CHARTER HALL GROUP — Annual Report 2017

Aug 22, 2017

Appendix 4E Financial Report

Page 1

APPENDIX 4E

Financial Report for the year ended 30 June 2017

Name of Entity:

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

The Appendix 4E should be read in conjunction with the financial report of the Charter Hall Group for the year ended 30 June 2017.

Results for announcement to the market

	year ended year ended Variance 30 June 30 June 2017 2016 $m $m (%)
Revenue1	213.4 165.3 29.1
Profit after tax attributable to stapled securityholders of Charter Hall Group	257.6 215.2 19.7
Operatingearnings attributable to stapled securityholders2	151.2 124.7 21.3

1 Gross revenue does not include share of net profits of associates and joint ventures of $207.2 million (2016: $168.3 million).

• 2 Operating earnings is a financial measure which represents statutory profit adjusted for proportionally consolidated fair value adjustments, gains or losses on sale of investments, amortisation and / or impairment of intangible assets, deferred tax expense and other unrealised or one-off items. 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.

A reconciliation of the Group’s operating earnings to statutory profit is provided in Note 3 of the financial report.

	year ended year ended Variance 30 June 30 June 2017 2016 cps cps (%)
Basic statutory earnings per stapled security attributable to stapled securityholders	61.2 52.5 16.6
Diluted statutory earnings per stapled security attributable to stapled securityholders	60.7 52.0 16.7
Operating earnings per stapled security attributable to stapled securityholders	35.9 30.4 18.1

Distributions	year ended 30 June 2017	year ended 30 June 2016
Final distribution in respect of a: CHPT unit CHL share Interim distribution in respect of a: CHPT unit CHL share	15.6¢ - 14.4¢ -	13.6¢ - 13.3¢ -
Total Record date for determining entitlements to the distribution Payment date	30.0¢	26.9¢
	30 June 2017
	31 August 2017

Appendix 4E Financial Report

Page 2

Results for announcement to the market (continued)

The Group recorded a statutory profit after tax attributable to stapled securityholders for the year of $257.6 million compared to $215.2 million for the year ended 30 June 2016.

Operating earnings amounted to $151.2 million for the year compared to $124.7 million in 2016, an increase of 21.3% over the prior year.

Net Tangible Assets

Net Tangible Assets
	As at 30 June 2017	As at 30 June 2017
Net tangible assets(NTA) per stapled security 1	$3.60	$3.04

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

The number of securities on issue at 30 June 2017 is 465.8 million (30 June 2016: 412.7 million).

Control gained or lost over entities during the year

The following changes in control occurred within the Group during the year:

• CHPT Dandenong Trust (sold 100% interest on 10 November 2016);

• Charter Hall Opportunity Fund No.5 (Established 100% interest on 25 January 2017);

• Charter Hall Opportunity Fund No.5 Bringelly Trust (Established 100% interest on 26 May 2017);

• Charter Hall Direct Consumer Staples Fund (Established 100% interest on 9 May 2017);

• DCSF NZ Trust (Established 100% interest on 9 May 2017)

Details of Associates and Joint Venture entities

Refer attached financial report (Note 11: Investments accounted for using the equity method).

Other significant information

For additional information regarding the results of Charter Hall Group for the year ended 30 June 2017 please refer to the Full Year Results – ASX Media Announcement and the 2017 Year Results Presentation lodged with the ASX. Attached with this Appendix 4E is a copy of the financial report for the year ended 30 June 2017.

Accounting standards used by foreign entities

International Financial Reporting Standards.

Segment results

Refer attached financial report (Note 3: Segment information).

Other Factors

Refer to other significant information (above).

Audit

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

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

==> picture [595 x 281] intentionally omitted <==

==> picture [595 x 282] intentionally omitted <==

Charter Hall Group Financial Report and other information for the year ended 30 June 2017

Comprising the stapling of ordinary shares in Charter Hall Limited (ACN 113 531 150) and units in the Charter Hall Property Trust (ARSN 113 339 147)

Important notice

This report comprises the Financial Report as defined in the Corporations Act 2001, consisting of the financial statements for the year, notes to the financial statements and the directors' declaration about the statements and notes, and other information comprising a Directors’ report, auditor’s independence declaration and audit report.

This financial report has been prepared and issued by Charter Hall Limited (ACN 113 531 150) and Charter Hall Funds Management Limited (ACN 082 991 786, AFSL 262861) (CHFML) as Responsible Entity of the Charter Hall Property Trust (ARSN 113 339 147) (together, the Charter Hall Group or Group). The information contained in this report has been compiled to comply with legal and regulatory requirements and to assist the recipient in assessing the performance of the Group independently and does not relate to, and is not relevant for, any other purpose.

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

Neither the Charter Hall Group, their related bodies corporate, directors, employees nor any other person who may be taken to have been involved in the preparation of this 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.

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

CHFML does not receive fees in respect of the general financial product advice it may provide; however, entities within the Charter Hall Group receive fees for operating the 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 2017 unless otherwise stated. All references to dollars ($) or A$ are Australian dollars unless otherwise stated.

© Charter Hall

Cover photo: Artist’s impression, 130 Lonsdale Street, Melbourne, VIC

Contents

Contents	Contents
Directors’ Report .................................................................................................................................................................. 5
Auditor’s Independence Declaration .................................................................................................................................. 36
Consolidated Statements of Comprehensive Income ........................................................................................................ 37
Consolidated balance sheets ............................................................................................................................................. 38
Consolidated statement of changes in equity – Charter Hall Group .................................................................................. 39
Consolidated statement of changes in equity – Charter Hall Property Trust Group ........................................................... 40
Consolidated cash flow statements ................................................................................................................................... 41
Notes to the consolidated financial statements .................................................................................................................. 42
1	Summary of significant accounting policies ............................................................................................................... 42
2	Critical accounting estimates and judgements .......................................................................................................... 52
3	Segment information ................................................................................................................................................. 53
4	Revenue .................................................................................................................................................................... 56
5	Expenses .................................................................................................................................................................. 57
6	Income tax expense .................................................................................................................................................. 58
7	Distributions paid and payable .................................................................................................................................. 59
8	Earnings per stapled security .................................................................................................................................... 60
9	Cash and cash equivalents ....................................................................................................................................... 60
10	Trade and other receivables ..................................................................................................................................... 61
11	Investments accounted for using the equity method ................................................................................................. 61
12	Investment properties ................................................................................................................................................ 62
13	Intangible assets ....................................................................................................................................................... 62
14	Property, plant and equipment .................................................................................................................................. 63
15	Deferred tax assets and liabilities .............................................................................................................................. 64
16	Trade and other payables ......................................................................................................................................... 65
17	Provisions ................................................................................................................................................................. 65
18	Interest bearing liabilities ........................................................................................................................................... 66
19	Contributed equity ..................................................................................................................................................... 67
20	Reserves ................................................................................................................................................................... 68
21	Accumulated losses .................................................................................................................................................. 69
22	Remuneration of auditors .......................................................................................................................................... 69
23	Reconciliation of profit after tax to net cash inflow from operating activities .............................................................. 69
24	Capital and financial risk management ..................................................................................................................... 70
25	Fair value measurement ........................................................................................................................................... 73
26	Related parties .......................................................................................................................................................... 75
27	Controlled entities ..................................................................................................................................................... 78
28	Investments in associates ......................................................................................................................................... 80
29	Investments in joint ventures ..................................................................................................................................... 87
30	Interests in unconsolidated structured entities .......................................................................................................... 88
31	Commitments ............................................................................................................................................................ 89
32	Contingent liabilities .................................................................................................................................................. 89
33	Security-based benefits expense .............................................................................................................................. 90
34	Parent entity financial information ............................................................................................................................. 91

35 Deed of cross guarantee ........................................................................................................................................... 92
36 Events occurring after the reporting date .................................................................................................................. 94
Directors’ declaration to securityholders ............................................................................................................................ 95
Independent Auditor’s Report ............................................................................................................................................ 96

Charter Hall Group / 5

Directors’ Report

for the year ended 30 June 2017

The Directors of Charter Hall Limited and the Directors of Charter Hall Funds Management Limited, the Responsible Entity (RE) of Charter Hall Property Trust, present their report together with the consolidated financial report of the Charter Hall Group (Group or CHC) and the consolidated financial report of the Charter Hall Property Trust Group (CHPT) for the year ended 30 June 2017, and the Independent Auditor’s Report thereon. The financial report of the Group comprises Charter Hall Limited (Company or CHL) and its controlled entities, which include Charter Hall Funds Management Limited as the RE of Charter Hall Property Trust (Trust). The financial report of the Charter Hall Property Trust Group comprises the Trust and its controlled entities.

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

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

Directors

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

• David Clarke - Chair and Non-Executive Independent Director

• Anne Brennan - Non-Executive Independent Director

• Philip Garling - Non-Executive Independent Director

• David Harrison - Managing Director and Group CEO

• Karen Moses - Non-Executive Independent Director (appointed 1 September 2016)

• David Ross - Non-Executive Independent Director (appointed 20 December 2016)

• Former Directors

• Peter Kahan - Non-Executive Director (resigned 20 December 2016)

• Colin McGowan - Non-Executive Independent Director (resigned 9 November 2016)

Principal activities

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

(a) Investment in property funds; and

• (b) Property funds management.

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

Distributions - Charter Hall Group

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

No significant changes in the nature of the activities of the Group occurred du Distributions - Charter Hall Group Distributions paid/declared to members during the year were as follows:	ring the year.
	2017	2016
	$'000	$'000
Final ordinary distribution for the six months ended 30 June 2017	72,661	-
of 15.6 cents per stapled security payable on 31 August 2017
Interim ordinary distribution for the six months ended 31 December 2016	59,431	-
of 14.4 cents per stapled security paid on 28 February 2017
Final ordinary distribution for the six months ended 30 June 2016	-	56,129
of 13.6 cents per stapled security paid on 25 August 2016
Interim ordinary distribution for the six months ended 31 December 2015 of	-	54,419
13.3 centsper stapled security paid on 26 February2016
Total distributionspaid andpayable	132,092	110,548

Review and results of operations

The Group recorded a statutory profit after tax attributable to stapled securityholders for the financial year to 30 June 2017 of $257.6 million compared to a profit of $215.2 million for the year ended 30 June 2016.

Operating earnings amounted to $151.2 million for the year to 30 June 2017, compared to $124.7 million for the year ended 30 June 2016, an increase of 21.3% over the prior period. Operating earnings is split between property investments of $85.0 million (30 June 2016: $78.5 million) and property funds management of $66.2 million (30 June 2016: $46.2 million).

Charter Hall Group / 6

Directors’ Report (continued)

for the year ended 30 June 2017

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 3: Segment information of the accompanying financial report.

	2017	2016
	$'000	$'000
Operating earnings attributable to stapled securityholders	151,173	124,735
Realised and unrealised gains/(losses) on derivatives 1	8,166	(10,339)
Net fair value movements on investments and property 1	118,314	107,757
Amortisation and impairment of intangibles	(4,342)	(8,517)
Impairment of investment in joint venture	(10,494)	-
Non-operating deferred income tax expense	(4,118)	(1,714)
Gain on disposal of property investments and inventory1	3,890	6,114
Other1	(5,028)	(2,796)
Statutory profit after tax attributable to stapled securityholders	257,561	215,240

Gain on disposal of property investments and inventory 3,890 Other1 (5,028) Statutory profit after tax attributable to stapled securityholders 257,561	Gain on disposal of property investments and inventory 3,890 Other1 (5,028) Statutory profit after tax attributable to stapled securityholders 257,561	6,114 (2,796) 215,240
1Includes the Group's proportionate share of non-operating items of equity accounted investments on a look-through basis.
	2017	2016
Basic weighted average number of stapled securities per Note 8 ('000s)	420,838	409,980
Basic earnings per stapled security per Note 8 (cents)	61.2	52.5
Operating earnings per stapled security (OEPS) per Note 3 (cents)	35.9	30.4
.
The 30 June 2017 financial results with comparatives are summarised as follows:

	Charter Hall Group	Charter Hall Group	Charter Hall Property	Charter Hall Property
			Trust Group
	2017	2016	2017	2016
Revenue ($ million)1	213.4	165.3	19.7	37.2
Statutory profit after tax for stapled securityholders ($ million)	257.6	215.2	218.0	197.3
Statutory earnings per stapled security (EPS) (cents)	61.2	52.5	51.8	48.1
Operating earnings for stapled securityholders ($ million)2 Operating earnings per stapled security (cents)2	151.2 35.9	124.7 30.4	n/a n/a	n/a n/a
Distributions to stapled securityholders ($ million)	132.1	110.5	132.1	110.5
Distributionper stapled security (cents)	30.0	26.9	30.0	26.9
	2017	2016	2017	2016
Total assets ($ million)	1,873.0	1,415.6	1,612.8	1,251.6
Total liabilities ($ million)	150.8	104.5	76.8	56.5
Net assets attributable to stapled securityholders ($ million)	1,722.2	1,311.1	1,536.0	1,195.1
Stapled securities on issue (million)	465.8	412.7	465.8	412.7
Net assets per stapled security ($)	3.70	3.18	3.30	2.90
Net tangible assets (NTA) attributable to stapled securityholders
($ million)	1,674.9	1,256.3	1,536.0	1,195.1
NTA per stapled security ($)3	3.60	3.04	3.30	2.90
Balance sheet gearing4	0.00%	0.00%	0.00%	0.00%
Funds under management(FUM) ($billion)	19.8	17.5	n/a	n/a

1 Gross revenue does not include share of net profits of associates and joint ventures of $207.2 million (30 June 2016: $168.3 million).

