 at 30 June 2011 to $2.13 per security at year end.

Funds Under Management (FUM) has decreased from $10.7 billion at 30 June 2011 to $8.9 billion at year end primarily as a result of US asset sales by Charter Hall Office REIT (CQO), in line with its strategy to exit from all offshore markets. Domestic funds under management remains unchanged from the prior year at $8.5 billion.

Gearing has decreased from 8.12% at 30 June 2011 to 1.45% at 30 June 2012.

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 recorded a statutory profit after tax attributable to stapled securityholders for the financial year of $16.7 million compared to a profit of $52.3 million in 2011. Earnings per security for the year amounted to 5.64 cents compared to 17.85 cents for the prior year. Net tangible assets have declined 3.6% from $2.21 per security at 30 June 2011 to $2.13 at 30 June 2012.

The Group delivered $63.6 million of operating earnings before specific items compared to $60.4 million in 2011. Property investment contributing $31.2 million (FY11: $29.9 million), property funds management contributing $23.8 million (FY11: $20.4 million), development investment contributing $2.6 million (FY11: $3.8 million), and the Group’s interest in Charter Hall Direct Retail Fund (DRF) contributing $6.0 million (FY11: $6.3 million). The Group delivered $54.8 million of operating earnings after specific items compared to $60.4 million in 2011.

Property investment

The Group’s property investment activities are classified into the following categories reflecting different sources of external equity managed across the Group:

Direct property investment;
Co-investment property interest in listed funds;
Co-investment property interest in wholesale unlisted funds; and
Co-investment property interest in retail investor funds.
A summary of the activities of each of the above categories is provided below.

i) Direct property investments

Following the sale of the Mentone Showrooms property during the period, all the Group’s direct property investments are within the Charter Hall Direct Retail Fund (DRF). DRF is consolidated by the Group due to its 66% interest (held by the stapled Group). DRF is actively marketing all of its investment properties for sale. Accordingly, all investment property, including investment properties held indirectly through a joint venture, have been reclassified to current assets. Consequently, all debt and derivatives relating to those properties have also been disclosed as current liabilities.

During the period, the Group sold its direct interest in the Mentone Showrooms in Melbourne, Victoria realising a gain on sale of $0.6 million, and its direct interest in Countdown in Auckland, New Zealand realising a loss on sale of $1.5 million.

Charter Hall Direct Retail Fund (DRF) – $0.2 billion FUM, CHPT interest 50% and CHL interest 16%

DRF is an unlisted property fund that invests directly in quality

retail properties with a current portfolio of five retail shopping centres located in established markets in New South Wales, Victoria and Queensland. At 30 June 2012 this portfolio benefited from an occupancy rate of 99.6% and a weighted average lease expiry (WALE) of 5.5 years. The fund’s debt facility expires in November 2013.

As noted above, all of DRF’s investment properties are being actively marketed for sale.

ii) Listed fund

Charter Hall Retail REIT (CQR) – $2.0 billion FUM, CHPT interest 10% with an equity interest carrying value of $101.3 million

CQR’s investment strategy is to invest in neighbourhood and sub-regional shopping centres in Australia anchored by Coles and Woolworths. The REIT’s portfolio comprises assets across Australia with a reduced offshore exposure given the successful divestment program implemented in recent years. Asset revaluations of CQR’s portfolio for the year ended 30 June 2012 resulted in a valuation decrement of $21.1 million primarily due to devaluations for the REIT’s German and bulky retail assets. These valuation movements as well as interest rate derivative movements impacted the REIT’s NTA over the period. The occupancy of the CQR Australian portfolio at 30 June 2012 was 98.6%, with like for like property net operating income growth of 3.5%, reflecting the non-discretionary nature of income from the underlying assets. During the year the REIT acquired four Australian assets for $160 million (100% share), utilising proceeds from the sale of its US wholly-owned assets.

iii) Wholesale unlisted funds

Core Plus Office Fund (CPOF) – $1.5 billion FUM, CHPT interest 13% and CHL interest 1% with a combined equity interest carrying value of $113.0 million

CPOF is an Australian unlisted wholesale office fund managed by the Group. CPOF has continued to focus on improving portfolio metrics, creating value via enhancements and acquisitions. With occupancy of 98% and a lease expiry profile of 5.5 years CPOF is well placed to benefit from improving market conditions. Following independent valuation of the entire portfolio across the June and December reporting periods of this financial year, CPOF maintains a gross asset value of $1.5 billion and a current weighted average capitalisation rate of 7.86%.

Charter Hall Office Trust (CHOT) (formerly Charter Hall Office REIT (CQO)) – $2.0 billion FUM, CHPT interest 15% with an equity interest carrying value of $145.7 million

At 30 June 2012, CHOT’s portfolio comprises 17 high grade office assets located in major business districts in Australia, and one premium office development under construction in the Melbourne CBD (171 Collins Street) with anticipated practical completion in May 2013.

On 1 May 2012, the Group confirmed implementation of the privatisation of CQO by a consortium of investors (the Consortium). The unlisted trust is known as Charter Hall Office Trust (CHOT). The Group has been appointed the investment, property and development manager for CHOT. It is expected that the net fee revenue that the Group will earn from managing CHOT will be generally consistent with the net revenue earned previously from managing the Australian assets of CQO. With implementation of the privatisation, CQO changed from a listed REIT to a wholesale unit trust with liquidity reviews every five years. Accordingly, the Group will amortise the management rights over a six year period, which includes an additional year to source liquidity were the trust to be wound up at that time. As a participant in the Consortium, the Group’s interest in CHOT has increased from 10% to 15%.

Charter Hall Group

Asset revaluations of CHOT’s Australian portfolio at 30 June 2012 resulted in an increase of $22.7 million (or $33.1 million since June 2011). The occupancy of the CHOT portfolio increased 2% to 98% at 30 June 2012, with like for like property net operating income growth of 3.6%.

Core Plus Industrial Fund (CPIF) – $0.6 billion FUM, CHPT interest 8% and CHL interest 10% with a combined equity interest carrying value of $54.9 million

CPIF is an Australian unlisted wholesale industrial fund managed by the Group. CPIF has continued its focus on holding core logistics investments and executing accretive acquisitions. The portfolio’s current weighted average capitalisation rate is 8.21%, with a WALE of 11.5 years underpinned by strong tenant covenants such as Woolworths, Coles, Metcash and Volkswagen. CPIF has been actively leasing over the financial year, reaching an occupancy level of 98% with minimal forward looking vacancy out until 2017.

Other wholesale unlisted funds

The Group also originates and manages segregated mandate capital for direct property investments either in joint ventures with funds such as CPOF or CQR or as 100% owned assets by our clients. There is a total portfolio value of $635 million within the segregated mandate business.

iv) Retail investor funds – This business manages equity raised from retail investors via advisers and through direct distribution channels, with combined FUM of $1.5 billion

Charter Hall Diversified Property Fund (DPF) – $0.1 billion FUM, CHPT interest of 25% representing a carrying value of $11.7 million

DPF is an unlisted property fund with rolling seven-year review events that primarily invests in a diversified portfolio of three office buildings and three industrial properties located in established markets throughout Sydney, Melbourne and Perth which benefited from an occupancy rate of 97% and a weighted average lease expiry of 6.2 years at 30 June 2012.

During the year asset sales totalling approximately $80 million were completed, with the net proceeds being used to reduce gearing and provide capital returns to investors ahead of the fund’s upcoming review event scheduled for October 2012. This review event is likely to lead to the sale of some or all of the fund’s remaining assets.

Charter Hall Direct Property Fund (CHDPF) – $0.5 billion FUM, CHPT interest 4% representing a carrying value of $10.8 million

CHDPF is an unlisted property fund that primarily invests in a diversified portfolio of Australian direct properties anchored by eight office properties located in established markets throughout Sydney, Melbourne and Brisbane which benefited from an occupancy rate of 97% and a weighted average lease expiry of 4.3 years with leases to over 110 tenants at 30 June 2012. The weighted average cap rate was 8.35%.

The fund remains open for investor applications with the issue of a product disclosure statement in December 2010 and is continuing to provide limited liquidity through six-monthly withdrawal offers.

Charter Hall Umbrella Fund (CHUF) – $0.1 billion FUM, CHPT interest 27% representing a carrying value of $39.5 million

CHUF is an unlisted fund of funds with investments predominantly in Charter Hall Group managed funds, with no balance sheet gearing and exposure to a portfolio of more than 55 office, industrial and retail properties across Australia and New Zealand which benefited from a WALE of 7.6 years and a current occupancy of 98% at 30 June 2012.

During the year the fund commenced providing limited liquidity through six-monthly withdrawal offers.

Other managed funds

The Group also manages a series of pooled and single asset syndicates totalling $193 million in asset value, in which the Group has no equity interest.

Property funds management

The property funds management business provides investment management, asset management, property management, development management, leasing and transaction services to not only funds in which the Group has a co-invested stake, but also to funds established and managed by the Group. The Group also provides services via segregated mandates looking to capitalise on the Group’s expertise.

The Group’s managed funds have acquired approximately $439 million of property in Australia across Charter Hall Retail REIT ($176 million), Charter Hall Core Plus Office Fund ($96 million), Charter Hall Core Plus Industrial Fund ($85 million) and Direct Industrial Fund ($82 million). The Group’s managed funds have divested approximately $2.1 billion of assets, of which approximately $1.7 billion related to the divestment of CQO’s United States portfolio.

The integrated property services model provides transactional, leasing, investment management, asset management and property management profits within the Property Funds Management business, which substantially enhance the returns from the capital invested in property and development investments.

Development investment

The Group’s development investments comprise a 50% interest in Commercial and Industrial Property Pty Ltd (CIP), an industrial development business, a 50% interest in an office development project at 685 La Trobe Street, Melbourne, together with equity co-investment interests in Charter Hall Opportunity Fund 4 (CHOF4) and Charter Hall Opportunity Fund 5 (CHOF5). CIP contributed $1.5 million (FY11: $4.0 million) of operating earnings to the Group, CHOF4 and CHOF5 contributed $0.3 million (FY11: loss $0.2 million) for the period and the Group has earned a commitment fee of $0.1 million relating to the Workzone development being undertaken by CHOF5 resulting in a combined contribution to operating earnings before interest and tax of $1.9 million (FY11: $3.8 million). The development at 685 La Trobe Street is at an early stage in the development process and has not made a contribution to the current period result.

Charter Hall Opportunity Fund 4 (CHOF4) – $0.1 billion FUM, CHL interest 3% with an equity interest carrying value of $1.1 million

CHOF4 is fully allocated with seven of eight projects completed and capital returned to investors. There is one remaining completed project in CHOF4, being Home HQ North Shore.

In prior financial years the Group has received performance fees in respect of CHOF4 amounting to $14.2 million. These fees were subject to clawback provisions in the event CHOF4 did not achieve a gross equity internal rate of return (‘IRR’) of 13% over the life of the fund.

As a result of a reduction in the IRR performance in CHOF4, the Charter Hall Board has resolved to raise a provision for the maximum potential clawback, being $14.2 million. The clawback is payable on the earlier of 31 December 2012, unless extended, or the sale of Home HQ North Shore. As the Group has a 3% interest in CHOF4, 3% of any performance fee clawback received by CHOF4 will be taken up in the equity accounted results of the Group.

Annual Report 2012

Directors’ report for the year ended 30 June 2012

Review and results of operations (continued)

Development investment (continued)

Charter Hall Opportunity Fund 5 (CHOF5) – $0.5 billion FUM, CHL interest 15% with an equity interest carrying value of $28.5 million

All of the vacant space within the development components of The Park Megacentre in Hastings, New Zealand has now been leased and sale of these tenanted units, and the remaining land, has commenced.

40 Creek Street, Brisbane is 100% leased, with all remaining Heads of Agreements converted into executed leases over the last quarter. Contracts for Sale have been exchanged for $84.5 million on 6 August 2012. Settlement was forecast for September 2012.

PDS Constructions is making good progress on Aquilo in Mentone, Victoria with the construction of all townhouses in Stages 1 complete, Stage 2 being progressively completed and Stage 3 underway. As at 30 June 2012, 110 unconditional contracts of sale have been exchanged (92%), with nine townhouses available for sale. Purchaser settlements have continued during the quarter, with a total of 36 townhouses settled as of 30 June 2012.

Progress at Workzone, Perth continues in line with programme. Broad Construction Services WA (Broad) is nine months into construction and anchor tenant Leighton Contractors Pty Ltd (Leighton) is well advanced with its fully integrated fit out design. The leasing campaign is underway for the balance of the available office and retail space with Savills and Lease Equity appointed respectively. Due to an acceptable offer to purchase not being received during the forward funded sale campaign, Management is now forecasting the sale of the development on completion in October 2013, however still remains confident that a sale may be secured prior to completion.

Construction of the Lacrosse Apartments in La Trobe Street, Melbourne reached practical completion on 25 June 2012 and 129 apartments were settled prior to 30 June 2012. Rectification of defect items is substantially complete and the building has been handed over to the building manager. Four apartments are available for sale from a total of 312. Contracts on four retail tenancies have been exchanged leaving 14 tenancies available for sale.

In respect of the Little Bay project, development of the Estate Works to create the individual housing and development superlots at the Little Bay project is currently underway, with completion scheduled for May 2013. Subsequent to year end, commercial negotiations are underway between the Development Alliance (DA) partners, being CHOF5 Little Bay Pty Limited (CHOF5LB) (a controlled entity of CHOF5) and TA Global Development Pty Ltd (TAG). In accordance with the DA Umbrella Deed, a Notice of Mediation has been issued to TAG by Charter Hall Funds Management Limited (CHFML) (in its capacity as trustee of CHOF5) in relation to a commercial dispute between the DA partners. The mediation notice has been rejected by TAG with a request for a clarification of the details of the alleged dispute between the parties. Ongoing commercial negotiations with TAG are being undertaken in an attempt to agree on the future direction of the project.

As at the date of signing the financial statements, Charter Hall Group is not able to determine whether any financial impact will occur as a result of these negotiations and any subsequent dispute or mediation process with respect to either Charter Hall directly or its 15% co-investment in CHOF5.

Significant changes in the state of affairs

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

On 30 September 2011, the Group announced it had exchanged contracts and subsequently settled the sale of the Mentone Showrooms in Victoria.
On 30 September 2011, the Group announced it had completed the acquisition from Macquarie Group Limited of all shares in Charter Hall Retail Management Limited and Charter Hall Direct Property Management Limited under the Share Sale Agreement (dated 12 February 2010) following the satisfaction of conditions precedent for a sum of $14.3 million. This transaction completed the acquisition of the Macquarie real estate funds management platform.
On 21 October 2011, the Group increased its ownership in Charter Hall Retail REIT (CQR) to 10%, by exercising its first right of refusal to acquire a portion of Macquarie Bank Limited Group’s holding in CQR. The Group acquired 1.7% of CQR units at a price of $3.20 per unit, a total acquisition price of $16.2 million. This acquisition was funded from the sale of the Mentone Showrooms.

◆ On 24 November 2011, the Group confirmed its support for the governance changes implemented across its listed REITs, CQO and CQR. The corporate governance and fee reviews were undertaken by independent directors of CHOML and Charter Hall Retail Management Limited (CHRML), as responsible entities (RE) of CQO and CQR, with the support of Ernst & Young. Governance changes included the introduction of term limits for independent directors, unitholders to ratify the appointment of independent directors, formalising the maximum number of independent directors in the Board Charter, detailed disclosure of the basis for related party fees, introduction of an effective internal audit function, adoption and disclosure of a gender diversity policy, directors’ fees to be paid by the REIT rather than the Charter Hall Group to maximise independence and alignment, review of remuneration structure to align the interests of the Fund Manager of each REIT, and improvement to key management personnel (KMP) remuneration disclosures. Fund management fee structures would remain unchanged. The REITs announced that whilst resetting performance fees may increase alignment, the resetting of performance fees would likely lead to increased costs for unitholders over time. Charter Hall has existing strong alignment to the performance of the REITs through its co-invested interest of 10% in CQR.

◆ On 1 May 2012, the Group confirmed implementation of the privatisation of CQO by a consortium of investors, being Reco Ambrosia Pte Ltd (RAP) (an affiliate of the Government of Singapore Investment Corporation Pte Ltd), the Public Sector Pension Investment Board of Canada (PSP) and a member of the Charter Hall Group (ASX:CHC) (collectively known as the Consortium). The new unlisted trust is known as Charter Hall Office Trust (CHOT). The Group has been appointed the investment, property and development manager for CHOT. It is expected that the net fee revenue that the Group will earn from managing CHOT will be generally consistent with the net revenue earned previously from managing the Australian assets of CQO. With implementation of the privatisation, CQO changed from a listed REIT to a wholesale unit trust with liquidity reviews every five years. The Group will amortise the management rights over a six year period, which includes an additional year to source liquidity were the trust to be wound up at that time. As a participant in the Consortium, the Group’s interest in CHOT rises to 15%.

Charter Hall Group

On 18 June 2012, the Group announced that it had implemented a $200 million capital reallocation from Charter Hall Property Trust (CHPT) to Charter Hall Limited (CHL), effective 30 June 2012. The capital reallocation aims to ensure a more appropriate allocation of capital between CHPT and CHL (which together trade on the Australian Securities Exchange as Charter Hall Group) which is more closely aligned with the Group’s long-term growth strategy. Under the capital reallocation proposal approved by securityholders at the Annual General Meeting on 24 November 2011, CHPT made capital payments of $200 million which were compulsorily applied as a capital contribution for existing shares of CHL.
On 18 June 2012, the Group advised it would take up a provision of $14.2 million in relation to the potential clawback of Charter Hall Opportunity Fund No. 4 (CHOF4) performance fees received in respect of the 2007, 2008, 2009 and 2010 financial years. The final amount of any clawback will not be known until the earlier of the termination date of 31 December 2012, unless extended, or the completion of the sale of all the assets of CHOF4.
On 28 June 2012, the Group announced it had entered into an Implementation Deed with various entities of Australian Property Growth Fund (APGF) for the retirement of APGF Management Limited (APGFM) (a wholly owned subsidiary of APGF) as responsible entity (RE) of PFA Diversified Property Trust (PFA) and the appointment of Charter Hall Direct Property Management Limited (CHDPML) (a wholly-owned subsidiary of Charter Hall). Subsequently, on 15 August 2012, PFA unitholders voted to approve the appointment of CHDPML as RE.
On 28 June 2012 the Retail Partnership No. 2 Trust (RP2T) in which the Group has a 20% interest, contracted to acquire the Bay Village Shopping Centre in New South Wales for $164 million.

Matters subsequent to the end of the period

Since 30 June 2012, the Group has completed the following:

On 1 August 2012, the Group announced that a Charter Hall managed wholesale fund (the Retail Partnership No. 2 Trust (RP2T)) had entered into an unconditional contract to acquire Bay Village Shopping Centre in New South Wales for $164 million. The Group holds a 20% equity interest in RP2T. The purchase of the centre was completed on 15 August 2012. The Group’s equity commitment to fund the acquisition is $19.5 million which was paid on 15 August 2012.
In June 2012, Charter Hall Direct Property Management Limited contracted to purchase the right to manage the PFA Diversified Property Trust (PFA) subject to approval by unitholders. With the unitholders approving the purchase of the management rights for $5 million cash on 15 August 2012 and Australian Securities and Investments Commission (ASIC) approval given shortly after, Charter Hall Direct Property Management Limited is now the responsible entity for PFA.
Subsequent to year end, following commercial negotiations between the Development Alliance (DA) partners in the Little Bay Cove project, being CHOF5 Little Bay Pty Limited (CHOF5LB) (a controlled entity of CHOF5) and TA Global Development Pty Ltd (TAG), in accordance with the DA Umbrella Deed, a Notice of Mediation has been issued to TAG by CHFML (in its capacity as trustee of CHOF5) in relation to a commercial dispute between the DA partners. The mediation notice has been rejected by TAG with a request for a clarification of the details of the alleged dispute between the parties. Ongoing commercial negotiations with TAG are being undertaken in an attempt to agree on the future direction of the project. Refer to note 36(e) for further information.

Except for the matters discussed above, no other matter or circumstance has arisen since 30 June 2012 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

Likely developments and expected results of operations

As a fully integrated property group with diversified sources of equity invested across the office, retail and industrial sectors, Charter Hall is well placed to benefit from a projected growth of superannuation inflows in Australia and offshore markets. The Group derives property income returns and capital growth through its co-investments in its managed funds and its vertically integrated business model will allow Charter Hall to continue to provide specialist property services across its platform, generating fees from its managed funds.

The Group remains focused on leveraging its fully integrated property services capabilities through initiating acquisitions and developments, undertaking capital raisings for unlisted funds, external mandates and partnerships, while also recycling capital to improve the return on equity from the co-investment portfolio. For its listed fund, CQR, the Group will continue to implement strategies to increase earnings per share and to de-risk the fund.

As volatility continues in listed markets, Charter Hall has seen equity flows increasing to unlisted real estate and the Group is well positioned to benefit from these equity flows as wholesale investors further invest in low volatility direct property portfolios. Retail investor flows are expected to increase over time as investors seek a high quality manager with an integrated capability that delivers stable property investment returns from rental income and capital growth.

Further information on likely developments in the operations of the Group and the expected results of operations have not been included in this annual financial report because the Directors believe it would be likely to result in unreasonable prejudice to the Group.

Annual Report 2012

Directors’ report for the year ended 30 June 2012

Information on Directors

Kerry Roxburgh

Chairman/Independent Non-Executive Director

Experience and expertise

Kerry joined the Board of the Charter Hall Group on 12 August 2005 and became Chairman in October 2005.

Kerry is a Practitioner Member of the Stockbroker Association of Australia and holds positions on the boards of several listed and unlisted companies. Currently, Kerry is the lead independent Non-Executive Director of Ramsay Health Care Ltd, a Non-Executive Director of the Medical Indemnity Protection Society and of MIPS Insurance Ltd. He is Chairman of Tyro Payments Ltd, of Tasman Cargo Airlines Ltd and of TEKTUM Ltd. He is also the Deputy Chairman of Marshall Investments Pty Ltd. Kerry is also a member of the Advisory Boards of AON Insurance and of Built Pty Ltd.

In 2000, Kerry completed a three year term as CEO of E*TRADE Australia (a business that he co-founded in 1997), becoming its Chairman until June 2007, when it was acquired by the ANZ Bank. Prior to this, he was an Executive Director of Hong Kong Bank of Australia Group where for 10 years from 1986, he held various positions including Head of Corporate Finance and Executive Chairman of the group’s stockbroker, James Capel Australia. Until 1986, Mr Roxburgh was in practice for more than 20 years as a Chartered Accountant.

Kerry holds a Bachelor of Commerce degree, and an MBA.

Other current listed company directorships Ramsay Health Care Ltd (since 1997)

Former listed company directorships in last three years Chairman of Eircom Holdings Limited (from 2006 to January 2010)

Special responsibilities

Chair of the Nomination Committee Member of the Audit, Risk and Compliance Committee

Interests in securities

31,250 securities in Charter Hall Group

Roy Woodhouse

Deputy Chairman/Independent Non-Executive Director

Experience and expertise

Roy joined the Board of the Charter Hall Group on 2 July 2004.

Roy worked for the Baillieu family for 30 years in various senior executive capacities including Director of L.J. Hooker, Managing Director of Knight Frank Australia and Chairman of Knight Frank Asia Pacific. Roy co-founded KFPW, a joint venture with PricewaterhouseCoopers specialising in outsourcing.

Roy is Chairman of National Recycling Group, and a principal shareholder of The Stephenson Mansell Group, an Executive Leadership Development company. Roy is a Fellow of the Institute of Company Directors and a past Fellow of the Australian Institute of Valuers.

Other current listed company directorships Nil

Former listed company directorships in last three years Nil

Special responsibilities

Member of the Remuneration and Human Resources Committee Member of the Nomination Committee

Interests in securities

21,429 securities in Charter Hall Group

Anne Brennan

Independent Non-Executive Director

Experience and expertise

Anne joined the Board of Charter Hall Group on 6 October 2010, and she is on the board of a number of other companies.

Anne is an experienced executive and has held senior management roles in both large corporates and professional services firms.

During Anne’s executive career she was the CFO at CSR and the Finance Director of the Coates Group. Prior to her executive roles, Anne was a partner in three professional services firms: KPMG, Arthur Andersen and Ernst & Young. She has more than 25 years’ experience in audit, corporate finance and transaction services. Anne was also a member of the national executive team and a board member of Ernst & Young.

Anne holds a Bachelor of Commerce (Honours) degree, is a Fellow of the Institute of Chartered Accountants in Australia and a Fellow of the Australian Institute of Company Directors.

Other current listed company directorships

Argo Investments Limited Echo Entertainment Group Limited Myer Holdings Limited Nufarm Limited

Former listed company directorships in last three years

Nil

Special responsibilities

Member of Audit, Risk and Compliance Committee (from 15 August 2012, Acting Chair) Chair of Remuneration and Human Resources Committee

Interests in securities

30,000 securities in Charter Hall Group via direct and indirect interests

Charter Hall Group

David Deverall

Independent Non-Executive Director

Experience and expertise

David joined the Board of the Charter Hall Group on 7 May 2012. David is also CEO of Hunter Hall International Limited and Managing Director of Deverall Advisory, a consulting firm which provides strategic and corporate advice to CEOs and boards in the wealth management industry. Prior to this, David was the Managing Director and CEO of Perpetual Limited for eight years and during this time he was also Chairman of the peak wealth management industry body, The Financial Services Council.

David has extensive experience in financial services, funds management and strategy, having also been Group Head of Funds Management and Head of Strategy at Macquarie Group.

David holds an MBA and a Bachelor of Engineering (Mechanical), and is a member of the Australian Institute of Company Directors.

Other current listed company directorships

Hunter Hall International Limited

Former listed company directorships in last three years Perpetual Limited

Special responsibilities

From 10 September 2012, a member of the Audit, Risk and Compliance Committee

Interests in securities

15,287 securities in Charter Hall Group

Glenn Fraser

David Harrison

Joint Managing Director/Executive Director

Experience and expertise

As Joint Managing Director of the Charter Hall Group, David Harrison is responsible for all aspects of the Charter Hall Group’s business, with specific focus on Investment Management, Corporate Transactions and Property Investment activities. David also substantially contributes to investment origination, capital raisings and structuring of transactions. David is directly responsible for overseeing the operation of the Investment Management Divisions, including the Listed REITs, Wholesale Unlisted and Retail Unlisted Divisions, together with Investor Relations.

The Joint Managing Directors share responsibility for Corporate Finance, General Counsel and People, as well as working closely with the Chief Financial Officer in relation to Group Finance, Treasury, Information Technology and Capital Management. In addition to his responsibilities on the various unlisted Fund Boards and Investment Committees, David is an Executive Director on the responsible entity Boards of Charter Hall Retail REIT, Charter Hall Office Trust and Direct Funds business. With more than 25 years of experience in the Australian commercial property market, David has jointly overseen the growth of the Charter Hall Group from $500 million to $10 billion of assets under management in six years. David has been principally responsible for transactions exceeding $13 billion of commercial, retail and industrial property assets across all property sectors over the past 15 years. David holds a Bachelor of Business Degree (Land Economy) and a Graduate Diploma in Applied Finance, and is a Fellow Member of the Australian Property Institute (FAPI).

Other current listed company directorships Charter Hall Retail REIT

Independent Non-Executive Director (resigned 15 August 2012)

Experience and expertise

Glenn joined the Board of the Charter Hall Group on 6 April 2005. Glenn specialises in infrastructure and property projects, and is a member of the Transfield Holdings Advisory Board. He was instrumental in Transfield Holdings’ acquisition of its interest in Charter Hall and its expansion and listing in 2005. Joining Transfield Holdings in 1996, Glenn has held positions of CFO and General Manager – Finance Project Development, where he was responsible for the financial elements of Transfield Holdings’ infrastructure and property projects. Prior to this, Glenn was a principal of a project finance advisory business, Perry Development Finance Pty Limited, which was sold to Hambros Corporate Finance Limited in 1995. Glenn holds a Bachelor of Commerce, and is a member of the Institute of Chartered Accountants and the AICD. Due to family reasons, Glenn retired as a Non-Executive Director on 15 August 2012.

Former listed company directorships in last three years Charter Hall Office REIT

Special responsibilities

Nil

Interests in securities

2,009,521 securities in Charter Hall Group via direct and indirect interests. 226,449 securities in the Charter Hall Executive Loan Securities Plan; securities in the Plan will vest upon the satisfaction of performance and service criteria. 862,961 Performance Rights and 849,868 Options in the Charter Hall Performance Rights and Options Plan; performance rights and options also vest after performance and service criteria are met.

Other current listed company directorships

Nil

Former listed company directorships in last three years

Nil

Special responsibilities

Until 15 August 2012, Chair of the Audit, Risk and Compliance Committee

Interests in securities

70,000 securities in Charter Hall Group via indirect interests

Annual Report 2012

Directors’ report for the year ended 30 June 2012

Information on Directors (continued)

Peter Kahan

Non-Executive Director

Experience and expertise

Peter joined the Board of the Charter Hall Group on 1 October 2009, following an investment in the Charter Hall Group by The Gandel Group.

Peter is the Executive Deputy Chairman of Gandel and has over 18 years of property and funds management experience. He joined Gandel in 1994 and was the Group’s CEO from 2007 to 2012.

Prior to this, Peter worked as a Chartered Accountant and held senior financial positions in various industry sectors. From 2002 to 2006, he was a director of Gandel Retail Management Pty Ltd and Colonial First State Property Retail Pty Ltd, a leading property and fund manager managing a portfolio of approximately $8 billion of retail assets in Australia.

Peter is a member of the Institute of Chartered Accountants in Australia and the Australian Institute of Company Directors. He holds Bachelor of Commerce and Bachelor of Accountancy degrees from the University of The Witwatersrand Johannesburg, South Africa.

Other current listed company directorships Nil

Former listed company directorships in last three years Nil

Special responsibilities

Alternate Member of the Remuneration and Human Resources Committee

Interests in securities

Nil

Colin McGowan

Independent Non-Executive Director

Experience and expertise

Colin joined the Board of the Charter Hall Group on 6 April 2005.

Colin was formerly CEO of the listed AMP Diversified Property Trust, Executive Vice President of Bankers Trust (Australia), founding Fund Manager of the BT Property Trust and founding Fund Manager of Advance Property Fund.

He is a qualified valuer, a Fellow of the Australian Property Institute and a Senior Fellow of the Financial Services Institute of Australasia (formally SIA). He was the honorary SIA National Principal Lecturer and Task Force Chairman for the Graduate Diploma’s Property Investment Analysis course – a position he held for 11 years until 2003.

Other current listed company directorships Nil

Former listed company directorships in last three years Nil

Special responsibilities

Member of the Remuneration and Human Resources Committee Member of the Nomination Committee

Interests in securities

Nil

David Southon

Joint Managing Director/Executive Director

Experience and expertise

David is a co-founder of the Charter Hall Group and one of its Joint Managing Directors, with over 25 years of property industry experience. The Joint Managing Directors are responsible for the formulation and implementation of the Group’s strategy. David is directly responsible for overseeing the operation of the Property Services Divisions, including Development, Leasing, Transactions, Asset Management, Property Management, Marketing and Communications, as well as strategic involvement in project origination and direction. The Joint Managing Directors share responsibility for Investor Relations, Corporate Finance, General Counsel and People, as well as working closely with the Chief Financial Officer in relation to Group Finance, Treasury, Information Technology, and Capital Management.

In addition to his responsibilities on the various Fund Boards and Investment Committees, David is an Executive Director on the responsible entity Boards for Charter Hall Retail REIT, Charter Hall Office Trust, and the Direct Funds business. He is also a Non-Executive Director on the Board of Commercial Industrial Property Pty Ltd (CIP), Chairman of the Charter Hall Diversity Committee and a member of the Investment Committees of Charter Hall Opportunity Funds 4 and 5.

David holds a Bachelor of Business Degree (Land Economy), and is a Fellow Member of the Australian Property Institute (FAPI).