2 Excludes fair value adjustments, gains or losses on the sale of investments, amortisation and/or impairment of intangible assets, nonoperating deferred tax expense and other unrealised or one-off items.

3 Net tangible assets (NTA) per stapled security ($) is calculated using assets less liabilities, net of intangible assets and related deferred tax.

4 Gearing is calculated by using debt drawn net of cash divided by total assets net of cash.

Charter Hall Group / 7

Directors’ Report (continued)

for the year ended 30 June 2017

Review and results of operations (continued)

Operating earnings per stapled security (OEPS) has increased 18.1% from 30.4 cents for the year ended 30 June 2016 to 35.9 cents for the year ended 30 June 2017.

Annual distribution per stapled security (DPS) has increased 11.5% from 26.9 cents for the year ended 30 June 2016 to 30.0 cents for the year ended 30 June 2017.

Net Tangible Assets per stapled security (NTA) at 30 June 2017 is $3.60, an increase of 18.4% over $3.04 at 30 June 2016.

Funds Under Management (FUM) increased from $17.5 billion at 30 June 2016 to $19.8 billion at 30 June 2017 due to the establishment of new funds Charter Hall Long Wale REIT and Charter Hall Prime Retail Fund, significant valuation uplifts, property acquisitions and developments in Charter Hall Office Trust, Charter Hall Prime Office Fund, Charter Hall Prime Industrial Fund, Charter Hall Direct Office Fund, Charter Hall Direct Industrial Fund No. 4, Charter Hall Retail REIT and investment properties acquired directly by the Charter Hall Group.

Property Investments

The Group’s property investments are classified into the following real estate sectors:

• Office;

• Industrial;

• Retail; and

• Diversified.

The following table summarises the key metrics for the property investments of the Group:

			FY 17	FY 17	Weighted	Weighted	Weighted	Weighted	FY 17	FY 17
			Charter Hall		average	average	average	Average	Charter Hall
	Ownership stake	Charter Hall investment	investment income1		lease expiry	market cap rate	discount rate	rental reviews	investment yield2
	(%)	($m)	($m)		(years)	(%)	(%)	(%)	(%)
Office		549.1	25.3		5.6	5.8	7.1	3.7	7.3
Charter Hall Prime Office Fund (CPOF)	10.5	236.4	11.7		6.4	5.9	7.2	3.8	6.2
Charter Hall Office Trust (CHOT)	14.3	212.9	13.4		4.6	5.5	7.0	3.7	8.6
Brisbane Square Wholesale Fund (BSWF)	16.8	99.6	0.2		6.8	6.1	7.3	3.6	6.0
Charter Hall PFA Direct Fund(PFA) 3	0.1	0.2	-		7.0	7.6	8.2	3.5	7.8
Industrial		285.8	16.5		9.1	6.4	7.4	3.0	6.2
Core Logistics Partnership Trust (CLP)	13.8	139.2	9.9		9.6	6.3	7.6	3.0	6.3
Charter Hall Prime Industrial Fund (CPIF)	6.0	117.1	6.2		7.7	6.4	7.6	3.0	6.1
Charter Hall Direct Industrial Fund No.4(DIF4)	21.2	29.5	0.4		11.6	6.5	6.0	3.0	6.6
Retail		486.0	34.0		6.8	6.1	7.4	3.9	7.3
Charter Hall Retail REIT (CQR)4	18.6	321.2	21.1		6.8	6.3	7.4	4.1	7.7
Charter Hall Prime Retail Fund (CPRF)	38.0	44.8	1.9		4.1	5.8	7.5	4.4	6.3
Retail Partnership No. 6 Trust (RP6)4	20.0	34.3	2.1		3.3	5.8	7.7	3.3	6.5
BP Fund 1 (BP1)6	8.4	28.4	1.5		9.8	5.5	7.3	2.7	6.1
Long WALE Investment Partnership (LWIP)5	5.0	19.0	5.2		17.2	6.0	7.4	2.0	7.7
BP Fund 2 (BP2)6	13.2	13.8	0.7		11.8	5.7	7.4	2.7	4.8
Long WALE Investment Partnership 2 (LWIP2)5	10.0	10.1	0.7		18.0	6.0	7.4	2.0	7.3
TTP Wholesale Fund (TTP)4,6	10.0	8.0	0.4		3.8	6.3	7.5	4.1	5.8
Retail PartnershipNo. 2(RP2) 4	5.0	6.4	0.4		4.8	5.8	7.5	4.5	7.1
Diversified		166.0	6.6		11.5	6.5	7.4	2.9	6.3
Charter Hall LongWALE REIT(CLW)	20.0	166.0	6.6		11.8	6.2	7.4	2.8	6.3
Property investment - subtotal		1,486.9	82.4		7.4	6.1	7.3	3.6	6.9
Commercial and Industrial Property Pty Limited (CIP)	50.0%	19.5	1.5		n/a	n/a	n/a	n/a	n/a
Investments disposed/other7	-	40.3	0.9		n/a	n/a	n/a	n/a	n/a
Total		1,546.7	84.8

1 Charter Hall Group property investment operating income per segment, Note 3(b) of the financial report.

2 Yield = Operating earnings divided by investment value at start of the year adjusted for investments/divestments during the period. Excludes MTM movements in NTA during the year.

3 Formerly PFA Diversified Property Trust.

4 Average rent reviews is contracted weighted average rent increases of specialty tenants.

5 The LWIP and LWIP2 rental increase is CPI, uncapped.

6 These funds comprise the Long WALE Hardware Partnership (LWHP).

7 Directly owned property, Charter Hall Opportunity Fund 4, Charter Hall Opportunity Fund 5, Coles Truganina and Woolworths Dandenong.

Charter Hall Group / 8

Directors’ Report (continued)

for the year ended 30 June 2017

Review and results of operations (continued)

A summary of the significant activities of each of the Group’s property investments is provided below:

(a) Office

Charter Hall Prime Office Fund (CPOF)

CPOF is a wholesale-pooled fund that invests in high-quality office buildings located in Australia’s major capital cities. CPOF owns an interest in 21 assets valued at $3.4 billion.

Charter Hall Office Trust (CHOT)

CHOT is an unlisted wholesale partnership that invests in a diversified portfolio of office properties primarily located in Australian CBDs. CHOT owns an interest in 10 high-grade office assets valued at $2.6 billion.

Brisbane Square Wholesale Fund (BSWF)

BSWF is an unlisted fund which owns two assets valued at over $1 billion.

Charter Hall PFA Direct Fund (PFA)

PFA is an unlisted fund diversified across geographic locations, tenant profiles and lease expiries in Australia.

(b) Industrial

Core Logistics Partnership Trust (CLP)

CLP is a wholesale industrial partnership which owns an interest in 23 assets valued at $1.3 billion.

Charter Hall Prime Industrial Fund (CPIF)

CPIF is a wholesale industrial pooled fund focused on sourcing properties in the industrial and logistics sectors of major Australian capital cities. It includes both core and enhanced investment-grade property assets. CPIF owns an interest in 47 assets valued at $2.3 billion.

Charter Hall Direct Industrial Fund No.4 (DIF4)

DIF4 is an unlisted property fund investing in quality Australian industrial properties and also in the Charter Hall managed Core Logistics Partnership.

(c) Retail

Charter Hall Retail REIT (CQR)

CQR is an Australian Real Estate Investment Trust (REIT) listed on the Australian Securities Exchange (ASX) (ASX: CQR) and invests in neighbourhood and sub-regional shopping centres anchored by Coles and Woolworths supermarkets. CQR’s portfolio comprises an interest in 71 properties valued at $2.8 billion.

Charter Hall Prime Retail Fund (CPRF)

CPRF is a wholesale fund which owns Campbelltown Shopping Centre valued at over $200 million.

Retail Partnership No.6 Trust (RP6)

RP6 is a wholesale retail fund focusing on neighbourhood and sub-regional shopping centres. RP6 owns two assets valued at over $250 million.

Long WALE Hardware Partnership (LWHP)

The combined BP1, BP2 and TTP Funds are collectively referred to as the Long WALE Hardware Partnership (LWHP), which owns assets valued at over $700 million.

BP Fund 1 (BP1)

BP1 is a wholesale fund which owns 12 freestanding warehouse properties valued at over $500 million.

BP Fund 2 (BP2)

BP2 is a wholesale fund which owns four freestanding warehouse properties valued at almost $150 million.

TTP Wholesale Fund (TTP)

TTP is a wholesale fund which owns the Keperra Square shopping centre in Brisbane valued at over $80 million.

Long WALE Investment Partnership (LWIP)

LWIP is a wholesale partnership which owns 57 hospitality assets valued at over $720 million. These assets are leased to ALH under triple net leases.

Long WALE Investment Partnership 2 (LWIP2)

LWIP2 is a wholesale partnership which owns nine hospitality assets valued at over $150 million.

Retail Partnership No.2 (RP2)

RP2 is a wholesale retail fund which owns the Bateau Bay Square shopping centre valued at over $220 million on the Central Coast of New South Wales.

Charter Hall Group / 9

Directors’ Report (continued)

for the year ended 30 June 2017

Review and results of operations (continued)

(d) Diversified

Charter Hall Long WALE REIT (CLW)

CLW is a REIT listed on the ASX (ASX: CLW) and invests in high quality Australasian real estate assets that are predominantly leased to corporate and government tenants on long-term leases. CLW’s portfolio comprises an interest in 79 properties valued at $1.4 billion.

(e) Wholesale mandates

The Group originates and manages segregated mandates for direct property investments either in joint venture with funds such as CPOF or CQR or as 100% owned assets by our clients. The total property value of wholesale mandates is $1.0 billion.

(f) Direct investor funds

The Group manages equity raised from retail investors via advisers, high net worth individuals and through direct distribution channels. The total FUM of these retail funds and single asset syndicates is $2.9 billion.

(g) Commercial and Industrial Property Pty Limited (CIP)

The Group has a 50% interest in CIP, an industrial development business.

Property Funds Management

The Property funds Management business provides investment management, asset management, property management, development management and leasing and transaction services to the Group’s $19.8 billion funds management portfolio. The use of an integrated property services model, which earns fees from providing these services to the managed portfolio, enhances the Group’s returns from capital invested. The Group also provides services to segregated mandates looking to capitalise on its property and funds management expertise. The Property funds Management business contributed $66.2 million in operating earnings to the Group.

During the year, total funds under management increased by $2.3 billion to $19.8 billion. The movement was a result of additional capital expenditure and valuation uplifts, along with the Group’s managed funds acquiring approximately $3.0 billion and divesting approximately $2.2 billion of property.

Significant changes in the state of affairs

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

• The Group invested $46.0 million into Charter Hall Prime Retail Fund (CPRF), representing a 38.0% holding.

• The Group invested $73.3 million into Charter Hall Retail REIT (CQR), increasing its holding from 14.3% at 30 June 2016 to 18.6% at 30 June 2017.