Other current listed company directorships Charter Hall Retail REIT

Former listed company directorships in last three years Charter Hall Office REIT

Special responsibilities

Nil

Interests in securities

2,048,360 securities in Charter Hall Group via direct interests. 226,449 securities in the Charter Hall Executive Loan Security Plan; securities in the Plan will vest upon the satisfaction of performance and service criteria. 1,175,122 Options and 862,961 Performance Rights in the Charter Hall Performance Rights and Options Plan; options and performance rights also vest after performance and service conditions are met.

Carolyne Rodger

Company Secretary

Carolyne Rodger was appointed Company Secretary of the Charter Hall Group on 18 June 2012. She is also Company Secretary for the Responsible Entity of the Charter Hall Retail REIT (ASX:CQR), and Secretary for a number of other related entities. Carolyne is admitted as a lawyer with the Supreme Court of New South Wales, and is a member of the Law Society of New South Wales. She holds a Bachelor of Business (in Accounting), a Bachelor of Laws, and a Graduate Diploma in Applied Finance and Investment. Prior to joining the Charter Hall Group in November 2011, Carolyne held senior roles in corporate governance, risk management, legal and compliance with two leading investment management firms in Australia. She has over 20 years of practical corporate governance experience.

Persons who held the position of Company Secretary during the financial year were Natalie Allen (from 24 November 2011 to the end of the financial year) and Nathan Francis (from the start of the financial year until 24 November 2011).

Charter Hall Group

Meetings of Directors

The numbers of meetings of the Group’s Board of Directors and of each Committee of the Board held during the year ended 30 June 2012, and the numbers of meetings attended by each Director were:

K Roxburgh R Woodhouse1 A Brennan D Deverall2 G Fraser3 C Fuchs4 D Harrison P Kahan C McGowan D Southon	Full meetings of the Board of Directors A B 19 19 17 19 17 19 2 2 17 19 6 10 19 19 19 19 19 19 19 19	Audit, Risk and Compliance Committee A B 5 5 5 5 5 5	Nomination Committee A B 2 2 2 2 2 2	Remuneration and HR Committee
				A B

				8 8
				8 8





				8 8

A = Number of meetings attended.

B = Number of meetings held during the time the Director held office or was a member of the stated Committee during the year.
= Not a member of the stated Committee.
Includes attendance by P Kahan as an alternate for R Woodhouse.
D Deverall was appointed as a Non-Executive Director to the Group on 7 May 2012.
G Fraser resigned as a Non-Executive Director on 15 August 2012.
C Fuchs resigned as an Executive Director of the Group effective 24 November 2011.

Remuneration overview

Charter Hall’s Board is committed to clear and transparent disclosure of the Company’s remuneration structure and details of the value that key management personnel (KMP) derive from various remuneration components. The Board reviews the format and content of the remuneration report each year with a view to presenting information consistently, concisely and in a form that complies with the Corporations Act 2001 (the Act).

In line with stakeholder feedback, this year Charter Hall has again included this brief overview of the key remuneration outcomes and actions taken during FY12 and planned for FY13, together with the actual cash value of remuneration received by KMPs.

As required by Section 308(C) of the Act, the full audited remuneration report from page 43 of this Annual Financial Report provides more detail on Charter Hall’s remuneration strategy, components and outcomes.

1. Summary of key remuneration decisions taken in FY12

While stability in the remuneration structure is important, where modifications can be made to better align stakeholder interests and drive performance, the Board actively considers these. As a result the following key actions were taken:

Fixed remuneration

No fixed remuneration increases were awarded to the Joint Managing Directors (JMDs) in FY12;
No fixed remuneration increases will be awarded to the JMDs and Senior Executives for FY13; and
Non-Executive Director (NED) fees were not increased in FY12 and will not be increased in FY13.

Short Term Incentive (STI)

A key performance metric for the Group, operating earnings per security (OEPS), before specific items, was 21.5 cents, which represented an increase of 4.4% on the prior corresponding period. However, the Board recognised that net OEPS after specific items was 18.6 cents, down 9.7% on the prior corresponding period. Reflecting this performance, the Board and management considered it appropriate to apply restraint in relation to the STI for FY12:

The STI pool for all employees was significantly below the ‘at target’ STI; and
Although the financial gateway for the JMDs STI of 95% of target OEPS was achieved, it was considered appropriate that no STI would be awarded to the JMDs.

Long Term Incentive (LTI)

During FY12 the vesting period of the LTI was increased from two years (50%) and three years (50%) to full vesting at three years.

Annual Report 2012

Directors’ report for the year ended 30 June 2012

Remuneration overview (continued)

2. Planned changes for FY13

The series of actions identified as part of a comprehensive review of the Group’s remuneration strategy in FY11 were implemented in FY12 and continue in FY13. These changes include:

Adjusting the weighting of STI financial and non-financial measures from 50% financial and 50% non-financial in FY12 moving to 67% financial performance, and 33% non-financial performance in FY13;
Introducing a Group financial gateway and setting threshold, target and stretch targets for STIs for all employees in FY13;
Retaining the Absolute Total Securityholder Return (TSR) measure for LTI as it provides strong alignment with our business model of co-investing in managed funds with Absolute Return objectives;
Increasing the range required for Absolute TSR from 10% to 12% to a range of 10% to 13% in FY13; and
Introducing clawbacks on deferred, unpaid STI and unvested LTI for the JMDs and Senior Executives from FY13.

3. Actual remuneration received in FY12

The actual remuneration presented in the table below provides the remuneration that KMPs received during the financial year ended 30 June 2012. This voluntary disclosure, provided to increase transparency, includes:

Fixed pay and other benefits for FY12;
FY11 cash STI paid; and
The embedded value of any LTI that vested during the year.

The actual remuneration presented is distinct from the disclosed remuneration in the Remuneration Report on page 53, which is calculated in accordance with statutory obligations and accounting standards and therefore includes accounting values for current and prior years’ LTI grants which have not been (and may or may not be) received as they are dependent on performance hurdles being met.

Reported Executives Actual Remuneration Outcomes FY12

FY12 Name Executive directors C Fuchs1 D Harrison D Southon Other key management personnel P Altschwager2 N Devlin S Dundas3 A Glass N Kelly S Sewell4 R Stacker A Taylor Totals	Short-term benefts Post- employment benefts Share- based payment Other
	Salary and fees $ Short-term incentive $ Super- annuation $ Value of securities vested $ Non- monetary benefts5 $ Total $ % of Total Remuneration consisting of options/rights

	118,427 86,425 6,573 59,044 9,083 279,552 21
	1,034,225 131,250 15,775 297,175 32,299 1,510,724 20
	1,034,225 131,250 15,775 297,175 22,699 1,501,124 20

	235,970 – 3,944 – – 239,914 0
	259,225 80,968 15,775 – – 355,968 0
	70,728 – 1,503 – – 72,231 0
	530,225 126,000 15,775 118,870 – 790,870 15
	450,486 90,000 15,775 95,097 – 651,358 15
	385,210 220,000 11,831 – – 617,041 0
	424,225 150,000 15,775 – – 590,000 0
	608,225 220,000 15,775 – – 844,000 0
	5,151,170 1,235,893 134,277 867,361 64,082 7,452,783

C Fuchs retired as a Director of Charter Hall on 24 November 2011, however remained an employee throughout the year. KMP remuneration reflected in the table above, represents all remuneration receipts to 24 November 2011.
P Altschwager commenced employment on 27 February 2012.
S Dundas became a KMP on 14 May 2012.
S Sewell ceased employment with Charter Hall on 17 February 2012.
Non-monetary benefits include motor vehicle costs and applicable FBT.
The FY10 PROP plan vested on 1 July 2011.
In FY11 the JMD’s were awarded an STI of $262,500. 50% of the STI was awarded in cash and 50% deferred into service rights vesting after one year.

Charter Hall Group

Remuneration Report – audited

This Remuneration Report outlines Charter Hall’s remuneration policies and practices together with the details and outcomes of the specific remuneration arrangements that apply to Charter Hall’s KMP for the year ended 30 June 2012. This Report has been prepared in accordance with Section 300A of the Act and the information provided has been audited, as required by section 308(3C) of the Act.

1. Executive remuneration governance and structure

1.1 Governance

The Remuneration and Human Resources Committee (Committee) provides advice and recommendations to the Board on:

The Group’s Human Resources strategy;
Criteria for reviewing the performance of the JMDs;
Remuneration policies for Non-Executive Directors (NEDs) and Committee Members;
Remuneration policy for senior executives;
Incentive plans for all employees; and
Any other remuneration matters that relate to executives.

The Committee is appointed by the Board and is comprised solely of Non-Executive Directors, as follows:

1.2 External advisors and remuneration consultants

Where necessary, the Board seeks advice from independent experts and advisors including remuneration consultants who ensure that executives’ remuneration is appropriately structured and consistent with comparable roles in the market. Other external advisors (including legal practitioners) assist with administration of the Group’s performance remuneration plans and ensuring that the appropriate legal parameters are understood and employment contracts are appropriately executed.

Following the Federal Government’s legislative changes regarding the governance of executive remuneration arrangements, the Board adopted a protocol governing the appointment of remuneration consultants and the manner in which any recommendations are made by those consultants to ensure there is no undue influence by management.

The advice and recommendations of external advisors are used as a guide only but do not serve as a substitute for thorough consideration of the issues by the Board. All decisions relating to remuneration strategy and approach are made independently by the Board with careful regard to the Committee’s recommendations, Charter Hall’s position, strategic objectives and current requirements.

During the period the following external advisors provided advice to the Committee – Ernst and Young, and Freehills. These advisors did not provide any ‘remuneration recommendations’ to Charter Hall as defined by the Act.

Anne Brennan (Chair of the Committee);
Roy Woodhouse (Peter Kahan has attended meetings as Roy Woodhouse’s alternate from 27 February 2012); and
Colin McGowan.

The JMDs and the Head of People attend Committee meetings by invitation. Specialist external consultants attend as required. A minimum of two Committee members are required for a quorum. The members’ attendance is set out at page 41. The Committee’s charter is available on the Company’s website at www.charterhall.com.au.

Annual Report 2012

Directors’ report for the year ended 30 June 2012

1. Executive remuneration governance and structure (continued)

1.3 Key Management Personnel

The executives included in the table below are considered to be members of the KMP because they are members of the Group’s Executive Committee which is responsible for the Group’s strategy and operations. Executive Directors and Executives listed in the table below are referred to in this Remuneration Report as ‘Reported Executives’.

Name Non-Executive Directors Anne Brennan David Deverall Glenn Fraser Peter Kahan Colin McGowan KerryRoxburgh RoyWoodhouse Executive Directors David Harrison David Southon Former Executive Director Cedric Fuchs Executives Paul Altschwager Natalie Devlin Scott Dundas Andrew Glass Nick Kelly Richard Stacker Adrian Taylor Former Executives Steven Sewell	Role Director Director Director Director Director Chairman Director(DeputyChairman) Joint ManagingDirector Joint ManagingDirector Executive Director GroupChief Financial Offcer Head of People Fund Manager, Charter Hall Retail REIT(CQR) Head of Wholesale Pooled Funds Head of Investor Relations Head of Direct – Charter Hall Direct Property Head of Wholesale Partnerships – Charter Hall Offce Trust(CHOT) CEO, Charter Hall Retail REIT	Movement during FY12


		Appointed 7 May2012
		Resigned 15 August 2012








		Ceased to be a KMP as at 24 November 2011. However, he continues to work within the Group as an Executive Director of Charter Hall Direct Property Management Limited.

		Commenced 27 February2012







		Ceased to be a KMP as at 3 January 2012 and left the Group on 17 February 2012

Charter Hall Group

1.4 Decisions and actions taken during FY12

1.4.1 Aligning remuneration outcomes with Group performance

The Board continued to ensure strong alignment between Charter Hall’s performance and remuneration outcomes.

A key performance metric for the Group, operating earnings per security (OEPS), before specific items, was 21.5 cents, which represented an increase of 4.4% on the prior corresponding period and was consistent with market guidance. However, the Board recognise net OEPS after specific items was 18.6 cents, down 9.7% on the prior corresponding period.

Reflecting this performance, the Board and management considered it appropriate to apply restraint in relation to payment of remuneration. As a result the following actions were taken:

Action Freeze on Executive Fixed Remuneration Freeze on Directors’ Fees No STI awarded to the JMDs Reduced STI awarded for other employees Performance Rights only awarded Extended LTI vesting period	Explanation
	There were no Fixed Remuneration increases for the JMDs in FY12. There are no Fixed Remuneration increases for the JMDs, Reported and Senior Executives in FY13.
	There were no fee increases for individual Non-Executive Directors (NEDs) in FY12. The NED fee pool was increased to $1,000,000 in November 2011 to facilitate additional NEDs.
	Although the required gateway for the JMDs STI of 95% of OEPS was achieved, it was agreed that the JMDs receive no STI in FY12.
	There is currently no gateway for the STI for employees other than the JMDs. The Board formed an overall view of Group performance taking into account specifc items and reduced the ‘at target’ STI pool to 30% to reward the achievement of non- fnancial KPIs.
	Previous LTI grants comprised 50% Performance Rights and 50% Options. In FY12, only Performance Rights were granted.
	The FY12 grant vesting period increased from two years (50%) and three years (50%) to full vesting (100%) at three years.

1.4.2 Proposed remuneration framework changes for FY13

The Board endeavours to ensure that remuneration policies balance Charter Hall’s performance objectives and remain in step with community and shareholder expectations. While stability in the remuneration structure is important, where modifications can be made to better align stakeholder interests and drive performance, the Board actively considers these.

In FY11 a comprehensive review of the Group’s remuneration strategy was initiated with changes being implemented progressively. The following changes are proposed for FY13:

Component Short Term Incentive (STI) Long Term Incentive (LTI) Clawbacks Remuneration mixes	Change
	◆Introduction of a Group fnancial gateway of 95% of OEPS. There is no STI entitlement below the gateway, however the Board retain an overall discretion on performance achievement; ◆Articulation of performance and pay outcomes at threshold, target and stretch (capped at 125% of target OEPS); ◆Reweighting of KPIs from 50% fnancial and 50% non-fnancial, to 67% fnancial and 33% non-fnancial; and ◆Deferral of one-third of any STI awarded and any award above 100% into service rights split equallyover twoyears(applies to JMDs and Senior Executives only).
	◆After considering alternative measures, the Absolute TSR measure has been maintained as it provides strong alignment with our business model of co-investing in managed funds with Absolute Return objectives. ◆Increasing the range of the Absolute TSR measure from 10% to 12% to a range of 10% to 13%.
	◆Applies to unvested deferred STI and LTI for material misstatement, misrepresentation of fnancial results and Board discretion around overall performance (applies to the JMDs, Reported and Senior Executives only).
	◆Adjusting the remuneration mix for KMP (excluding the CFO and JMDs) from the current 60% fxed remuneration, 20% STI and 20% LTI to 60% fxed remuneration, 25% STI and 15% LTI to compensate for the introduction of STI deferral.

Annual Report 2012

Directors’ report for the year ended 30 June 2012

1. Executive remuneration governance and structure (continued)

1.4 Decisions and actions taken during FY12 (continued)

1.4.2 Proposed remuneration framework changes for FY13 (continued)

Charter Hall will continue to regularly review its remuneration policies to ensure that they remain appropriate and enable the Group to attract, motivate and retain the services of highly qualified employees and executives necessary for the Group to be able to achieve its strategic objectives and maximise securityholder value.

1.5 FY12 Remuneration philosophy and guiding principles

Charter Hall’s remuneration philosophy is aimed at rewarding outperformance. This is achieved by attracting and retaining talented people who are motivated to achieve challenging performance targets aligned with both the business strategy and the long-term interests of securityholders.

The following diagram illustrates the link between business strategy and remuneration outcomes:

Charter Hall Business Strategy

Key strategic goals:

Deliver top quartile returns vs A-REIT 200;
Recycle equity into higher yielding investments;
Grow sustainable earnings (>80% annuity earnings);
Develop a scalable and efficient platform; and
Recruit, retain and motivate a high performance team.

Charter Hall Remuneration Strategy Create sustainable securityholder value by:

Assessing performance and STI plan outcomes against financial and non-financial KPIs linked to strategy;
Deferring a portion of STI into equity for the JMDs and Divisional Heads;
Aligning LTI performance hurdles with securityholders’ expected returns; and
Attract, retain and motivate talent by: ◆ Rewarding superior performance; ◆ Offering competitive total remuneration; ◆ Creating retention mechanisms; and
Ensuring remuneration strategy is simple, transparent and consistent.
Ensuring a significant ‘at risk’ component of total remuneration.

Charter Hall Remuneration Components	Charter Hall Remuneration Components
Fixed		STI		LTI
◆	Set at the median of the Australian	◆	Size of the STI pool is linked to the	◆	LTI targets have direct links to
	market using external benchmarking		achievement of a target OEPS number;		securityholder value creation;
	data;	◆	STI targets are linked to KPIs which	◆	Ensures participants only receive a
◆	Comprises cash salary, superannuation		include performance targets of the		beneft when Charter Hall achieves
	and packaged benefts;		Group, Division and individual;		challenging TSR targets;
◆	Refects responsibilities, performance,	◆	Financial measures relate to EPS,	◆	Performance measures based on
	qualifcations and experience;		investment earnings and reduction		Relative Performance and Absolute TSR;
◆	Consideration is given to external and		in operating expenses;	◆	Delivered as performance rights;
◆	internal relativities; and Reviewed annually.	◆ ◆	Non-fnancial measures relate to strategy, people, stakeholder and operational excellence; Targets are split 50/50 fnancial and non-fnancial; and	◆ ◆	Three year performance measurement period; and Capped at 10% of fully diluted securities on issue.
		◆	Partial deferral into service rights
			over twoyears.

Charter Hall Group

1.6 Reported Executive remuneration mix

The table below represents the target remuneration mix for KMP in FY12. The variable STI is ‘at target’, whilst the LTI represents the dollar value awarded for allocation purposes.

JMDs CFO Other KMP	Not ‘at risk’ Fixed Remuneration 50% 50% 60%	‘At risk’	‘At risk’
		STI 25% 25% 20%	LTI
			25%
			25%
			20%

In FY13, the Other KMP remuneration mix will be reweighted by moving a percentage from LTI to STI to accommodate the introduction of the STI deferral, going to a mix of 60% fixed remuneration, 25% STI and 15% LTI.

2. Executive remuneration components and outcomes

Executive remuneration is structured as a mixture of fixed and variable ‘at risk’ STI and LTI components. While fixed remuneration is designed to provide a predictable base level of remuneration, the STI and LTI components reward executives when challenging measures are met or exceeded.

The components of the JMD’s remuneration packages are substantially the same as the other executives. However, there are differences in the quantum, delivery and timing for the JMDs due to the unique nature of their responsibilities and the central role they play in implementing the strategic direction of the Group. Where the JMD remuneration approach differs from the Reported Executives remuneration it is noted below.

2.1 Fixed Remuneration

Composition Review process Benchmarking and peer comparisons JMD benchmarking Fixed Remuneration Outcomes	Fixed remuneration comprises cash base salary, statutory superannuation contributions and other nominated benefts (such as car parking, novated leases and additional superannuation contributions).
	Fixed remuneration is targeted at the median of the market and is reviewed annually, effective 1 July, benchmarked against equivalent roles in the market recognising: ◆Individual performance; ◆The competitive market environment for each individual’s skills and capabilities; ◆Internal relativities; and ◆Gender pay equality.
	Benchmarking is challenging, as there are few companies that replicate Charter Hall’s business model. The following comparator groups represent our competitors for capital or for talent: ◆Market capitalisation group: based on S&P/ASX 200 companies within 50% to 200% of Charter Hall’s market capitalisation ◆Industry related companies: based on entities in the S&P/ASX 200 Australian Real Estate and Investment Trust (A-REIT) industry group, excluding Westfeld which was not considered to be a comparator due to its scale.
	Given the unique nature of these positions, the Board references the remuneration paid to the comparator group CEOs and the ‘next highest paid senior executive’ (excluding the CFO) when setting their remuneration.
	In FY12 there were no increases for the JMDs and fxed remuneration increases for all other employees averaged 4%. In FY13 the Board has determined no fxed remuneration increases will be awarded to JMDs and Senior Executives. Fixed remuneration increases for all other employees averaged 3% overall.

2.2 Short Term Incentives (STI)

Purpose Participants	The STI is an ‘at-risk’ incentive awarded annually designed to reward executives subject to performance against agreed fnancial and non-fnancial Key Performance Indicators (KPI)s.
	All permanent employees with greater than three months service at the end of the calendar year. STI awards are pro-rated based on the amount of service within the year.

Annual Report 2012

Directors’ report for the year ended 30 June 2012

2. Executive remuneration components and outcomes (continued)

2.2 Short Term Incentives (STI) (continued)

Delivery Determining STI pools Performance targets Short term performance	For Reported and Senior Executives the STI is delivered in the form of cash (50%) and service rights (50%) deferred equally over two years. The number of rights to be issued will be determined by dividing the dollar value of the relevant STI entitlement by the independently valued fair value of CHC securities based on the volume-weighted average price (VWAP) over the fve working days prior to the issue date of STI for staff (in FY12 this was 29 August 2012). If an Executive ceases employment prior to expiry of the relevant 12 month period, the equity rights will be forfeited. For all other employees the STI is delivered as cash.
	Subject to an overall cap, the size of the pool is determined by the Board, upon advice from the Remuneration and Human Resources Committee, based on achieving a targeted OEPS number. The Board retains discretion to increase or decrease the overall STI pool available, based on its assessment of the overall performance throughout the year.
	The STI measures are set to ensure appropriate focus on achievement of Group, divisional and individual performance targets that are aligned with implementation of Charter Hall’s overall strategy. KPIs in FY12 were split 50% fnancial and 50% non-fnancial and are based on a Balanced Scorecard approach which encourages executives to take a holistic approach to enhancing and protecting shareholder value. In FY12, the Group’s fnancial target was an OEPS of 21.9 cents.
	In FY12, Charter Hall’s operating earnings per security (OEPS) before specifc items was 21.5c, which was broadly consistent with target. However, OEPS after specifc items was 18.6c, which included the net CQO divestment fees after the costs of closing the US offce; Group restructuring costs; and the one off provision for the possibility of a clawback of previously paid performance fees relating to Charter Hall Opportunity Fund 4. Taking the above into consideration, the Board and management considered it appropriate to apply restraint in relation to payment of STI refecting its focus on cost control and appropriate reward for performance allowing for the impact of the specifc items referred to above. This ensured that STI outcomes were directlyaligned with Group performance.

FY12 STI assessment – JMDs

The JMDs have a financial gateway of 95% of target OEPS which must be achieved before any STI becomes available to be awarded. The Board, in consultation with the Remuneration and Human Resources Committee, assesses the Group’s financial performance and the performance of the JMDs against agreed KPIs. Although the financial gateway of 95% of target OEPS before specific items was achieved, it was considered appropriate that no STI be awarded in FY12 taking into account the effect of specific items on the OEPS.

The JMDs’ KPIs for FY12 are summarised below:

Measure Financial 50% Non-fnancial 50%	KPI Including EPS at each of CHC, CHOT and CQR, maximising co-investment earnings in funds, and reduction of operatingexpenses Strategic measures (15%) – in relation to the business strategy, businessplan and sustainabilitytargets People measures (15%) – in relation to enhancing the organisational structure, employee engagement and increasing the number of women in leadership positions Stakeholder measures (10%) – including stakeholder management and communication, fundraising and building Charter Hall’s brand and value Operational excellence measures (10%) – including risk management, governance and business development	Status
		Partially achieved
		Achieved
		Partially Achieved
		Partially Achieved
		Partially achieved

FY12 STI assessment – other KMP

Other employees did not have a gateway for their STI in FY12. 30% of the target STI pool was made available for the achievement of non-financial KPIs which represented 50% of the Balanced Scorecard. Similar KPIs applied to other KMPs focused on individual areas of accountability.

In view of the reduced size of the FY12 STI awarded, the Board decided that no FY12 STI would be deferred for Reported and Senior Executives. Deferral of one-third of STI will occur in FY13. Details of the STI awarded for FY12 are provided in the following table:

Charter Hall Group

Table 2.2.a. Reported Executives STI outcomes in FY12 (statutory accounting)

FY12
Name Executive directors D Harrison D Southon Other keymanagementpersonnel P Altschwager1 N Devlin S Dundas A Glass N Kelly S Sewell R Stacker A Taylor	STI Earned $ – – – 34,322 65,196 48,539 48,588 – 65,193 92,456	Paid in Cash $ – – – 34,322 65,196 48,539 48,588 – 65,193 92,456	Target STI % of Fixed Pay % 50 50 50 33 33 33 33 33 33 33	% STI earned of Target % – – – 38 45 27 32 – 45 45	% STI forfeited of target %

					100
					100

					100
					62
					55
					73
					68
					100
					55
					55

Paul Altschwager commenced on 27 February 2012 and will not be eligible to receive an STI until FY13.

2.3 Long Term Incentives (LTI)

Purpose Participants Type of equity awarded Number of instruments awarded Valuation Performance hurdles (equally weighted) and vesting schedule	The LTI aligns key employee rewards with sustainable growth in securityholder value over time. It also plays an important role in staff retention.
	Reported Executives, Senior Executives and Fund Managers.
	The LTI is governed by the Performance Rights and Options Plan (PROP), under which either rights or options to securities are granted to participants. From FY12, all grants under the PROP comprised Performance Rights only (i.e. no Options). Each Performance Right entitles the participant to one security in the Charter Hall Group for nil consideration at the time of vesting subject to meeting the performance hurdles outlined below. Details of specifcgrants made to Reported Executives for FY12 are provided in Section 5 of the report.
	The aggregate number of offers that can be made under the PROP and the discontinued ELSP scheme, excluding those issued to Executive Directors, is limited to 10% of issued stapled securities of the Group. At 30 June 2012, LTI schemes accounted for 3% of the issued securities (note 27 in the fnancial statements) made up of: ◆5,412,897 performance rights; ◆6,229,835 options; and ◆589,213 service rights. These include securityholder approved issues of securities to Executive Directors.
	The value of an executive’s annual LTI grant is a set percentage of their Fixed Remuneration. In FY12 the number of rights granted to an executive was determined based on an independent fair value calculation by Deloittes using the Monte Carlo simulation valuation method which is consistent with the accounting fair value standard AASB 2. For FY13, the Board has resolved that the allocation methodology for any future LTI award will be valued using the Black-Scholes methodology and will continue to be valued for accounting purposes usinga Monte Carlo simulation valuation.
	For the FY12 LTI allocation, the two performance hurdles that applied to the Performance Rights for vesting over a three year period commencing 1 July 2011 were: ◆Absolute TSR (50%)– vesting occurs on a linear basis if the total return is between 10% and 12% per annum, starting at 50% vesting at the lower end of the range and 100% vesting at the higher end of the range;

Relative Return (50%) – vesting occurs on a linear basis if the total compounded return is between the S&P/ASX 200 A-REIT Accumulation Index (XPJAI) and 1.10 times that number. Vesting starts at 50% at the lower end of the range and 100% will vest at the higher end of the range.

Any Performance Rights that fail to meet these performance hurdles by 1 July 2014 will lapse.

Annual Report 2012

Directors’ report for the year ended 30 June 2012

2. Executive remuneration components and outcomes (continued)

2.3 Long Term Incentives (LTI) (continued)

Rationale for performance conditions

Charter Hall’s approach to linking individual executive performance and Group performance to the vesting of equity rights is in line with market practice. The conditions are aimed at linking the retention and remuneration of the executive directly to rewards where securityholder returns are delivered. The focus on employee-held equity is also part of a deliberate policy to strengthen engagement and direct personal interest to the provision of returns for securityholders.

TSR measures the overall returns that a company has provided for its shareholders, reflecting share price movements and reinvestment of dividends over a specified period. Relative TSR is the most widely used LTI hurdle adopted in Australia and ensures that value is only delivered to participants if the investment return actually received by CHC securityholders is sufficiently high relative to the return they could have received by investing in a portfolio of alternative A-REIT sector stocks over the same period.

During the year the Board considered an alternate measure to Absolute TSR. The Absolute TSR hurdle has been retained as it provides a strong link to Charter Hall’s business model of co-investing in managed funds with absolute and total return targets. In FY13 the Absolute Hurdle will increase from a range of 10% to 12% per annum to a range of 10% to 13% per annum.

Cessation of employment provisions

For the FY12 LTI allocation, the following provisions apply in the case of cessation of a participant’s employment:

Misconduct: all unvested Performance Rights are forfeited unless the Board determines otherwise;
Resignation or where a participant breaches a post-termination restriction in their employment contract: all unvested Performance Rights are forfeited unless the Board determines otherwise; and

◆ All other leavers: all unvested Performance Rights lapse with effect from the date of cessation of employment, unless the Board allows part or all to vest early or remain on foot subject to the original terms of grant.

Hedging and margin lending prohibitions

Legacy programs

Long term performance outcomes

In accordance with the Corporations Act 2001 all key management personnel are prohibited from hedging or otherwise protecting the value of unvested securities.

The LTI is currently provided by participation in the PROP. Some personnel still have an interest in the LTI plan previously offered by Charter Hall, the Employee Loan Securities Plan (ELSP), which was suspended from 1 July 2009. Further details are set out in Note 41 of the financial statements.

The following graph demonstrates how the Company’s TSR (including share price movements and dividends) has performed relative to the ASX A-REIT Accumulation Index:

Figure 1: Charter Hall’s 7 year (since listing) cumulative Total Securityholder Return performance

==> picture [440 x 192] intentionally omitted <==

----- Start of picture text -----

500%
450% CHC
A-REIT Accumulation Index
400%
350%
300%
250%
200%
150%
100%
50%
Jun 05 Jun 06 Jun 07 Jun 08 Jun 09 Jun 10 Jun 11 Jun 12
----- End of picture text -----

Charter Hall Group

Long term performance outcomes (continued)

Relative performance

Charter Hall has performed generally in line with the A-REIT sector except in FY09 when it underperformed for most of that year. On acquisition of the majority of the Macquarie real estate funds management platform in March 2010, Charter Hall initially performed ahead of and more recently in line with the A-REIT Index. In the 12 months to 30 June 2012, Charter Hall has outperformed its peers in the S&P/ASX 200 A-REIT Accumulation Index by 3.4%.

Absolute performance

For the three years to June 2012, Charter Hall has achieved a combined average growth rate of 15% per annum based on an accumulation basis. This is based on a weighted average security price (VWAP) of $1.82 for the month of July 2009, a 30 June 2012 closing security price of $2.27 and cumulative distributions over the three years of 47.5 cents. This performance is in excess of the outperformance hurdle of 12%.

LTI outcomes:

The LTI vesting conditions for the Reported Executives provide a clear link to long-term total securityholder returns of Charter Hall. There is a direct correlation between the absolute underperformance of Charter Hall and the fact that until 30 June 2011, no LTI benefit had vested for any executive.

The following LTI outcomes occurred in FY12:

FY10 PROP – Based on the achievement of performance hurdles, the FY10 issue of the PROP has fully vested. This plan had its first vesting date on 1 July 2011 and its second vesting date on 1 July 2012. Both the relative and absolute outperformance hurdles were achieved.
FY11 PROP – The first tranche of the FY11 PROP had a vesting date on 1 July 2012, by which date Charter Hall had not met the target performance hurdles. Under the plan rules, any rights or options that did not vest on the first vesting date, are carried over to be re-tested with the second tranche on 1 July 2013.

Further details of LTI grants under the PROP and ELSP are set out in Section 5 of this report.

2.4 Group performance and Total Remuneration Outcomes

The tables below provide information on Charter Hall’s performance against key metrics over the last five years and the relationship to Reported Executive Total Remuneration, both fixed and ‘at risk’. Charter Hall’s Short Term Incentive is weighted towards growth in operating earnings per security (OEPS) and the Long Term incentive provides an important link between remuneration and Total Securityholder Return.