• The Group invested $35.2 million into Charter Hall Opportunity Fund No. 5 (CHOF5), increasing its holding from 16.7% to 100% at 30 June 2017. Following the investment, the Group sold the investment property held by CHOF5 for proceeds of $68.3 million. The proceeds were partly used to repay CHOF5 debt with the remaining balance held in cash.

• The Group invested $165.4 million into Charter Hall Long WALE REIT (CLW), representing a 20.0% holding.

• The Group invested $100.6 million into Brisbane Square Wholesale Fund (BSWF), representing a 16.8% holding.

• The Group invested a further $20.0 million into Charter Hall Prime Industrial Fund (CPIF), increasing its holding to 6.0%.

• The Group invested a further $30.0 million into Charter Hall Prime Office Fund (CPOF), increasing its holding to 10.5%.

• The Group invested a total of $35.9 million into Charter Hall Direct Industrial Fund No. 4 (DIF4) acquisition units and sold a total of $6.4 million, at 30 June 2017 this represents a 21.2% holding. It also extended a $9.7 million loan to DIF4 which was subsequently repaid prior to 30 June 2017.

• The Group sold $152.2 million of its investment in Long WALE Investment Partnership (LWIP), reducing its holding from 50% to 5%.

• The Group sold $19.2 million of its investment in Core Logistics Partnership (CLP), reducing its holding from 16.1% at 30 June 2016 to 13.8% at 30 June 2017.

• The Group acquired 50% of the Coles Distribution Centre in Truganina, Vic for $51.3 million in August 2016. The Group sold CHPT Dandenong Trust, which held a 26% interest in CH DC Fund, which owns 225 Glasscocks Road, Dandenong South, Vic, to Charter Hall Long WALE REIT in November 2016 for $58.9 million.

• The Group acquired investment properties, held directly by the Group at 30 June 2017, for $41.1 million.

Charter Hall Group / 10

Directors’ Report (continued)

for the year ended 30 June 2017

Matters subsequent to the end of the period

• The following event has occurred subsequent to 30 June 2017:

• In August 2017, the CHPT $125 million debt facility was extended by two years with the maturity date changing to August 2020.

Except for the matters discussed above, no other matter or circumstance has arisen since 30 June 2017 that has significantly affected, or may significantly affect:

• (a) The Group’s operations in future financial years; or

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

• (c) The Group’s state of affairs in future financial years.

Likely developments and expected results of operations

Business strategy and prospects

Charter Hall’s strategy is to use its specialist property expertise to access, deploy and manage equity invested in Retail, Office, Industrial property and diversified property fund portfolios. Charter Hall invests alongside equity partners to create value and provide superior returns for clients and Charter Hall securityholders.

Charter Hall is well positioned to benefit from projected growth of capital inflows from investors seeking property investments driven by the attractive spreads between property yields and long-term interest rates. During the last 12 months, Charter Hall has seen positive equity flows across all sectors from listed, wholesale and retail investors.

Property Investment portfolio

The property investment portfolio composition is primarily driven by co-investment requirements where, typically, between 1020% of the equity in a fund is contributed by Charter Hall. In addition to these co-investments, the Group may invest a higher proportion in certain funds to reweight its investment portfolio, and continues to review opportunities to increase the proportion of retail and industrial investments and extend the overall WALE of its property investment portfolio.

The Group regularly reviews the performance of its property investment portfolio and relevant economic drivers to actively manage performance at an asset level in each fund.

The material business risks faced by the property investment portfolio that may have an effect on financial performance of the Group include interest rate risk, refinancing risk, lease defaults or extended vacancies, portfolio concentration risks and changes in economic or industry factors impacting tenants or the ability to source suitable investment opportunities.

Property funds management platform

The Group manages property investments on behalf of listed, wholesale and direct investors and has strict policies in place to ensure appropriate governance procedures are in place to meet fiduciary responsibilities and manage any conflicts of interest. Charter Hall provides a suite of services including investment management, asset management, property management, transaction services, development services, treasury, finance, legal and custodian services based on each fund’s individual requirements.

The Group regularly reviews investor requirements and preferences for an investment partner in the Australian core real estate sectors and transaction structures that would meet their requirements.

The material business risks faced by the property funds management platform that may have an effect on the financial performance of the Group include not delivering on investor expectations leading to loss of FUM or management rights, loss of key personnel impacting service delivery, economic factors impacting fee streams, access to capital and economic factors impacting property valuations.

Charter Hall Group / 11

Directors’ Report (continued)

for the year ended 30 June 2017

Information on Directors

David Clarke Chair/Independent Non-Executive Director

Experience and expertise

David joined the Board of Charter Hall Group on 10 April 2014, and was appointed Chair of the Board on 12 November 2014.

David has over 35 years’ experience in investment banking, funds management, property finance and retail banking. David was Chief Executive Officer of Investec Bank (Australia) Limited from 2009 to 2013.

Prior to joining Investec Bank, David was the CEO of Allco Finance Group and a Director of AMP Limited, following five years at Westpac Banking Corporation where he held a number of senior roles including Chief Executive of the Wealth Management Business, BT Financial Group. David also was previously an Executive Director at Lend Lease Corporation Limited, Chief Executive of MLC Limited, and prior to this was Chief Executive Officer of Lloyds Merchant Bank in London.

David holds a Bachelor of Laws degree.

Other current listed company directorships

Austbrokers Holdings Limited

Former listed company directorships in last three years Nil

Special responsibilities

Chair of the Nominations Committee

Member of the Audit, Risk and Compliance Committee

Member of the Investment Committee

Interests in securities

45,875 stapled securities in Charter Hall Group via an indirect interest

Anne Brennan Independent Non-Executive Director

Experience and expertise

Anne joined the Board of Charter Hall Group on 6 October 2010 and is on the board of a number of other companies. Anne is an experienced executive and has held senior management roles in both large corporates and professional services firms.

During her executive career, Anne was the CFO at CSR and the Finance Director of the Coates Group. Prior to her executive roles, Anne was a partner in three professional services firms: KPMG, Arthur Andersen and Ernst & Young. Anne has more than 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

Myer Holdings Limited

Nufarm Limited

Former listed company directorships in last three years

Echo Entertainment Group Limited

Special responsibilities

Chair of Remuneration and Human Resources Committee

Member of Audit, Risk and Compliance Committee

Interests in securities

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

Charter Hall Group / 12

Directors’ Report (continued)

for the year ended 30 June 2017

Information on Directors (continued)

Philip Garling Independent Non-Executive Director

Experience and expertise

Philip joined the Board of the Charter Hall Group on 25 February 2013.

Philip has over 35 years' experience in property and infrastructure, development, operations and asset and investment management. His executive career included nine years as Global Head of Infrastructure at AMP Capital Investors and 22 years at Lend Lease Corporation, including five years as CEO of Lend Lease Capital Services.

Philip holds a Bachelor of Building from the University of NSW, has completed the Advanced Management Program at the Australian Institute of Management and the Advanced Diploma at the Australian Institute of Company Directors. He is a Fellow of the Australian Institute of Company Directors, Australian Institute of Building and Institution of Engineers, Australia.

Other current listed company directorships

Downer EDI Limited

Spotless Group Holdings Ltd

Former listed company directorships in last three years

Australian Renewable Fuels Limited (Chair)

Special responsibilities

Chair of the Audit, Risk and Compliance Committee (from 26 February 2016 until 9 November 2016)

Member of the Nominations Committee

Member of the Remuneration and Human Resources Committee

Chair of the Investment Committee

Interests in securities

16,759 stapled securities in Charter Hall Group via a direct interest

David Harrison Managing Director and Group CEO

Experience and expertise

David has 31 years of property market experience across office, retail and industrial sectors in multiple geographies globally. As Charter Hall’s Managing Director and Group CEO, David is responsible for all aspects of the Charter Hall business, with specific focus on strategy and continuing the momentum from building an Investment Manager recognised as a multi-core sector market leader. David is an executive member of various Fund Boards and Partnership Investment Committees, Chair of the Executive Property Valuation Committee and Executive Leadership Committee.

David has overseen the growth of the Charter Hall Group from $500 million to $19.8 billion of assets under management in 13 years.

David holds a Bachelor of Business Degree (Land Economy) from the University of Western Sydney, is a Fellow of the Australian Property Institute (FAPI) and holds a Graduate Diploma in Applied Finance from the Securities Institute of Australia.

David is a Director and Vice-President of the Property Council of Australia and Chair of the Audit and Risk Committee. David is also a member of the Property Male Champions of Change.

Other current listed company directorships

Charter Hall Retail REIT

Charter Hall Long WALE REIT

Former listed company directorships in last three years Nil

Special responsibilities

Member of the Investment Committee

Interests in securities

207,026 stapled securities in Charter Hall Group via direct interests and 1,441,773 stapled securities in Charter Hall Group via indirect interests. 799,336 performance rights and 43,420 service rights in the Charter Hall Performance Rights and Options Plan; performance rights, service rights and options vest after performance and service conditions are met.

Charter Hall Group / 13

Directors’ Report (continued)

for the year ended 30 June 2017

Information on Directors (continued)

Karen Moses Independent Non-Executive Director

Experience and expertise

Karen joined the Board of Charter Hall Group on 1 September 2016 and was appointed Chair of the Audit, Risk and Compliance Committee on 9 November 2016. Karen has over 30 years’ corporate experience in the energy industry spanning oil, gas, electricity and coal commodities, has gained her experience both within Australia and overseas and has most recently been a panel member of the Finkel review. She was recently appointed to the position of Non-Executive Director of Orica Limited (July 2016) and her other directorships include Non-Executive Director of Boral Limited (since March 2016), Sydney Symphony Limited and Sydney Symphony Holdings Pty Limited (December 2015), Sydney Dance Company (May 2012) and SAS Trustee Corporation (March 2012).

Karen holds a Bachelor of Economics and a Diploma of Education from the University of Sydney.

Other current listed company directorships

Orica Ltd (ASX: ORI)

Boral Limited (ASX: BLD)

Former listed company directorships in last three years

Origin Energy Ltd (ASX: ORG)

Special responsibilities

Chair of Audit, Risk and Compliance Committee

Interests in securities

8,137 via a direct interest

David Ross Independent Non-Executive Director

Experience and expertise

David joined the Board of the Charter Hall Group on 20 December 2016.

David has over 30 years’ corporate experience in the property industry and has gained his experience both within Australia and overseas, including a total of eight years as Chief Executive Officer of GPT and Global Chief Executive Officer, Real Estate Investments for Lend Lease.

David is the Chair of Arena REIT, which owns, manages and develops property in the childcare and healthcare sectors. Previously, David held executive positions at GPT, Lend Lease and Babcock & Brown. Prior board appointments include a nonexecutive directorship with Sydney Swans Foundation Limited.

David holds a Bachelor of Commerce from the University of Western Australia and an Associate Diploma in Valuation from Curtin University in Western Australia.

Other current listed company directorships

Arena REIT

Former listed company directorships in last three years Nil

Special responsibilities

Member of Audit, Risk and Compliance Committee (from 25 January 2017 to 2 June 2017)

Member of Nominations Committee

Member of Investment Committee

Member of Remuneration and Human Resources Committee

Interests in securities

Nil

Charter Hall Group / 14

Directors’ Report (continued)

for the year ended 30 June 2017

Information on Directors (continued)

Former Directors

Peter Kahan Non-Executive Director (until 20 December 2016)

Experience and expertise

Peter joined the Board of Charter Hall Group on 1 October 2009, following an investment in the Charter Hall Group by The Gandel Group (Gandel) and resigned on 20 December 2016.

Peter is the Executive Deputy Chair of Gandel and has over 20 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 Australia and New Zealand 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

Vicinity Limited and Vicinity Centres RE Limited

Former listed company directorships in last three years

Novion Limited

Special responsibilities

N/A - no longer a Director of Charter Hall Group

Interests in securities

N/A - no longer a Director of Charter Hall Group

Colin McGowan Independent Non-Executive Director (until 9 November 2016)

Experience and expertise

Colin joined the Board of the Charter Hall Group on 6 April 2005 and resigned on 9 November 2016.

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 the 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 Chair 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

N/A - no longer a Director of Charter Hall Group

Company Secretaries

Mark Bryant was appointed as joint Company Secretary for Charter Hall Group on 24 August 2015. Tracey Jordan resigned as Company Secretary on 1 March 2017. Mark is now the sole Company Secretary.

Mark holds a Bachelor of Business (Accounting) and a Bachelor of Laws (Hons) and has over 13 years’ experience as a solicitor, including advising on listed company governance, securities law, funds management, real estate and general corporate law. Mark is the Group General Counsel and Company Secretary for the Charter Hall Group.

Tracey has more than 25 years’ experience in real estate and funds management, with extensive knowledge of real estate transactions, structuring, funds management, compliance and corporate governance. Prior to joining Charter Hall, Tracey was National Manager, Unlisted Property Funds and Senior Legal Counsel at Stockland. Tracey was also a Senior Associate for King & Wood Mallesons in its Canberra office in the Property and Projects division from 1999 to October 2005.

Tracey is a Solicitor of the Supreme Court of NSW, and has been admitted to the Supreme Court of the Australian Capital Territory and the High Court of Australia. She holds a Bachelor of Arts and Bachelor of Laws from the University of Sydney.

Charter Hall Group / 15

Directors’ Report (continued)

for the year ended 30 June 2017

Information on Directors (continued)

Meetings of Directors

The number of meetings of the Group’s Board of Directors and of each Committee of the Board held during the year ended 30 June 2017, and the number of meetings attended by each Director were:

	Full meetings of	Full meetings of	Audit, Risk and	Audit, Risk and
	the Board of		Compliance		Investment		Nomination		Remuneration and
	Directors		Committee		Committee		Committee		HR Committee
	A	B	A	B	A	B	A	B	A	B
A Brennan	10	10	4	4	*	*	*	*	6	6
D Clarke	10	10	4	4	1	1	2	2	*	*
P Garling	9	10	1	15	1	1	2	2	3	6
D Harrison	10	10	*	*	*	*	*	*	*	*
P Kahan1	6	6	2	2	*	*	*	*	3	3
C McGowan2	4	5	*	*	*	*	*	*	2	2
K Moses3	7	8	3	3	*	*	*	*	*	*
D Ross4	5	5	1	16	1	1	2	2	1	1

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. 1 Peter Kahan resigned 20 December 2016. 2 Colin McGowan resigned 9 November 2016. 3 Karen Moses appointed 1 September 2016. 4 David Ross appointed 20 December 2016. 5 Philip Garling resigned from committee 9 November 2016.

6 David Ross resigned from committee 2 June 2017.

Charter Hall Group / 16

Directors’ Report (continued)

for the year ended 30 June 2017

Remuneration Report Summary

Charter Hall Limited is pleased to present its Remuneration Report (Report) for the year ended 30 June 2017. The table below outlines the key changes made in 2017 and outcomes achieved in 2017.

COMPONENT	KEY CHANGES IN FY 2017
Key management personnel (KMP)	The appointment of Sean McMahon as Chief Investment Officer on 18 August 2016 and the departure of Paul Altschwager as Chief Financial Officer is reflected in our KMP changes. Russell Proutt was appointed as Chief Financial Officer with a commencement date of 20 July 2017. In the
	ensuing period, Philip Schretzmeyer and Anne Edwards acted as joint Chief Financial Officers whilst
	also fulfilling their regular duties.
Long term incentive (LTI)	Introduced changes to the existing total securityholder return (TSR) performance measures for the FY 2017 grant. The range for the absolute performance measure was changed from 10% to 13% per annum to 9% to 12% per annum and the comparator group and performance measures for relative
	TSR was refined (section 3.5).
Non-Executive	Appointment of Karen Moses on 1 September 2016 and David Ross on 20 December 2016
Directors (NED)	replacing retiring Directors; Colin McGowan on 9 November 2016 and Peter Kahan on 20 December 2016.
COMPONENT	KEY REMUNERATION OUTCOMES IN FY 2017
Fixed remuneration	Reported Executives’ fixed annual remuneration (FAR) increased on average 3.2% in the annual
	review.
Short term	Based on performance of Group OEPS, an above target STI pool (129%) was awarded across the
incentive(STI)	Group (section 3.4).
Long term incentive	As a result of the TSR performance over the three years to 30 June 2016 (FY 2014 grant), 50% of the performance rights vested in August 2016. The absolute TSR measure was exceeded. therefore
	50% of the LTI vested. The relative TSR did not meet the threshold therefore 50% of the LTI was
	forfeited (section 3.5).
	The Special LTI grant for the former Joint Managing Directors (JMD) (David Harrison and David
	Southon) granted in November 2013 on signing of renegotiated contracts (section 3.5) met most but
	not allofthe performancemeasures and as aresult100% ofthe Special LTI wasforfeited.
Remuneration mix	Reviewed and adjusted the remuneration mix for some Reported Executives with the objective of
	increasing the ‘at risk’ components to better enable Charter Hall to reward executives when
	challenging performance measures are met (section 3.2) and to align with external market
	remuneration.
Other security	Continued the General Employee Securities Plan ($1,000 grant) for eligible employees not
plans	participating in the LTI.
Pay equity review	Continued to review gender pay equity as part of our annual remuneration review process.
Non-Executive	NED base fees increased effective 1 July 2016 (section 5) by 2.5%.
Directors

Charter Hall Group / 17

Directors’ Report (continued)

for the year ended 30 June 2017

Remuneration Report - unaudited

Actual remuneration received in FY 2017 - unaudited

The actual remuneration presented in the following table provides the remuneration Reported Executives received during the financial year ended 30 June 2017. This voluntary disclosure is provided to increase transparency and includes:

• fixed pay and other benefits for 2017;

• 2016 cash STI paid during 2017; and

• the value of any LTI and STI award that vested during 2017.

The actual remuneration presented is distinct from the audited disclosed remuneration (as required by section 308(C ) of the Corporations Act 2001 (Cth) (Act)) in the Financial Report on page 37, which is calculated in accordance with statutory obligations and accounting standards. The numbers in the audited disclosed remuneration include accounting values for current and prior years’ LTI grants which have not been (have not or may not be) received, as they are dependent on performance hurdles and service conditions being met.

						% of	% of
	Salary		Value of			remuneration
	and other	Short term	securities			consisting of
	benefits1	incentive2	vested3		Total	rights
Name	$	$	$		$	%
Executive Director
D Harrison	1,301,901	1,118,467	1,185,726		3,606,094	32.9
Other Reported Executives
G Chubb4	631,901	215,752	415,934		1,263,587	32.9
P Ford	473,558	185,986	42,929		702,473	6.1
S McMahon5	699,336	-	-		699,336	-
A Taylor	700,738	292,200	327,371		1,320,309	24.8
Former Reported Executive
P Altschwager6	385,094	175,327	495,564		1,055,985	46.9
Totals	4,192,528	1,987,732	2,467,524		8,647,784	28.5

1 Other benefits include superannuation and non-monetary benefits including car parking and salary continuance.

2 Values relate to STI paid in FY 2017 as cash for FY 2016 performance.

3 Values relate to value at vesting date for the FY 2014 LTI allocation (grant date of 20 November 2013), the second tranche of 2014 deferred STI and the first tranche of 2015 deferred STI, each of which vested on 31 August 2016 (value is determined by the price of the securities at vesting).

4 On 19 December 2014, G Chubb was awarded 197,370 service rights vesting in three equal tranches: with the final tranche of 65,790 vesting on 30 June 2017 to the value of $376,977 (value is determined by the price of the securities at vesting).

5 S McMahon commenced on 18 August 2016; his remuneration is pro-rata from this period.

6 P Altschwager ceased being a KMP on 7 December 2016 and remained employed by the Group until 31 December 2016. This table shows only his actual remuneration whilst employed, and excludes his separation arrangements.

Charter Hall Group / 18

Directors’ report (continued)

for the year ended 30 June 2017

Remuneration Report - audited

1. Key management personnel - audited

This Report outlines the remuneration policies and practices that apply to Charter Hall’s KMP for the year ended 30 June 2017. The KMP include the Non-Executive Directors, Executive Directors and other Reported Executives who are responsible for the Group’s strategy.

The KMP include the Non-Exec Group’s strategy.	utive Directors, Executive Directors and other Reported E	xecutives who are responsible for the
Name	Role	Term as KMP
Non-Executive Directors
David Clarke	Chair	Full Year
Anne Brennan	Director	Full Year
Phil Garling	Director	Full Year
Karen Moses	Director	Part Year(appointed 1 Sept 2016)
David Ross	Director	Part Year(appointed 20 Dec 2016)
Former Non-Executive Directors
Peter Kahan	Director	Part Year(resigned 20 Dec 2016)
Colin McGowan	Director	Part Year (resigned 9 Nov 2016)
Executive Director
David Harrison	ManagingDirector & GroupChief Executive Officer	Full Year
Other Reported Executives
Greg Chubb	Group Executive - Retail	Full Year
Paul Ford	Group Executive - Industrial	Full Year
Sean McMahon	Chief Investment Officer	Part Year (appointed 18 Aug 2016)
Adrian Taylor	GroupExecutive - Office	Full Year
Former Reported Executive
Paul Altschwager	Chief Financial Officer	Part Year (ceased 7 Dec 2016)

The Report has been prepared and audited in accordance with the requirements of the Act.

Charter Hall Group / 19

Directors’ report (continued)

for the year ended 30 June 2017

Remuneration Report - audited (continued)

2. Remuneration governance

Charter Hall’s Board and the Remuneration and Human Resources Committee (the Committee) are responsible for setting and overseeing remuneration policy for the Group.

Members of the	The Committee is appointed by the Board and comprised solely of NEDs:
Committee	 Anne Brennan (Chair of the Committee)
	 Philip Garling
	 Peter Kahan (resigned 20 December 2016)
	 Colin McGowan (resigned 9 November 2016)
	 David Ross (appointed to the Committee 2 June 2017)
Role of the	Charter Hall’s Board and the Committee are responsible for setting and overseeing remuneration
Committee	policy for the Group.
	In summary, the Committee provides advice and recommendations to the Board for approval on:
	 the Group’s Human Resources strategy;
	 remuneration policy for executives;
	 fixed annual remuneration and incentive outcomes for executives;
	 any other remuneration matters that relate to executives.
	 criteria for reviewing the performance of the Managing Director;
	 incentive plans for all employees; and
	 fees for NEDs of the Group and fund committees.
	The specific responsibilities of the Board and the Committee are detailed in their respective charters,
	which are available on the Group website at www.charterhall.com.au.
Attendance	Other Directors of the Board, the Managing Director and the Group Executive - People, Brand and
	Community attend Committee meetings by invitation. Importantly, executives (including the Managing
	Director), do not attend meetings, or sections of meetings, where agenda items for discussion relate
	to their own remuneration outcomes.
Remuneration &	Risk is managed at various points in the executive remuneration framework through:
risk management	 part deferral of STI awards into service rights over two years;
	 LTI performance hurdles that reflect the long-term performance of the business, measured
	over three years with an additional one year holding lock;
	 clawback on unvested deferred STI and unvested LTI for material misstatement and
	financial misrepresentation;
	 minimum shareholding for Independent Directors; and
	 Board discretion on performance outcomes.
External advisors	Where necessary, the Committee seeks support from independent experts and advisors.
and remuneration	Remuneration consultants provide information on market trends in respect of KMP remuneration
consultants	structures and benchmarking information on KMP remuneration levels. Other external advisors
	(including legal practitioners) assist with the administration of the Group’s remuneration plans and
	ensure that the appropriate legal parameters are applied and employment contracts are in place.
	The Committee independently appoints its remuneration consultants and engages with them in a
	manner in which any information provided is not subject to undue influence by management.
	The information provided by external advisors is used as an input to the Committee’s considerations
	and decision making only. The Board has ultimate decision making authority over matters of
	remuneration structure and outcomes.
	During the FY 2017 period the Committee appointed independent advisors Egan Associates to
	provide guidance to the Board, along with previously appointed Ernst & Young. Work undertaken
	during FY 2017 did not constitute a remuneration recommendation for the purposes of the
	Corporations Act 2001.