Table 2.4.a. Charter Hall 5 year performance

Key Performance Metrics StatutoryEarnings(Loss) per Security (cps) StatutoryNet Proft(Loss)after Tax($’000s) OEPS before specifc items(%)1 Growth (Decline) in OEPS before specifc items onprioryear(%) OperatingProft before specifc items($’000s) Total Distributionper Security (cps) Security price at 30 June Total Securityholder Return (Loss) – July-June (%)	FY08 65.23 67,498 50.96 34.0 52,742 50.4 3.94 (58.4)	FY09 (71.90) (82,222) 30.44 (40.3) 34,828 19.8 2.00 (44.6)	FY10 3.22 6,840 16.83 (44.7) 35,781 12.8 2.40 26.4	FY11 17.85 52,338 20.60 22.4 60,422 16.5 2.15 (3.5)	FY12
					5.64
					16,678
					21.51
					4.4%
					63,586
					18.2
					2.27
					14.0%

A key performance metric for the Group, operating earnings per security (OEPS), before specific items, was 21.5 cents, which represented an increase of 4.4% on the prior corresponding period and was consistent with market guidance. However, the Board recognise net OEPS after specific items was 18.6 cents, down 9.7% on the prior corresponding period. Reflecting this performance, the Board and management considered it appropriate to apply restraint in relation to remuneration.

Annual Report 2012

Directors’ report for the year ended 30 June 2012

2. Executive remuneration components and outcomes (continued)

2.4 Group performance and Total Remuneration Outcomes (continued)

Table 2.4.b. Reported Executive Total Remuneration

Remuneration Summary Fixedpayments($) STI accountingexpense($) LTI accountingexpense($)1 Earned remuneration($)2 ‘At target’ remuneration($)3 Earned remuneration relative to target remuneration – Over/(Under) (%)	FY08 2,334,122 1,295,000 1,746,376 5,375,498 4,049,474 33	FY09 3,415,610 105,000 137,2474 3,657,857 6,074,372 (40)	FY10 3,991,129 3,194,100 794,115 7,979,344 7,268,548 10	FY11 6,236,089 1,640,944 1,866,842 9,743,875 11,238,415 (13)	FY12
					5,340,202
					354,294
					1,680,857
					7,375,353
					9,350,464
					(21)

The LTI expense attributed to the Reported Executives reflects the statutory accounting expense under AASB 2.
Earned remuneration for the Reported Executives is the sum of their Fixed Payments, the STI accounting expense and the LTI accounting expense.
Target remuneration is calculated based on the split of remuneration for the JMDs of 50/25/25 and the Other KMP of 60/20/20. Changes to the composition of the KMP (see Section 1.3) are reflected in the target remuneration number for FY12. Scott Dundas and Paul Altschwager became KMPs part-way through the year and their numbers are based on actual figures earned. Steven Sewell resigned and left the Group on 17 February 2012.
One of the FY09 LTI vesting measures was an EPS target. The target was not achieved and the LTI expense was reversed.

2.5 Security Holdings

Table 2.5. Reported Executive Security Holdings

FY12
Name Directors of Charter Hall Limited Ordinarysecurities K Roxburgh R Woodhouse A Brennan D Deverall G Fraser D Harrison P Kahan C McGowan D Southon Other keymanagementpersonnel of the Group P Altschwager N Devlin S Dundas A Glass N Kelly R Stacker A Taylor	Opening balance 31,250 21,429 30,000 – 156,934 2,429,540 – – 2,461,161 – – – – 55,343 – –	Purchased/ (Sold) during the year – – – 15,287 (86,934) (416,234) – – (90,980) – – – (36,392) (81,246) – –	LTI securities vesting/ (forfeited) during the year – – – – – 222,664 – – (95,372) – – – 36,392 50,058 – –	Closing balance


				31,250
				21,429
				30,000
				15,287
				70,000
				2,235,970
				–
				–
				2,274,809

				–
				–
				–
				–
				24,155
				–
				–

Charter Hall Group

3. Executive remuneration in detail

3.1 Total remuneration of Executives

Details of the FY12 remuneration of the Reported Executives are provided in the following tables.

Table 3.1.a. Reported Executives of the Group and Company FY12 (statutory accounting)

FY12 Name Executive directors C Fuchs1 D Harrison D Southon Other key management personnel P Altschwager2 N Devlin S Dundas3 A Glass N Kelly S Sewell4 R Stacker A Taylor Totals	Short-term benefts Post- employment benefts Share- based payment Other
	Salary and fees $ Short-term incentive $ Super- annuation $ Securities, options and performance rights $ Annual Leave and Long Service Leave $ Non- monetary benefts5 $ Total $ % of Total Remuneration consisting of options/rights

	118,427 – 6,573 52,952 (765) 9,083 186,271 28
	1,034,225 – 15,775 503,059 45,949 32,299 1,631,307 31
	1,034,225 – 15,775 503,059 21,717 22,699 1,597,475 31

	235,970 – 3,944 142,311 18,243 – 400,467 36
	259,225 34,322 15,775 42,180 (4,160) – 347,342 12
	70,728 65,196 1,503 12,783 14,202 – 164,412 8
	530,225 48,539 15,775 132,340 4,665 – 731,544 18
	450,486 48,588 15,775 111,518 30,008 – 656,375 17
	385,210 – 11,831 (110,694) (48,818) – 237,529 (47)
	424,225 65,193 15,775 113,875 40,042 – 659,111 17
	608,225 92,456 15,775 177,473 42,697 – 936,626 19
	5,151,170 354,294 134,277 1,680,857 163,779 64,082 7,548,459 22

C Fuchs retired as a Director of Charter Hall on 24 November 2011, however remained an employee throughout the year. KMP remuneration reflected in the table above represents all remuneration receipts to 24 November 2011.
P Altschwager commenced employment on 27 February 2012.
S Dundas became a KMP on 14 May 2012.
S Sewell ceased employment with Charter Hall on 17 February 2012.
Non-monetary benefits include motor vehicle costs and associated FBT.

Annual Report 2012

Directors’ report for the year ended 30 June 2012

3. Executive remuneration in detail (continued)

3.1 Total remuneration of Executives (continued)

Table 3.1.b. Reported Executives of the Group and Company FY11 (statutory accounting)

FY11 Name Executive directors C Fuchs D Harrison D Southon Other key management personnel J Bakker1 A Glass N Kelly S Sewell R Stacker A Taylor M Winnem1 Totals	Short-term benefts Post employment benefts Share- based payment Other
	Salary and fees $ Short-term incentive $ Super- annuation $ Securities, options and performance rights $ Annual Leave and Long Service Leave $ Total $ % of Total Remuneration consisting of options/rights

	384,801 86,425 49,999 109,944 18,206 649,375 17
	1,034,801 262,500 15,199 412,387 26,017 1,750,904 24
	1,034,801 262,500 15,199 412,387 (31,247) 1,693,640 24

	634,801 158,700 15,199 262,909 (5,000) 1,066,609 25
	509,801 126,000 15,199 146,663 (4,039) 793,625 18
	434,801 90,000 25,000 120,699 12,116 682,615 18
	584,801 220,000 18,999 108,124 (10,776) 921,148 12
	384,801 150,000 27,886 64,906 (6,497) 621,096 10
	584,801 220,000 15,199 108,124 6,532 934,656 12
	434,801 64,819 15,199 120,699 (18,463) 617,055 20
	6,023,010 1,640,944 213,079 1,866,842 (13,151) 9,730,725 19

Jelte Bakker and Michael Winnem ceased being KMP on 30 June 2011.

3.2 JMD loan arrangements

As disclosed in previous remuneration reports, each of the JMDs entered into a loan agreement with Charter Hall Limited in 2005 in relation to the purchase of 2,500,000 (now 625,000 following the one for four security consolidation in FY11) listed securities in Charter Hall Group. The securities purchased using the loans are not reflected in the LTI amounts for the JMDs. These securities were not issued as part of any remuneration arrangements. The terms of the loans were renegotiated in FY11. Further information about these loans is included in Note 30 of the financial statements.

Charter Hall Group

3.3 Key terms of employment

3.3.1. Current Executives

The remuneration and other terms of employment for Reported Executives are formalised in employment agreements. Each of these agreements provides for participation in the Group’s STI and LTI programs (as described above) and payment of other benefits (including car allowances).

The terms and conditions of employment of each executive reflect market conditions at the time of their contract. All Reported Executives’ contracts are ongoing in duration. The material terms of the employment agreements for the JMDs and Senior Executives are summarised below:

Name David Harrison David Southon Paul Altschwager Natalie Devlin Scott Dundas Andrew Glass Nick Kelly Richard Stacker2 Adrian Taylor3	Position Joint ManagingDirector Joint ManagingDirector GroupChief Financial Offcer Head of People Fund Manager – Charter Hall Retail REIT Head of Wholesale Pooled Funds Head of Investor Relations Head of Direct – Charter Hall Direct Property Head of Wholesale Partnerships – Charter Hall Offce Trust	Minimum Notice Period1	Minimum Notice Period1
		Employee 3 months 3 months 3 months 1 month 3 months 3 months 4 weeks 3 months 3 months	Charter Hall
			3 months
			3 months
			6 months
			1 month
			6 months
			3 months
			4 weeks
			3 months
			3 months

No notice period is required for termination by the Company for serious or wilful misconduct by the employee.
Termination payments under Richard Stacker’s contract equals six months base salary plus one month per year of service to a maximum of 12 months base salary.
Termination payments under Adrian Taylor’s contract equals nine months base salary plus one month per year of service to a maximum of 12 months base salary.

Other than as described above, the Reported Executives’ contracts do not provide for any termination benefits aside from payment in lieu of notice (where applicable). Treatment of unvested incentives is dealt with in accordance with the terms of grant (refer to STI and LTI discussion in the section above).

3.3.2. Former executives

Steven Sewell resigned on 3 January 2012 and ceased employment with the Group on 17 February 2012. He received no payments upon cessation of employment with the Group, other than statutory entitlements.

4. Non-Executive Director remuneration

4.1 Policy

The Remuneration & Human Resources Committee makes recommendations to the Board on the total level of remuneration of the Chairman, Deputy Chairman and other non-executive directors (NEDs); including any additional fees payable to directors for membership of Board committees.

Fees are set by reference to the following considerations:

Industry practice and best principles of corporate governance;
Responsibilities and risks attaching to the role of NED;
The time commitment expected of NEDs on Group matters; and
Reference to fees paid to NEDs of other comparable companies.

The Board, through the Remuneration & Human Resources Committee, reviews periodically its approach to NED remuneration to ensure it remains in line with general industry practice and reflects proper compensation for duties undertaken. External independent advice is sought in these circumstances.

Annual Report 2012

Directors’ report for the year ended 30 June 2012

4. Non-Executive Director remuneration (continued)

4.2 Fee framework

NED fees, including committee fees, are set by the Board within the aggregate amount approved by shareholders. Currently, the aggregate amount is $1,000,000 per annum, which was approved by securityholders at the 2011 Annual General Meeting.

The increase to the NED fee pool at the 2011 Annual General meeting was to facilitate the payment in FY12 of two additional NEDs: Mr David Deverall who was appointed on 7 May 2012; and Mr Peter Kahan, who became entitled to earn a Director’s fee from 1 October 2011. The total amount paid to NEDs in FY12 was $821,397.

Under the current framework, NEDs receive:

Board base fee;
Committee fees; and
Superannuation.

The Chairman of the Board receives a loading of 100% in recognition of the additional demands and responsibilities of the role. The Deputy Chairman does not receive a loading. NEDs are also entitled to be reimbursed for all business related expenses, including travel on Charter Hall business, as may be incurred in the discharge of their duties in accordance with Charter Hall’s Constitution.

In accordance with principles of good corporate governance, NEDs do not receive any benefits upon retirement under any retirement benefits schemes (other than statutory superannuation) and NEDs are not eligible to participate in any of Charter Hall Group’s employee incentive schemes.

In FY12 there was no increase to NED fees.

Details of the current fee structure are set out in the table below. Disclosure of NED remuneration for FY12 is set out section 4.3. below.

Table 4.2. Summary of fee framework

Table 4.2. Summary of fee framework
Board Chair Non-Chair Audit Risk and Compliance Committee Chair Non-Chair Remuneration and Human Resources Committee Chair Non-Chair Nomination Committee Chair Non-Chair Valuation Committee1	FY12 200,000 100,000 20,210 13,475 20,210 13,475 2,000 2,000 8,800	FY11

		200,000
		100,000

		20,210
		13,475

		20,210
		13,475

		2,000
		2,000
		8,800

The valuation committee comprises one Non-Executive Director.

Charter Hall Group

4.3 Total remuneration details

Table 4.3.1. Non-Executive Director remuneration FY12 (statutory accounting)

FY12
Name Non-Executive Directors K Roxburgh – Chairman R Woodhouse – DeputyChairman A Brennan D Deverall G Fraser1 P Kahan C McGowan Total	Salary and fees $ 203,644 105,940 122,647 14,780 131,451 75,000 108,500 761,962	Superannuation $ 11,831 9,535 11,038 1,330 9,926 – 15,775 59,435	Total $

			215,475
			115,475
			133,685
			16,110
			141,376
			75,000
			124,275
			821,397

Glenn Fraser received $21,167 for additional consulting services provided to the various Group Audit, Risk and Compliance Committees.

Table 4.3.2. Non-Executive Director remuneration FY11 (statutory accounting)

FY11
Name Non-Executive Directors K Roxburgh – Chairman R Woodhouse – DeputyChairman A Brennan3 P Derrington2 G Fraser P Kahan C McGowan Total	Salary and fees1 $ 224,550 111,701 67,746 34,648 97,737 – 83,725 620,107	Superannuation $ 14,769 11,024 6,097 3,906 29,678 – 47,000 112,474	Total $

			239,319
			122,725
			73,843
			38,554
			127,415
			–
			130,725
			732,581

Fees paid include a one-off payment for additional work relating to the Macquarie Acquisition.
Patrice Derrington resigned on 10 November 2010.
Anne Brennan commenced on 6 October 2010.

Annual Report 2012

Directors’ report for the year ended 30 June 2012

5. Appendix – Further detail on Long Term Incentives

5.1 Performance Rights and Options Plan details

Table 5.1.a. Performance rights and options issued under the PROP

Performance Rights Year of issue FY10 FY11 FY121 Total performance rights issued Options Year of issue FY10 FY10 FY11 FY11 Total options issued Service Rights Year of issue FY11 FY12 FY12 Total service rights issued	Securities 582,340 1,358,890 3,471,667 5,412,897 Securities 2,832,178 678,516 2,595,744 123,397 6,229,835 Securities 157,697 171,462 260,054 589,213	Exercise price Nil Nil Nil Exercise price $1.94 $2.80 $2.44 $2.35 Exercise price Nil Nil Nil
			Vesting conditions
			Absolute and relativeperformance criteria described above
			Absolute and relativeperformance criteria described above
			Absolute and relativeperformance criteria described above


			Vesting conditions
			Absolute and relativeperformance criteria described above
			Absolute and relativeperformance criteria described above
			Absolute and relativeperformance criteria described above
			Absolute and relativeperformance criteria described above


			Vesting conditions
			Service conditions
			Service conditions – JMD Deferred STI
			Service conditions – CFO Sign-on

The increase from FY11 to FY12 reflects the move from 50% performance rights and 50% options to 100% performance rights in FY12.

Charter Hall Group

Valuation Model Inputs

The Black-Scholes or Monte Carlo method, as applicable, is utilised for valuation and accounting purposes. The model inputs for the PROP performance rights and options plan issued during FY09, FY10, FY11 and FY12, and to assess the fair value, are as follows:

Options Grant date Security price atgrant date Fair Value of Option Exercisepriceper security Expiryof loan Expectedprice volatility Risk-free interest rate Performance Rights Grant date Security price atgrant date Fair Value of Right Expectedprice volatility Risk-free interest rate Service Rights Grant date Security price atgrant date Fair Value of Right* Expectedprice volatility Risk-free interest rate	13/11/09 $2.40 $0.39 $1.94 1/7/14 40% 5.5% 22/12/08 $1.20 $0.64 59% 3.2% 6/9/10 $2.44 $2.06 40% 5.5%	18/6/10 $2.80 $0.56 $2.80 18/6/15 40% 5.5% 13/11/09 $2.40 $1.07 40% 5.5% 22/5/12 $2.08 $1.87 35% 4.3%	6/9/10 $2.44 $0.51 $2.44 6/9/15 40% 5.5% 18/6/10 $2.80 $1.52 40% 5.5% 22/5/12 $2.17 $1.53 30% 3.7%	11/11/10 $2.44 $0.51 $2.44 6/9/15 40% 5.5% 6/9/10 $2.44 $1.33 40% 5.5%	11/1/11 $2.35 $0.49 $2.35 6/9/16 40% 5.5% 19/11/10 $2.44 $1.33 40% 5.5%
						17/1/12
						$2.10
						$0.94
						39%
						3.9%

Security prices for prior years have been restated for the unit consolidation during FY11.

Table 5.1.b. Performance rights and options issued to Reported Executives

	Performance	Performance	Performance	Total				Service	Total
	Rights	Rights	Rights	Performance	Options	Options	Total	Right	Service
	FY10	FY11	FY12	Rights	FY10	FY11	Options	FY12	Rights
Executive Directors
C Fuchs	22,522	61,540	107,419	191,481	80,515	153,848	234,363	–	–
D Harrison	96,520	201,924	564,517	862,961	345,060	504,808	849,868	85,731	85,731
D Southon	96,520	201,924	564,517	862,961	670,314	504,808	1,175,122	85,731	85,731
Key management
personnel
P Altschwager	–	–	–	–	–	–	–	260,054	260,054
N Devlin	–	10,897	97,581	108,478	–	27,243	27,243	–	–
S Dundas	35,752	–	107,527	143,279	89,252	–	89,252	–	–
A Glass	38,608	50,483	141,130	230,221	268,128	126,204	394,332	–	–
N Kelly	30,886	43,272	120,968	195,126	162,500	108,176	270,676	–	–
S Sewell	–	–	–	–	–	–	–	–	–
R Stacker	53,628	–	157,549	211,177	133,876	–	133,876	–	–
A Taylor	89,252	–	223,433	312,685	223,252	–	223,252	–	–

Note: Performance Rights and Options issued to the ex-Macquarie KMP who joined Charter Hall in 2010 were issued in June 2010, in respect of the 2011 financial year.

Annual Report 2012

Directors’ report for the year ended 30 June 2012

5. Appendix – Further detail on Long Term Incentives (continued)

5.1 Performance Rights and Options Plan details (continued)

Table 5.1.c. Reported Executives Performance Rights and Options – details by plan

Executive Directors C Fuchs D Harrison D Southon	Type of Equity LTI Performance Rights LTI Performance Rights LTI Performance Rights LTI Performance Rights LTI Performance Rights LTI Performance Rights LTI Options LTI Options LTI Options LTI Options LTI Performance Rights LTI Performance Rights LTI Performance Rights LTI Performance Rights LTI Performance Rights LTI Performance Rights LTI Options LTI Options LTI Options LTI Options LTI Service Rights LTI Performance Rights LTI Performance Rights LTI Performance Rights LTI Performance Rights LTI Performance Rights LTI Performance Rights LTI Options LTI Options LTI Options LTI Options LTI Service Rights	Rights previously granted 12,621 21,876 21,876 30,770 30,770 – 78,204 78,204 76,924 76,924 100,962 93,750 93,750 100,962 100,962 – 335,157 335,157 252,404 252,404 – 100,962 93,750 93,750 100,962 100,962 – 335,157 335,157 252,404 252,404 –	Rights granted during the year – – – – – 107,419 – – – – – – – – – 564,517 – – – – 85,731 – – – – – 564,517 – – – – 85,731	Rights held at 30 June 2012 – 646 21,876 30,770 30,770 107,419 2,311 78,204 76,924 76,924 – 2,770 93,750 100,962 100,962 564,517 9,903 335,157 252,404 252,404 85,731 – 2,770 93,750 100,962 100,962 564,517 335,157 335,157 252,404 252,404 85,731	Grant Date

					22-Dec-08
					13-Nov-09
					13-Nov-09
					19-Nov-10
					19-Nov-10
					17-Jan-12
					13-Nov-09
					13-Nov-09
					11-Nov-10
					11-Nov-10
					22-Dec-08
					13-Nov-09
					13-Nov-09
					19-Nov-10
					19-Nov-10
					17-Jan-12
					13-Nov-09
					13-Nov-09
					11-Nov-10
					11-Nov-10
					22-May-12
					22-Dec-08
					13-Nov-09
					13-Nov-09
					19-Nov-10
					19-Nov-10
					17-Jan-12
					13-Nov-09
					13-Nov-09
					11-Nov-10
					11-Nov-10
					22-May-12

Tranche 2 of the FY10 Issue of the Performance Rights and Option Plan fully vested on 1 July 2012.
Tranche 1 of the FY11 Performance Rights and Options Plan did not meet its performance hurdles under the plan rules on 1 July 2012. All securities under this tranche are automatically carried over for retesting with Tranche 2 of this plan on 1 July 2013.
The maximum value of the grants yet to vest is the amount at the grant date fair value yet to be reflected in the Group's consolidated income statement. The minimum future value is $nil as the future performance and service conditions may not be met.
The intrinsic value at exercise date of options exercised by KMPs during the year were C Fuchs $14,420, D Harrison $81,314 and N Kelly $23,400. The Intrinsic value represents the closing trading price of CHC securities on the exercise date, less the strike price of $1.94 per security, multiplied by the number of options excercised.

Charter Hall Group

Fair value per right at grant date $0.64 $1.10 $1.03 $1.37 $1.29 $0.94 $0.39 $0.39 $0.51 $0.51 $0.64 $1.10 $1.03 $1.37 $1.29 $0.94 $0.39 $0.39 $0.51 $0.51 $1.53 $0.64 $1.10 $1.03 $1.37 $1.29 $0.94 $0.39 $0.39 $0.51 $0.51 $1.53	Option exercise price – – – – – – $1.94 $1.94 $2.44 $2.44 – – – – – – $1.94 $1.94 $2.44 $2.44 – – – – – – – $1.94 $1.94 $2.44 $2.44 –	No. vested and exercised during the year1,2,4 – 21,230 – – – – 75,893 – – – – 90,980 – – – – 325,254 – – – – – 90,980 – – – – – – – – –	No. forfeited during the year 12,621 – – – – – – – – – 100,962 – – – – – – – – – – 100,962 – – – – – – – – – –	Vesting Date 30-Sep-11 01-Jul-11 01-Jul-12 01-Jul-12 01-Jul-13 01-Jul-14 01-Jul-11 01-Jul-12 01-Jul-12 01-Jul-13 30-Sep-11 01-Jul-11 01-Jul-12 01-Jul-12 01-Jul-13 01-Jul-14 01-Jul-11 01-Jul-12 01-Jul-12 01-Jul-13 29-Aug-12 30-Sep-11 01-Jul-11 01-Jul-12 01-Jul-12 01-Jul-13 01-Jul-14 01-Jul-11 01-Jul-12 01-Jul-12 01-Jul-13 29-Aug-12	Option Expiry Date – – – – – – 13-Nov-14 13-Nov-14 06-Sep-15 06-Sep-15 – – – – – – 13-Nov-14 13-Nov-14 06-Sep-15 06-Sep-15 – – – – – – – 13-Nov-14 13-Nov-14 06-Sep-15 06-Sep-15 –	Maximum value to be realised in future years3

						–
						–
						–
						–
						15,025
						67,316
						–
						–
						–
						13,057
						–
						–
						–
						–
						49,301
						353,764
						–
						–
						–
						42,841
						–
						–
						–
						–
						–
						49,301
						353,764
						–
						–
						–
						42,841
						–

Annual Report 2012

Directors’ report for the year ended 30 June 2012

5.1 Performance Rights and Options Plan details (continued)

Table 5.1.c. Reported Executives Performance Rights and Options – details by plan (continued)

Type of Equity Keymanagementpersonnel P Altschwager LTI Service Rights LTI Service Rights N Devlin LTI Performance Rights LTI Performance Rights LTI Performance Rights LTI Options LTI Options S Dundas LTI Performance Rights LTI Performance Rights LTI Performance Rights LTI Options LTI Options A Glass LTI Performance Rights LTI Performance Rights LTI Performance Rights LTI Performance Rights LTI Performance Rights LTI Options LTI Options LTI Options LTI Options N Kelly LTI Performance Rights LTI Performance Rights LTI Performance Rights LTI Performance Rights LTI Performance Rights LTI Performance Rights LTI Options LTI Options LTI Options LTI Options R Stacker LTI Performance Rights LTI Performance Rights LTI Performance Rights LTI Options LTI Options A Taylor LTI Performance Rights LTI Performance Rights LTI Performance Rights LTI Options LTI Options	Rights previously granted – – 5,449 5,448 – 13,622 13,621 17,876 17,876 – 44,626 44,626 37,500 37,500 25,242 25,241 – 134,064 134,064 63,102 63,102 12,621 30,000 30,000 21,636 21,636 – 107,250 107,250 54,088 54,088 26,814 26,814 – 66,938 66,938 44,626 44,626 – 111,626 111,626	Rights granted during the year 130,027 130,027 – – 97,581 – – – – 107,527 – – – – – – 141,130 – – – – – – – – – 120,968 – – – – – – 157,549 – – – – 223,433 – –	Rights held at 30 June 2012 130,027 130,027 5,449 5,448 97,581 13,622 13,621 17,876 17,876 107,527 44,626 44,626 1,108 37,500 25,242 25,241 141,130 134,064 134,064 63,102 63,102 – 886 30,000 21,636 21,636 120,968 55,250 107,250 54,088 54,088 26,814 26,814 157,549 66,938 66,938 44,626 44,626 223,433 111,626 111,626	Grant Date

				22-May-12
				22-May-12
				06-Sep-10
				06-Sep-10
				17-Jan-12
				11-Jan-11
				11-Jan-11
				18-Jun-10
				18-Jun-10
				17-Jan-12
				18-Jun-10
				18-Jun-10
				13-Nov-09
				13-Nov-09
				06-Sep-10
				06-Sep-10
				17-Jan-12
				13-Nov-09
				13-Nov-09
				06-Sep-10
				06-Sep-10
				22-Dec-08
				13-Nov-09
				13-Nov-09
				06-Sep-10
				06-Sep-10
				17-Jan-12
				13-Nov-09
				13-Nov-09
				06-Sep-10
				06-Sep-10
				18-Jun-10
				18-Jun-10
				17-Jan-12
				18-Jun-10
				18-Jun-10
				18-Jun-10
				18-Jun-10
				17-Jan-12
				18-Jun-10
				18-Jun-10

Tranche 2 of the FY10 Issue of the Performance Rights and Option Plan fully vested on 1 July 2012.
Tranche 1 of the FY11 Performance Rights and Options Plan did not meet its performance hurdles under the plan rules on 1 July 2012. All securities under this tranche are automatically carried over for retesting with Tranche 2 of this plan on 1 July 2013.

Charter Hall Group

Fair value per right at grant date $1.87 $1.87 $1.37 $1.28 $0.94 $0.49 $0.49 $1.58 $1.46 $0.94 $0.56 $0.56 $1.10 $1.03 $1.37 $1.27 $0.94 $0.39 $0.39 $0.51 $0.51 $0.64 $1.10 $1.03 $1.37 $1.28 $0.94 $0.39 $0.39 $0.51 $0.51 $1.58 $1.46 $0.94 $0.56 $0.56 $1.58 $1.46 $0.94 $0.56 $0.56	Option exercise price – – – – – $2.35 $2.35 – – – $2.80 $2.80 – – – – $1.94 $1.94 $2.44 $2.44 – – – – – – $1.94 $1.94 $2.44 $2.44 – – – $2.80 $2.80 – – – $2.80 $2.80	No. vested and exercised during the year1,2,4 – – – – – – – – – – – – 36,392 – – – – – – – – 29,114 – – – – 52,000 – – – – – – – – – – – – –	No. forfeited during the year – – – – – – – – – – – – – – – – – – – – – 12,621 – – – – – – – – – – – – – – – – – – –	Vesting Date 31-Dec-12 31-Dec-13 01-Jul-12 01-Jul-13 01-Jul-14 30-Jun-12 30-Jun-13 30-Jun-12 30-Jun-13 01-Jul-14 30-Jun-12 30-Jun-13 01-Jul-11 01-Jul-12 01-Jul-12 01-Jul-13 01-Jul-14 01-Jul-11 01-Jul-12 01-Jul-12 01-Jul-13 30-Sep-11 01-Jul-11 01-Jul-12 01-Jul-12 01-Jul-13 01-Jul-14 01-Jul-11 01-Jul-12 01-Jul-12 01-Jul-13 01-Jul-12 01-Jul-13 01-Jul-14 01-Jul-12 01-Jul-13 01-Jul-12 01-Jul-13 01-Jul-14 01-Jul-12 01-Jul-13	Option Expiry Date – – – – – 06-Sep-15 06-Sep-15 – – – 18-Jun-15 18-Jun-15 – – – – – 13-Nov-14 13-Nov-14 06-Sep-15 06-Sep-15 – – – – – – 13-Nov-14 13-Nov-14 06-Sep-15 06-Sep-15 – – – 13-Nov-14 13-Nov-14 – – – 13-Nov-14 13-Nov-14	Maximum value to be realised in future years3

						144,870
						197,820
						–
						2,289
						61,151
						–
						2,234
						–
						8,589
						67,384
						–
						8,212
						–
						–
						–
						10,572
						88,441
						–
						–
						–
						10,731
						–
						–
						–
						–
						9,062
						75,807
						–
						–
						–
						9,198
						–
						12,884
						98,731
						–
						12,318
						–
						21,443
						140,018
						–
						20,541

The maximum value of the grants yet to vest is the amount at the grant date fair value yet to be reflected in the Group's consolidated income statement. The minimum future value is $nil as the future performance and service conditions may not be met.
The intrinsic value at exercise date of options exercised by KMPs during the year were C Fuchs $14,420, D Harrison $81,314 and N Kelly $23,400. The Intrinsic value represents the closing trading price of CHC securities on the exercise date, less the strike price of $1.94 per security, multiplied by the number of options excercised.

Annual Report 2012

Directors’ report for the year ended 30 June 2012

5.2 Legacy Program: Executive Loan Securities Plan (ELSP) details

Table 5.2.a. Remaining securities under the ELSP – suspended from 1 July 2009

Year of issue FY08 Total	Securities 2,682,326 2,682,326	Transferred, sold or forfeited (2,013,329) (2,013,329)	Retained in plan 9,058 9,058	On issue 678,055 678,055	Issue Price $11.04 to $11.76	Vesting conditions applicable on securities remaining within the plan
						OEPS must increase by 5% in each year from FY07 or have achieved 5% compound annual growth on FY07. First tranche vested with the second and third not meetingthe conditions.