Charter Hall Group / 20

Directors’ report (continued)

for the year ended 30 June 2017

Remuneration Report - audited (continued)

3. Executive remuneration framework

3.1 Executive remuneration strategy

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

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

Business strategy

To access, deploy, manage and co-invest equity to create value and provide superior income and capital returns for our clients and securityholders through:

• delivering outperformance for both managed fund/partnership investors and CHC securityholders

• optimising total return on invested capital

• growing sustainable earnings and maintaining resilience via long WALE portfolios and through strong customer relationships

• developing a scalable and efficient platform

• recruiting, retaining and motivating a high performance team

• maintaining a through-the-cycle OEPS pre-tax growth range of 5% to 7% per annum

Remuneration strategy

Create sustainable securityholder value by: Attract, retain and motivate talent by:

• assessing performance and STI outcomes against financial and non-financial key performance indicators (KPI) linked to strategy

• deferring a portion of STI into equity for executives

• rewarding superior performance

• offering competitive total remuneration

• creating retention mechanisms

• ensuring remuneration strategy is simple, transparent and consistent

• aligning LTI performance hurdles with securityholders’ expected returns

• ensuring a significant ‘at-risk’ component of total remuneration

Remuneration components

	Remuneration components	Remuneration components
FAR	Remuneration ‘at risk’ and subject to performance outcomes
	STI  OEPS target, and  measured against KPIs (50% financialand 50%non-financial) LTI  equal measures of absolute TSR and relative TSR (comparator group)  three year performance measures
	Delivered as cash (67%) Deferred equity (33%) over two years	 additional one year holding lock
	Remuneration outcomes
FAR Reported Executives increased by 3.2% in FY 2017	Remuneration ‘at risk’ and subject to performance outcomes
	STI  FY 2017 OEPS performance above target led to an increased STI pool (129%)  50% of deferred STI for FY 2015 and FY 2016 vested	LTI  FY 2014 LTI grant 50% vested (31 August 2016) based on the performance of absolute TSR with 50% relative TSR forfeited  JMD Special LTI grant (awarded 4 November 2013) did not meet all performance conditions and did not vest  FY 2015 LTI grant will fully vest (31 August 2017) based on performance of relative and absolute TSR

Charter Hall Group / 21

Directors’ report (continued)

for the year ended 30 June 2017

Remuneration Report - audited (continued)

3.2 Remuneration mix

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

The figures below for all Reported Executives show the percentage mix of fixed versus ‘at-risk’ for ‘on target’ total remuneration. The ‘maximum’ total remuneration for the Managing Director shows the mix of fixed versus ‘at-risk’ as a percentage of ‘on target’ remuneration. This reflects the maximum STI of up to 150% of the target STI due to strong Company and executive outperformance. Other Reported Executives also have the potential to earn up to 150% of target STI.

==> picture [496 x 236] intentionally omitted <==

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

FAR STI LTI
33%
15% 12% 15%
28%
33%
27%
28% 30%
50% 28%
33%
57% 61% 55%
44%
33% 33%
Target Maximum Chief Investment Officer Group Executive - Retail Group Executive - Group Executive - Office
Industrial
Managing Director
Other Reported Executives
----- End of picture text -----

3.3 Fixed remuneration

Composition	Fixed remuneration comprises cash base salary, statutory superannuation contributions and other
	nominated benefits.
Review process	Fixed remuneration is targeted at the median of the market and is reviewed annually, effective 1 July,
	benchmarked against equivalent roles in the market recognising:
	 individual performance; and
	 the market environment for each individual’s skills and capabilities.
Benchmarking	The following comparator group is used when determining the Reported Executives remuneration:
	 industry related companies: based on entities in the S&P/ASX 200 Australian Real Estate and
	Investment Trust (A-REIT) industry group.
Executive	The fixed remuneration of the Managing Director, Mr Harrison, did not increase in the FY 2017 annual
Director	remuneration review. His last review was received when he was appointed Managing Director,
outcomes	reflecting his change in role (1 February 2016).
Other Reported	Other Reported Executives’ fixed remuneration increased by an average of 4% in the annual
Executives	remuneration review.

Charter Hall Group / 22

Directors’ report (continued)

for the year ended 30 June 2017

Remuneration Report - audited (continued)

3.4 Short term incentive

Purpose	The STI is an ‘at-risk’ incentive awarded annually, which is designed to reward executives, subject to
	performance against agreed financial and non-financial KPIs.
Gateway for STI	A Group financial gateway of 90-95% of budgeted OEPS must be met before any STI entitlement is
	available, with the Board retaining overall discretion on performance achievement.
Determining	The size of the pool is determined by the Board, upon advice from the Committee, based on achieving a
and assessing	budgeted OEPS target. The Board retains discretion to increase or decrease the overall STI pool available,
the STI pool	based on its assessment of the overall performance throughout the year.
	In consultation with the Committee, the Board assesses the Group’s financial performance and the
	performance of all Reported Executives against agreed KPIs.
Maximum STI	The maximum STI potential for all employees is 150% of their STI target, enabling recognition for
potential	outperformance.
Performance	The STI measures are set to ensure appropriate focus on achievement of Group, divisional and individual
targets	performance targets that are aligned with implementation of Charter Hall’s overall strategy.
	KPIs are typically split between 50% financial and 50% non-financial, based on a balanced scorecard
	approach, which encourages executives to take a holistic approach to enhancing and protecting
	securityholder value.
Delivery	For all executives, STI is delivered in the form of cash (67%) and deferred service rights (33%).
	Service rights are deferred over two years, with 50% vesting at the end of year one and 50% at the end of
	year two. The number of rights granted to an executive is determined based on an independent fair value
	calculation by Deloitte using the Black-Scholes valuation method. If an executive’s employment terminates
	prior to expiry of the relevant vesting period, the service rights will be forfeited or remain ‘on foot’, subject to
	the Board’s discretion to determine ‘good leaver’ status.

Managing Director’s KPIs

The Managing Director’s scorecard is divided into three performance goals, Financial, Customer and Leadership and Collaboration. For each of these goals there will be performance measures aligned to our core strategic objectives of growth and resilience.

Below is a summary of the Managing Director’s performance measures and KPIs for FY 2017 as assessed by the Board.

Performance goal	Measures	Status
Financial (50%)	Including Group OEPS; growth in funds under management; return on equity; net	Exceeded
	financial equity flows and property funds management margin.
Customer (25%)	Delivering exceptional customer experience and satisfaction and continuous	Exceeded
	improvement and innovation.
Leadership &	Talent optimisation, leadership contribution, succession planning, employee	Achieved
Collaboration (25%)	engagement initiatives and drive diverse and inclusive culture.

Other Reported Executives KPIs

KPIs for other Reported Executives are broadly similar to that of the Managing Director and are focused on individual areas of accountability.

KPIs for other Reported accountability.	Executives are broadly similar to that of the Managing Director and are focused on in	dividual areas of
Performance goal	Measures	Status
Financial (50%)	Including Group and Divisional financials on investment earnings; growth in funds	Exceeded
	under management; operating earnings before interest, tax, depreciation and
	amortisation; funds management margin or divisional budget financial initiatives.
Customer (25%)	Including customer experience, service and satisfaction offerings.	Exceeded
Leadership &	Including leadership contribution, talent and engagement.	Achieved
Collaboration (25%)

Charter Hall Group / 23

Directors’ report (continued)

for the year ended 30 June 2017

Remuneration Report - audited (continued)

Group FY 2017 performance outcomes

In FY 2017, Charter Hall’s OEPS was 35.9 cents, which was 18.1% above the FY 2016 OEPS. The table below shows Charter Hall’s OEPS (cps) over a four year period:

==> picture [375 x 220] intentionally omitted <==

FY 2017 STI In FY 2017, 129% of the target STI pool was awarded across the Group, recognising the Outcomes outperformance of the Group’s OEPS against budget and, as determined by the Board. The below table shows the short term incentive outcomes for Reported Executives for 2017.

						% of target
					STI earned	STI
			Deferred into	Target STI of	compared to	opportunity
	STI earned	Paid in cash	service rights	fixedpay	target	forfeited1
Name	$	$	$	%	%	%
Executive Director
D Harrison	1,820,000	1,213,333	606,667	100%	140%	0%
Other Reported Executives
G Chubb	403,000	268,667	134,333	49%	130%	0%
P Ford	260,000	173,333	86,667	43%	130%	0%
S McMahon2	594,570	396,380	198,190	61%	140%	0%
A Taylor	566,109	377,406	188,703	56%	145%	0%
Former Reported Executive
P Altschwager2	134,783	134,783	-	50%	70%	30%

1 The STI was not earned; the Act requires this disclosure as forfeiture.

2 STI pro-rata for period employed.

3.5 Long term incentive

Purpose The LTI aligns key employee rewards with sustainable growth in securityholder value over time. It also plays an important role in employee retention. Participants All Reported Executives, executives, Fund Managers and selected other managers, comprising approximately 7% of employees.

Charter Hall Group / 24

Directors’ report (continued)

for the year ended 30 June 2017

Remuneration Report - audited (continued)

Type of equity	The LTI is governed by the Performance Rights and Options Plan (PROP), under which either rights or	The LTI is governed by the Performance Rights and Options Plan (PROP), under which either rights or
awarded	options	to stapled securities are granted to participants. Each performance right entitles the participant to
	one stapled security in the Charter Hall Group for nil consideration at the time of vesting, subject to
	meeting the performance hurdles outlined below. For FY 2017 detail see specific grant allocation (section
	6.2).
Valuation	The number of rights granted to an executive is determined based on an independent fair value
	calculation by Deloitte using the Black-Scholes valuation method.
Performance	For the	FY 2017 LTI allocation, the two performance hurdles that apply to the performance rights for
measures,	vesting	over a three year period commencing 1 July 2016 were:
vesting schedule and holding lock		Absolute TSR (50%) – vesting occurs on a straight line basis if the compound total return is between 9% and 12% per annum, with 50% vesting at the lower end of the range and 100% vesting at the higher end of the range.
		Relative TSR (50%) – vesting occurs on a straight line basis if the total compounded return when
		Charter Hall’s return is ranked against a comparator group of the S&P/ASX 200 A-REIT
		Accumulation Index (XPJAI), is between the 50th and the 75th percentile. Vesting starts at 50%
		at the lower end of the range with 100% vesting at the higher end of the range. The comparator
		group for the relative TSR grant is:
		o Abacus Property Group (ABP)
		o BWP Trust (BWP)
		o Cromwell Property Group (CMW)
		o Charter Hall Retail REIT (CQR)
		o Dexus Property Group (DXS)
		o Goodman Group (GMG)
		o Growthpoint Properties Australia (GOZ)
		o GPT Group (GPT)
		o Iron Mountain Incorporated (INM)
		o Investa Office Fund (IOF)
		o Mirvac Group (MGR)
		o National Storage REIT (NSR)
		o SCentre Group (SCG)
		o Shopping Centres Australasia Property Group (SCP)
		o Stockland (SGP)
		o Vicinity Centres (VCX)

Any performance rights that fail to meet these performance hurdles by 30 June 2019 will lapse. Performance rights which vest will be subject to a further one year holding lock.