Table 5.2.b. Reported Executives ELSP details – June 2012

													Maximum	Maximum
										Securities				total
										forfeited/	Securities			value
						Last			Securities	lapsed	vested	Securities	of grant
	Type of			Grant	Issue	Vesting	Loan	%	in ELSP at	in current	in current	in ELSP at		yet to
	Equity		Securities	Date1,2,3	Price	Date	Expiry	Vesting	June 2011	year	year	June 2012		vest ($)4
Executive Directors
C Fuchs	ELSP		98,425	30-Jun-06	$5.08	30-Sep-08	01-Jul-11	67	65,616	65,616	–	–		–
	ELSP		90,580	03-Jul-07	$11.04	30-Sep-08	23-Jul-12	33	30,194	–	–	30,194		–
	ELSP		216,346	19-Nov-08	$4.16	30-Sep-11	18-Nov-13	0	72,116	72,116	–	–		–
D Harrison	ELSP		290,354	30-Jun-06	$5.08	30-Sep-08	01-Jul-11	67	193,570	193,570	–	–		–
	ELSP		679,348	03-Jul-07	$11.04	30-Sep-08	23-Jul-12	33	226,449	–	–	226,449		–
	ELSP	1,730,769		19-Nov-08	$4.16	30-Sep-11	18-Nov-13	0	576,923	576,923	–	–		–
D Southon	ELSP		279,528	30-Jun-06	$5.08	30-Sep-08	01-Jul-11	67	186,352	186,352	–	–		–
	ELSP		679,348	03-Jul-07	$11.04	30-Sep-08	23-Jul-12	33	226,449	–	–	226,449		–
	ELSP	1,730,769		19-Nov-08	$4.16	30-Sep-11	18-Nov-13	0	576,923	576,923	–	–		–
Keymanagementpersonnel
N Kelly	ELSP		46,584	16-Oct-06	$6.44	30-Sep-08	01-Jul-11	67	31,056	31,056	–	–		–
	ELSP		72,464	03-Jul-07	$11.04	30-Sep-08	23-Jul-12	33	24,155	–	–	24,155		–
	ELSP		216,346	07-Aug-08	$4.16	30-Sep-11	18-Nov-13	0	72,116	72,115	–	–		–

For the ELSPs granted on 30 June 2006 and 16 October 2006, the loans associated with these grants expired on 1 July 2011. As these plans were out of the money on this date, all securities attaching to these loans were forfeited.
For the ELSPs granted on 3 July 2007, the loans associated with these grants expired on 23 July 2012. As these plans were out of the money on this date, all securities attaching to these loans were forfeited post year end.
For the ELSPs granted on 7 August 2008 and 19 November 2008, the final tranche of these plans did not vest due to failure to meet performance conditions.
The maximum value of securities yet to vest in the ELSP is $nil. All security based payment expenses in relation to the ELSP have been fully expensed in prior years.

Charter Hall Group

Indemnification and insurance of directors, officers and auditor

During the year, Charter Hall Group contributed to the premium for a contract insuring all directors, secretaries, executive officers and officers of the Charter Hall Group and of each related body corporate of the Group, with the balance of the premium paid by funds managed by members of the Charter Hall Group. The insurance does not provide any cover for the independent auditor of the Charter Hall Group or of a related party of the Charter Hall Group. In accordance with usual commercial practice, the insurance contract prohibits disclosure of details of the nature of the liabilities covered by the insurance, the limit of indemnity and the amount of the premium paid under the contract.

So long as the officers of the Responsible Entity act in accordance with the Charter Hall Property Trust’s Constitution and the Corporations Act 2001 , the officers are indemnified out of the assets of the Charter Hall Property Trust against losses incurred while acting on behalf of the Charter Hall Property Trust. The Charter Hall Group indemnifies the auditor (PricewaterhouseCoopers Australia) against any liability (including legal costs) for third party claims arising from a breach by Charter Hall Group of the auditor’s engagement terms, except where prohibited by the Corporations Act 2001 .

Non-audit services

The Company may decide to employ the auditor on assignments additional to its statutory audit duties where the auditor’s expertise and experience with the Group are important.

Details of the amounts paid or payable to the auditor (PricewaterhouseCoopers) for audit and non-audit services provided during the year are set out below.

The Board of Directors has considered the position and, in accordance with the advice received from the Audit, Risk and Compliance Committee, is satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001 . The Directors are satisfied that the provision of non-audit services by the auditor, as set out below, did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons:

All non-audit services have been reviewed by the Audit, Risk and Compliance Committee to ensure they do not impact the impartiality and objectivity of the auditor; and
None of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants .

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

Charter Hall Group 2012 $ 2011 $ 347,597 387,791 55,000 – – 1,940 402,597 389,731 60,976 55,050 60,976 55,050 10,000 53,525 25,500 – 35,500 53,525	Charter Hall Property Trust Group	Charter Hall Property Trust Group
2012 $ 347,597 55,000 – 402,597 60,976 60,976 10,000 25,500 35,500	2012 $ 32,184 – – 32,184 10,000 10,000 – – –	2011 $


		47,388
		–

		–
		47,388


		29,720
		29,720


		–
		–
		–

Annual Report 2012

Directors’ report for the year ended 30 June 2012

Environmental regulation

The principal activities of the Group are property investment, property funds management and development investment. Funds management involves minimal environmental impact. The Group ensures compliance with applicable environmental standards and regulations in its property investment and development investment activities.

The Group reported its greenhouse gas emissions and energy use under the National Greenhouse and Energy Reporting Act 2007 for the first time in October 2011. In October 2012, the Group will report to the Clean Energy Regulator emissions for the measurement period 1 July 2011 to 30 June 2012.

The Group has assessed the impact of the Australian Government’s Clean Energy Plan 2011 and does not anticipate a material impact to its operations from the carbon price. The Group will continue to implement resource efficiency measures to mitigate against price increases associated with the carbon price.

To the best of the Directors’ knowledge, the operations of the Group have been undertaken in compliance with the applicable environmental regulations that apply to the Group’s activities.

Proceedings on behalf of the Company

No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party, for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings.

No proceedings have been brought or intervened in on behalf of the Company with leave of the Court under section 237 of the Corporations Act 2001 .

Auditor’s independence declaration

A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 67.

Rounding of amounts

The Company is of a kind referred to in Class Order 98/100, issued by the Australian Securities and Investments Commission, relating to the ‘rounding off’ of amounts in the Directors’ report. Amounts in the Directors’ report have been rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain cases, to the nearest dollar.

Auditor

PricewaterhouseCoopers continues in office in accordance with section 327 of the Corporations Act 2001 .

This report is made in accordance with a resolution of the Directors.

==> picture [136 x 39] intentionally omitted <==

K Roxburgh Chairman Sydney 17 September 2012

Charter Hall Group

Auditor’s independence declaration

==> picture [490 x 712] intentionally omitted <==

Annual Report 2012

Consolidated financial statements for the year ended 30 June 2012

Consolidated statements of comprehensive income

Charter Hall Group 2012 $’000 2011 $’000 123,630 109,594 2,949 30,396 4,645 16,726 1,355 – – 3,350 – 29 132,579 160,095 (3,541) (4,795) (725) (1,545) (9,382) (8,111) (1,627) – (7,692) (2,518) (310) (386) (1,774) (309) (943) – – (19,171) (1,307) – – – (14,239) – (77,068) (70,689) (118,608) (107,524) 13,971 52,571 432 2,666 14,403 55,237 (19,409) (5,493) 36,087 57,831 16,678 52,338 (2,275) 2,899 14,403 55,237	Charter Hall Property Trust Group	Charter Hall Property Trust Group
2012 $’000 123,630 2,949 4,645 1,355 – – 132,579 (3,541) (725) (9,382) (1,627) (7,692) (310) (1,774) (943) – (1,307) – (14,239) (77,068) (118,608) 13,971 432 14,403 (19,409) 36,087 16,678 (2,275) 14,403	2012 $’000 53,287 5,494 4,533 – – – 63,314 (3,478) – (8,875) (2,179) (7,692) (310) (1,757) (955) – – (3,591) – (1,313) (30,150) 33,164 – 33,164 – 36,087 36,087 (2,923) 33,164	2011 $’000

		35,335
		26,815
		16,733
		–
		2,523
		12
		81,418

		(4,839)
		–
		(7,196)
		–
		(128)
		(387)
		(319)
		–
		–
		–
		(5,726)
		–
		(1,899)
		(20,494)
		60,924
		323
		61,247

		–
		57,831
		57,831
		3,416
		61,247

Charter Hall Group

Charter Hall Group 2012 $’000 2011 $’000 14,403 55,237 2,021 (19,677) 11,749 – 13,770 (19,677) 28,173 35,560 (19,724) (6,123) 49,143 38,743 29,419 32,620 (1,246) 2,940 28,173 35,560 5.64 17.85 5.35 17.06	Charter Hall Property Trust Group	Charter Hall Property Trust Group
2012 $’000 14,403 2,021 11,749 13,770 28,173 (19,724) 49,143 29,419 (1,246) 28,173 5.64 5.35	2012 $’000 33,164 2,334 11,749 14,083 47,247 – 49,143 49,143 (1,896) 47,247 12.21 11.49	2011 $’000
		61,247

		(19,024)
		–
		(19,024)
		42,223

		–
		38,743
		38,743
		3,480
		42,223

		19.72
		18.13

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

Annual Report 2012

Consolidated financial statements for the year ended 30 June 2012

Consolidated balance sheets

Charter Hall Group 2012 $’000 2011 $’000 39,315 26,266 32,110 43,438 136,390 921 207,815 70,625 12,870 9,400 62,638 78,445 9,518 7,450 472,159 517,707 3,026 3,167 – 159,518 98,687 99,994 10,507 11,255 564 – 669,969 886,936 877,784 957,561 50,788 58,061 669 – 14,895 834 51,463 – 117,815 58,895 – 12,106 – 101,862 2,185 1,129 – 407 1,428 1,217 3,613 116,721 121,428 175,616 756,356 781,945	Charter Hall Property Trust Group	Charter Hall Property Trust Group
2012 $’000 39,315 32,110 136,390 207,815 12,870 62,638 9,518 472,159 3,026 – 98,687 10,507 564 669,969 877,784 50,788 669 14,895 51,463 117,815 – – 2,185 – 1,428 3,613 121,428 756,356	2012 $’000 21,674 17,601 136,390 175,665 163,542 62,180 – 373,578 – – – – 564 599,864 775,529 30,288 669 – 53,863 84,820 – – – – – – 84,820 690,709	2011 $’000


		4,841
		13,788
		–
		18,629

		355,874
		78,014
		–
		436,108
		–
		143,718
		–
		–
		–
		1,013,714
		1,032,343


		32,728
		–
		–
		–
		32,728

		–
		101,862
		–
		407
		–
		102,269
		134,997
		897,346

Charter Hall Group

Charter Hall Group 2012 $’000 2011 $’000 209,550 9,503 (49,055) (47,547) (81,738) (62,329) 78,757 (100,373) 739,175 934,458 (1,415) (9,747) (87,609) (74,520) 650,151 850,191 728,908 749,818 27,448 32,127 756,356 781,945	Charter Hall Property Trust Group	Charter Hall Property Trust Group
2012 $’000 209,550 (49,055) (81,738) 78,757 739,175 (1,415) (87,609) 650,151 728,908 27,448 756,356	2012 $’000 – – – – 739,175 (1,415) (87,609) 650,151 650,151 40,558 690,709	2011 $’000


		–
		–
		–
		–

		934,458
		(9,747)
		(74,520)
		850,191
		850,191
		47,155
		897,346

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

Annual Report 2012

Consolidated financial statements for the year ended 30 June 2012

Consolidated statement of changes in equity – Charter Hall Group

Attributable to the owner	Attributable to the owner	s of Charter Hall Group Accumulated losses $’000 Total $’000 (136,055) 760,361 52,338 52,338 – (19,718) 52,338 32,620 – 7,516 (48,469) (48,469) – 4,090 – (6,300) (4,663) – (53,132) (43,163) (136,849) 749,818 16,678 16,678 – 12,741 16,678 29,419 – 3,312 (53,839) (53,839) – 2,600 – (2,402) 4,663 – (49,176) (50,329) (169,347) 728,908
Contributed equity $’000 936,445 – – – 7,516 – – – – 7,516 943,961 – – – 4,764 – – – – 4,764 948,725	Reserves $’000 (40,029) – (19,718) (19,718) – – 4,090 (6,300) 4,663 2,453 (57,294) – 12,741 12,741 (1,452) – 2,600 (2,402) (4,663) (5,917) (50,470)	Accumulated losses $’000 (136,055) 52,338 – 52,338 – (48,469) – – (4,663) (53,132) (136,849) 16,678 – 16,678 – (53,839) – – 4,663 (49,176) (169,347)	Total equity $’000
			810,990
			55,237
			(19,677)
			35,560

			7,516
			(50,972)
			4,090
			(25,239)
			–
			(64,605)

			781,945
			14,403
			13,770
			28,173

			3,312
			(56,506)
			2,600
			(3,168)
			–
			(53,762)
			756,356

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

Charter Hall Group

Consolidated statement of changes in equity – Charter Hall Property Trust Group

Attributable to	the owners of Charter Hall Property Trust Group Reserves $’000 Accumulated losses $’000 Total $’000 4,626 (79,219) 852,425 – 57,831 57,831 (19,088) – (19,088) (19,088) 57,831 38,743 – – 7,440 – (48,469) (48,469) 52 – 52 4,663 (4,663) – 4,715 (53,132) (40,977) (9,747) (74,520) 850,191 – 36,087 36,087 13,056 – 13,056 13,056 36,087 49,143 – – 4,717 – – (200,000) – (53,839) (53,839) (61) – (61) (4,663) 4,663 – (4,724) (49,176) (249,183) (1,415) (87,609) 650,151	the owners of Charter Hall Property Trust Group Reserves $’000 Accumulated losses $’000 Total $’000 4,626 (79,219) 852,425 – 57,831 57,831 (19,088) – (19,088) (19,088) 57,831 38,743 – – 7,440 – (48,469) (48,469) 52 – 52 4,663 (4,663) – 4,715 (53,132) (40,977) (9,747) (74,520) 850,191 – 36,087 36,087 13,056 – 13,056 13,056 36,087 49,143 – – 4,717 – – (200,000) – (53,839) (53,839) (61) – (61) (4,663) 4,663 – (4,724) (49,176) (249,183) (1,415) (87,609) 650,151
Contributed equity $’000 927,018 – – – 7,440 – – – 7,440 934,458 – – – 4,717 (200,000) – – – (195,283) 739,175	Reserves $’000 4,626 – (19,088) (19,088) – – 52 4,663 4,715 (9,747) – 13,056 13,056 – – – (61) (4,663) (4,724) (1,415)	Accumulated losses $’000 (79,219) 57,831 – 57,831 – (48,469) – (4,663) (53,132) (74,520) 36,087 – 36,087 – – (53,839) – 4,663 (49,176) (87,609)	Total equity $’000
			903,055
			61,247
			(19,024)
			42,223

			7,440
			(51,541)
			(3,831)
			–
			(47,932)

			897,346
			33,164
			14,083
			47,247

			4,717
			(200,000)
			(57,728)
			(873)
			–
			(253,884)
			690,709

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

Annual Report 2012

Consolidated financial statements for the year ended 30 June 2012

Consolidated cash flow statements

Charter Hall Group 2012 $’000 2011 $’000 146,830 107,836 (93,503) (72,932) 53,327 34,904 2,562 2,901 (8,654) (7,494) 31,773 28,471 79,008 58,782 (587) (1,128) 33,742 97,548 (1,294) (7,450) (717) (14,778) (15,752) (280) (68,522) (75,670) 95,129 439 (6,120) (1,250) – – 800 – – – – (30,076) 36,679 (32,645) 4,162 – (183) (4,388) 76,442 48,510 (128,728) (37,658) (54,379) (35,030) (102,686) (28,566) 13,001 (2,429) 26,266 28,380 48 315 39,315 26,266	Charter Hall Property Trust Group	Charter Hall Property Trust Group
2012 $’000 146,830 (93,503) 53,327 2,562 (8,654) 31,773 79,008 (587) 33,742 (1,294) (717) (15,752) (68,522) 95,129 (6,120) – 800 – – 36,679 4,162 (183) 76,442 (128,728) (54,379) (102,686) 13,001 26,266 48 39,315	2012 $’000 19,026 (14,150) 4,876 869 (8,644) 27,765 24,866 – 17,218 – (717) – (73,769) 130,086 (1,650) 26,527 – – – 97,695 2,257 (183) 76,442 (128,728) (55,524) (105,736) 16,825 4,841 8 21,674	2011 $’000

		28,018
		(8,180)
		19,838
		1,554
		(7,415)
		26,230
		40,207

		–
		115,461
		–
		(14,030)
		–
		(67,230)
		20,020
		(96,868)
		35,970
		–
		(3,831)
		–
		(10,508)

		–
		(4,388)
		48,510
		(37,658)
		(37,952)
		(31,488)
		(1,789)
		6,638
		(8)
		4,841

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

Charter Hall Group

Notes to the consolidated financial statements for the year ended 30 June 2012

1 Summary of significant accounting policies

(a) Basis of preparation

The Charter Hall Group (the Group or CHC) is a ‘stapled’ entity comprising Charter Hall Limited (the Company or CHL) and its controlled entities, and Charter Hall Property Trust (the Trust or CHPT) and its controlled entities. The shares in the Company are stapled to the units in the Trust. The stapled securities cannot be traded or dealt with separately. The stapled securities of the Group are listed on the Australian Securities Exchange.

The two Charter Hall entities comprising the stapled group remain separate legal entities in accordance with the Corporations Act 2001 , and are each required to comply with the reporting and disclosure requirements of Accounting Standards and the Corporations Act 2001 .

As permitted by Class Order 05/642, issued by the Australian Securities and Investments Commission, this financial report is a combined financial report that presents the financial statements and accompanying notes of both the Charter Hall Group and the Charter Hall Property Trust Group.

The financial report of the Charter Hall Group comprises Charter Hall Limited and its controlled entities including Charter Hall Funds Management Limited (Responsible Entity) as responsible entity for Charter Hall Property Trust. 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 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.

The financial report of the Charter Hall Property Trust Group comprises the Trust and its controlled entities.

This general purpose financial report has been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board and the Corporations Act 2001 . The Charter Hall Group and Charter Hall Property Trust Group are for‑profit entities for the purpose of preparing the financial statements.

The principal accounting policies adopted in the preparation of the consolidated financial statements for the year ended 30 June 2012 are set out below. These policies have been consistently applied to the years presented, unless otherwise stated.

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

Compliance with IFRSs

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

Historical cost convention

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

Critical accounting estimates

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

(b) Principles of consolidation

(i) Controlled entities

The consolidated financial statements of the Charter Hall Group and the Charter Hall Property Trust Group incorporate the assets and liabilities of all controlled entities as at 30 June 2012 and their results for the year then ended.

Controlled entities are all those entities over which the Company or the Trust 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 Company or the Trust controls another entity.

Controlled entities are fully consolidated from the date on which control is transferred. 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 Company or Trust (refer to note 1(g)).

Intercompany transactions, balances and unrealised gains on transactions between controlled entities 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 Company or the Trust.

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

(ii) Associates

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

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

Annual Report 2012

Notes to the consolidated financial statements for the year ended 30 June 2012

1 Summary of significant accounting policies (continued)

(b) Principles of consolidation (continued)

(ii) Associates (continued)

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

Unrealised gains on transactions between Charter Hall and its associates are eliminated to the extent of Charter Hall’s interests 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 Charter Hall.

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 statement of comprehensive income 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 statement of comprehensive income as part of revenue.

(iii) Joint ventures

Joint venture entities

Investment in joint venture entities over which Charter Hall exercises joint control are accounted for in the consolidated financial statements using the equity method after initially being recognised at cost. Under the equity method, Charter Hall’s share of the profits or losses of each relevant joint venture entity is recognised in profit or loss, 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 37.

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

Jointly controlled assets

The proportionate interests in the assets, liabilities, income and expenses of a joint venture activity have been incorporated in the financial statements under the appropriate headings. Details of the joint venture activity are set out in note 37.

(c) Segment reporting

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

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

(d) Foreign currency translation

(i) Functional and presentation currency

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

(ii) Group companies

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

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:

Spot rate US Dollar NZ Dollar Euro British Pounds Average rate US Dollar NZ Dollar Euro British Pounds	2012 1.0238 1.2778 0.8084 0.6518 1.0312 1.2823 0.7695 0.6509	2011

		1.0713
		1.2965
		0.7401
		0.6692

		0.9856
		1.3041
		0.7242
		0.6205

(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.

(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, and services have been performed.

Charter Hall Group

(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 in note 3.

(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 financial statements, and to unused tax losses.

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

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

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

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

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

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

(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 Charter Hall. The consideration transferred also includes the fair value of any contingent consideration arrangement and the fair value of any pre‑existing equity interest in the subsidiary. Acquisition‑related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. On an acquisition‑by‑acquisition basis, Charter Hall recognises any non‑controlling interest in the acquiree either at fair value or at the non‑controlling interest’s proportionate share of the acquiree’s net identifiable assets.

The excess of the consideration transferred, the amount of any non‑controlling interest in the acquiree and the acquisition‑date fair value of any previous equity interest in the acquiree over the fair value of Charter Hall’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 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.

Annual Report 2012

Notes to the consolidated financial statements for the year ended 30 June 2012

1 Summary of significant accounting policies (continued)

(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 Charter Hall 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

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

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

(ii) Loans and receivables

Loans and receivables are non‑derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when Charter Hall 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.

(iii) Held-to-maturity investments

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

(iv) Available-for-sale financial assets

Available‑for‑sale financial assets, comprising principally marketable equity securities, are non‑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 Charter Hall 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 Charter Hall 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 statement of comprehensive income in the year in which they arise.

The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), Charter Hall 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

Charter Hall 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 statement of comprehensive income – is removed from equity and recognised in the statement of comprehensive income. Impairment losses recognised in the statement of comprehensive income on equity instruments classified as available‑for‑sale are not reversed through the statement of comprehensive income.

(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 hedges); 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 statement of comprehensive income and are included in fair value adjustment gains/(losses). The fair values previously recognised for hedges which are no longer effective are amortised over the remaining periods of the hedges.

Charter Hall Group

(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 Charter Hall 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. Charter Hall 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 Charter Hall 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 statement of comprehensive income during the financial year in which they are incurred.

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

◆	Furniture, fttings and equipment	3	to	8	years
◆	Fixtures	6	to	8	years
◆	Software	3	to	5	years

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

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

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

(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 Charter Hall. 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. Charter Hall 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 statement of comprehensive income as part of fair value adjustments.

(q) Intangibles

(i) Management rights – indefinite lived assets

Management rights in relation to entities with no fixed life are not amortised as they have an indefinite life. Management rights with an indefinite life are tested for impairment annually, or more frequently if events or changes in circumstances indicate that they might be impaired, and are carried at cost less accumulated impairment losses. Management rights are allocated to cash‑generating units for the purpose of impairment testing.

(ii) Management rights – finite lived assets

Management rights in relation to entities with a fixed life are amortised using the straight‑line method over their useful life.

(r) Trade and other payables

These amounts represent liabilities for goods and services provided to Charter Hall 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 statement of comprehensive income over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities, which are not incremental costs 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 Charter Hall 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 period 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 are recognised when Charter Hall 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.

Annual Report 2012

Notes to the consolidated financial statements for the year ended 30 June 2012

1 Summary of significant accounting policies (continued)

(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 Performance Rights and Options Plan (PROP). Information relating to these schemes is set out in note 41.

For accounting purposes, the fair value at grant date is independently valued using a Monte Carlo simulation pricing model that takes into account the exercise price, the term of the option, 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.

For accounting purposes, 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

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

(vi) Termination benefits

Termination benefits are payable when employment is terminated before the normal retirement date, or when an employee accepts voluntary redundancy in exchange for these benefits. Charter Hall 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.

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

(ab) New accounting standards and interpretations

Certain new accounting standards and interpretations have been published that are not mandatory for year ended 30 June 2012 reporting periods. The impact of these new standards and interpretations (to the extent relevant to the Charter Hall Group or the Charter Hall Property Trust Group) is set out below.

(i) AASB 9 Financial Instruments and 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, measurement and derecognition of financial assets and liabilities. The standard is not applicable until 1 January 2013 but is available

Charter Hall Group

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 held for trading. 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. Neither the Charter Hall Group nor the Charter Hall Property Trust Group has yet decided when to adopt AASB 9. However, management does not expect this will have a significant impact on either the Charter Hall Group or the Charter Hall Property Trust Group’s consolidated financial statements as neither Group holds any available‑for‑sale investments.

In December 2011, the IASB delayed the application date of IFRS 9 to 1 January 2015. The AASB is expected to make an equivalent amendment to AASB 9 shortly.

(ii) 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 Charter Hall Group and the Charter Hall Property Trust Group will apply the amendment from 1 July 2012. Management is currently evaluating the impact of the amendments.

(iii) AASB 10 Consolidated Financial Statements, AASB 11 Joint Arrangements, AASB 12 Disclosure of Interests in Other Entities, revised AASB 127 Separate Financial Statements and AASB 128 Investments in Associates and Joint Ventures and AASB 2011-7 Amendments to Australian Accounting Standards arising from the Consolidation and Joint Arrangements Standards (effective 1 January 2013)

In August 2011, the AASB issued a suite of five new and amended standards which address the accounting for joint arrangements, consolidated financial statements and associated disclosures.

AASB 10 replaces all of the guidance on control and consolidation in AASB 127 Consolidated and Separate Financial Statements , and Interpretation 12 Consolidation – Special Purpose Entities . The core principle that a consolidated entity presents a parent and its subsidiaries as if they are a single economic entity remains unchanged, as do the mechanics of consolidation. However, the standard introduces a single definition of control that applies to all entities. It focuses on the need to have both power and rights or exposure to variable returns. Power is the current ability to direct the activities that significantly influence returns. Returns must vary and can be positive, negative or both. Control exists when the investor can use its power to affect the amount of its returns. There is also new guidance on participating and protective rights and on agent/ principal relationships. Management is currently evaluating the impact of the amendments.

AASB 11 introduces a principles‑based approach to accounting for joint arrangements. The focus is no longer on the legal structure of joint arrangements, but rather on how rights and obligations are shared by the parties to the joint arrangement. Based on the assessment of rights and obligations, a joint arrangement will be classified as either a joint operation or a joint venture. Joint ventures are accounted for using the equity method, and the

choice to proportionately consolidate will no longer be permitted. Parties to a joint operation will account for their share of revenues, expenses, assets and liabilities in much the same way as under the previous standard. AASB 11 also provides guidance for parties that participate in joint arrangements but do not share joint control.

As the Charter Hall Group and the Charter Hall Property Trust Group already apply the appropriate accounting treatment for their joint arrangements, no material impact is expected.

AASB 12 sets out the required disclosures for entities reporting under the two new standards, AASB 10 and AASB 11, and replaces the disclosure requirements currently found in AASB 127 and AASB 128. Application of this standard by the Charter Hall Group and the Charter Hall Property Trust Group will not affect any of the amounts recognised in the financial statements, but will impact the type of information disclosed in relation to the Charter Hall Group and the Charter Hall Property Trust Group’s investments.

AASB 127 is renamed Separate Financial Statements and is now a standard dealing solely with separate financial statements. Application of this standard by the Charter Hall Group and the Charter Hall Property Trust Group will not affect any of the amounts recognised in the financial statements.

Amendments to AASB 128 provide clarification that an entity continues to apply the equity method and does not remeasure its retained interest as part of ownership changes where a joint venture becomes an associate, and vice versa. The amendments also introduce a ‘partial disposal’ concept. The Charter Hall Group and the Charter Hall Property Trust Group are assessing the impact of these amendments.

The Charter Hall Group and the Charter Hall Property Trust Group do not expect to adopt the new standards before their operative date. They would therefore be first applied in the financial statements for the reporting period commencing on 1 July 2013.

(iv) AASB 13 Fair Value Measurement and AASB 2011-8

Amendments to Australian Accounting Standards arising from AASB 13 (effective 1 January 2013)

AASB 13 was released in September 2011. It explains how to measure fair value and aims to enhance fair value disclosures. The Charter Hall Group and the Charter Hall Property Trust Group have yet to determine which, if any, of their current measurement techniques will have to change as a result of the new guidance. It is therefore not possible to state the impact, if any, of the new rules on any of the amounts recognised in the financial statements. However, application of the new standard will impact the type of information disclosed in the notes to the financial statements. Neither the Charter Hall Group nor the Charter Hall Property Trust Group intends to adopt the new standard before its operative date, which means that it would be first applied for the reporting period commencing on 1 July 2013.

(v) AASB 2011-9 Amendments to Australian Accounting Standards – Presentation of Items of Other Comprehensive Income (effective 1 July 2012)

In September 2011, the AASB made an amendment to AASB 101 Presentation of Financial Statements which requires entities to separate items presented in other comprehensive income into two groups, based on whether they may be recycled to profit or loss in the future. This will not affect the measurement of any of the items recognised in the balance sheet or the profit or loss in the current period. Both the Charter Hall Group and the Charter Hall Property Trust Group intend to adopt the new standard from 1 July 2012.

Annual Report 2012

Notes to the consolidated financial statements for the year ended 30 June 2012

1 Summary of significant accounting policies (continued)

(ab) New accounting standards and interpretations (continued)

(vi) Offsetting Financial Assets and Financial Liabilities

(Amendments to IAS 32) and Disclosures – Offsetting Financial Assets and Financial Liabilities (Amendments to IFRS 7) (effective 1 January 2014 and 1 January 2013 respectively)

In December 2011, the IASB made amendments to the application guidance in IAS 32 Financial Instruments: Presentation , to clarify some of the requirements for offsetting financial assets and financial liabilities in the balance sheet. These amendments are effective from 1 January 2014. They are unlikely to affect the accounting for any of the Charter Hall Group or the Charter Hall Property Trust Group’s current offsetting arrangements. However, the IASB has also introduced more extensive disclosure requirements into IFRS 7 which will apply from 1 January 2013. The AASB is expected to make equivalent changes to IAS 32 and AASB 7 shortly. When they become applicable, the Charter Hall Group and the Charter Hall Property Trust Group will have to provide a number of additional disclosures in relation to their offsetting arrangements. Both the Charter Hall Group and the Charter Hall Property Trust Group intend to apply the new rules for the first time in the financial year commencing 1 July 2013.

(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 statement of comprehensive income on a straight‑line basis. Lease income from operating leases is recognised in income on a straight‑line basis over the lease term.

(ad) Assets held for sale

Non‑current assets are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. For an asset to be classified as held for sale, it must be available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets and its sale must be highly probable. Assets classified as held for sale are measured at the lower of their carrying value and fair value less costs to sell.

(ae) Parent entity financial information

The financial information for the parent entity of the Charter Hall Group, Charter Hall Limited, and for the parent entity of the Charter Hall Property Trust Group, Charter Hall Property Trust, is disclosed in note 4, and has been prepared on the same basis as the consolidated financial statements, except as set out below.

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

Investments in controlled entities, associates and joint venture entities are accounted for at cost in the financial statements of Charter Hall Limited and Charter Hall Property Trust. 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 standalone taxpayer in its own right.

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

Assets or liabilities arising under 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.

2 Financial risk management

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

Risk management is carried out by the Group Treasurer, the Chief Financial Officer 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 unit price risk. This arises from investments in unlisted property funds managed by the Group. These funds invest in direct property. Charter Hall manages all the funds that the Group invests in and its 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 Charter Hall Group and Charter Hall Property Trust Group’s profit and equity. The movement in the price variable has been determined based on management’s best estimate, having regard to a number of factors, including historical levels of price movement, historical correlation of either Group’s investments with the relevant benchmark and market volatility. However, actual movements in the price may be greater or less than anticipated due to a number of factors. As a result, historic price variations are not a definitive indicator of future price variations.

Charter Hall Group

–10% Proft $’000 Equity $’000 (6,264) (6,264) (6,218) (6,218) –10% Proft $’000 Equity $’000 (7,845) (7,845) (7,801) (7,801)	+10%	+10%
	Proft $’000 6,264 6,218	Equity $’000

		6,264

		6,218

	+10%
Proft $’000 (7,845)	Proft $’000 7,845 7,801	Equity $’000

		7,845

(7,801)		7,801

(ii) Cash flow and fair value interest rate risk

As both the Charter Hall Group and Charter Hall Property Trust Group have no significant long‑term interest bearing assets, both Groups’ income and operating cash receipts are not materially exposed to changes in market interest rates.

The Charter Hall Group and Charter Hall Property Trust Group’s interest rate risk arises from borrowings of $51,462,849 (2011: $101,861,453). Borrowings drawn at variable rates expose both Groups to cash flow interest rate risk. Borrowings drawn at fixed rates expose both Groups to fair value interest rate risk. The Charter Hall Group and Charter Hall Property Trust Group’s policy is to fix rates between 50‑100% of core borrowings for the anticipated debt term. 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 54% (2011: 49%) of total borrowings (including debt in the Charter Hall Retail Joint Venture Trust (RJVT) to which the Group is a party – refer note 24(b)) had fixed interest rates through the use of derivatives. Excluding RJVT, at year end 39% (2011: 38%) of total borrowings had fixed interest rates through the use of derivatives.

The Charter Hall Group and Charter Hall Property Trust Group both manage their 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 Charter Hall Group and Charter Hall Property Trust Group raise long‑term borrowings at floating rates and swap them into fixed rates that are lower than those available if the Group borrowed at fixed rates directly. Under the interest rate swaps, the Group agrees with other parties to exchange, at specified intervals (mainly quarterly), the difference between fixed contract rates and floating rate interest amounts calculated by reference to the agreed notional principal amounts. Refer to note 12(d) for interest rate sensitivity analysis on assets and note 24(c) for sensitivity analysis for liabilities.

(iii) Foreign exchange risk

Both the Charter Hall Group and Charter Hall Property Trust Group are exposed to foreign exchange risk arising principally from their equity accounted investment in the Charter Hall Retail REIT (CQR).

CQR’s 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 Charter Hall Group’s and Charter Hall Property Trust Group’s equity accounted share of movements in these reserves are recognised in the foreign currency translation reserve of the Group.

The tables on the following page illustrate the potential impact a change in foreign exchange rates of +/–10% would have on the Charter Hall Group’s and Charter Hall Property Trust Group’s profit and equity:

Annual Report 2012

Notes to the consolidated financial statements for the year ended 30 June 2012

2 Financial risk management (continued)

(a) Market risk (continued)

(iii) Foreign exchange risk (continued)

2012 Proft $’000 Equity $’000 140 (392) (170) 484 40 (600) (40) 740 18 (102) (22) 122 140 (520) (170) 640 40 (600) (40) 740 27 (33) (33) (2)	2011	2011
Proft $’000 140 (170) 40 (40) 18 (22) 140 (170) 40 (40) 27 (33)	Proft $’000 324 (394) 58 (66) 26 (32) 324 (394) 58 (66) 20 (24)	Equity $’000


		(6,448)
		6,554

		(566)
		699

		(23)
		26


		(6,456)
		6,563

		(566)
		699

		(30)
		34

(b) Credit risk

The Charter Hall Group and Charter Hall Property Trust Group have policies in place to ensure that sales of services are made to customers with appropriate credit histories.

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

Approximately 13% (2011: 16%) of the Charter Hall Group’s income is derived from rental properties, whilst approximately 29% (2011: 50%) of the Charter Hall Property Trust Group’s income is derived from rental properties; all tenants are assessed for creditworthiness, taking into account their financial position, past experience and other factors.

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

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

(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 Charter Hall Group and Charter Hall Property Trust Group aim at maintaining flexibility in funding by keeping committed credit lines available.

Maturities of financial liabilities

The following table provides the contractual maturity of Charter Hall Group’s and Charter Hall Property Trust Group’s financial liabilities and derivatives. The amounts presented represent the future contractual undiscounted principal and interest cash flows and therefore do not equate to the value shown in the balance sheet. Repayments which are subject to notice are treated as if notice were given immediately.

Charter Hall Group

Charter Hall Group 2012 Trade and otherpayables Contingent considerationpayable Borrowings Interest rate swaps 2011 Trade and otherpayables Contingent considerationpayable Borrowings Interest rate swaps Charter Hall Property Trust Group 2012 Trade and otherpayables Borrowings Interest rate swaps 2011 Trade and otherpayables Borrowings Interest rate swaps	Carrying amount $’000 40,249 10,539 51,463 669 102,920 58,061 12,106 101,862 407 172,436 30,288 53,863 669 84,820 32,728 101,862 407 134,997	Less than 1 year $’000 40,249 10,788 1,878 1,092 54,007 58,061 – 4,739 – 62,800 30,288 4,281 1,092 35,661 32,728 4,739 – 37,467	Between 1 and 2 years $’000 – – 52,820 461 53,281 – 13,841 4,739 224 18,804 – 52,820 461 53,281 – 4,739 224 4,963	Between 2 and 5 years $’000 – – – – – – – 104,446 183 104,629 – – – – – 104,446 183 104,629	Over 5 years $’000 – – – – – – – – – – – – – – – – – –	Total cash fows $’000


						40,249
						10,788
						54,698
						1,553
						107,288

						58,061
						13,841
						113,924
						407
						186,233


						30,288
						57,101
						1,553
						88,942

						32,728
						113,924
						407
						147,059

(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).

Annual Report 2012

Notes to the consolidated financial statements for the year ended 30 June 2012

2 Financial risk management (continued)

(d) Fair value measurements (continued)

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

Charter Hall Group
2012 Assets Investment in associates at fair value throughproft or loss Total assets Liabilities Derivative fnancial instruments Contingent considerationpayable Total liabilities Charter Hall Group	Level 1 $’000 – – – – –	Level 2 $’000 – – 669 – 669	Level 3 $’000 62,638 62,638 – 10,539 10,539	Total $’000

				62,638
				62,638

				669
				10,539
				11,208

2011 Assets Investment in associates at fair value throughproft or loss Total assets Liabilities Derivative fnancial instruments Contingent considerationpayable Total liabilities Charter Hall Property Trust Group	Level 1 $’000 – – – – –	Level 2 $’000 – – 407 – 407	Level 3 $’000 78,445 78,445 – 12,106 12,106	Total $’000

				78,445
				78,445

				407
				12,106
				12,513

2012 Assets Investment in associates at fair value throughproft or loss Total assets Liabilities Derivative fnancial instruments Total liabilities Charter Hall Property Trust Group	Level 1 $’000 – – – –	Level 2 $’000 – – 669 669	Level 3 $’000 62,180 62,180 – –	Total $’000

				62,180
				62,180

				669
				669

2011 Assets Investment in associates at fair value throughproft or loss Total assets Liabilities Derivative fnancial instruments Total liabilities	Level 1 $’000 – – – –	Level 2 $’000 – – 407 407	Level 3 $’000 78,014 78,014 – –	Total $’000

				78,014
				78,014

				407
				407

Charter Hall Group

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

Charter Hall Group Investment in associates at fair value through proft or loss $’000 Contingent consideration payable $’000 78,445 12,106 273 – (14,306) – – (1,452) (1,774) (115) 62,638 10,539	Charter Hall Property Trust Group	Charter Hall Property Trust Group
Investment in associates at fair value through proft or loss $’000 78,445 273 (14,306) – (1,774) 62,638	Investment in associates at fair value through proft or loss $’000 78,014 229 (14,306) – (1,757) 62,180	Contingent consideration payable $’000
		–
		–
		–
		–
		–
		–

Charter Hall Group Investment in associates at fair value through proft or loss $’000 Contingent consideration payable $’000 73,739 11,270 5,454 – (439) – (309) 836 78,445 12,106	Charter Hall Property Trust Group	Charter Hall Property Trust Group
Investment in associates at fair value through proft or loss $’000	Investment in associates at fair value through proft or loss $’000	Contingent consideration payable $’000
73,739 5,454 (439) (309) 78,445	73,433 4,900 – (319) 78,014	–
		–
		–
		–
		–

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

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 Charter Hall Group and Charter Hall Property Trust Group make 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) Carrying value of investments

Critical judgements are made by the Charter Hall Group and Charter Hall Property Trust Group in respect of the carrying value of investments in associates (notes 14 and 36) and investment properties (notes 13 and 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 reflect market conditions at the end of the reporting period. While this represents best estimates as at the reporting date, actual sales prices may be higher or lower than the most recent valuations. This is particularly relevant in periods of market illiquidity or uncertainty.

(ii) Estimated performance fees

Critical judgements are made by the Charter Hall Group in respect of recognising performance fee revenue. Performance fees are only recognised when services have been performed and 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) Estimated performance fee clawback

The Charter Hall Group has raised a provision to refund performance fees previously earned with respect to the Charter Hall Opportunity Fund 4 (CHOF4). Contractual arrangements allow a clawback of performance fees on termination of CHOF4 (currently scheduled for December 2012) to the extent necessary to allow CHOF4 to achieve a gross equity IRR equal to 13%. The gross equity IRR is calculated prior to the deduction of performance fees, fund management fees, fund costs and income tax.

Annual Report 2012

Notes to the consolidated financial statements for the year ended 30 June 2012

3 Critical accounting estimates and judgements (continued)

(a) Critical accounting estimates and assumptions (continued)

(iii) Estimated performance fee clawback (continued)

Critical judgements have been made in determining the amount of any clawback which will not be known until all assets of CHOF4 are realised. To date, the Group has received a total of $14.2 million in performance fees over the life of this fund in respect of the 2007, 2008, 2009 and 2010 financial years. There have been no performance fees recognised in the current period or in the prior year ended 30 June 2011.

Having regard to this and current market conditions, the Charter Hall Board has resolved to raise a provision for the maximum potential liability, being $14.2 million (included in current liabilities in this financial report). The clawback is payable on the earlier of the termination date of 31 December 2012, unless extended, or the completion of the sale of all the assets of CHOF4.

No other performance fees received by the Group from other Charter Hall managed funds in prior periods or the current year are subject to clawback arrangements.

(iv) Charter Hall Opportunity Fund 5 (CHOF5) – Little Bay development

Critical judgement has been made in the assessment of commercial negotiations with TA Global Developments Pty Limited (TAG) over the Little Bay development project. Refer to note 38: Events occurring after the reporting date.

(v) Tax losses

The Charter Hall Group has not recognised tax losses from previous years as recovery against future taxable income of the tax consolidated group is not expected in the medium term.

(vi) Impairment testing of management rights

Critical judgements are made by the Charter Hall Group in assessing the carrying value of management rights acquired, where the funds to which those management rights relate have an indefinite life. Management rights are considered to have an indefinite useful life if there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the entity.

(vii) Classification of investments in associates

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

4 Parent entity financial information

(a) Summary financial information

The individual financial statements for the parent entity of the Charter Hall Group, being Charter Hall Limited, and the Charter Hall Property Trust Group, being Charter Hall Property Trust, show the following aggregate amounts:

Charter Hall Limited 2012 $’000 2011 $’000 1,310 780 326,892 324,494 45 – 163,638 355,874 209,550 9,503 1,717 1,717 – 18 (48,013) (42,618) 163,254 (31,380) (5,395) (19,778) (5,395) (19,778)	Charter Hall Property Trust	Charter Hall Property Trust
2012 $’000 1,310 326,892 45 163,638 209,550 1,717 – (48,013) 163,254 (5,395) (5,395)	2012 $’000 31,772 706,947 27,320 27,320 739,175 – – (59,548) 679,627 103,686 103,686	2011 $’000

		44,180
		833,481
		29,829
		62,257

		934,458

		–
		–
		(163,234)
		771,224
		(29,494)
		(29,494)

On 18 June 2012, the Group announced implementation of the $200 million capital reallocation from Charter Hall Property Trust (CHPT) to Charter Hall Limited (CHL), effective 30 June 2012. The capital reallocation aims to ensure a more appropriate allocation of capital between CHPT and CHL (which together trade on the Australian Securities Exchange as Charter Hall Group) which is more closely aligned with the Group’s long‑term growth strategy. Under the capital reallocation proposal approved by securityholders at the Annual General Meeting on 24 November 2011, CHPT made capital payments of $200 million which were compulsorily applied as a capital contribution for existing shares of CHL.

Charter Hall Group

(b) Contingent liabilities of the parent entity

Charter Hall Limited and Charter Hall Property Trust had no contingent liabilities (2011: $nil).

5 Segment information

(a) Description of segments

Charter Hall Group

(c) Contractual commitments

As at 30 June 2012, both Charter Hall Limited and Charter Hall Property Trust had no contractual commitments other than that disclosed below (2011: $nil).

Charter Hall Opportunity Fund 5 (CHOF5) Workzone (Workzone) On 21 December 2011, Charter Hall Limited and Charter Hall Funds Management Limited as trustee for CHOF5 entered into a Preferred Equity Deed (deed) committing $9 million to fund development of the Workzone project. At 30 June 2012 $4.5 million of this facility had been drawn down and is included in receivables in this financial report. A further $1 million was drawn down in July 2012 leaving an undrawn commitment of $3.5 million at the date of this report.

(d) 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 42.

Management has determined the operating segments based on the reports reviewed by the Board that are used to make strategic decisions. The Board is responsible for allocating resources and assessing performance of the operating segments, and therefore has been identified as the chief operating decision maker.

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 purposes.
Property funds management
This segment comprises funds management services, development management services and other property services.
Development investment
This segment comprises development investment activities of the Group.

Charter Hall Property Trust Group

The Charter Hall Property Trust Group’s only business is investing in direct property and listed and unlisted property funds. Consequently the Charter Hall Property Trust Group comprises a single reportable segment.

Annual Report 2012

Notes to the consolidated financial statements for the year ended 30 June 2012

5 Segment information (continued)

(b) Segment information provided to the Board

Charter Hall Group

The operating segments provided to the Board for the reportable segments for the year ended 30 June 2012 are as follows:

30 June 2012 Total net rental income Total investment income Total rental andpropertyincome Net development income Totalpropertyfunds management income Total income Operatingexpenses Less: recoveryof expenses Net operatingexpenses Operating earnings before interest, tax, depreciation and amortisation(EBITDA) Depreciation Operating earnings before interest and tax(EBIT) Interest income Interest expense Operatingearnings(includingDRF) Non‑controllinginterest Operatingearnings before specifc items Specifc items1 Operating earnings attributable to stapled securityholders Weighted average number of securities(’000) Operating earnings per security before specifc items Operating earnings per security (EPS) Number of securities for dividend per security (DPS) (’000) DPS	Property investment $’000 305 34,011 34,316 – – 34,316 (423) – (423) 33,893 – 33,893 211 (2,921) 31,183 – 31,183 – 31,183	Property funds management $’000 – – – – 73,355 73,355 (62,436) 12,396 (50,040) 23,315 (725) 22,590 1,208 – 23,798 – 23,798 (9,038) 14,760	Development investment $’000 – – – 1,943 – 1,943 – – – 1,943 – 1,943 615 – 2,558 – 2,558 297 2,855	DRF $’000 13,946 – 13,946 – – 13,946 (566) – (566) 13,380 – 13,380 – (4,789) 8,591 (2,544) 6,047 – 6,047	Combined Group $’000
					14,251
					34,011
					48,262
					1,943
					73,355
					123,560
					(63,425)
					12,396
					(51,029)
					72,531
					(725)
					71,806
					2,034
					(7,710)
					66,130
					(2,544)
					63,586
					(8,741)
					54,845
					295,625
					21.51cps
					18.55cps
					296,168
					18.20cps

Specific items include $16.0 million fee revenue related to sale of Charter Hall Office REIT (CQO) US assets net of $4.0 million closure costs of the US office, $2.9 million costs of retaining the management rights, $3.9 million organisational restructure costs and $14.2 million provision for Charter Hall Opportunity Fund 4 (CHOF4) performance fee clawback which is then reduced by $0.3 million being the Group’s 3% equity share of the clawback receivable in CHOF4.

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

Charter Hall Group

The reportable segments for the year ended 30 June 2011 are as follows:

30 June 2011 Total net rental income Total investment income Total rental andpropertyincome Net development income Totalpropertyfunds management income Total income Operatingexpenses Less: recoveryof expenses Net operatingexpenses EBITDA Depreciation EBIT Interest income Interest expense Operatingearnings(includingDRF) Non‑controllinginterest Operatingearnings before specifc items Specifc items Operating earnings attributable to stapled securityholders Number of securities(’000) Operating EPS Number of securities for DPS(’000) DPS	Property investment $’000 – 31,599 31,599 – – 31,599 (472) – (472) 31,127 – 31,127 192 (1,450) 29,869 – 29,869 – 29,869	Property funds management $’000 – – – – 75,257 75,257 (64,806) 10,240 (54,566) 20,691 (1,545) 19,146 1,339 – 20,485 – 20,485 – 20,485	Development investment $’000 – – – 3,769 – 3,769 – – – 3,769 – 3,769 – – 3,769 – 3,769 – 3,769	DRF $’000 15,052 – 15,052 – – 15,052 (796) – (796) 14,256 – 14,256 996 (6,665) 8,587 (2,288) 6,299 – 6,299	Combined Group $’000
					15,052
					31,599
					46,651
					3,769
					75,257
					125,677
					(66,074)
					10,240
					(55,834)
					69,843
					(1,545)
					68,298
					2,527
					(8,115)
					62,710
					(2,288)
					60,422
					–
					60,422
					293,254
					20.60cps
					293,756
					16.50cps

The reconciliation of income per the segment notes for 2012 and 2011 to the statement of comprehensive income is below:

Total incomeper segment note Add: recoveryof expenses Add specifc item: fees related to the sale of the Charter Hall Offce REIT US assets Add specifc item: 3% equityaccounted share of CHOF4performance fee Add: investmentpropertyexpenses Add: interest income Less: equityaccountedproft inpropertyinvestment segment Less: equityaccounted(loss)/proft in funds management and corporate segment Less: equityaccountedproft in development investment segment Less: equityaccountedproft in DRF Add: other Revenue per income statement	2012 $’000 123,560 12,396 16,044 297 152,297 2,985 2,176 (29,981) (68) (2,104) (1,675) – 123,630	2011 $’000
		125,677
		10,240
		–
		–
		135,917
		4,084
		1,675
		(26,869)
		6
		(3,769)
		(1,485)
		35
		109,594

Annual Report 2012

Notes to the consolidated financial statements for the year ended 30 June 2012

5 Segment information (continued)

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

The reconciliation of net interest expense per the segment notes for 2012 and 2011 to the statement of comprehensive income is below:

Net operatinginterestper segment note Less: unwind of discount on contingent consideration Less: early payout of derivative fnancial instrument Add: bridgingequityinterest reclassifed to investment income Net interest expense	2012 $’000 (5,676) (1,240) (265) 480 (6,701)	2011 $’000 (5,588) (836) – 1,175 (5,249)

Operating earnings is a financial measure which represents the profit/(loss) under Australian Accounting Standards adjusted for fair value adjustments, impairment of assets, gains or losses on sale of investments, acquisition costs, non‑operating movements in equity accounted investments, and non‑cash items such as security‑based benefits expense, amortisation, and tax expense/(benefit).

The calculation of operating earnings by adjusting for amounts in the Statement of Comprehensive Income excluding the non‑controlling interest in DRF is shown below:

Operatingearnings before specifc items Specifc items1 Operating earnings Fair value adjustments on derivatives2 Fair value adjustments on investments andproperty,includingremeasurementgains2 Inventorywritedown2 Transfer from reserves of cumulative FX losses on disposal of foreign investments2 Impairment of management rights Security‑based benefts expense Other2 Statutory proft after tax attributable to stapled securityholders	Excluding non-controlling interest	Excluding non-controlling interest
	2012 $’000 63,586 (8,741) 54,845 (9,933) (2,034) (5,814) (12,176) – (2,338) (5,872) 16,678	2011 $’000
		60,422
		–
		60,422
		2,141
		14,239
		(664)
		(871)
		(19,171)
		(4,090)
		332
		52,338

Specific items include $16.0 million fee revenue related to sale of Charter Hall Office REIT (CQO) US assets net of $4.0 million closure costs of the US office, $2.9 million costs of retaining the management rights, $3.9 million organisational restructure costs and $14.2 million provision for Charter Hall Opportunity Fund 4 (CHOF4) performance fee clawback which is then reduced by $0.3 million being the Group’s 3% equity share of the clawback receivable in CHOF4.
These items include the Group’s share of non‑operating movements in equity accounted investments, including losses on sale of offshore investment properties of $2.0 million and amortisation charges of $2.4 million (including amortisation of management rights).

of $2.0 million and amortisation charges of $2.4 million (including amortisation of management rights).
Basic weighted average number of securitiesper note 40 Operatingearnings before specifc itemsper stapled security (excl. non‑controllinginterest) Specifc items Operating earnings per stapled security (excluding non‑controlling interest)	295,624,609 21.51 cents 2.96 cents 18.55 cents	293,253,621
		20.60 cents
		–
		20.60 cents

Assets and liabilities have not been reported on a separate basis as the Board is provided with consolidated information.

Charter Hall Group

6 Revenue

Sales revenue Gross rental income Management andperformance fees Other revenue	Charter Hall Group 2012 $’000 2011 $’000 15,561 17,716 101,863 85,491 117,424 103,207	Charter Hall Group 2012 $’000 2011 $’000 15,561 17,716 101,863 85,491 117,424 103,207	Charter Hall Property Trust Group	Charter Hall Property Trust Group
	2012 $’000 15,561 101,863 117,424		2012 $’000 15,532 – 15,532	2011 $’000

				17,723
				–
				17,723

Interest Distributions/dividends* Total revenue	2,681 3,525 6,206 123,630	2,862 3,525 6,387 109,594	34,276 3,479 37,755 53,287	14,107
				3,505
				17,612
				35,335

The Group and Trust Group own 25.2% (2011: 36.4%) of Charter Hall Diversified Property Fund, 26.6% (2011: 24.9%) of Charter Hall Umbrella Fund and 3.8% (2011: 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

Charter Hall Group 2012 $’000 2011 $’000 725 1,545 1,031 1,183 1,307 – 8,142 7,275 1,240 836 9,382 8,111 – 19,171 57,461 51,480 2,338 4,090 3,153 2,023 4,233 1,864 1,541 1,483 906 1,008 7,436 8,741 77,068 70,689	Charter Hall Property Trust Group	Charter Hall Property Trust Group
2012 $’000 725 1,031 1,307 8,142 1,240 9,382 – 57,461 2,338 3,153 4,233 1,541 906 7,436 77,068	2012 $’000 – 546 – 8,875 – 8,875 – – – – 33 – – 1,280 1,313	2011 $’000


		–

		682
		–

		7,196
		–
		7,196
		–

		–
		–
		–
		–
		–
		–
		1,899
		1,899

Annual Report 2012

Notes to the consolidated financial statements for the year ended 30 June 2012

8 Fair value adjustments

Charter Hall Group 2012 $’000 2011 $’000 1,355 – (7,692) (2,518) (1,774) (309) (310) (386) (9,776) (3,213)	Charter Hall Property Trust Group	Charter Hall Property Trust Group
2012 $’000 1,355 (7,692) (1,774) (310) (9,776)	2012 $’000 – (7,692) (1,757) (310) (9,759)	2011 $’000

		–

		(128)
		(319)
		(387)
		(834)

9 Income tax benefit

Charter Hall Group 2012 $’000 2011 $’000 – 218 (482) (3,341) 50 457 (432) (2,666) (1,538) (3,231) 1,056 (110) (482) (3,341) 13,971 52,571 4,191 15,771 (10,442) (18,932) – (3,968) 549 267 43 1,227 4,096 2,437 348 – 37 623 732 (485) 50 457 (36) (63) (432) (2,666)	Charter Hall Property Trust Group	Charter Hall Property Trust Group
2012 $’000 – (482) 50 (432) (1,538) 1,056 (482) 13,971 4,191 (10,442) – 549 43 4,096 348 37 732 50 (36) (432)	2012 $’000 – – – – – – – 33,164 9,949 (10,442) – – – – 493 – – – – –	2011 $’000
		–
		(323)
		–
		(323)

		321
		(644)
		(323)
		60,924
		18,277

		(18,932)
		–
		–
		–
		–
		655
		–
		–
		–
		–
		–

Charter Hall Group

(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 – Charter Hall Group Unused tax losses for which no deferred tax asset has been recognised Potential tax beneft @ 30%	2012 $’000 14,018 4,205	2011 $’000
		12,071
		3,621

Based upon the completion of the June 2011 income tax return, the actual carried forward tax losses (unbooked) was calculated to be $2,575,000. This was a reduction of $1,046,000 on the previously disclosed carried forward losses (unbooked) in the 30 June 2011 financial statements of $3,621,000.

10 Distributions paid and payable

(a) Ordinary securities Interim ordinary distribution for the six months ended 31 December 2011 of 9.10 cents per security paid on 23 February2012	Charter Hall Group 2012 $’000 2011 $’000 26,950 –	Charter Hall Group 2012 $’000 2011 $’000 26,950 –	Charter Hall Property Trust Group	Charter Hall Property Trust Group
	2012 $’000 26,950		2012 $’000 26,950	2011 $’000
				–
Final ordinary distribution for the six months ended 30 June 2012 of 9.10 centsper security paid on 28 August 2012 Interim ordinary distribution for the six months ended 31 December 2010 of 8.00 cents per security paid on 28 February2011 Final ordinary distribution for the six months ended 30 June 2011 of 8.50 centsper security paid on 25 August 2011 Total distributionspaid andpayable Less: distributionspaid to holders of LTI securities Paid in cash	27,013 – – 53,963 (124) 53,839 53,963	– 24,507 26,039 50,546 (2,077) 48,469 50,546	27,013 – – 53,963 (124) 53,839 53,963	–
				24,507
				26,039
				50,546
				(2,077)
				48,469
				50,546
Satisfed byissue of securities	–	–	–	–

Franking credits available in the parent entity (Charter Hall Limited) for subsequent financial years based on a tax rate of 30% (2011: 30%) are $3,336,951 (2011: $3,336,951).

Annual Report 2012

Notes to the consolidated financial statements for the year ended 30 June 2012

11 Cash and cash equivalents

	Charter Hall Group	Charter Hall Group	Charter Hall Property Trust Group	Charter Hall Property Trust Group
	2012	2011	2012	2011
	$’000	$’000	$’000	$’000
Cash at bank and on hand	39,315	26,266	21,674	4,841

(a) Cash at bank and on hand

These amounts earn floating interest rates of between nil and 3.4% (2011: 4.7%).

12 Trade and other receivables

Charter Hall Group 2012 $’000 2011 $’000	Charter Hall Group 2012 $’000 2011 $’000	Charter Hall Property Trust Group	Charter Hall Property Trust Group
2012 $’000		2012 $’000	2011 $’000

9,535	22,035	481	1,037
955	706	–	–
1,650	–	1,650	–
10,441	11,556	9,703	11,289
8,821	7,922	5,573	1,367
708 32,110 3,400 5,000 4,470 – 12,870	1,219 43,438 4,400 5,000 – – 9,400	194 17,601 – – – 163,542 163,542	95
			13,788

			–
			–
			–
			355,874
			355,874

Further information relating to loans to key management personnel is set out in note 30.

(a) Bad and doubtful trade receivables

In the year, the Charter Hall Group and Charter Hall Property Trust Group incurred nil expense/benefit (2011: $nil) in respect of provisioning for bad and doubtful trade receivables.

(b) Fair values

The receivables are carried at amounts that approximate their fair value.

Charter Hall Group

(c) Interest rate risk The Charter Hall Group’s and Charter Hall Property Trust Group’s exposure to interest rate risk and the effective weighted average interest rate by maturity period is set out in the following tables:

Charter Hall Group 2012 Cash and cash equivalents Trade receivables Loans to key managementpersonnel Loans tojoint ventures Loans to associates Distributions receivable Other receivables Weighted average interest rate Charter Hall Group 2011 Cash and cash equivalents Trade receivables Loans to key managementpersonnel Loans tojoint ventures Distributions receivable Other receivables Weighted average interest rate	Floating interest rate $’000 39,315 – – – – – – 39,315 3.35% Floating interest rate $’000 26,266 – – – – – 26,266 3.36%	Fixed interest maturing in: 1 year or less $’000 Over 1 to 2 years $’000 Over 2 to 3 years $’000 Over 3 to 4 years $’000 Over 4 to 5 years $’000 Over 5 years $’000 – – – – – – – – – – – – 955 1,000 2,400 – – – – 5,000 – – – – – 4,470 – – – – – – – – – – – – – – – – 955 10,470 2,400 – – – 10.50% 10.79% 10.50% Fixed interest maturing in: 1 year or less $’000 Over 1 to 2 years $’000 Over 2 to 3 years $’000 Over 3 to 4 years $’000 Over 4 to 5 years $’000 Over 5 years $’000 – – – – – – – – – – – – 706 1,000 1,000 2,400 – – – – 5,000 – – – – – – – – – – – – – – – 706 1,000 6,000 2,400 – – 12.50% 10.50% 11.75% 10.50%	Non- interest bearing $’000 – 9,535 – 1,650 – 10,441 8,821 30,447
				Total $’000
				39,315
				9,535
				4,355
				6,650
				4,470
				10,441
				8,821
				83,587



			Non- interest bearing $’000	Total $’000
			–	26,266
			22,035	22,035
			–	5,106
			–	5,000
			11,556	11,556
			7,922	7,922
			41,513	77,885

Annual Report 2012

Notes to the consolidated financial statements for the year ended 30 June 2012

12 Trade and other receivables (continued)

(c) Interest rate risk (continued)

Charter Hall Property Trust Group 2012 Cash and cash equivalents Trade receivables Loans tojoint ventures Distributions receivable Other receivables Loan receivable from Charter Hall Limited Weighted average interest rate Charter Hall Property Trust Group 2011 Cash and cash equivalents Trade receivables Distributions receivable Other receivables Loan receivable from Charter Hall Limited Weighted average interest rate	Floating interest rate $’000 21,674 – – – – 163,542 185,216 9.09% Floating interest rate $’000 4,841 – – – 355,874 360,715 8.04%	Fixed interest maturing in: 1 year or less $’000 Over 1 to 2 years $’000 Over 2 to 3 years $’000 Over 3 to 4 years $’000 Over 4 to 5 years $’000 Over 5 years $’000 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – Fixed interest maturing in: 1 year or less $’000 Over 1 to 2 years $’000 Over 2 to 3 years $’000 Over 3 to 4 years $’000 Over 4 to 5 years $’000 Over 5 years $’000 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – –	Non- interest bearing $’000 – 481 1,650 9,703 5,573 – 17,407 Non- interest bearing $’000 – 1,037 11,289 1,367 – 13,693
				Total $’000
				21,674
				481
				1,650
				9,703
				5,573
				163,542
				202,623



				Total $’000
				4,841
				1,037
				11,289
				1,367
				355,874
				374,408

(d) Interest rate sensitivity analysis

The following tables illustrate the potential impact a change in interest rates of +/–1% would have on the Charter Hall Group and Charter Hall Property Trust Group’s profit after tax and equity.

–1% Proft $’000 Equity $’000 (393) (393) (393) (393) (263) (263) (263) (263)	+1%	+1%
Proft $’000 (393) (393) (263) (263)	Proft $’000 393 393 263 263	Equity $’000


		393
		393


		263
		263

Charter Hall Group

(d) Interest rate sensitivity analysis (continued)

–1% Proft $’000 Equity $’000 (217) (217) (1,635) (1,635) (1,852) (1,852) (48) (48) (3,559) (3,559) (3,607) (3,607)	+1%	+1%
Proft $’000 (217) (1,635) (1,852) (48) (3,559) (3,607)	Proft $’000 217 1,635 1,852 48 3,559 3,607	Equity $’000


		217
		1,635
		1,852


		48
		3,559
		3,607

(e) Credit risk

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

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

1 to 3 months	Charter Hall Group 2012 $’000 2011 $’000 8,068 19,856 416 348 1,051 1,831 9,535 22,035	Charter Hall Group 2012 $’000 2011 $’000 8,068 19,856 416 348 1,051 1,831 9,535 22,035	Charter Hall Property Trust Group	Charter Hall Property Trust Group
	2012 $’000 8,068 416 1,051 9,535		2012 $’000 463 18 – 481	2011 $’000
				752
3 to 6 months More than 6 months		348 1,831 22,035		65
				220
				1,037

The receivables are considered past due but not impaired. The carrying value approximates fair value.

13 Assets classified as held for sale

Mentone residentialproperties	Charter Hall Group 2012 $’000 2011 $’000 – 921 19,000 – 24,500 – 35,000 – 27,500 – 11,704 – 18,686 – 136,390 921	Charter Hall Group 2012 $’000 2011 $’000 – 921 19,000 – 24,500 – 35,000 – 27,500 – 11,704 – 18,686 – 136,390 921	Charter Hall Property Trust Group	Charter Hall Property Trust Group
	2012 $’000 – 19,000 24,500 35,000 27,500 11,704 18,686 136,390		2012 $’000 – 19,000 24,500 35,000 27,500 11,704 18,686 136,390	2011 $’000
				–
Bunnings Stafford,Stafford Road,Stafford Home HQ,Ipswich Menai Central,Menai Home HQ,Nunawading 33 Windorah Street,Stafford Charter Hall Retail Joint Venture Trust		– – – – – – 921		–
				–
				–
				–
				–
				–
				–

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

These assets are held for sale as it is considered highly probable that they will be sold in the next 12 months. All assets are investment properties except for the Charter Hall Retail Joint Venture Trust in which the Group holds a 50% interest.