Charter Hall Group / 25

Directors’ report (continued)

for the year ended 30 June 2017

Remuneration Report - audited (continued)

Rationale for	TSR measures the overall returns that a company has provided for its securityholders, reflecting share
change to	price movements and reinvestment of dividends over a specified period.
performance conditions	During FY 2017, adjustments have been made to both absolute and relative TSR measure. Key considerations of the Board when reviewing the performance conditions have been ensuring any
	performance measure is aligned with the Group’s securityholders investment returns and with the
	business strategy to access, deploy, manage and co-invest equity to create value and provide superior
	income and capital returns for our clients and securityholders.
	Absolute TSR provides a strong link to Charter Hall’s business strategy of co-investing in managed funds
	with absolute and total return hurdles. Charter Hall’s original absolute TSR hurdle of 10% to 13% was
	established in 2010. For the FY 2017 grant, the Board approved an adjustment to 9% to 12% to reflect
	changes in the cost of capital and bond yield benchmarks over the past six years, which when compared
	to sector peers is above market (a high return compared to peers).
	Relative TSR is the most widely used LTI hurdle adopted in Australia. It ensures that value is only
	delivered to participants if the investment return actually received by CHC securityholders is sufficiently
	high relative to the return they could have received by investing in a portfolio of alternative A-REIT sector
	stocks over the same period.
	For the FY 2017 grant, the Board refined the relative TSR measure and comparator group. In the past,
	Charter Hall has taken a whole of index approach and set the gateway at the index and then a straight
	line to 1.1 times this index. A review of our peers noted that for those which have a relative TSR
	measure, the measurement commonly used is a 50th to 75th percentile measurement. Consideration of
	the performance of the index as a whole results in the larger cap stocks being up-weighted, and can
	disadvantage the smaller cap stocks. The move to the ranking of performance of each index participant
	in the comparator group removes this weighting effect.
	The Board revised the original S&P/ASX200 A-REIT Accumulation Index (XPJAI) measurement group to
	a defined comparator group as outlined above. The comparator group is the S&P/ASX200 A-REIT
	Accumulation Index (XPJAI) as at 1 July 2016 excluding Westfield Corporation (WFD), due to assets
	being held outside Australia and Charter Hall Group (CHC). The Board is able to determine the treatment
	of the companies in the comparator group at its discretion.
Cessation of	For the FY 2017 LTI allocation, the following provisions apply in the case of cessation of a participant’s
employment	employment:
provisions	 Misconduct: all unvested performance rights are forfeited unless the Board determines otherwise;
	 Resignation or where a participant breaches a post-termination restriction in their employment
	contract: all unvested performance rights are forfeited unless the Board determines otherwise;
	and
	 All other leavers, including good leavers: all unvested performance rights lapse with effect from
	the date of cessation of employment, unless the Board allows part or all to vest early or remain
	on foot subject to the original terms of grant.
Change of	The Board, in its absolute discretion, may determine that all or a specified number of a participant’s
control	unvested performance rights vest. In doing so, the Board has regard to whether the performance is in
provisions	line with the performance conditions over the period from the date of the grant of the performance right to
	the date of the relevant event.
Treatment of	Participants who hold performance rights are not entitled to receive any distributions or dividends
dividends	declared by the Group until the performance rights are exercised and held as stapled securities.
Hedging and	In accordance with the_Corporations Act 2001_, all KMP are prohibited from hedging or otherwise
margin lending	protecting the value of unvested stapled securities.
prohibitions

Charter Hall Group / 26

Directors’ report (continued)

for the year ended 30 June 2017

Remuneration Report - audited (continued)

Special LTI Following securityholder approval, as part of their contract renewal effective 4 November 2013, the grant for JMDs former JMDs received a special allocation of three year performance rights. D Harrison received 300,000 performance rights and D Southon 100,000 performance rights.

The vesting of these performance rights is subject to both service and performance conditions over the three year period:

• Absolute TSR Performance – measured over a performance period from 1 July 2013 to 30 June 2016;

• Relative TSR Performance – measured over a performance period from 1 July 2013 to 30 June 2016; and

• Annual Milestones – set annually and measured over a performance period from 4 October 2013 to 4 October 2016.

All measures need to be met for any Special LTI to become available. As the relative TSR did not meet the performance measure, 100% of the performance rights were forfeited.

The following graphs demonstrate how the Group’s TSR (including stapled security price movements and distributions) has performed relative to the ASX A-REIT Accumulation Index for the three years to 30 June 2016 (FY 2014 LTI performance period) and three years to 30 June 2017 (FY 2015 LTI performance period).

FY 2014 LTI period (vesting date 31 August 2016)

==> picture [514 x 195] intentionally omitted <==

FY 2015 LTI period (vesting date 31 August 2017)

==> picture [514 x 195] intentionally omitted <==

Charter Hall Group / 27

Directors’ report (continued)

for the year ended 30 June 2017

Remuneration Report - audited (continued)

• Outcomes  The FY 2014 LTI had a vesting date of 1 July 2016. As a result of the TSR performance over the three years to 30 June 2016, 50% vested based on absolute performance and 50% was forfeited based on relative performance.

  • Absolute TSR – For the three years to 30 June 2016, Charter Hall stapled securities achieved a compound average growth rate of 15%. This performance is in excess of the absolute TSR outperformance hurdle of 13% per annum.

  • Relative performance – For the three years to 30 June 2016, Charter Hall did not outperform the S&P/ASX 200 A-REIT Accumulation Index and did not meet the 1.0 times relative TSR threshold and therefore did not vest.

• The FY 2015 LTI has a vesting date of 31 August 2017. As a result of the TSR performance over the three years to 30 June 2017, the performance hurdles were exceeded and 100% of the performance rights will vest based on absolute and relative performance.

3.6 Group summary of performance and total remuneration outcomes

The tables below provide information on Charter Hall’s performance against key metrics over the last five years and the relationship to Reported Executives’ total remuneration, both fixed and ‘at risk’. Charter Hall’s STI is weighted towards growth in OEPS and the LTI provides an important link between remuneration and TSR.

Key performance metrics	2013	2014	2015	2016	2017
Statutory profit after tax for stapled securityholders	54,842	82,116	117,885	215,240	257,561
($000s)
Operating earnings for stapled securityholders ($000s)	68,750	81,163	98,799	124,735	151,173
Operating earnings per stapled security (cents)	22.9	25.3	27.5	30.4	35.9
Statutory earnings per stapled security (EPS) (cents)	18.3	25.6	32.8	52.5	61.2
Growth in OEPS %	10.8	10.4	8.7	10.5	18.1
Distribution per stapled security (cents)	20.2	22.3	24.2	26.9	30.0
Stapled security price at 30 June ($)	3.87	4.26	4.52	5.06	5.50
S&P/ASX 200 A-REIT Accumulation Index (XPJAI) - Jul	24.3	11.1	20.3	23.2	-6.3
- Jun (%)
Total securityholder return – Jul - Jun(%)	80.6	16.3	11.8	18.3	15.2
Reported Executives total remuneration summary	2013	2014	2015	2016 1	2017 2
Fixed payments ($)	5,978,392	6,122,898	4,776,471	6,774,805	4,120,280
STI accounting expense ($)	2,659,913	3,381,549	3,037,030	5,070,682	3,778,462
LTI accounting expense ($)3	2,369,843	2,169,193	1,746,018	1,761,639	931,165
Earned remuneration ($)4	11,008,148	11,673,640	9,559,519	13,607,126	8,829,907
On target total remuneration ($)	11,216,962	11,984,905	9,257,989	12,198,875	7,864,408
Earned remuneration relative to target remuneration –	(2%)	(3%)	4%	12%	12%
over/(under) (%)

1 Includes remuneration for Mr Southon’s 2017 notice period and excludes his redundancy payments.

2 Includes remuneration for Mr Altschwager for his period of KMP and excludes his separation arrangements and the STI payment reported for Mr Southon in 2017.

3 The LTI expense attributed to the Reported Executives reflects the statutory accounting expense under AASB2.

4 Earned remuneration for the Reported Executives is the sum of their fixed payments, the STI accounting expense and the LTI accounting expense.

Charter Hall Group / 28

Directors’ report (continued)

for the year ended 30 June 2017

Remuneration Report - audited (continued)

4. Executive remuneration in detail

4.1 Total remuneration of Reported Executives

The following table details the total remuneration of the Reported Executives of the Group for FY 2016 and FY 2017.

					POST-
					EMPLOYMEN			OTHER
					T			LONG-TERM	TERMINATION
		SHORT-TERM BENEFITS			BENEFITS	SECURITY-BASED PAYMENT		BENEFITS	BENEFITS
							Securities,
							options				% of total
						Security-	and				remun-
		Cash short		Non-		based short	perform-	Long			eration
		term	Annual	monetary	Super-	term	ance	service	Termination		consisting of
	Salary	incentive	leave1	benefits2	annuation	incentive	rights	leave1	benefits	Total	rights
Name	$	$	$	$	$	$	$	$	$	$	%
Executive Director
D Harrison
2017	1,280,384	1,213,333	(147,108)	1,901	19,616	606,667	429,177	22,751	-	3,426,721	30
2016	1,171,259	1,118,467	87,976	1,276	19,308	559,233	506,418	57,643	-	3,521,580	30
Other Reported Executives
G Chubb
2017	610,384	268,667	(24,834)	1,901	19,616	134,333	161,457	11,561	-	1,183,084	25
2016	592,692	215,752	10,165	1,337	19,308	107,876	311,720	10,857	-	1,269,707	33
P Ford
2017	448,754	173,333	11,988	5,188	19,616	86,667	26,536	15,348	-	787,430	14
2016	391,559	185,986	(8,588)	9,748	19,308	-	24,703	14,853	-	637,569	4
S McMahon
2017	677,820	396,380	14,118	1,901	19,616	198,190	209,733	12,213	-	1,529,971	27
A Taylor
2017	673,704	377,406	(17,057)	7,418	19,616	188,703	75,641	23,125	-	1,348,556	20
2016	645,692	292,200	(2,672)	12,362	19,308	146,100	78,165	11,638	-	1,202,793	19
Former Reported Executives (ex CHC)
D Southon
2017	-	197,190	-	-	-	-	-	-	-	197,190	-
2016
2017 Notice
Period3	637,458	328,648	52,413	2,481	11,442	164,324	142,677	11,356	-	1,350,799	23
Separation3	-	-	-	-	-	-	211,157	-	1,112,400	1,323,557	16
2016 Actuals3	1,093,092	732,416	(22,462)	14,477	19,308	366,208	375,226	19,468	-	2,597,733	29
P Altschwager4
2017	375,287	134,783	-	5,646	9,808	-	28,621	-	893,344	1,447,489	2
2016	732,092	175,327	24,407	1,276	19,308	87,663	164,294	14,635	-	1,219,002	21
Former Reported Executives
S Dundas5
2016	480,692	175,760	(14,094)	1,276	19,308	87,880	59,306	8,750	-	818,878	18
R Stacker5
2016	580,692	217,895	24,306	3,402	19,308	108,947	99,130	(64,615)	-	989,065	21
Total 2017	4,066,333	2,761,092	(162,893)	23,955	107,887	1,214,560	931,165	84,998	893,344	9,920,441	22
Total 2016	6,325,228	3,442,451	151,451	47,635	165,906	1,628,231	1,972,796	84,585	1,112,400	14,930,683	31

Charter Hall Group / 29

Directors’ report (continued)

for the year ended 30 June 2017

Remuneration Report - audited (continued)

• 1 Shows the movement in leave accruals for the year. 2

• Non-monetary benefits include car parking benefits and salary continuance.

• 3

• Mr Southon ceased as KMP in his role as Joint Managing Director effective 1 February 2016.

• In accordance with Mr Southon’s employment agreement and the announcement to the market on 1 February 2016, Mr Southon was entitled during his 12 month notice period to the following: he continued to be eligible for STI; no future LTI grants were awarded; previous service rights awarded under his STI and performance rights under his LTI remained on foot and vest at the originally intended vesting date to the extent that the performance conditions (where applicable) are satisfied; and a 12 month redundancy payment based on fixed remuneration was paid at the end of his notice period. The presentation of Mr Southon’s remuneration has been split into three components. Actual 2016 represents his remuneration for 12 months to 30 June 2016, including five months of his notice period to 30 June 2016. The 2017 notice period represents the remuneration he received during FY 2017 as he continued as an employee during his notice period until 31 January 2017. For FY 2017, the STI opportunity was shown at target amount as it may be earned in the event of performance criteria being met. The performance criteria were met and the actual amount paid is $690,161. The difference to the previously reported amount is shown in the 2017 data. The separation line reflects the redundancy payment he received on termination of his employment. The separation benefits include the remaining security-based expense for unvested incentives as at 31 January 2017 which remain on foot and may vest at the same time as all other participants. None of these benefits are termination benefits for the purposes of the Corporations Act termination benefits cap.

• 4 In accordance with Mr Altschwager’s employment agreement, Mr Altschwager is entitled to six months’ notice period. The termination benefits value also includes the remaining security-based expense for unvested incentives as at 31 December 2016 which remain on foot and may vest at the same time as all other participants and statutory leave entitlements. None of these benefits are termination benefits for the purposes of the Corporations Act termination benefits cap.

• 5 Mr Dundas and Mr Stacker ceased as KMP effective 1 February 2016 but remained employed by the Group as Fund Manager, Charter Hall Retail REIT and Head of Investor Relations respectively. Remuneration shown is for full year.

4.2 Key terms of employment

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

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

Executives contracts are ongoing in duration. The material terms of the employment agre and Reported Executives are summarised below:	ements for the Executive Directors
Name Position	**Minimum notice period1 **
	Employee Charter Hall
Executive Director D Harrison Managing Director and Group CEO	6 months 12 months
Other Reported Executives G Chubb Group Executive - Retail P Ford Group Executive - Industrial S McMahon Chief Investment Officer A Taylor2 Group Executive-Office	3 months 3 months 3 months 3 months 6 months 6 months 3 months 3 months
Former Reported Executive P Altschwager Chief Financial Officer	3 months 6 months

1 No notice period is required for termination by the Company for serious or wilful misconduct by the employee. 2

Termination payments under Adrian Taylor’s contract equals nine months base salary plus one month per year of service to a maximum of 12 months base salary.