The fair value represents the amount at which the assets could be exchanged between a knowledgeable willing buyer and a knowledgeable seller in an arm’s length transaction at the date of the valuation, in accordance with Australian Valuation Standards.

Annual Report 2012

Notes to the consolidated financial statements for the year ended 30 June 2012

14 Investments in associates at fair value through profit or loss

		Charter Hall Group	Charter Hall Group	Charter Hall Property Trust Group	Charter Hall Property Trust Group
		2012	2011	2012	2011
	Notes	$’000	$’000	$’000	$’000
Investments in associates	36(b)(i)	62,638	78,445	62,180	78,014

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

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 Charter Hall Group and Charter Hall Property Trust Group’s material exposure to share and unit price risk is provided in note 2(a)(i).

15 Derivative financial instruments

Charter Hall Group 2012 $’000 2011 $’000 669 – 669 – – 407 – 407	Charter Hall Property Trust Group	Charter Hall Property Trust Group
2012 $’000 669 669 – –	2012 $’000 669 669 – –	2011 $’000

		–
		–

		407
		407

(a) Instruments used by the Group

The Charter Hall Group and Charter Hall Property Trust Group utilise derivative financial instruments to hedge exposure to fluctuations in interest rates in accordance with the Charter Hall Group and Charter Hall Property Trust Group’s financial risk management policies (refer to note 2).

Interest rate swap contracts

The Charter Hall Group and Charter Hall Property Trust Group’s policy is to fix rates for between 50% to 100% of core borrowings for the anticipated debt term (refer note 2(a)(ii)). Accordingly, the Charter Hall Group and Charter Hall Property Trust Group have previously entered into interest rate swap contracts under which they are 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 39% (2011: 38%) of the loan principal outstanding. The fixed interest rates in 2012 ranged between 5.05% and 5.46% (2011: between 6.84% and 7.48%) for AUD swaps (including margin and line fees). There was a NZD swap that was paid out during the year.

The interest rate swap is shown as current despite an expiry date of 2 December 2013 as it is expected to be closed out in the next 12 months.

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

1 to 2years 2 to 3years More than 3years	2012 $’000 20,000 – – 20,000	2011 $’000
		18,203
		20,000
		–
		38,203

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

The amount of fair value adjustments on hedges recorded directly in the income statement was a loss of $310,069 (2011: loss of $386,000).

Charter Hall Group

100

(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 Charter Hall Group and Charter Hall Property Trust Group undertake their transactions in interest rate contracts only with investment grade financial institutions.

(c) Interest rate risk exposures

Refer to note 2(c) for the Charter Hall Group and Charter Hall Property Trust Group’s exposure to interest rate risk on interest rate swaps.

Interest rate swaps with a notional principal amount of NZ$23.6 million (2011: $40.2 million) were terminated during the year, resulting in a realised loss of $134,000 (2011: gain of $345,323).

16 Inventories

Charter Hall Group 2012 $’000 2011 $’000 9,518 7,450 9,518 7,450	Charter Hall Property Trust Group	Charter Hall Property Trust Group
2012 $’000 9,518 9,518	2012 $’000 – –	2011 $’000

		–
		–

17 Investments accounted for using the equity method

Charter Hall Group 2012 $’000 2011 $’000 444,515 470,083 27,644 47,624 472,159 517,707	Charter Hall Property Trust Group	Charter Hall Property Trust Group
2012 $’000 444,515 27,644 472,159	2012 $’000 373,578 – 373,578	2011 $’000
		417,408
		18,700
		436,108

(a) Investments in associates

These investments represent units in listed and unlisted Charter Hall managed funds which are accounted for in the consolidated financial statements using the equity method of accounting.

(b) Investments in joint venture entities

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

18 Intangible assets

In March 2010, the Charter Hall Group completed a transaction to acquire the majority of Macquarie Group’s core real estate management platform. This transaction was structured to secure the management rights (i.e. future management fee revenue) of Macquarie Office Trust (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.

With the exception of management rights held over the Charter Hall Office Trust (CHOT), management considers that the management rights have an indefinite life as there are no finite terms in the underlying agreements and the Charter Hall Group has no intention to cease managing these Funds. The carrying value of management rights with an indefinite life (i.e. excluding CHOT) is $52.961 million.

On 1 May 2012, Charter Hall Office REIT (CQO) was privatised and renamed CHOT. With implementation of the privatisation, CQO changed from a listed REIT to a wholesale unit trust with liquidity reviews every five years. It is expected that the net fee revenue that the Group will earn from managing CHOT will be generally consistent with the net revenue earned previously from managing the Australian assets of CQO. As the management rights of CHOT are subject to a liquidity event, the Group will amortise the management rights over a six year period commencing from 1 May 2012 (includes an additional year to source liquidity were the trust to be wound up in five years as a result of the liquidity review). Only the management rights held over the Charter Hall Office Trust are being amortised.

Annual Report 2012

101

Notes to the consolidated financial statements for the year ended 30 June 2012

18 Intangible assets (continued)

Charter Hall Group 2012 $’000 2011 $’000 99,994 119,165 – (19,171) (1,307) – 98,687 99,994	Charter Hall Property Trust Group	Charter Hall Property Trust Group
2012 $’000 99,994 – (1,307) 98,687	2012 $’000 – – – –	2011 $’000
		–
		–
		–
		–

All management rights recognised on the balance sheet were independently valued as at 30 April 2012 by KPMG Corporate Finance. The valuation supports the carrying values and the methodology applied was an assessment of fair value (less costs to sell) based on discounted cash flows.

Key assumptions used for the indefinite life intangibles valuation calculations are as follows:

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;
Discount rate range of 14% to 17% (2011: 13% to 18%) which is in excess of the Charter Hall 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% (2011: 3%) per annum; and
Terminal value multiple of 4.9 to 7.0 times earnings (2011: 7.0 times).

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.

19 Property, plant and equipment

Charter Hall Group Year ended 30 June 2011 Openingnet book amount Additions Disposals Depreciation charge Closingnet book amount At 30 June 2011 Cost Accumulated depreciation Net book amount Year ended 30 June 2012 Openingnet book amount Additions Disposals Depreciation charge Closingnet book amount At 30 June 2012 Cost Accumulated depreciation Net book amount	Furniture, fttings and equipment $’000 1,217 662 (15) (367) 1,497 2,993 (1,496) 1,497 1,497 109 – (325) 1,281 3,102 (1,821) 1,281	Fixtures $’000 768 – – (52) 716 1,073 (357) 716 716 3 – (70) 649 1,076 (427) 649	Software $’000 1,607 473 – (1,126) 954 2,300 (1,346) 954 954 472 – (330) 1,096 2,772 (1,676) 1,096	Total $’000

				3,592
				1,135
				(15)
				(1,545)
				3,167


				6,366
				(3,199)
				3,167


				3,167
				584
				–
				(725)
				3,026


				6,950
				(3,924)
				3,026

Charter Hall Group

102

20 Investment properties

Property Charter Hall Property Trust Group DRFproperties Home HQ,Nunawading Bunnings,Stafford Home HQ,Ipswich Menai Central,Menai 33 Windorah Street,Stafford Countdown,Auckland,NZ1 Charter Hall Group Mentone Showrooms,Mentone2	Type Bulkyretail Bulkyretail Bulkyretail Bulkyretail Bulkyretail Retail Bulkyretail	% owned 50 100 100 100 100 – –	Carried as held for sale Carried as held for sale Carried as held for sale Carried as held for sale Carried as held for sale Sold duringtheyear Sold duringtheyear	Independent valuation amount $’000 – – – – – – – – –	Book value 2012 $’000 – – – – – – – – –	Book value 2011 $’000

						31,000
						18,750
						27,065
						37,000
						11,700
						18,203
						143,718

						15,800
						159,518

Countdown, Auckland, New Zealand was sold on 29 June 2012 for NZ$22 million.
Mentone Showrooms, Mentone was sold on 28 October 2011 for $17.7 million.

Refer to note 13 for details of the carrying values of properties classified as held for sale at 30 June 2012.

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

Charter Hall Group 2012 $’000 2011 $’000 159,518 202,118 503 15,610 80 34 (546) (682) (34,427) (53,205) (117,704) (921) (7,692) (2,518) 268 (918) – 159,518	Charter Hall Property Trust Group	Charter Hall Property Trust Group
2012 $’000 159,518 503 80 (546) (34,427) (117,704) (7,692) 268 –	2012 $’000 143,718 503 80 (546) (18,627) (117,704) (7,692) 268 –	2011 $’000

		201,348
		15,569
		34
		(682)
		(71,505)
		–
		(128)
		(918)
		143,718

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

Charter Hall Group 2012 $’000 2011 $’000 15,561 17,716 (3,541) (4,795) 12,020 12,921	Charter Hall Property Trust Group	Charter Hall Property Trust Group
2012 $’000 15,561 (3,541) 12,020	2012 $’000 15,532 (3,478) 12,054	2011 $’000
		17,723
		(4,839)
		12,884

This table includes the comprehensive income of all investment properties held during the year, regardless of whether they have been sold or reclassified as held for sale. The income is up to the date of sale or 30 June respectively.

Annual Report 2012

103

Notes to the consolidated financial statements for the year ended 30 June 2012

20 Investment properties (continued)

(b) Valuation basis

As at 30 June 2012 all investment properties have been classified as held for sale. They are carried at fair value, representing the amount at which the assets could be exchanged between a knowledgeable willing buyer and a knowledgeable seller in an arm’s length transaction at the date of valuation, in accordance with Australian Valuation Standards.

Investment properties not independently valued are carried at Directors’ valuations, which are based on detailed internal calculations. The Directors’ valuations are approved by a Valuation Committee consisting of four members. The Chair of the Committee is Colin McGowan and the committee has another independent member in Rick Higgins (an independent non‑executive director of Charter Hall Direct Property Management Pty Limited (a subsidiary of Charter Hall Limited)). The other two members are executive directors. The valuations at 30 June 2011 had a weighted average capitalisation rate of 8.46% and a weighted average vacancy rate of 1.5%. All investment property has been reclassified to assets held for sale at 30 June 2012.

21 Deferred tax assets

Charter Hall Group 2012 $’000 2011 $’000 2,052 3,256 4,089 4,221 – 2,842 4,272 – 94 936 10,507 11,255 11,255 5,721 1,538 3,231 9 8 (2,295) 2,295 10,507 11,255 6,418 4,192 4,089 7,063 10,507 11,255	Charter Hall Property Trust Group	Charter Hall Property Trust Group
2012 $’000 2,052 4,089 – 4,272 94 10,507 11,255 1,538 9 (2,295) 10,507 6,418 4,089 10,507	2012 $’000 – – – – – – – – – – – – – –	2011 $’000

		–
		–
		–
		–
		–
		–

		321
		(321)
		–
		–
		–
		–
		–
		–

Charter Hall Group

104

22 Trade and other payables

Charter Hall Group 2012 $’000 2011 $’000 712 1,926 3,424 4,337 27,585 25,458 1,755 1,681 2,193 2,209 – 14,300 10,539 – 3,927 7,345 653 805 50,788 58,061 Charter Hall Group 2012 $’000 2011 $’000 – 12,106	Charter Hall Property Trust Group	Charter Hall Property Trust Group
	2012 $’000 359 1,814 27,888 219 – – – – 8 30,288	2011 $’000

		4,702
		2,070
		25,683
		265
		–
		–
		–
		–
		8
		32,728

	Charter Hall Property Trust Group
2012 $’000 –	2012 $’000 –	2011 $’000

		–

(i) Contingent consideration payable

On 1 March 2010, the Charter Hall 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 CountryWide 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). On 9 March 2012, an instalment of $1,451,664 was paid.

The fair value of the contingent consideration at 30 June 2012 of $10,539,093 (2011: $12,105,593) was estimated by applying a 13% discount rate to expected payments of $10,788,460 (2011: $13,840,189) from July 2012 onwards.

(ii) Deferred consideration payable for business combination – prior year

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) completed on 30 September 2011.

Annual Report 2012

105

Notes to the consolidated financial statements for the year ended 30 June 2012

23 Provisions

Charter Hall Group 2012 $’000 2011 $’000 656 834 14,239 – 14,895 834	Charter Hall Property Trust Group	Charter Hall Property Trust Group
2012 $’000 656 14,239 14,895	2012 $’000 – – –	2011 $’000
		–
		–
		–

The Group is entitled to performance fees in respect of CHOF4, calculated at 33.34% of the excess return above a gross equity internal rate of return (IRR) of 13% on the paid up capital allocated to a project. To date, the Group has received a total of $14.2 million in performance fees over the life of this fund. There have been no performance fees recognised in the current period or in the prior year ended 30 June 2011. Contractual arrangements allow a clawback of performance fees on termination of CHOF4 (on the earlier of the termination date of 31 December 2012, unless extended, or the completion of the sale of all the assets of CHOF4) to the extent necessary to allow CHOF4 to achieve a gross equity IRR equal to 13%. The gross equity IRR is calculated prior to the deduction of performance fees, fund management fees, fund costs and income tax.

In the 31 December 2011 Interim Financial Report, the Group reported a contingent liability of up to $14.2 million may be incurred in relation to the potential CHOF4 clawback of performance fees received in respect of the 2007, 2008, 2009 and 2010 financial years.

Having regard to this and current market conditions, the Charter Hall Board has resolved to raise a provision for the maximum potential liability, being $14.2 million. The clawback is payable on the earlier of the termination date of 31 December 2012, unless extended, or the completion of the sale of all the assets of CHOF4.

(a) Movements in provisions

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

24 Borrowings

Charter Hall Group 2012 $’000 2011 $’000 – – 51,750 – (287) – 51,463 – – 69,953 – 33,010 – (1,101) – 101,862	Charter Hall Property Trust Group	Charter Hall Property Trust Group
2012 $’000 – 51,750 (287) 51,463 – – – –	2012 $’000 2,400 51,750 (287) 53,863 – – – –	2011 $’000

		–


		–
		–
		–


		69,953
		33,010
		(1,101)
		101,862

Disclosed on the balance sheet as Other Assets are unamortised borrowing costs of $564,287 (2011: $582,044) relating to the Charter Hall Property Trust Westpac facility. Since there is no debt drawn at 30 June 2012 on this facility the unamortised borrowing costs have been disclosed on the balance sheet as Other Assets for the current year. The prior year amount continues to be disclosed above, aggregated with unamortised borrowing costs incurred on the DRF facility. Current year unamortised borrowing costs of $287,151 relate to the DRF facility.

Charter Hall Group

106

The DRF loan comprises a $40.0 million National Australia Bank (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 DRF JV 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.

Amounts drawn under the $75.0 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 tangible 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.

Subsequent to 30 June 2012 the interest cover covenant was amended as follows:

◆ The ratio of ‘net cash inflow’ to gross interest to be a minimum of 4.25 times, replacing the ratio of EBIT to gross interest not being less than 3 times.

During the year, DRF entered into an agreement with Charter Hall Holdings Pty Ltd to borrow $2.4 million which was fully drawn and is repayable on demand. The interest rate is BBSY +3%.

The DRF loan facility is contractually not repayable until November 2013, but has been disclosed as current due to assets held for sale and an expectation that the borrowings will therefore be repaid within the next 12 months.

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:

Charter Hall Group 2012 $’000 2011 $’000 1,265 2,324 1,307 1,831 117,704 – 18,686 – 138,962 4,155 – 143,718 414,777 478,412 – 18,700 414,777 640,830 553,739 644,985	Charter Hall Property Trust Group	Charter Hall Property Trust Group
2012 $’000 1,265 1,307 117,704 18,686 138,962 – 414,777 – 414,777 553,739	2012 $’000 1,265 1,307 117,704 18,686 138,962 – 414,777 – 414,777 553,739	2011 $’000


		2,324
		1,831

		–
		–
		4,155


		143,718
		478,412
		18,700
		640,830
		644,985

Annual Report 2012

107

Notes to the consolidated financial statements for the year ended 30 June 2012

24 Borrowings (continued)

(a) Financing arrangements

The Charter Hall Group and Charter Hall Property Trust Group had unrestricted access at reporting date to the following lines of credit:

Charter Hall Group 2012 $’000 2011 $’000 130,500 170,500 51,750 102,963 78,750 67,537	Charter Hall Property Trust Group	Charter Hall Property Trust Group
2012 $’000 130,500 51,750 78,750	2012 $’000 132,900 54,150 78,750	2011 $’000
		170,500
		102,963
		67,537

The Charter Hall Group and Charter Hall Property Trust Group’s $100 million WBC debt facility was reduced to $75.0 million in April 2012. This facility expires in May 2014.

DRF’s existing $55.0 million facility was reduced to $40.0 million on 29 June 2012. The expiry date remains at 30 November 2013. Whilst the DRF loan facility is contractually not repayable until November 2013, borrowings have been disclosed as current due to assets held for sale and an expectation that the borrowings will therefore be repaid within the next 12 months.

DRF is party to a second WBC debt facility, totalling $64.0 million, with the Charter Hall Retail Joint Venture Trust (RJVT), Charter Hall Lake Macquarie Trust (LMT), Charter Hall Mount Hutton Trust (MHT) and CQR Nunawading Trust (CQRNT). RJVT is an equity accounted investment which in turn owns 100% of LMT and MHT. CQRNT is a wholly‑owned entity of the Charter Hall Retail REIT (CQR) which is also an equity accounted investment. Accordingly, only $15.5 million of the $64.0 million facility, representing DRF’s share of debt relating to its 50% interest in the Nunawading shopping centre, is recorded on balance sheet with the remaining $48.5 million drawn by associates RJVT and CQRNT. DRF is joint and severally liable alongside RJVT, LMT, MHT and CQRNT for the amount of the facility, which is cross collateralised across three joint venture held mortgaged assets being shopping centres at Lake Macquarie (held by LMT), Mount Hutton (held by MHT) and Nunawading (50% held by CQRNT).

(b) Interest rate risk exposures

The following tables set out the Charter Hall Group and Charter Hall Property Trust 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 Charter Hall Group and Charter Hall Property Trust Group intend to hold fixed rate liabilities to maturity.

Charter Hall Group 2012 Trade and otherpayables Contingent consideration payable Borrowings Interest rate swaps Weighted average interest rate	Floating interest rate $’000 – – 51,750 (20,000) 31,750 3.63%	Fixed interest maturing in: 1 year or less $’000 Over 1 to 2 years $’000 Over 2 to 3 years $’000 Over 3 to 4 years $’000 Over 4 to 5 years $’000 Over 5 years $’000 – – – – – – – – – – – – – – – – – – – 20,000 – – – – – 20,000 – – – – 5.46%	Non- interest bearing $’000 40,249 10,539 – – 50,788
				Total $’000
				40,249
				10,539
				51,750
				–
				102,538

Charter Hall Group

108

Charter Hall Group 2011 Trade and otherpayables Contingent consideration payable Borrowings Interest rate swaps Weighted average interest rate Charter Hall Property Trust Group 2012 Trade and otherpayables Borrowings Interest rate swaps Weighted average interest rate Charter Hall Property Trust Group 2011 Trade and otherpayables Borrowings Interest rate swaps Weighted average interest rate	Floating interest rate $’000 – – 101,862 (38,203) 63,659 4.63% Floating interest rate $’000 – 54,150 (20,000) 34,150 3.75% Floating interest rate $’000 – 101,862 (38,203) 63,659 4.63%	Fixed interest maturing in: 1 year or less $’000 Over 1 to 2 years $’000 Over 2 to 3 years $’000 Over 3 to 4 years $’000 Over 4 to 5 years $’000 Over 5 years $’000 – – – – – – – – – – – – – – – – – – – 18,203 20,000 – – – – 18,203 20,000 – – – 4.71% 4.71% Fixed interest maturing in: 1 year or less $’000 Over 1 to 2 years $’000 Over 2 to 3 years $’000 Over 3 to 4 years $’000 Over 4 to 5 years $’000 Over 5 years $’000 – – – – – – – – – – – – – 20,000 – – – – – 20,000 – – – – 5.46% Fixed interest maturing in: 1 year or less $’000 Over 1 to 2 years $’000 Over 2 to 3 years $’000 Over 3 to 4 years $’000 Over 4 to 5 years $’000 Over 5 years $’000 – – – – – – – – – – – – – 18,203 20,000 – – – – 18,203 20,000 – – – 4.71% 4.71%	Non- interest bearing $’000 58,061 12,106 – – 70,167 Non- interest bearing $’000 30,288 – – 30,288 Non- interest bearing $’000 32,728 – – 32,728
				Total $’000
				58,061
				12,106
				101,862
				–
				172,029



				Total $’000
				30,288
				54,150
				–
				84,438



				Total $’000
				32,728
				101,862
				–
				134,590

Annual Report 2012

109

Notes to the consolidated financial statements for the year ended 30 June 2012

24 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 Charter Hall Group and Charter Hall Property Trust Group’s profit after tax and equity.

–1% Proft $’000 Equity $’000 518 518 (450) (450) 68 68 1,019 1,019 (1,771) (1,771) (752) (752) –1% Proft $’000 Equity $’000 542 542 (450) (450) 92 92 1,019 1,019 (1,771) (1,771) (752) (752)	+1%	+1%
	Proft $’000 (518) 445 (73) (1,019) 469 (550)	Equity $’000


		(518)
		445
		(73)


		(1,019)
		469
		(550)

	+1%
Proft $’000 542 (450) 92 1,019 (1,771) (752)	Proft $’000 (542) 445 (97) (1,019) 469 (550)	Equity $’000


		(542)
		445
		(97)


		(1,019)
		469
		(550)

(d) Fair value

Charter Hall Group

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

2012 Carrying amount $’000 Fair value $’000 51,463 51,750	2011	2011
Carrying amount $’000 51,463	Carrying amount $’000 101,862	Fair value $’000


		102,963

The fair value of borrowings is inclusive of costs which would be incurred on settlement of a liability, and is based upon market prices, where a market exists, or by discounting the expected future cash flows by the current interest rates for liabilities with similar risk profiles.

Charter Hall Group

110

Charter Hall Property Trust Group

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

2012 Carrying amount $’000 Fair value $’000 53,863 54,150	2011	2011
Carrying amount $’000 53,863	Carrying amount $’000 101,862	Fair value $’000


		102,963

(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 of the Charter Hall Group at 30 June 2012 was 1.45% (2011: 8.12%), and of the Charter Hall Property Trust Group was 4.3% (2011: 9.4%). 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.

25 Deferred tax liabilities

Charter Hall Group 2012 $’000 2011 $’000 84 4 903 868 1,078 198 120 59 2,185 1,129 1,129 1,273 – – 1,056 (110) – (34) 2,185 1,129 1,107 931 1,078 198 2,185 1,129	Charter Hall Property Trust Group	Charter Hall Property Trust Group
2012 $’000 84 903 1,078 120 2,185 1,129 – 1,056 – 2,185 1,107 1,078 2,185	2012 $’000 – – – – – – – – – – – – –	2011 $’000

		–
		–
		–
		–
		–


		661
		(644)
		–
		(17)
		–

		–
		–
		–

Annual Report 2012

111

Notes to the consolidated financial statements for the year ended 30 June 2012

26 Provisions – non-current

	Charter Hall Group	Charter Hall Group	Charter Hall Property Trust Group	Charter Hall Property Trust Group
	2012	2011	2012	2011
	$’000	$’000	$’000	$’000
Employee benefts – long service leave	1,428	1,217	–	–

(a) Movements in provisions

Movements in employee benefits provisions are set out below:

Charter Hall Group 2012 $’000 2011 $’000 2,051 1,628 33 423 2,084 2,051 656 834 1,428 1,217 2,084 2,051	Charter Hall Property Trust Group	Charter Hall Property Trust Group
2012 $’000 2,051 33 2,084 656 1,428 2,084	2012 $’000 – – – – – –	2011 $’000

		–
		–
		–
		–
		–
		–

Movements in performance fee clawback provision is set out below:

Charter Hall Group 2012 $’000 2011 $’000 – – 14,239 – 14,239 – 14,239 – – – 14,239 –	Charter Hall Property Trust Group	Charter Hall Property Trust Group
2012 $’000 – 14,239 14,239 14,239 – 14,239	2012 $’000 – – – – – –	2011 $’000
		–
		–
		–

		–
		–
		–

27 Contributed equity

27 Contributed equity
(a) Security capital1 Ordinarysecurities – fully paid	Notes (b),(c),(e)	2012 Securities 296,168,170 296,168,170	2011 Securities 293,755,894 293,755,894	2012 $’000 948,725 948,725	2011 $’000

					943,961
					943,961

Charter Hall Group

112

(b) Movements in ordinary security capital

Details Openingbalance Add back LTI securities reversed inprioryear2 Distribution Re‑investment Plan issue August 2010 Balance before consolidation Consolidation at one for four Balance at 30 June 2011 Less: LTI securities reversed2 Balanceper accounts at 30 June 2011 Add back LTI securities reversed lastyear2 Performance rights and options exercised Cancellation of forfeited LTI securities off market Balance at 30 June 2012 Less: LTI securities reversed2 Balance per accounts at 30 June 2012 Charter Hall Limited4 Charter Hall PropertyTrust4	Notes (d) (e)	Number of securities1 1,162,380,237 50,343,595 12,641,256 1,225,365,088 (919,023,274) 306,341,814 (12,585,920) 293,755,894 12,585,920 2,412,255 (11,907,844) 296,846,225 (678,055) 296,168,170	Issue price3 $0.59 $1.94	2012 $’000 943,961 73,179 4,764 (65,692) 956,212 (7,487) 948,725 209,550 739,175 948,725	2011 $’000
					936,445
					73,179
					7,516
					1,017,140
					–
					1,017,140
					(73,179)
					943,961





					943,961
					9,503
					934,458
					943,961

This includes shares of Charter Hall Limited and units in Charter Hall Property Trust, which are stapled. Refer to note 1 for details of the accounting for this stapling arrangement.
Securities issued under the Charter Hall Limited Executive Loan Security Plan (ELSP) have been issued in trust and have a corresponding loan given to the employee. Under AASB 2: Share-based Payment , the loan, interest received on the loan, securities and the distribution paid and payable are derecognised for the preparation of the financial statements.
Security issue prices for transactions occurring pre October 2010 are stated on a pre security consolidation basis.
On 18 June 2012, the Group announced implementation of the $200 million capital reallocation from Charter Hall Property Trust (CHPT) to Charter Hall Limited (CHL), effective 30 June 2012. The capital reallocation aims to ensure a more appropriate allocation of capital between CHPT and CHL (which together trade on the Australian Securities Exchange as Charter Hall Group) which is more closely aligned with the Group’s long‑term growth strategy. Under the capital reallocation proposal approved by securityholders at the Annual General Meeting on 24 November 2011, CHPT made capital payments of $200 million which were compulsorily applied as a capital contribution for existing shares of CHL.

(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.

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 has been inactive since the 30 June 2010 distribution.

(e) Consolidation

In October 2010, the Group completed a consolidation of its securities on the basis of one new security for every four pre‑consolidation securities. Where the consolidation of a holding resulted in a fractional security, that fraction was rounded up to the next whole security. The consolidation of securities resulted in the Group reducing its total securities on issue from 1,225,365,088 to 306,341,814 units.

Annual Report 2012

113

Notes to the consolidated financial statements for the year ended 30 June 2012

28 Reserves and accumulated losses

Charter Hall Group 2012 $’000 2011 $’000 (52,000) (52,000) 12,605 11,457 (8,702) (6,300) (2,373) (10,451) (50,470) (57,294) (49,055) (47,547) (1,415) (9,747) (50,470) (57,294) (52,000) (52,000) 11,457 7,367 2,338 4,090 262 – (1,452) – 12,605 11,457 (6,300) – (2,295) (6,300) (107) – (8,702) (6,300) (10,451) 4,604 992 (19,718) 11,749 – (4,663) 4,663 (2,373) (10,451)	Charter Hall Property Trust Group	Charter Hall Property Trust Group
2012 $’000 (52,000) 12,605 (8,702) (2,373) (50,470) (49,055) (1,415) (50,470) (52,000) 11,457 2,338 262 (1,452) 12,605 (6,300) (2,295) (107) (8,702) (10,451) 992 11,749 (4,663) (2,373)	2012 $’000 – – (9) (1,406) (1,415) – (1,415) (1,415) – – – – – – 52 – (61) (9) (9,799) 1,307 11,749 (4,663) (1,406)	2011 $’000

		–
		–
		52
		(9,799)
		(9,747)
		–
		(9,747)
		(9,747)


		–

		–
		–
		–
		–
		–

		–
		52
		–
		52

		4,626
		(19,088)
		–
		4,663
		(9,799)

(i) Business combination reserve

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

(ii) Security‑based payments reserve

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

Charter Hall Group

114

(iii) Transactions with non‑controlling interests

Transactions with non‑controlling interests that do not result in loss of control are treated as transactions with equity owners of the Charter Hall Group and Charter Hall Property Trust Group.

A change in ownership interest results in an adjustment between the carrying amounts of controlling and non‑controlling interests to reflect their relative interests in the controlled entity. Any difference between the amount of the adjustment to non‑controlling interests and any consideration paid or received is recognised within this reserve.

(iv) Foreign currency reserve

Exchange differences arising on translation of foreign controlled entities and the Charter Hall Group and Charter Hall Property Trust Group’s share of foreign exchange differences arising from their 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:

Charter Hall Group 2012 2011 (136,849) (136,055) 16,678 52,338 (53,839) (48,469) 4,663 (4,663) (169,347) (136,849) (81,738) (62,329) (87,609) (74,520) (169,347) (136,849)	Charter Hall Property Trust Group	Charter Hall Property Trust Group
2012 (136,849) 16,678 (53,839) 4,663 (169,347) (81,738) (87,609) (169,347)	2012 (74,520) 36,087 (53,839) 4,663 (87,609) – (87,609) (87,609)	2011
		(79,219)
		57,831
		(48,469)
		(4,663)
		(74,520)
		–
		(74,520)
		(74,520)

29 Non-controlling interest

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

Interest in: Contributed equity Reserves Accumulated losses Equity holders of CHPT (non-controlling interest)	Notes 27(b) 28(a) 28(b)	Charter Hall Group	Charter Hall Group
		2012 $’000 739,175 (1,415) (87,609) 650,151	2011 $’000

			934,458
			(9,747)
			(74,520)
			850,191

Annual Report 2012

115

Notes to the consolidated financial statements for the year ended 30 June 2012

29 Non-controlling interest (continued)

The Charter Hall Group and Charter Hall Trust Group have each consolidated 100% of the net assets and results of DRF. However, with regard to the Charter Hall Group 34.09% (2011: 34.63%) of DRF is owned by non‑controlling unitholders, and with regard to the Charter Hall Property Trust Group 50.37% (2011: 50.78%) of DRF is owned by non‑controlling unitholders. Their non‑controlling interest (NCI) in the total equity of DRF is as follows:

Charter Hall Group 2012 $’000 2011 $’000 34.09% NCI 34.63% NCI 67,348 68,056 – (330) (39,900) (35,599) 27,448 32,127	Charter Hall Property Trust Group	Charter Hall Property Trust Group
2012 $’000 34.09% NCI 67,348 – (39,900) 27,448	2012 $’000 50.37% NCI 99,515 – (58,957) 40,558	2011 $’000
		50.78% NCI

		100,772
		(496)
		(53,121)
		47,155

30 Key management personnel

(a) Directors

The following persons were Directors of Charter Hall Limited and Charter Hall Funds Management 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
David Deverall – Non‑Executive Independent Director (appointed 7 May 2012)
Glenn Fraser – Non‑Executive Independent Director (resigned 15 August 2012)
Cedric Fuchs – Executive Director (resigned 24 November 2011)
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 Charter Hall Group and Charter Hall Property Trust Group, directly or indirectly, during the year. The number of other key management personnel in the year ended 30 June 2012 was seven (2011: seven).