Charter Hall’s redundancy policy applies to all employees, including Reported Executives, and is calculated based on notice period plus four weeks pay for each completed year of service, with a minimum payment of eight weeks and a maximum of 52 weeks. Payments are calculated on the base rate of pay on ordinary hours worked and exclude any incentive-based payments or bonuses. The employment contract for the Managing Director does not include a redundancy provision.

Other than as described above, the Reported Executives’ contracts do not provide for any termination benefits aside from payment in lieu of notice (where applicable). Treatment of unvested incentives is dealt with in accordance with the terms of the grant (refer to STI and LTI commentary in section 3).

Charter Hall Group / 30

Directors’ report (continued)

for the year ended 30 June 2017

Remuneration Report - audited (continued)

5. Non-Executive Director remuneration

Policy The Committee makes recommendations to the Board on the total level of remuneration of the Chair and other Non-Executive Directors, including any additional fees payable to Directors for membership of Board committees.

Benchmarking Fees are set by reference to the following considerations:

• industry practice and best principles of corporate governance;

• responsibilities and risks attaching to the role of NEDs;  the time commitment expected of NEDs on Group matters; and  reference to fees paid to NEDs of other comparable companies.

NED fees are periodically reviewed to ensure they remain in line with general industry practice and reflect proper compensation for duties undertaken. External independent advice is sought in these circumstances. Fee framework NED fees, including committee fees, are set by the Board within the aggregate amount of $1.3 million per annum as approved by securityholders at the AGM in November 2014.

Under the current framework, NEDs, other than the Chair, receive (inclusive of superannuation):  Board base fee; and  Committee fees.

The Chair receives an all-inclusive fee.

NEDs are also entitled to be reimbursed for all business-related expenses, including travel on Charter Hall business, incurred in the discharge of their duties in accordance with Charter Hall’s Constitution. In accordance with principles of good corporate governance, NEDs do not receive any benefits upon retirement under any retirement benefits schemes (other than statutory superannuation) and NEDs are not eligible to participate in any of Charter Hall’s employee incentive schemes.

Remuneration The Chair’s fee structure was increased to $307,500 per annum and the base fees for NEDs was outcomes increased to $123,000 per annum, both effective 1 July 2016.

No changes to Committee Chairs and members’ fees occurred.

Remuneration outcomes	The Chair’s fee structure was increased to $307,500 per annum and the base fees for NEDs was increased to $123,000 per annum, both effective 1 July 2016. No changes to Committee Chairs and members’ fees occurred.	The Chair’s fee structure was increased to $307,500 per annum and the base fees for NEDs was increased to $123,000 per annum, both effective 1 July 2016. No changes to Committee Chairs and members’ fees occurred.	The Chair’s fee structure was increased to $307,500 per annum and the base fees for NEDs was increased to $123,000 per annum, both effective 1 July 2016. No changes to Committee Chairs and members’ fees occurred.
Minimum	Minimum shareholding requirements were implemented in FY 2016 requiring Independent Directors to
shareholding	hold CHC securities to the value of $50,000 (being approximately a year’s base fee, net of tax) to be
requirement	purchased over a three year period. The valuation is based on the value of the securities at		the time of
	purchase.
Summary of fee framework per annum		2017	2016
		$	$
Board
Chair		307,500	300,000
Member		123,000	120,000
Audit Risk and Compliance Committee
Chair		30,000	30,000
Member		15,000	15,000
Remuneration and Human Resources Committee
Chair		25,000	25,000
Member		13,879	13,879
Nomination Committee
Chair		2,060	2,060
Member		2,060	2,060
Investment Committee1
Chair		-	-
Member		-	-

1 The Investment Committee members have previously received no remuneration for the Committee fees, this will be reviewed in FY 2018.

Charter Hall Group / 31

Directors’ report (continued)

for the year ended 30 June 2017

Remuneration Report - audited (continued)

for the year ended 30 June 2017 Remuneration Report - audited (continued)
	2017 fees	2016 fees
Non-Executive Director remuneration:	$	$
Non-Executive Directors
D Clarke	307,500	300,000
A Brennan	163,000	165,305
P Garling	159,287	144,117
K Moses	124,659	-
D Ross	73,035	-
Former Non-Executive Directors D Deverall 1	-	109,583
P Kahan	72,004	141,016
C McGowan	49,256	133,879
TOTAL	948,741	993,900

1 Mr Deverall resigned effective 26 February 2016.

6. Appendix – further detail

6.1 Securityholdings

Key management personnel securityholdings

	Opening	Stapled	Rights and	Stapled	Closing
	balance at	securities	options	securities	balance at
Name	30 Jun 2016	acquired1	exercised	sold	30 Jun 2017
Directors of Charter Hall Limited
Ordinary stapled securities
D Clarke	43,138	2,737	-	-	45,875
A Brennan	30,000	-	-	-	30,000
P Garling	9,435	7,324	-	-	16,759
K Moses2	-	8,137	-	-	8,137
D Ross3	-	-	-	-	-
Former Directors
P Kahan4	-	-	-	-	-
C McGowan5	10,000	-	-	(10,000)	-
Executive Director
D Harrison	1,441,773	-	207,026	-	1,648,799
Other Reported Executives
G Chubb	-	72,581	-	(72,581)	-
P Ford	-	7,622	-	(7,622)	-
S McMahon	-	-	-	-	-
A Taylor	61,605	57,066	-	(57,066)	61,605
Former Reported Executive
P Altschwager6	-	86,707	-	(86,707)	-

1 Includes securities acquired under the security purchase plan. 2

Appointed as Board Member on 1 September 2016. Includes a deemed acquisition of 5,400 stapled securities that K Moses held at time of appointment.

3

Appointed as Board Member on 20 December 2016.

4 Resigned as Board Member on 20 December 2016. Prior to his resignation, Mr Kahan was a representative of the Group’s major securityholder, Gandel Group. Mr Kahan did not hold any securities in his own right.

• 5

5 Resigned as Board Member on 9 November 2016. Deemed disposal of all stapled securityholdings as no longer a director of the Group.

6 Deemed disposal of all stapled securityholders as no longer a KMP of the Group.

Charter Hall Group / 32

Directors’ report (continued)

for the year ended 30 June 2017

Remuneration Report - audited (continued)

6.2 Performance Rights and Options Plan details

Performance rights and service rights outstanding under the PROP.

Performance rights
Year of issue	Securities	Exercise price	Vestingconditions
2015	918,240	Nil	Absolute and relative performance criteria
2016	879,695	Nil	Absolute and relative performance criteria
2017	877,183	Nil	Absolute and relative performance criteria
Total performance rights outstanding	2,675,118

Service rights
Year of issue	Securities	Exercise price	Vestingconditions
2015	65,790	Nil	Service conditions
2016	179,364	Nil	Service conditions - Deferred STI
2017	59,056	Nil	Service conditions
2017	268,876	Nil	Service conditions - Deferred STI
Total service rights issued	573,086

Valuation model inputs

The Black-Scholes methodology is used for allocation purposes while the Monte Carlo method is used for accounting purposes. The accounting value determined using a Monte Carlo simulation valuation is in accordance with AASB 2.

The model inputs for the PROP performance rights plan issued during FY 2014 to FY 2017 to assess the fair value are as follows:

The model inputs for the PROP performance follows:	rights plan issued durin	g FY 2014 to F	2017 to asses	s the fair value	are as
Performance rights	FY 2014	FY 2014	FY 2015	FY 2016	FY 2017
Grant date1	20/11/2013	20/11/2013	19/12/2014	30/11/2015	25/11/2016
Stapled security price at grant date	$3.68	$3.68	$4.68	$4.47	$4.55
Opening TSR measurement price	$2.34	$3.89	$4.23	$4.64	$5.11
Fair value of right	$1.42	$1.11	$2.09	$1.41	$1.39
Expected price volatility	30.4%	30.4%	30.4%	24.0%	17.1%
Risk-free interest rate	2.9%	3.0%	3.0%	2.1%	1.8%
Service rights	FY 2014	FY 2015	FY 2015	FY 2016	FY 2017
Grant date	20/11/2013	19/12/2014	19/12/2014	30/11/2015	25/11/2016
Stapled security price at grant date	$3.68	$4.68	$4.68	$4.47	$4.55
Fair value of right	$3.42	$4.28	$4.36	$4.37	$4.26
Expected price volatility	27.4%	26.5%	24.6%	25.4%	21.8%
Risk-free interest rate	2.6%	2.5%	2.5%	2.0%	1.8%

1 The grant date reflects the date the rights were allocated whilst participants are eligible and performance period commences from 1 July of the relevant financial year.

Number of performance and service rights issued and outstanding to Reported Executives as at 30 June 2017:

	LTIperformance rights	LTIperformance rights	LTIperformance rights		Sign on	(service	rights)	STI deferred(service rights)	STI deferred(service rights)	STI deferred(service rights)
	FY 2015	FY 2016	FY 2017	Total	FY 2015	FY 2017	Total	FY 2016	FY 2017	Total
Executive Director
D Harrison	248,371	250,965	330,178	829,514	-	-	-	43,420	119,240	162,660
Other Reported	Executives
G Chubb	42,135	39,490	36,991	118,616	65,790	-	65,790	6,791	23,002	29,793
P Ford	15,450	15,005	20,786	51,241	-	-	-	-	-	-
S McMahon	-	-	112,934	112,934	-	59,056	59,056	-	-	-
A Taylor	48,315	49,099	46,018	143,432	-	-	-	17,523	31,152	48,675

Charter Hall Group / 33

Directors’ report (continued)

for the year ended 30 June 2017

Remuneration Report - audited (continued)