Name P Altschwager N Devlin S Dundas A Glass N Kelly R Stacker A Taylor	Position GroupChief Financial Offcer Head of People Fund Manager – Charter Hall Retail REIT Head of Wholesale Pooled Funds Head of Investor Relations Head of Direct – Charter Hall Direct Property Head of Wholesale Partnerships – Charter Hall Offce Trust	Employer
		Charter Hall Holdings PtyLtd
		Charter Hall Holdings PtyLtd
		Charter Hall Holdings PtyLtd
		Charter Hall Holdings PtyLtd
		Charter Hall Holdings PtyLtd
		Charter Hall Holdings PtyLtd
		Charter Hall Holdings Pty Ltd

Charter Hall Group

116

(c) Key management personnel compensation (including non-executive Directors)

Key management personnel are employed by the Charter Hall Group. Payments made by the Charter Hall Trust Group to the Charter Hall Group do not include any amounts directly attributable to the compensation of key management personnel.

Short‑term employee benefts Post‑employment benefts Security‑based benefts Long‑term employee benefts Non‑monetarybenefts	2012 $ 5,505,464 134,277 1,680,857 163,779 64,082 7,548,459	2011 $
		8,296,788
		326,698
		1,866,842
		(13,151)
		–
		10,477,177

(d) Equity instrument disclosures relating to key management personnel

(i) Security holdings

The numbers of securities in the Charter Hall Group held during the year by each Director and other key management personnel of the Group, including their personally related parties, are set out below.

2012 Name Directors of Charter Hall Limited Ordinary securities K Roxburgh R Woodhouse A Brennan D Deverall G Fraser D Harrison P Kahan C McGowan D Southon Other keymanagementpersonnel of the Group Ordinary securities P Altschwager N Devlin S Dundas A Glass N Kelly R Stacker A Taylor	Opening balance1 31,250 21,429 30,000 – 156,934 2,429,540 – – 2,461,161 – – – – 55,343 – –	Purchased/ (sold) during the year – – – 15,287 (86,934) (416,234) – – (90,980) – – – (36,392) (81,246) – –	LTI securities vesting/ (forfeited) during the year – – – – – 222,664 – – (95,372) – – – 36,392 50,058 – –	Closing balance1


				31,250
				21,249
				30,000
				15,287
				70,000
				2,235,970
				–
				–
				2,274,809


				–
				–
				–
				–
				24,155
				–
				–

This total includes securities that have vested but have not been exercised by repayment of the loan and removal from the LTI plan. Unvested securities are excluded from the balance. The vested securities were issued with loans of $11.04 per security which is significantly higher than the security price at 30 June 2012 of $2.27.

Annual Report 2012

117

Notes to the consolidated financial statements for the year ended 30 June 2012

30 Key management personnel (continued)

(d) Equity instrument disclosures relating to key management personnel (continued)

(i) Security holdings (continued)

2011 Name Directors of Charter Hall Limited Ordinary securities K Roxburgh R Woodhouse A Brennan G Fraser C Fuchs D Harrison P Kahan C McGowan D Southon Other keymanagementpersonnel of the Group Ordinary securities J Bakker A Glass N Kelly S Sewell R Stacker A Taylor M Winnem	Opening balance1 31,250 21,429 – 156,934 1,454,459 2,429,540 – – 2,461,161 136,952 – 55,343 – – – 138,929	Purchased/ (sold) during the year – – 30,000 – – – – – – – – – – – – (31,305)	LTI securities vesting/ (forfeited) during the year – – – – – – – – – – – – – – – –	Closing balance1


				31,250
				21,429
				30,000
				156,934
				1,454,459
				2,429,540
				–
				–
				2,461,161


				136,952
				–
				55,343
				–
				–
				–
				107,624

The Executive Directors of Charter Hall Group and other key management personnel of Charter Hall Group held the following performance rights as at reporting date in the Company’s PROP:

Executive Directors D Harrison D Southon Keymanagementpersonnel P Altschwager N Devlin S Dundas A Glass N Kelly R Stacker A Taylor	2010 96,520 96,520 – – 35,752 38,608 30,886 53,628 89,252	2011 201,924 201,924 – 10,897 – 50,483 43,272 – –	2012 564,517 564,517 – 97,581 107,527 141,130 120,968 157,549 223,433	Total

				862,961
				862,961

				–
				108,478
				143,279
				230,221
				195,126
				211,177
				312,685

Charter Hall Group

118

The Executive Directors of Charter Hall Group and other key management personnel of Charter Hall Group held the following options as at reporting date in the Company’s PROP:

Executive Directors D Harrison D Southon Keymanagementpersonnel P Altschwager N Devlin S Dundas A Glass N Kelly R Stacker A Taylor	2010 345,060 670,314 – – 89,252 268,128 162,500 133,876 223,252	2011 504,808 504,808 – 27,243 – 126,204 108,176 – –	2012 – – – – – – – – –	Total

				849,868
				1,175,122

				–
				27,243
				89,252
				394,332
				270,676
				133,876
				223,252

The Executive Directors of Charter Hall Group and other key management personnel of the Charter Hall Group held the following service rights as at reporting date in the Company’s PROP:

Executive Directors D Harrison D Southon Keymanagementpersonnel P Altschwager	2012 85,731 85,731 260,054	Total

		85,731
		85,731

		260,054

(e) Loans to key management personnel

Details of loans made to Directors of Charter Hall Limited and other key management personnel of Charter Hall Group, including their personally related parties, are set out below.

(i) Aggregates for key management personnel

Balance at start of the year $ 2012 5,106,250 2011 5,145,000 (ii) Individuals with loans above $100,000 during the period Balance at start of the year $ 2012 D Harrison 2,553,125 D Southon 2,553,125 2011 D Harrison 2,605,000 D Southon 2,540,000	Interest charged in the year $ 507,684 206,250 Interest charged in the year $ 264,540 243,144 103,125 103,125	Payments made during the year $ (1,258,558) (245,000) Payments made during the year $ (535,933) (722,625) (155,000) (90,000)	Balance at end of the year $ 4,355,376 5,106,250 Balance at end of the year $ 2,281,732 2,073,644 2,553,125 2,553,125	Number in Group at the end of the year
				2
				2

				Highest indebtness during the year

				2,579,666
				2,579,666

				2,685,411
				2,620,411

Annual Report 2012

119

Notes to the consolidated financial statements for the year ended 30 June 2012

30 Key management personnel (continued)

(e) Loans to key management personnel (continued)

(i) Aggregates for key management personnel (continued)

When Charter Hall Group listed in 2005, the Product Disclosure Statement dated 11 May 2005 disclosed that related parties of the Joint Managing Directors, David Harrison and David Southon, had entered into loan agreements with CHL. Loans of $2.5 million each were provided to fund the purchase of 2,500,000 (subsequently 625,000 following the one‑for‑four security consolidation in October 2010) listed securities in the Charter Hall Group.

At that time, these loans were made to align the Joint Managing Directors’ interests with those of the Group and securityholders. Each loan is to a related party of the Joint Managing Directors, being the Harrison Family Trust and the Southon Family Trust.

The loans, which were initially for a three‑year period, were extended in 2008 for three years to 6 June 2011 under the same terms and conditions. Until 6 June 2011, interest on the loans was equivalent to the Charter Hall Group distribution paid in respect of the securities purchased using the loan proceeds. At the time of the roll‑over in June 2008, distributions received on these securities exceeded an arm’s length interest rate.

In FY11, however, the distributions received were below an arm’s length interest rate $209,375 on each loan. This has not been charged to each of the borrowers.

On 7 June 2011, the loans were extended for a further three‑year period to 31 July 2014, with repayment, interest, security and LVR conditions that are at arm’s length terms and conditions as follows:

Repayment

Minimum repayments of $300,000 each on or before 31 July 2011, $500,000 each on or before 31 July 2012 and 31 July 2013 respectively, with the remaining principal balance at the end of the term. Subsequently, further amended to be five days after payment of the CHC distribution.

Interest

An interest rate of 12.5% p.a. for a loan to value ratio (LVR) greater than 50%, 10.5% p.a. for an LVR less than or equal to 50%; 9% p.a. for an LVR less than or equal to 40%, with interest payable in arrears upon each distribution date of the Charter Hall Group, commencing February 2012.

Additional security

Security over these loans is by way of a first ranking mortgage over all CHC securities held by the Harrison Family Trust and the Southon Family Trust, with the borrowers having the right to release CHC securities if the LVR is less than 40%. At 30 June 2012, the number of CHC securities held by the Harrison Family Trust was 2,009,521 (2011: 2,009,521) and the number held by the Southon Family Trust was 2,048,360 (2011: 2,048,360).

LVR covenant

Loans are not to exceed an LVR of 60%, at bi‑annual testing dates, with the borrowers obligated to provide either additional security or repay such amount of the loan within 30 days, to ensure compliance with the LVR covenant.

31 Remuneration of auditors

During the year, the following fees were paid or payable for services provided by the auditors of the Charter Hall Group and Charter Hall Property Trust Group, their related practices and nonrelated audit firms:

Charter Hall Group 2012 $ 2011 $ 347,597 387,791 55,000 – – 1,940 402,597 389,731	Charter Hall Property Trust Group	Charter Hall Property Trust Group
2012 $	2012 $	2011 $
347,597 55,000 – 402,597	32,184 – – 32,184

		47,388
		–

		–
		47,388

Charter Hall Group

120

Charter Hall Group 2012 $ 2011 $ 60,976 55,050 60,976 55,050 10,000 53,525 25,500 – 35,500 53,525	Charter Hall Property Trust Group	Charter Hall Property Trust Group
2012 $	2012 $	2011 $
60,976 60,976 10,000 25,500 35,500	10,000 10,000 – – –

		29,720
		29,720


		–
		–
		–

The Charter Hall Group and Charter Hall Property Trust Group’s policy is to employ PricewaterhouseCoopers (PwC) on assignments additional to statutory audit duties where PwC’s expertise and experience with the Charter Hall Group and Charter Hall Property Trust 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 Charter Hall Group and Charter Hall Property Trust Group’s policy to seek competitive tenders for all major consulting projects.

32 Commitments

(a) Lease commitments: Group as lessee

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

Charter Hall Group 2012 2011 1,549 1,476 5,808 8,088 7,357 9,564	Charter Hall Property Trust Group	Charter Hall Property Trust Group
2012 1,549 5,808 7,357	2012 – – –	2011
		–
		–
		–

(b) Capital commitments

As at 30 June 2012 there were no contractual capital commitments (2011: $nil).

(c) Commitments: Other

Charter Hall Direct 144 Stirling Street Trust (144SST)

On 15 May 2012, Charter Hall Direct Property Management Limited issued a Product Disclosure Statement (PDS) seeking investors for an unlisted property syndicate to invest in a trust to acquire a building at 144 Stirling Street, Perth. If an amount equal to or greater than $16 million but less than $32 million was raised by 31 December 2012, the Group (as underwriter) had agreed to underwrite the balance of units available under the offer.

Subsequent to 30 June 2012, CHDPML was successful in raising the $32 million in equity sought in the PDS. Accordingly the Group will not be required to underwrite any part of the equity‑raising for 144SST.

Charter Hall Opportunity Fund No. 5 (CHOF5) Workzone (Workzone)

On 21 December 2011, Charter Hall Limited and Charter Hall Funds Management Limited as trustee for CHOF5 entered into a Preferred Equity Deed (deed) committing $9 million to fund development of the Workzone project. At 30 June 2012 $4.5 million of this facility had been drawn down and is included in receivables in this financial report. A further $1 million was drawn down in July 2012 leaving an undrawn commitment of $3.5 million at the date of this report.

CHPT RP2 Trust – Bay Village acquisition

CHPT RP2 Trust was established on 29 May 2012 to acquire a 20% interest in the Retail Partnership No. 2 Trust (RP2T). RP2T entered into a contract on 28 June 2012 to acquire the Bay Village shopping centre at Bateau Bay in New South Wales for $164 million. The purchase of the centre was completed on 15 August 2012. The Group’s equity commitment to fund the acquisition is $19.5 million which was paid on 15 August 2012.

33 Contingent liabilities

There were no contingent liabilities as at 30 June 2012.

Annual Report 2012

121

Notes to the consolidated financial statements for the year ended 30 June 2012

34 Related parties

(a) Parent entity

The parent entity of the Charter Hall Group is Charter Hall Limited. The parent entity of the Charter Hall Property Trust Group is the Charter Hall Property Trust.

(b) Controlled entities

Interests in controlled entities are set out in note 35.

(c) Key management personnel

Disclosures relating to key management personnel are set out in note 30.

(d) Transactions with related parties

Transactions with associates and joint ventures are disclosed in note 36 and note 37 respectively.

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

Accountingfees Marketingfees Management andperformance fees from associates Transaction fees from associates Commitment fees from associates	Charter Hall Group 2012 $ 2011 $ 4,174,581 4,155,000 86,930 113 37,756,063 39,208,306 28,622,218 17,389,370 135,000 –	Charter Hall Group 2012 $ 2011 $ 4,174,581 4,155,000 86,930 113 37,756,063 39,208,306 28,622,218 17,389,370 135,000 –	Charter Hall Property Trust Group	Charter Hall Property Trust Group
	2012 $ 4,174,581 86,930 37,756,063 28,622,218 135,000		2012 $ – – – – –	2011 $
				–
				–
				–
				–
				–
Property management fees from associates	29,456,354	20,806,449	–	–

(e) Loans to/from related parties

Charter Hall Group 2012 $ 2011 $ 5,000,000 3,750,000 6,120,000 1,250,000 601,644 594,658 (601,644) (594,658) 11,120,000 5,000,000 – – – – – – – – – – – –	Charter Hall Property Trust Group	Charter Hall Property Trust Group
2012 $ 5,000,000 6,120,000 601,644 (601,644) 11,120,000 – – – – – –	2012 $ – – – – – 355,874,328 137,447,221 (163,127,456) (200,000,000) 33,347,550 163,541,643	2011 $

		–
		–
		–
		–
		–

		282,424,290
		96,868,199
		(35,970,548)
		–
		12,552,387
		355,874,328

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.

The loans to Charter Hall Limited comprise two unsecured stapled loans maturing in July 2018 and July 2019 respectively. Interest is charged on an arm’s length basis which, at 30 June 2012, amounted to a weighted average rate of 9.76% (June 2011: 8.04%).

(f) Fees paid to the Responsible Entity or its associates

Fees paid to the Responsible Entity of the Charter Hall Property Trust, and its associates, by the Charter Hall Property Trust Group amounted to $3,591,041 (2011: $5,725,675).

Charter Hall Group

122

35 Controlled entities

The consolidated financial statements of the Charter Hall Group incorporate the assets, liabilities and results of the following controlled entities in accordance with the accounting policy described in note 1(b):

(a) Details of controlled entities of the Charter Hall Group

	Equity holding	Equity holding
Country of incorporation Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Poland Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia USA USA USA UK Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia	2012 % 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100	2011 %

		100
		100
		–
		–
		100
		100
		100
		100
		100

		100
		100
		100
		100
		100
		–
		100
		100
		100
		100
		100
		100
		100
		100
		100
		100
		100
		100
		100
		100
		100
		100
		100
		100
		100
		100
		100
		–
		100
		100
		100
		100

On 30 September 2011, the Charter Hall Group completed the acquisition from Macquarie Group Limited of all shares in Charter Hall Direct Property Management Pty Limited and Charter Hall Retail Management Pty Limited following the satisfaction of conditions precedent for a sum of $14.3 million. This transaction completed the acquisition of the Macquarie real estate funds management platform. Although Charter Hall did not previously own the shares of these entities, Charter Hall had economic control of these entities and hence they have been consolidated since March 2010.

123

Annual Report 2012

Notes to the consolidated financial statements for the year ended 30 June 2012

35 Controlled entities (continued)

(a) Details of controlled entities of the Charter Hall Group (continued)

	Equity holding	Equity holding
Country of incorporation Australia Australia Australia Australia	2012 % 66 100 100 100	2011 %

		66
		100
		100
		–

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 Trust (CHOT), 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.
CHPT RP2 Trust was established on 29 May 2012 to acquire a 20% interest in the Retail Partnership No. 2 Trust (RP2T). RP2T entered into a contract on 28 June 2012 to acquire the Bay Village shopping centre at Bateau Bay in New South Wales.

	Equity holding	Equity holding
Country of incorporation Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia	2012 % 100 – – – – – – 100 100 100 – 100 100 100 100 100	2011 %

		100
		100
		100
		100
		100
		100
		100
		100
		100
		100
		100
		100
		100
		100
		100
		100

On 31 May 2012, unitholders were advised that these trusts were dissolved on that date. Accordingly, the results of these entities are included in the statement of comprehensive income up until 31 May 2012.

Charter Hall Group

124

(b) Details of controlled entities of the Charter Hall Property Trust Group

Name of entity Controlled entities of Charter Hall PropertyTrust Charter Hall Direct Retail Fund Charter Hall Co‑Investment Trust1 Charter Hall Special Situations Offce Fund2 CHPT RP2 Trust3	Country of incorporation Australia Australia Australia Australia	Class of securities Ordinary Ordinary Ordinary Ordinary	Equity holding	Equity holding
			2012 % 49 100 100 100	2011 %

				49
				100
				100
				–

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 Trust (CHOT), 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.
CHPT RP2 Trust was established on 29 May 2012 to acquire a 20% interest in the Retail Partnership No. 2 Trust (RP2T). RP2T entered into a contract on 28 June 2012 to acquire the Bay Village shopping centre at Bateau Bay in New South Wales.

	Equity holding	Equity holding
Country of incorporation Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia	2012 % 100 – – – – – – 100 100 100 – 100 100 100 100 100	2011 %

		100
		100
		100
		100
		100
		100
		100
		100
		100
		100
		100
		100
		100
		100
		100
		100

On 31 May 2012, unitholders were advised that these trusts had been dissolved on that date. Accordingly, the results of these entities are included in the statement of comprehensive income up until 31 May 2012.

125

Annual Report 2012

Notes to the consolidated financial statements for the year ended 30 June 2012

36 Investments in associates

(a) Carrying amounts

Information relating to associates is set out below.

Charter Hall Group Name of entity Accounted for at fair value through proft or loss Unlisted Charter Hall Diversifed PropertyFund Charter Hall Umbrella Fund Charter Hall Direct PropertyFund Charter Hall Direct Industrial Fund Charter Hall PropertySecurities Fund Equityaccounted:	Principal activity Propertyinvestment Propertyinvestment Propertyinvestment Propertyinvestment REIT securities investment	Ownership interest 2012 % 2011 % 25.2 36.4 26.6 24.9 3.8 3.5 0.2 – 2.1 1.4	Ownership interest 2012 % 2011 % 25.2 36.4 26.6 24.9 3.8 3.5 0.2 – 2.1 1.4	2012 $’000 11,713 39,469 10,770 228 458 62,638
		2012 % 25.2 26.6 3.8 0.2 2.1			2011 $’000


					26,964
					40,612
					10,438
					–
					431
					78,445

Unlisted Charter Hall OpportunityFund 4 Charter Hall OpportunityFund 5 Charter Hall Core Plus Offce Fund Charter Hall Core Plus Industrial Fund Charter Hall Offce Trust1 Retail PartnershipNo. 2 Trust2 Listed	Propertydevelopment Propertydevelopment Propertyinvestment Propertyinvestment Propertyinvestment Propertyinvestment	3.0 15.0 13.9 18.0 15.0 20.0	3.0 15.0 16.2 21.3 – –	1,128 28,493 112,951 54,885 145,720 –
					1,218
					31,286
					110,428
					53,281
					–
					–

Charter Hall Offce REIT1 Charter Hall Retail REIT Total investments in associates	Propertyinvestment Propertyinvestment	– 10.0	10.0 8.2	– 101,338 444,515 507,153	185,681
					88,189
					470,083
					548,528

On 1 May 2012, the Charter Hall Office REIT was privatised. As a result the Charter Hall Office REIT changed from a listed REIT to a wholesale unit trust known as

Charter Hall Office Trust.

The 20% interest in the Retail Partnership No. 2 Trust (RP2T) was acquired on 29 May 2012 for $2. RP2T entered into a contract on 28 June 2012 to acquire the Bay Village shopping centre at Bateau Bay in New South Wales.

The above associates are incorporated in Australia.

The investments in Charter Hall Diversified Property Fund, Charter Hall Umbrella Fund, Charter Hall Direct Property Fund and Charter Hall Direct Industrial Fund are held by Charter Hall Property Trust (CHPT) and are accounted for at fair value through the profit or loss (note 14). The investment in Charter Hall Diversified Property Fund (DPF) consists of units which represent a 17.9% (2011: 19.6%) interest but also an additional investment in the form of bridging equity of $7.4 million (2011: $19.9 million), which is 7.3% (2011: 16.8%). CHPT has provided DPF with a bridging loan facility totalling $18.0 million, currently drawn to $7.4 million. This facility is available to DPF with an initial expiry date of 18 July 2018; however, there is a clause in the agreement which allows the borrower to provide written notice within 14 days prior to that date electing to extend the agreement in perpetuity.

The investment in Charter Hall Property Securities Fund is held by a controlled entity of Charter Hall Limited and is accounted for at fair value through the profit or loss (note 14).

The investments in Charter Hall Opportunity Funds 4 and 5 held by Charter Hall Limited are equity accounted in the consolidated financial statements (note 17). Both Charter Hall Limited and Charter Hall Property Trust have an investment in Charter Hall Core Plus Office Fund and Charter Hall Core Plus Industrial Fund, and are equity accounted.

Charter Hall Office Trust, Charter Hall Retail REIT and the Retail Partnership No. 2 Trust 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.

Charter Hall Group

126

Charter Hall Property Trust Group Name of entity Accounted for at fair value through proft or loss Unlisted Charter Hall Diversifed PropertyFund Charter Hall Umbrella Fund Charter Hall Direct PropertyFund Charter Hall Direct Industrial Fund Equityaccounted: Unlisted Charter Hall Core Plus Offce Fund Charter Hall Core Plus Industrial Fund Charter Hall Offce Trust1 Retail PartnershipNo. 2 Trust2 Listed Charter Hall Offce REIT1 Charter Hall Retail REIT Total investments in associates	Principal activity Propertyinvestment Propertyinvestment Propertyinvestment Propertyinvestment Propertyinvestment Propertyinvestment Propertyinvestment Propertyinvestment Propertyinvestment Propertyinvestment	Ownership interest 2012 % 2011 % 25.2 36.4 26.6 24.9 3.8 3.5 0.2 – 12.6 13.3 7.8 21.3 15.0 – 20.0 – – 10.0 10.0 8.2	2012 $’000 11,713 39,469 10,770 228 62,180 102,635 23,885 145,720 – – 101,338 373,578 435,758
		2012 % 25.2 26.6 3.8 0.2 12.6 7.8 15.0 20.0 – 10.0		2011 $’000


				26,964
				40,612
				10,438
				–
				78,014


				90,257
				53,281
				–
				–

				185,681
				88,189
				417,408
				495,422

On 1 May 2012, the Charter Hall Office REIT was privatised. As a result the Charter Hall Office REIT changed from a listed REIT to a wholesale unit trust known as Charter Hall Office Trust.
The 20% interest in the Retail Partnership No. 2 Trust (RP2T) was acquired on 29 May 2012 for $2. RP2T entered into a contract on 28 June 2012 to acquire the Bay Village shopping centre at Bateau Bay in New South Wales.

The above associates are incorporated in Australia.

The investments in Charter Hall Diversified Property Fund, Charter Hall Umbrella Fund, Charter Hall Direct Property Fund and Charter Hall Direct Industrial Fund are held by Charter Hall Property Trust (CHPT) and are accounted for at fair value through the profit or loss (note 14). The investment in Charter Hall Diversified Property Fund (DPF) consists of units which represent a 17.9% (2011: 19.6%) interest but also an additional investment in the form of bridging equity of $7.4 million (2011: $19.9 million), which is 7.3% (2011: 12.3%). CHPT has provided DPF with a bridging loan facility totalling $18.0 million, currently drawn to $7.4 million. This facility is available to DPF with an initial expiry date of 18 July 2018, however there is a clause in the agreement which allows the borrower to provide written notice within 14 days prior to that date electing to extend the agreement in perpetuity.

The investments in Charter Hall Core Plus Office Fund, Charter Hall Core Plus Industrial Fund, Charter Hall Office Trust, Charter Hall Retail REIT and the Retail Partnership No. 2 Trust 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.

Annual Report 2012

127

Notes to the consolidated financial statements for the year ended 30 June 2012

36 Investments in associates (continued)

(b) Movements in carrying amounts

(i) Investments at fair value through profit or loss

Charter Hall Group 2012 $’000 2011 $’000 26,964 22,068 – 4,900 (14,306) – (945) (4) 11,713 26,964 40,612 41,578 – – (1,143) (966) 39,469 40,612 10,438 9,787 – – 332 651 10,770 10,438 – 306 – 119 – 14 – (439) – – – – 229 – (1) – 228 – 431 – 44 435 (17) (4) 458 431 78,445 73,739 273 5,454 (14,306) (439) (1,774) (309) 62,638 78,445	Charter Hall Property Trust Group	Charter Hall Property Trust Group
2012 $’000 26,964 – (14,306) (945) 11,713 40,612 – (1,143) 39,469 10,438 – 332 10,770 – – – – – – 229 (1) 228 431 44 (17) 458 78,445 273 (14,306) (1,774) 62,638	2012 $’000 26,964 – (14,306) (945) 11,713 40,612 – (1,143) 39,469 10,438 – 332 10,770 – – – – – – 229 (1) 228 – – – – 78,014 229 (14,306) (1,757) 62,180	2011 $’000

		22,068
		4,900
		–
		(4)
		26,964

		41,578
		–
		(966)
		40,612

		9,787
		–
		651
		10,438

		–
		–
		–
		–
		–

		–
		–
		–
		–

		–
		–
		–
		–

		73,433
		4,900
		–
		(319)
		78,014

Charter Hall Group

128

(ii) Equity accounted investments

Charter Hall Group 2012 $’000 2011 $’000 1,218 1,254 – – (90) (26) – (10) 1,128 1,218 31,286 24,670 4,815 7,605 (7,331) (989) (259) – (18) – 28,493 31,286 110,428 104,314 – – 8,460 11,415 (6,992) (5,516) – – 1,055 215 112,951 110,428 53,281 51,989 4,711 3,770 (3,324) (2,935) – – 217 457 54,885 53,281 185,681 155,149 47,662 37,031 (8,161) 5,688 (93,735) (9,424) 12,961 (17,002) 1,312 14,239 145,720 185,681 – – – – – –	Charter Hall Property Trust Group	Charter Hall Property Trust Group
2012 $’000 1,218 – (90) – 1,128 31,286 4,815 (7,331) (259) (18) 28,493 110,428 – 8,460 (6,992) – 1,055 112,951 53,281 4,711 (3,324) – 217 54,885 185,681 47,662 (8,161) (93,735) 12,961 1,312 145,720 – – –	2012 $’000 – – – – – – – – – – – 90,257 10,086 7,690 (6,353) – 955 102,635 53,281 2,217 (1,724) (30,094) 205 23,885 185,681 47,662 (8,161) (93,735) 12,961 1,312 145,720 – – –	2011 $’000

		–
		–
		–
		–
		–

		–
		–
		–
		–
		–
		–

		104,314
		–
		10,787
		(5,058)
		(20,008)
		222
		90,257

		51,989
		3,770
		(2,935)
		–
		457
		53,281

		155,149
		37,031
		5,688
		(9,424)
		(17,002)
		14,239
		185,681

		–
		–
		–

Investment of $2, which is $nil rounded to the nearest $1,000.

129

Annual Report 2012

Notes to the consolidated financial statements for the year ended 30 June 2012

36 Investments in associates (continued)

(b) Movements in carrying amounts (continued)

(ii) Equity accounted investments (continued)

Charter Hall Group 2012 $’000 2011 $’000 88,189 82,326 16,176 7,425 2,587 4,928 (7,820) (6,177) 145 (2,128) 2,061 1,815 101,338 88,189 470,083 419,702 68,653 52,061 176 24,786 (112,130) (24,062) 13,088 (19,130) – – 4,645 16,726 444,515 470,083	Charter Hall Property Trust Group	Charter Hall Property Trust Group
2012 $’000 88,189 16,176 2,587 (7,820) 145 2,061 101,338 470,083 68,653 176 (112,130) 13,088 – 4,645 444,515	2012 $’000 88,189 16,176 2,587 (7,820) 145 2,061 101,338 417,408 73,924 4,333 (109,632) 13,106 (30,094) 4,533 373,578	2011 $’000

		82,326
		7,425
		4,928
		(6,177)
		(2,128)
		1,815
		88,189

		393,778
		44,456
		25,173
		(23,594)
		(19,130)
		(20,008)
		16,733
		417,408

(c) Fair value of listed investments in associates

Charter Hall Group 2012 $’000 2011 $’000 – 165,397 99,177 79,705	Charter Hall Property Trust Group	Charter Hall Property Trust Group
2012 $’000 – 99,177	2012 $’000 – 99,177	2011 $’000
		165,397
		79,705

Charter Hall Office REIT was delisted on 13 April 2012 and privatised on 1 May 2012.

Fair value represents market value of CQO and CQR units as at 30 June 2012 and 2011.

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

Charter Hall Group 2012 $’000 2011 $’000 2,674 26,534 (2,498) (1,748) 176 24,786	Charter Hall Property Trust Group	Charter Hall Property Trust Group
2012 $’000 2,674 (2,498) 176	2012 $’000 4,311 22 4,333	2011 $’000
		27,370
		(2,197)
		25,173

Charter Hall Group

130

(e) Contingent liabilities of associates

Subsequent to year end, following commercial negotiations between the Development Alliance (DA) partners in the Little Bay Cove project, being CHOF5 Little Bay Pty Limited (CHOF5LB) (a controlled entity of CHOF5) and TA Global Development Pty Limited (TAG), in accordance with the DA Umbrella Deed, a Notice of Mediation has been issued to TAG by CHFML (in its capacity as trustee of CHOF5) in relation to a commercial dispute between the DA partners. The mediation notice has been rejected by TAG with a request for a clarification of the details of the alleged dispute between the parties. Ongoing commercial negotiations with TAG are being undertaken in an attempt to agree on the future direction of the project.

As at the date of signing the financial statements, CHOF5 is not able to determine whether any financial impact will occur as a result of these negotiations and any subsequent dispute or mediation process.

CHOF5LB has been in negotiations with Westpac, who provide the Little Bay debt facility, about ongoing covenant compliance and extending the facility past the expiry of 30 January 2013. Delays experienced on the project due to inclement weather have resulted in the completion date of the project extending from November 2012 to April 2013. This extended delay, being 120 days past completion date constitutes a review event under the debt facility. Whilst Westpac has advised it is continuing to consider its position in relation to the review event and any further powers it may wish to exercise, it has advised the following changes to the terms of the facility:

By 15 September 2012 CHOF5LB was to provide an up to date valuation, which was duly complied with; and
◆ By 30 September 2012 the facility limit is to be permanently reduced by $15.4 million (or such greater sum as may be required to ensure that the LVR is not more than 51.5%) to $69.9 million (CHOF5’s obligation is $7.7 million, being its 50% interest in the DA); and any secured money outstanding in excess of the new facility limit is to be repaid.

CHOF5 has sufficient funds to meet its $7.7 million share of the above obligations.

Westpac has acknowledged formal credit approval will be sought to extend the expiry date from 30 January 2013 to 30 May 2013, if requested, providing the above terms are complied with.

(f) Summarised financial information of associates

	Charter Hall Group’s share of:	Charter Hall Group’s share of:
Assets $’000 25,333 37,417 19,476 317 472 3,556 52,731 207,275 109,583 296,878 – 194,458 947,496 55,979 37,957 18,320 3,756 46,964 220,889 94,925 322,713 157,069 958,572	Liabilities $’000 5,945 586 8,586 103 21 2,428 24,238 94,324 54,698 151,158 – 93,120 435,207 30,009 648 7,800 2,538 15,678 110,461 41,644 137,032 68,880 414,690	Revenues $’000 2,855 2,355 2,688 20 63 818 14,393 18,550 9,793 18,092 – 18,606 88,233 5,332 1,982 1,834 201 2,844 15,739 10,801 23,055 17,388 79,176	Proft/(loss) $’000

			(475)
			1,892
			1,099
			7
			29
			(90)
			(7,331)
			8,460
			4,711
			(8,161)
			–
			2,587
			2,728

			1,979
			2,226
			1,344
			(26)
			(989)
			11,415
			3,770
			5,688
			4,928
			30,335

Annual Report 2012

131

Notes to the consolidated financial statements for the year ended 30 June 2012

36 Investments in associates (continued)

(f) Summarised financial information of associates (continued)

Charter Hall Property Trust Group’s share of:	Charter Hall Property Trust Group’s share of:	Charter Hall Property Trust Group’s share of:	Charter Hall Property Trust Group’s share of:
Assets $’000 25,333 37,417 19,476 317 188,344 47,689 296,878 – 194,458 809,912 55,979 37,957 18,320 180,541 94,925 322,713 157,069 867,504	Liabilities $’000 5,945 586 8,586 103 85,709 23,804 151,158 – 93,120 369,011 30,009 648 7,800 90,284 41,644 137,032 68,880 376,297	Revenues $’000 2,855 2,355 2,688 20 16,862 4,610 18,092 – 18,606 66,088 5,332 1,982 1,834 15,739 10,801 23,055 17,388 76,131	Proft/(loss) $’000

			(475)
			1,892
			1,099
			7
			7,690
			2,217
			(8,161)
			–
			2,587
			6,856

			1,979
			2,226
			1,344
			10,787
			3,770
			5,688
			4,928
			30,722

37 Investments in joint ventures

(a) Carrying amounts

Information relating to joint ventures is set out below.

Ownership interest 2012 % 2011 % 50 50 50 50 50 50 – 50 50 50 Ownership interest 2012 % 2011 % 50 50	2012 $’000 27,598 – 46 – –
		2011 $’000

		28,843
		–
		26
		55
		18,700
	27,644	47,624
	2012 $’000 –

2012 % 50		2011 $’000

		18,700

Charter Hall Group

132

(b) Movements in carrying amounts

Charter Hall Group 2012 $’000 2011 $’000 28,843 26,517 1,544 3,984 (2,789) (1,658) 27,598 28,843 – – – – 26 117 86 221 (66) (312) 46 26 55 – 93 281 (18) (226) (130) – – 55 18,700 – – 18,534 1,161 1,631 (1,175) (1,465) (18,686) – – 18,700 47,624 26,634 93 18,815 2,773 5,610 (4,030) (3,435) (130) – (18,686) – 27,644 47,624	Charter Hall Property Trust Group	Charter Hall Property Trust Group
2012 $’000 28,843 1,544 (2,789) 27,598 – – 26 86 (66) 46 55 93 (18) (130) – 18,700 – 1,161 (1,175) (18,686) – 47,624 93 2,773 (4,030) (130) (18,686) 27,644	2012 $’000 – – – – – – – – – – – – – – – 18,700 – 1,161 (1,175) (18,686) – 18,700 – 1,161 (1,175) – (18,686) –	2011 $’000

		–
		–
		–
		–

		–
		–

		–
		–
		–
		–

		–
		–
		–
		–
		–

		–
		18,534
		1,631
		(1,465)
		–
		18,700

		–
		18,534
		1,631
		(1,465)
		–
		–
		18,700

Annual Report 2012

133

Notes to the consolidated financial statements for the year ended 30 June 2012

37 Investments in joint ventures (continued)

(c) Carrying value of joint venture entity

	Charter Hall Group	Charter Hall Group	Charter Hall Property Trust Group	Charter Hall Property Trust Group
	2012	2011	2012	2011
	$’000	$’000	$’000	$’000
Commercial and Industrial Property Pty Limited	27,598	28,843	–	–

In accordance with our accounting policy (note 1(h)), consideration was given to the fair value less cost to sell (FVLCTS) method but management believes value in use (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 2012 and includes the Group’s share of expected net profit after tax in line with forecast FY13 of $2.5 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 2012 (2011: nil).

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

Charter Hall Group 2012 $’000 2011 $’000 64,524 83,055 (61,289) (75,732) 3,235 7,323	Charter Hall Property Trust Group	Charter Hall Property Trust Group
2012 $’000 64,524 (61,289) 3,235	2012 $’000 4,220 (3,059) 1,161	2011 $’000
		4,052
		(2,421)
		1,631

(e) Share of joint venture’s assets and liabilities

Charter Hall Group 2012 $’000 2011 $’000 30,622 19,775 1,133 35,809 31,755 55,584 19,518 8,985 5,198 21,726 24,716 30,711 7,039 24,873	Charter Hall Property Trust Group	Charter Hall Property Trust Group
2012 $’000 30,622 1,133 31,755 19,518 5,198 24,716 7,039	2012 $’000 – – – – – – –	2011 $’000

		417
		35,233
		35,650

		389
		16,561
		16,950
		18,700

At 30 June 2012 the investment in the Charter Hall Retail JV Trust has been reclassified to held for sale.

Charter Hall Group

134

38 Events occurring after the reporting date

Since 30 June 2012, the Group has completed the following:

On 1 August 2012, the Group announced that a Charter Hall managed wholesale fund (the Retail Partnership No. 2 Trust (RP2T)) had entered into an unconditional contract to acquire Bay Village shopping centre in New South Wales for $164.0 million. The Group holds a 20% equity interest in RP2T. The purchase of the centre was completed on 15 August 2012. The Group’s equity commitment to fund the acquisition is $19.5 million which was paid on 15 August 2012.
In June 2012, Charter Hall Direct Property Management Limited contracted to purchase the right to manage the PFA Diversified Property Trust (PFA) subject to approval by unitholders. With the unitholders approving the purchase of the management rights for $5.0 million cash on 15 August 2012 and Australian Securities and Investments Commission (ASIC) approval given shortly after, Charter Hall Direct Property Management Limited is now the responsible entity for PFA.
Subsequent to year end, following commercial negotiations between the Development Alliance (DA) partners in the Little Bay Cove project, being CHOF5 Little Bay Pty Limited (CHOF5LB) (a controlled entity of CHOF5) and TA Global Development Pty Ltd (TAG), in accordance with the DA Umbrella Deed, a Notice of Mediation has been issued to TAG by CHFML (in its capacity as trustee of CHOF5) in relation to a commercial dispute between the DA partners. The mediation notice has been rejected by TAG with a request for a clarification of the details of the alleged dispute between the parties. Ongoing commercial negotiations with TAG are being undertaken in an attempt to agree on the future direction of the project. Development of the Estate Works to create the individual housing and development superlots at the Little Bay project is currently underway, with completion scheduled for May 2013. Refer to note 36(e) for further information.
As at the date of signing the financial statements, Charter Hall Group is not able to determine whether any financial impact will occur as a result of these negotiations and any subsequent dispute or mediation process with respect to either Charter Hall directly or its 15% co‑investment in CHOF5.

Except for the matters discussed above, no other matter or circumstance has arisen since 30 June 2012 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.

39 Reconciliation of profit after tax to net cash inflow from operating activities

Charter Hall Group 2012 $’000 2011 $’000 14,403 55,237 3,851 1,545 2,338 4,090 1,627 (3,350) (4,645) (16,726) 8,421 3,213 – 19,171 20,189 2,979 (4,985) 82 24,185 (4,789) 14,239 – (615) (2,670) 79,008 58,782	Charter Hall Property Trust Group	Charter Hall Property Trust Group
2012 $’000 14,403 3,851 2,338 1,627 (4,645) 8,421 – 20,189 (4,985) 24,185 14,239 (615) 79,008	2012 $’000 33,164 1,334 – 2,179 (4,533) 9,759 – (29,013) (5,230) 17,206 – – 24,866	2011 $’000
		61,247
		–
		–
		(2,523)
		(16,733)
		834
		–

		9,700
		(8,548)
		(3,430)
		(340)
		–
		40,207

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

Annual Report 2012

135

Notes to the consolidated financial statements for the year ended 30 June 2012

40 Earnings per security

Charter Hall Group 2012 Cents 2011 Cents 5.64 17.85 5.35 17.06 2012 $’000 2011 $’000 16,678 52,338 123 2,077 16,801 54,415	Charter Hall Property Trust Group	Charter Hall Property Trust Group
2012 Cents 5.64 5.35 2012 $’000 16,678 123 16,801	2012 Cents 12.21 11.49 2012 $’000 36,087 – 36,087	2011 Cents

		19.72

		18.13

		2011 $’000

		57,831
		–
		57,831

(d) Weighted average number of securities used as the denominator

Weighted average number of ordinary securities used as the denominator in calculatingbasic earningsper security Adjustments for calculation of diluted earningsper security:	Charter Hall Group 2012 Number 2011 Number 295,624,609 293,253,621 4,097,636 3,480,731 240,139 206,340 7,843,591 9,482,030 6,176,495 12,585,920 313,982,470 319,008,642	Charter Hall Property Trust Group	Charter Hall Property Trust Group
	2012 Number 295,624,609 4,097,636 240,139 7,843,591 6,176,495 313,982,470	2012 Number 295,624,609 4,097,636 240,139 7,843,591 6,176,495 313,982,470	2011 Number
			293,253,621

Performance rights Service rights Options Securities issued under the Charter Hall Limited Executive Loan SecurityPlan(ELSP) Weighted average number of ordinary securities and potential ordinary securities used as the denominator in calculating diluted earnings per security			3,480,731
			206,340
			9,482,030
			12,585,920
			319,008,642

(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 Payment , the loan, interest received on the loan, securities and the distribution paid and payable are derecognised for the preparation of the financial statements but recognised for the calculation of diluted earnings per security.

Charter Hall Group

136

41 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:

Charter Hall Group and Charter Hall Property Trust Group Openingbalance(number of securities) Impact of consolidation at one for four Cancellation of forfeited LTI securities off market	2012 Number 12,585,920 – (11,907,844) 678,055	2011 Number
		50,343,597
		(37,757,677)
		–
		12,585,920

During the year, nil (2011: nil) securities were forfeited by ELSP members but have been retained in the plan. The remaining ELSP securities were forfeited on 23 July 2012.

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

The performance rights and options are unquoted securities and conversion to stapled securities, and vesting to executives, is subject to service and performance conditions which are discussed in the Remuneration Report.

Charter Hall Group and Charter Hall Property Trust Group Performance rights Rights issued on 22/12/08 Rights issued on 13/11/09 Rights issued on 18/6/10 Rights issued on 6/9/10 Rights issued on 11/11/10 Rights issued on 17/1/12 Rights issued Number rights forfeited/lapsed inprioryears Number rights forfeited/lapsed in currentyear Number rights vested inprioryear Number rights vested in currentyear Closing balance	2009 Number 407,242 – – – – – 407,242 (27,094) (380,148) – – –	2010 Number – 1,562,250 644,625 – – – 2,206,875 (109,467) (344,768) – (704,912) 1,047,728	2011 Number – – – 863,345 465,388 – 1,328,733 (7,693) (427,538) – – 893,502	2012 Number – – – – – 3,905,231 3,905,231 – (433,564) – – 3,471,667	Total Number

					407,242
					1,562,250
					644,625
					863,345
					465,388
					3,905,231
					7,848,081
					(144,254)
					(1,586,018)
					–
					(704,912)
					5,412,897

Annual Report 2012

137

Notes to the consolidated financial statements for the year ended 30 June 2012

41 Security-based benefits (continued)

(b) Charter Hall – Performance Rights and Options Plan (PROP) (continued)

Charter Hall Group and Charter Hall Property Trust Group Service rights Rights issued on 6/9/10 Rights issued on 22/5/12 Rights issued Number rights forfeited/lapsed inprioryears Number rights forfeited/lapsed in currentyear Number rights vested inprioryear Number rights vested in currentyear Closing balance Options Options issued on 4/11/09 at$1.94 Options issued on 13/11/09 at$1.94 Options issued on 18/6/10 at$2.80 Options issued on 6/9/10 at$2.44 Options issued on 11/11/10 at$2.44 Options issued on 19/1/11 at $2.35 Options issued Number options forfeited/lapsed inprioryears Number options forfeited/lapsed in currentyear Number options vested inprioryear Number options vested in currentyear Closing balance	2009 Number – – – – – – – – – – – – – – – – – – – –	2010 Number – – – – – – – – 4,088,078 1,497,036 1,611,656 – – – 7,196,770 (391,472) (1,587,261) – (1,707,343) 3,510,694	2011 Number 316,377 – 316,377 (51,096) (107,584) – – 157,697 – – – 2,035,649 1,163,464 123,397 3,322,510 (19,232) (584,137) – – 2,719,141	2012 Number – 431,516 431,516 – – – – 431,516 – – – – – – – – – – – –	Total Number

					316,377
					431,516
					747,893
					(51,096)
					(107,584)
					–
					–
					589,213

					4,088,078
					1,497,036
					1,611,656
					2,035,649
					1,163,464
					123,397
					10,519,280
					(410,704)
					(2,171,398)
					–
					(1,707,343)
					6,229,835

(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:

	Charter Hall Group	Charter Hall Group	Charter Hall Property Trust Group	Charter Hall Property Trust Group
	2012	2011	2012	2011
	$’000	$’000	$’000	$’000
Performance rights and options plan	2,338	4,090	–	–

Charter Hall Group

138

The Black‑Scholes or Monte Carlo method, as applicable, is utilised for valuation and accounting purposes. The model inputs for the PROP performance rights and options plan issued during FY09, FY10, FY11 and FY12 and to assess the fair value are as follows: Options

Grant date	22/12/08 $1.20 $0.64 59.0% 3.2%	13/11/09 $2.40 $0.39 $1.94 01/07/14 40.0% 5.5% 13/11/09 $2.40 $1.07 40.0% 5.5%	18/06/10 $2.80 $0.56 $2.80 18/06/15 40.0% 5.5% 18/06/10 $2.80 $1.52 40.0% 5.5%	06/09/10 $2.44 $0.51 $2.44 06/09/15 40.0% 5.5% 06/09/10 $2.44 $1.33 40.0% 5.5% 06/09/10 $2.44 $2.06 40.0% 5.5%	11/11/10 $2.44 $0.51 $2.44 06/09/15 40.0% 5.5% 19/11/10 $2.44 $1.33 40.0% 5.5% 22/05/12 $2.08 $1.87 35.0% 4.3%	11/01/11
Security price atgrant date*						$2.35
Fair value of option*						$0.49
Exercisepriceper security*						$2.35
Expiryof loan						06/09/16
Expectedprice volatility						40.0%
Risk‑free interest rate						5.5%
Performance rights Grant date Security price atgrant date Fair value of right Expectedprice volatility Risk‑free interest rate Service rights
						17/01/12
						$2.10
						$0.94
						39.0%
						3.9%

Grant date						22/05/12
Security price atgrant date*						$2.17
Fair value of right*						$1.53
Expectedprice volatility						30.0%
Risk‑free interest rate						3.7%

Security prices for prior years have been restated for the unit consolidation during FY11.

139

Annual Report 2012

Notes to the consolidated financial statements for the year ended 30 June 2012

42 Deed of cross guarantee

Charter Hall Group

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’ reports under Class Order 98/1418 (as amended) issued by the Australian Securities and Investments Commission.

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

The above companies represent a ‘closed group’ for the purposes of the 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 statement of comprehensive income and a summary of movements in consolidated accumulated losses for the year of the closed group consisting of Charter Hall Limited and Charter Hall Holdings Pty Ltd.

Statement of comprehensive income Revenue Fair value adjustment on contingent consideration Depreciation Finance costs Foreign exchange loss Share of net(loss)/gain of associates accounted for usingthe equitymethod Gain on sale of investments, propertyand derivatives Impairment ofgoodwill Fair value adjustments Amortisation of management rights Performance fee clawback Other expenses Loss before income tax Income tax beneft Loss for the year Other comprehensive income/(loss)for theyear: Exchange differences on translation of foreign operations Total comprehensive loss for the year Summaryof movements in consolidated accumulated losses Accumulated losses at the beginningof the fnancialyear Loss for theyear Accumulated losses at the end of the fnancial year	2012 $’000 91,176 1,355 (720) (37,506) (90) (5,894) 479 – (2,351) (1,306) (14,239) (56,267) (25,363) 13,075 (12,288) 18 (12,270) (81,262) (12,288) (93,550)	2011 $’000

		60,783
		–
		(1,506)
		(16,565)
		(407)
		2,742
		793
		(19,171)
		(10,742)
		–
		–
		(51,715)
		(35,788)
		7,247
		(28,541)

		(18)
		(28,559)

		(52,721)
		(28,541)
		(81,262)

Charter Hall Group

140

(b) Balance sheet

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

Assets Current assets Cash and cash equivalents Trade and other receivables Total current assets Non-current assets Trade and other receivables Investments accounted for usingthe equitymethod Investment in associates at fair value throughproft or loss Investments in controlled entities Property, plant and equipment Investmentproperty Intangible assets Deferred tax assets Total non-current assets Total assets Liabilities Current liabilities Trade and otherpayables Provisions Total current liabilities Non-current liabilities Trade and otherpayables Loans from Charter Hall PropertyTrust Deferred tax liabilities Provisions Total non-current liabilities Total liabilities Net assets/(liabilities) Equity Contributed equity Reserves Accumulated losses Total equity	2012 $’000 6,866 31,142 38,008 5,000 57,219 13,110 85,465 3,026 – 98,687 12,513 275,020 313,028 45,267 14,847 60,114 10,539 163,543 990 1,236 176,308 236,422 76,606 209,551 (39,395) (93,550) 76,606	2011 $’000


		12,501
		39,011
		51,512

		5,000
		61,402
		15,461
		75,455
		3,159
		15,800
		99,994
		10,767
		287,038
		338,550


		77,786
		816
		78,602

		12,106
		355,874
		872
		1,086
		369,938
		448,540
		(109,990)

		9,503
		(38,231)
		(81,262)
		(109,990)

On 18 June 2012, the Group announced implementation of the $200 million capital reallocation from Charter Hall Property Trust (CHPT) to Charter Hall Limited (CHL), effective 30 June 2012. The capital reallocation aims to ensure a more appropriate allocation of capital between CHPT and CHL (which together trade on the Australian Securities Exchange as Charter Hall Group) which is more closely aligned with the Group’s long‑term growth strategy. Under the capital reallocation proposal approved by securityholders at the Annual General Meeting on 24 November 2011, CHPT made capital payments of $200 million which were compulsorily applied as a capital contribution for existing shares of CHL.

Annual Report 2012

141

Director’s Declaration to Unitholders for the year ended 30 June 2012

In the opinion of the Directors of Charter Hall Limited (the Company), and the Directors of the Responsible Entity of Charter Hall Property Trust (the Trust), Charter Hall Funds Management Limited (collectively referred to as the Directors):

(a) the financial statements and notes of Charter Hall Limited and its controlled entities including Charter Hall Property Trust and its controlled entities (Charter Hall Group) and Charter Hall Property Trust and its controlled entities (Charter Hall Property Trust Group) set out on pages 68 to 141 are in accordance with the Corporations Act 2001 , including:
(i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and
(ii) giving a true and fair view of Charter Hall Group’s and Charter Hall Property Trust Group’s financial position as at 30 June 2012 and of their performance for the financial year ended on that date; and
(b) there are reasonable grounds to believe that both Charter Hall Limited and the Charter Hall Property Trust will be able to pay their debts as and when they become due and payable; and
(c) at the date of this declaration, there are reasonable grounds to believe that the members of the extended closed group identified in note 42 will be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee described in note 42.

Note 1(a) confirms that the financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board.

The Directors have been given the declarations by the Joint Managing Directors and Chief Financial Officer required by section 295A of the Corporations Act 2001 .

This declaration is made in accordance with a resolution of the Directors.

==> picture [136 x 39] intentionally omitted <==

K Roxburgh Chairman Sydney 17 September 2012

Charter Hall Group

142

Independent auditor’s report to stapled securityholders of Charter Hall Group and unitholders of Charter Hall Property Trust Group

==> picture [65 x 49] intentionally omitted <==

Independent auditor’s report to the stapled securityholders of Charter Hall Group and Charter Hall Property Trust Group

Report on the financial report

We have audited the accompanying financial report which comprises:

The balance sheet as at 30 June 2012, the statement of comprehensive income, statement of changes in equity and cash flow statement for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration for Charter Hall Group (the consolidated stapled entity or Charter Hall Group). The consolidated stapled entity, as described in Note 1 to the financial report, comprises Charter Hall Limited and the entities it controlled at the year’s end or from time to time during the financial year.
The balance sheet as at 30 June 2012, the statement of comprehensive income, statement of changes in equity and cash flow statement for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration for Charter Hall Property Trust Group (the consolidated entity or Charter Hall Property Trust Group). The consolidated entity comprises Charter Hall Property Trust and the entities it controlled at the year’s end or from time to time during the financial year.

Directors’ responsibility for the financial report

The directors of Charter Hall Limited and the directors of Charter Hall Funds Management Limited, the responsible entity of Charter Hall Property Trust (collectively referred to as “the directors”) are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements , that the financial statements comply with International Financial Reporting Standards.

Auditor’s responsibility

Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report.

Our procedures include reading the other information in the Annual Report to determine whether it contains any material inconsistencies with the financial report.

PricewaterhouseCoopers, ABN 52 780 433 757 Darling Park Tower 2, 201 Sussex Street, GPO BOX 2650, SYDNEY NSW 1171 T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au

Liability limited by a scheme approved under Professional Standards Legislation.

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Independent auditor’s report to stapled securityholders of Charter Hall Group and unitholders of Charter Hall Property Trust Group (continued)

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Independent auditor’s report to the stapled securityholders of Charter Hall Group and Charter Hall Property Trust Group (continued)

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

Independence

In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.

Auditor’s opinion

In our opinion:

(a) the financial report of Charter Hall Group and Charter Hall Property Trust Group is in accordance with the Corporations Act 2001 , including: (i) giving a true and fair view of Charter Hall Group’s and Charter Hall Property Trust Group’s financial positions as at 30 June 2012 and of their performances for the year ended on that date; and (ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; and (b) the financial report and notes also comply with International Financial Reporting Standards as disclosed in Note 1.

(i) giving a true and fair view of Charter Hall Group’s and Charter Hall Property Trust Group’s financial positions as at 30 June 2012 and of their performances for the year ended on that date; and

Report on the Remuneration Report

We have audited the remuneration report included in pages 43 to 64 of the directors’ report for the year ended 30 June 2012. The directors of the company are responsible for the preparation and presentation of the remuneration report in accordance with section 300A of the Corporations Act 2001 . Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards.

Auditor’s opinion

In our opinion, the remuneration report of Charter Hall Limited for the year ended 30 June 2012, complies with section 300A of the Corporations Act 2001 .

PricewaterhouseCoopers

R A Baker Sydney Partner 19 September 2012

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Unitholder analysis Securityholder information 31 August 2012

The shareholder information set out below was applicable as at 31 August 2012.

A Distribution of equity securities as at 31 August 2012

Analysis of numbers of equity securityholders by size of holding:

Number of securities held by security holders 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 50,000 50,001 to 100,000 100,001 and Over Total	Ordinary securities held per band
	140,694
	1,755,395
	1,994,688
	6,898,461
	3,115,904
	284,494,205
	298,399,347

The total number of securityholders with less than a marketable parcel of 151 securities is 202 and they hold 10,922 securities

B Registered equity securityholders as at 31 August 2012

Twenty largest quoted equity securityholders

The names of the twenty largest registered holders of quoted equity securities are listed below:

HSBC CUSTODY NOMINEES(AUSTRALIA)LIMITED J P MORGAN NOMINEES AUSTRALIA LIMITED WOODROSS NOMINEES PTY LTD NATIONAL NOMINEES LIMITED CITICORP NOMINEES PTY LIMITED BESGAN NO. 1 PTY LTD BESGAN NO. 3 PTY LTD BESGAN NO. 2 PTY LTD BESGAN NO. 4 PTY LTD CITICORP NOMINEES PTY LIMITED AMP LIFE LIMITED J P MORGAN NOMINEES AUSTRALIA LIMITED RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED BNP PARIBAS NOMS PTY LTD JP MORGAN NOMINEES AUSTRALIA LIMITED BNP PARIBAS NOMS PTY LTD BNP PARIBAS NOMS PTY LTD EQUITY TRUSTEES LIMITED MR DAVID JOHN SOUTHON PORTMIST PTY LIMITED AUST EXECUTOR TRUSTEES SA LTD RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED	Number held 46,021,737 36,322,288 30,122,493 25,227,012 22,575,728 12,990,488 12,990,488 12,990,487 12,990,487 12,013,832 9,054,504 5,650,626 5,195,739 3,663,161 3,389,558 2,981,025 2,956,202 2,461,198 2,048,360 2,009,521 1,895,359 1,639,696	Ordinary securities
		Percentage of issued securities
		15.42
		12.17
		10.09
		8.45
		7.57
		4.35
		4.35
		4.35
		4.35
		4.03
		3.03
		1.89
		1.74
		1.23
		1.14
		1.00
		0.99
		0.82
		0.69
		0.67
		0.64
		0.55

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Unitholder analysis Securityholder information 31 August 2012

C Substantial holders as at 31 August 2012

Substantial holders of ordinary stapled securities in the Group are set out below*:

Ordinary securities The Gandel Group Macquarie Group Commonwealth Bank of Australia AMP Limited	Date of Change 07/03/12 01/05/12 17/05/12 05/04/12	Number held 51,961,950 34,151,391 24,589,501 20,301,923	%
			17.54
			11.50
			7.96
			6.58

*Information in this table has been collated from the most recent relevant substantial holder notices lodged with ASX, as at 31 August 2012.

D Voting rights as at 31 August 2012

The voting rights attaching to each class of equity securities are set out below:

a) Ordinary shares

On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote.

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Corporate directory

Registry

To access information on your holding or update/change your details including name, address, tax file number, payment instructions and document requests, contact:

Link Market Services Locked Bag A14 Sydney South NSW 1235

Tel: 1300 303 063 (within Australia) +61 2 8280 7134 (outside Australia) Fax: +612 9287 0303 Email: charterhall.reits@ linkmarketservices.com.au Website: www.linkmarketservices.com.au

Investor relations

All other enquiries related to Charter Hall Group can be directed to Investor Relations:

Charter Hall Group GPO Box 2704 Sydney NSW 2001

Tel: 1300 365 585 (local call cost) +61 2 8908 4000 (outside Australia) Fax: +61 2 8908 4040 Email: [email protected]

Directors

Kerry Roxburgh, Roy Woodhouse, Anne Brennan, David Deverall, David Harrison, Peter Kahan, Colin McGowan and David Southon

Company Secretary Carolyne Rodger

ASX Code Charter Hall Group stapled securities are listed on the Australian Securities Exchange (code CHC).

Principal registered office in Australia Level 11, 333 George Street Sydney NSW 2000 Tel: +61 2 8908 4000

Auditor PricewaterhouseCoopers Darling Park Tower 2 201 Sussex Street Sydney NSW 1171 Solicitors Allens Linklaters Level 28, Deutsche Bank Place Cnr of Hunter & Phillip Streets Sydney NSW 2000

Website address www.charterhall.com.au

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IMPORTANT NOTICE

This Annual Report has been prepared and issued by Charter Hall Limited (ABN 57 113 531 150) and Charter Hall Funds Management Limited (ABN 31 082 991 786 AFSL 262861) (CHFML) as Responsible Entity of the Charter Hall Property Trust (together, the Charter Hall Group or the 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. This report does not take into account the personal objectives, financial situation or needs of any investor. Before investing in Charter Hall Group securities, you should consider your own objectives, financial situation and needs and seek independent financial, legal and/or taxation advice.

Historical performance is not a reliable indicator of future performance. Due care and attention has been exercised in the preparation of forward looking statements. However, any forward looking statements contained in this report are not guarantees or predictions of future performance and, by their very nature, are subject to uncertainties and contingencies, many of which are outside the control of the Group. Actual results may vary materially from any forward looking statements contained in this report. Readers are cautioned not to place undue reliance on any forward looking statements. Except as required by applicable law, the Group does not undertake any obligation to publicly update or review any forward looking statements, whether as a result of new information or future events.

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 or any of their related bodies corporate, directors or employees to any such person. 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 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 report, is accurate or complete.

Information regarding US Investors/US Persons:

Each person that holds Charter Hall Group securities that is in the United States (US) or is a US person is required to be a Qualified Institutional Buyer/Qualified Purchaser (QIB/QP) at the time of the acquisition of any Charter Hall Group securities, and is required to make the representations in a subscription agreement as of the time it acquired the applicable securities.

The securities can only be resold or transferred in a regular brokered transaction on the ASX in accordance with Rule 903 or 904 of Regulation S, where neither it nor any person acting on its behalf knows or has reason to know, that the sale has been prearranged with, or that the purchaser is, in the United States or a US person (e.g. no prearranged trades (‘special crossing’) with US Persons or other off‑market transactions).

To the maximum extent permitted by law, the Charter Hall Group reserves the right to (i) request any person that they deem to be in the United States or a US Person, who was not at the time of acquisition of the securities a QIB/QP, to sell its securities, (ii) refuse to record any subsequent sale or transfer of securities to a person in the United States or a US Person, and (iii) take such other action as they deem necessary or appropriate to enable the Charter Hall Group to maintain the exception from registration under Section 3(c)(7) of the Investment Company Act.

If you are not the beneficial owner of securities in the Charter Hall Group, you must pass this information to the beneficial owner of the securities.

Complaints handling

A formal complaints handling procedure is in place for the Group. CHFML is a member of the Financial Ombudsman Service (FOS). Complaints should in the first instance be directed to CHFML. If you have any enquiries or complaints, please contact the Compliance Manager on +61 2 8908 4000.

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 Charter Hall Property Trust in accordance with its constitution. Entities within the Group may also receive fees for managing the assets of, and providing resources to the Charter Hall Property Trust.

All information herein is current as at 30 June 2012 unless otherwise stated. All references to dollars ($) or A$ are Australian Dollars unless otherwise stated.

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AI assistant

CHARTER HALL GROUP — Annual Report 2012

64645_rns_2012-09-27_49a49fb9-a178-4d8a-a9cc-0ee95508e8cd.pdf

Contents

Financial year 2013 calendar

Annual General Meeting

Highlights

Year in review

October 2011

July 2011

November 2011

September 2011

December 2011

January 2012

February 2012

March 2012

April 2012

May 2012

June 2012

About us

Western Australia

20 properties

Charter Hall Group (ASX:CHC)

Charter Hall Limited (CHL)

Committed to corporate governance

Charter Hall Office Trust

Providing a scalable business

Board changes

Outlook

Results

Growing our Australian property FUM

Enhancing our property portfolios

Outlook

Our performance

Property investment

Property funds management

Portfolio performance

Enhancing our portfolios

Development investment

Sustainable business

The Board

Anne Brennan

How do I invest in Charter Hall?

Can I receive my distribution via direct credit rather than cheque?

Can I reinvest my distribution?

Do I need to supply my Tax File Number?

How do I make a complaint?

Our commitment to corporate governance

Corporate governance foundations

The Board

Governance framework

Charter Hall Board

Board Committees

Management

Heads of the Service Divisions are not part of the executive management team.

Performance of senior executives

Board structure

The Chairman of the Board

Director independence

Independent decision making

Director appointments

Board performance

Access to information

Company Secretary

Ethical and responsible decision making

Code of conduct

Managing conflicts

Securities trading

Sustainability

Diversity

FY12

Our focus for FY13

Financial integrity

Audit, Risk and Compliance Committee

External Auditor

Internal Audit

Disclosure

Securityholder communication

Risk management

JMDs and CFO assurance

CHARTER HALL GROUP Annual Report 2012