Reported Executives rights - details by plan

					Fair	No.
					value	vested			Fair value
		Rights	Rights		per	and	No.		to be
	Rights	granted	held at 30		right at	exercised	forfeited		expensed
	previously	during the	June		grant	during	during	Vesting	in future
Type of equity	granted	year	2017	Grant date	date	theyear	theyear	date	years1
Executive Director
D Harrison
LTI Performance Rights	231,707	-	-	20-Nov-13	$1.42	231,707	-	1-Jul-16	-
LTI Performance Rights	300,000	-	-	20-Nov-13	$1.11	-	300,000	4-Oct-16	-
LTI Performance Rights	248,371	-	248,371	19-Dec-14	$2.09	-	-	31-Aug-17	-
LTI Performance Rights	250,965	-	250,965	30-Nov-15	$1.41	-	-	31-Aug-18	$130,595
LTI Performance Rights	-	330,178	330,178	25-Nov-16	$1.39	-	-	31-Aug-19	$314,163
STI Deferred Rights	47,752	-	-	19-Dec-14	$4.23	47,752	-	31-Aug-16	-
STI Deferred Rights	43,420	-	-	30-Nov-15	$4.38	43,420	-	31-Aug-16	-
STI Deferred Rights	43,420	-	43,420	30-Nov-15	$4.16	-	-	31-Aug-17	-
STI Deferred Rights	-	59,620	59,620	25-Nov-16	$4.37	-	-	31-Aug-17	-
STI Deferred Rights	-	59,620	59,620	25-Nov-16	$4.15	-	-	31-Aug-18	-
Other Reported Executives
G Chubb
LTI Performance Rights	42,135	-	42,135	19-Dec-14	$2.09	-	-	31-Aug-17	-
LTI Performance Rights	39,490	-	39,490	30-Nov-15	$1.41	-	-	31-Aug-18	$20,549
LTI Performance Rights	-	36,991	36,991	25-Nov-16	$1.39	-	-	31-Aug-19	$35,227
LTI Service Rights	65,790	-	-	19-Dec-14	$4.27	65,790	-	30-Jun-16	-
LTI Service Rights	65,790	-	65,790	19-Dec-14	$4.03	-	-	30-Jun-17	-
STI Deferred Rights	6,791	-	-	30-Nov-15	$4.38	6,791	-	31-Aug-16	-
STI Deferred Rights	6,791	-	6,791	30-Nov-15	$4.16	-	-	31-Aug-17	-
STI Deferred Rights	-	11,501	11,501	25-Nov-16	$4.37	-	-	31-Aug-17	-
STI Deferred Rights	-	11,501	11,501	25-Nov-16	$4.15	-	-	31-Aug-18	-
P Ford
LTI Performance Rights	15,244	-	-	20-Nov-13	$1.42	15,244	-	1-Jul-16	-
LTI Performance Rights	15,450	-	15,450	19-Dec-14	$2.09	-	-	31-Aug-17	-
LTI Performance Rights	15,005	-	15,005	30-Nov-15	$1.41	-	-	31-Aug-18	7,808
LTI Performance Rights	-	20,786	20,786	25-Nov-16	$1.39	-	-	31-Aug-19	19,795
S McMahon
LTI Performance Rights	-	112,934	112,934	25-Nov-16	$1.41	-	-	31-Aug-19	107,549
LTI Service Rights	-	59,056	59,056	25-Nov-16	$4.29	-	-	31-Aug-17	93,047
A Taylor
LTI Performance Rights	47,561	-	-	20-Nov-13	$1.42	47,561	-	1-Jul-16	-
LTI Performance Rights	48,315	-	48,315	19-Dec-14	$2.09	-	-	31-Aug-17	-
LTI Performance Rights	49,099	-	49,099	30-Nov-15	$1.41	-	-	31-Aug-18	25,550
LTI Performance Rights	-	46,018	46,018	25-Nov-16	$1.39	-	-	31-Aug-19	43,824
STI Deferred Rights	15,763	-	-	19-Dec-14	$4.23	15,763	-	31-Aug-16	-
STI Deferred Rights	17,523	-	-	30-Nov-15	$4.38	17,523	-	31-Aug-16	-
STI Deferred Rights	17,522	-	17,522	30-Nov-15	$4.16	-	-	31-Aug-17	-
STI Deferred Rights	-	15,576	15,576	25-Nov-16	$4.37	-	-	31-Aug-17	-
STI Deferred Rights	-	15,576	15,576	25-Nov-16	$4.15	-	-	31-Aug-18	-
Former Reported Executives
P Altschwager
LTI Performance Rights	106,708	-	-	20-Nov-13	$1.42	106,708	-	1-Jul-16	-
LTI Performance Rights	101,967	-	101,967	19-Dec-14	$2.09	-	-	31-Aug-17	-
LTI Performance Rights	95,356	-	-	30-Nov-15	$1.41	-	95,356	31-Aug-18	-
LTI Performance Rights	-	88,937	-	25-Nov-16	$1.39	-	88,937	31-Aug-19	-
STI Deferred Rights	14,933	-	-	19-Dec-14	$4.23	14,933	-	31-Aug-16	-
STI Deferred Rights	18,420	-	-	30-Nov-15	$4.38	18,420	-	31-Aug-16	-
STI Deferred Rights	18,419	-	18,419	30-Nov-15	$4.16	-	-	31-Aug-17	-
STI Deferred Rights	-	9,346	9,346	25-Nov-16	$4.37	-	-	31-Aug-17	-
STI Deferred Rights	-	9,346	9,346	25-Nov-16	$4.15	-	-	31-Aug-18	-

1 The maximum value of the grants yet to vest is the fair value amount at the grant date yet to be reflected in the Group's consolidated income statement. The minimum future value is $nil as the future performance and service conditions may not be met.

Charter Hall Group / 34

Directors’ Report (continued)

for the year ended 30 June 2017

Indemnification and insurance of directors, officers and auditor

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

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

Non-audit services

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

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

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

• all non-audit services have been reviewed by the Audit, Risk and Compliance Committee to ensure they do not impact the impartiality and objectivity of the auditor; and

• none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants .

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

	Charter Hall Group	Charter Hall Group	Charter Hall Property	Trust
			Group
	2017	2016	2017	2016
	$	$	$	$
PricewaterhouseCoopers Australian firm
Taxation services	135,781	228,744	-	-

Charter Hall Group / 35

Directors’ Report (continued)

for the year ended 30 June 2017

Environmental regulation

The Charter Hall Group recognises that sustainability is more than protecting the natural environment; it is about responding to the needs of our customers, achieving our long-term commercial goals and working in partnership with our stakeholders to improve environmental and social outcomes. Our Group Sustainability Policy outlines our commitments to achieving a leading role in a sustainable future.

The Group ensures compliance with applicable environmental standards and regulations and reports its greenhouse gas emissions and energy use on an annual basis under the National Greenhouse and Energy Reporting Act 2007 . Charter Hall emissions reports are independently audited and in October 2017 the Group will report to the Clean Energy Regulator emissions for the measurement period 1 July 2016 to 30 June 2017. To mitigate its carbon emissions, the Group continues to implement resource efficiency measures across its portfolio of assets and is also exploring renewable energy generation opportunities within its retail and industrial portfolios.

Charter Hall also voluntarily reports annually to international organisations, such as the Dow Jones Sustainability Index (DJSI), United Nations Principles for Responsible Investment (PRI) and the Carbon Disclosure Project (CDP). Charter Hall has recently submitted its 2017 DJSI, PRI and CDP reports, which address Charter Hall sustainability practices and emissions from 1 July 2015 to 30 June 2016. Charter Hall funds (CQR, CHOT, CPOF, DOF, CPIF and CLP) also voluntarily report to the Global Real Estate Sustainability Benchmark (GRESB). These funds have recently submitted their 2017 GRESB reports, which also address Charter Hall sustainability practices and emissions from 1 July 2015 to 30 June 2016.

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.

Tax Governance Statement

Charter Hall Group has adopted the Board of Taxation's Tax Transparency Code (TTC) at 30 June 2017. As part of the TTC, Charter Hall has published a Tax Governance Statement (TGS) which details Charter Hall Group’s corporate structure and tax corporate governance systems. Charter Hall Group’s TGS can be found on our website at www.charterhall.com.au.

Proceedings on behalf of the Company

Section 237 of the Corporations Act 2001 allows for a person to apply to the Court to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party, in certain circumstances.

No person has made such an application and no proceedings have been brought or intervened in on behalf of the Company with the Court under this section .

Auditor’s independence declaration

A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 36.

Rounding of amounts

The Company is of a kind referred to in ASIC Corporations Instrument (Rounding in Financial/Directors’ Reports) 2016/91, relating to the ‘rounding off’ of amounts in the Directors’ Report. Amounts in the Directors’ Report have been rounded off in accordance with that instrument to the nearest thousand dollars, or in certain cases, to the nearest dollar.

Auditor

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

Directors’ authorisation

The Directors’ Report is made in accordance with a resolution of the Directors. The financial statements were authorised for issue by the Directors on 23 August 2017. The Directors have the power to amend and re-issue the Financial Statements.

==> picture [107 x 48] intentionally omitted <==

David Clarke Chair Sydney 23 August 2017

==> picture [77 x 59] intentionally omitted <==

Auditor’s Independence Declaration

As lead auditor for the audit of Charter Hall Limited and Charter Hall Property Trust for the year ended 30 June 2017, I declare that to the best of my knowledge and belief, there have been:

• (a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and

• (b) no contraventions of any applicable code of professional conduct in relation to the audit.

This declaration is in respect of Charter Hall Limited and the entities it controlled during the period and Charter Hall Property Trust and the entities it controlled during the period.

Wayne Andrews Partner PricewaterhouseCoopers

Sydney 23 August 2017

PricewaterhouseCoopers, ABN 52 780 433 757

One International Towers Sydney, Watermans Quay, Barangaroo, GPO BOX 2650 Sydney NSW 2001 T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au

Liability limited by a scheme approved under Professional Standards Legislation.

Charter Hall Group / 37

Consolidated Statements of Comprehensive Income

for the year ended 30 June 2017

for the year ended 30 June 2017
		Charter Hall Group			Charter Hall Property
					Trust Group
		2017		2016	2017	2016
	Note	$'000		$'000	$'000	$'000
Income
Revenue	4	213,393		165,287	19,717	37,212
Share of net profit of investments accounted for using the	28,29	207,192		168,284	198,034	157,905
equity method
Net gain on sale of investments and inventory		3,244		5,976	3,720	978
Net gain on investment in associates at fair value	28	-		4,016	-	4,016
Foreign exchangegains		-		35	-	-
Total income		423,829		343,598	221,471	200,111
Expenses
Depreciation	5	(3,475)		(2,604)	-	-
Finance costs	5	(1,522)		(1,742)	(1,295)	(1,562)
Net loss on investment in associates at fair value	28	(17)		-	(17)	-
Impairment of investments in joint ventures	29	(10,494)		-	-	-
Net fair value adjustments on investment properties	12	(712)		-	(712)	-
Amortisation and reversal of impairment of intangibles	5,13	(4,343)		(8,517)	-	-
Asset management fees		-		-	(1,382)	(1,193)
Employee costs	5	(100,921)		(95,512)	-	-
Administration and other expenses	5	(21,186)		(18,269)	(114)	(87)
Total expenses		(142,670)		(126,644)	(3,520)	(2,842)
Profit before tax		281,159		216,954	217,951	197,269
Income tax expense	6	(23,598)		(1,714)	-	-
Profit for theyear		257,561		215,240	217,951	197,269
Profit for the year as attributable to:
Equity holders of Charter Hall Limited		39,610		17,971	-	-
Equity holders of Charter Hall Property Trust
(non-controlling interest)		217,951		197,269	217,951	197,269
Profit for theyear		257,561		215,240	217,951	197,269
Other comprehensive income
Items that may be reclassified to profit or loss
Exchange differences on translation of foreign operations	20	(8)		227	(8)	227
Equity accounted fair value movements in cash flow hedges	20	(442)		(181)	(442)	(181)
Other comprehensive income for theyear, net of tax		(450)		46	(450)	46
Total comprehensive income for theyear		257,111		215,286	217,501	197,315
Total comprehensive income for the year is attributable to:
Equity holders of Charter Hall Limited		39,610		17,971	-	-
Equity holders of Charter Hall Property Trust		217,501		197,315	217,501	197,315
(non-controlling interest)
Total comprehensive income for theyear		257,111		215,286	217,501	197,315
Basic earnings per security (cents) attributable to:
Equity holders of Charter Hall Limited		9.4		4.4	n/a	n/a
Equity holders of Charter Hall Property Trust		51.8		48.1	51.8	48.1
(non-controlling interest)
Basic earnings per stapled security (cents) attributable to	8(a)	61.2		52.5	n/a	n/a
stapled securityholders of Charter Hall Group
Diluted earnings per security (cents) attributable to:
Equity holders of Charter Hall Limited		9.3		4.3	n/a	n/a
Equity holders of Charter Hall Property Trust		51.4		47.7	51.4	47.7
(non-controlling interest)
Diluted earnings per stapled security (cents) attributable to	8(b)	60.7		52.0	n/a	n/a
stapled securityholders of Charter Hall Group

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

Charter Hall Group / 38

Consolidated balance sheets

as at 30 June 2017

Consolidated balance sheets as at 30 June 2017
		Charter Hall Group			Charter Hall Property
					Trust Group
				Restated1
		2017		2016	2017	2016
	Note	$'000		$'000	$'000	$'000
Assets
Current assets
Cash and cash equivalents	9	174,418		145,358	53,377	43,321
Trade and other receivables	10	66,203		48,687	29,936	26,684
Total current assets		240,621		194,045	83,313	70,005
Non-current assets
Trade and other receivables	10	-		-	73,175	139,860
Investments in associates at fair value through profit or loss	28	29,690		208	29,690	208
Investments accounted for using the equity method	11	1,476,630		1,136,727	1,386,261	1,041,502
Investment properties	12	40,350		-	40,350	-
Intangible assets	13	65,400		69,743	-	-
Property, plant and equipment	14	18,764		14,855	-	-
Deferred tax assets	15	1,582		-	-	-
Total non-current assets		1,632,416		1,221,533	1,529,476	1,181,570
Total assets		1,873,037		1,415,578	1,612,789	1,251,575
Liabilities
Current liabilities
Trade and other payables	16	127,415		86,894	76,786	56,488
Provisions	17	1,892		1,680	-	-
Total current liabilities		129,307		88,574	76,786	56,488
Non-current liabilities
Trade and other payables	16	6,479		5,193	-	-
Provisions	17	1,303		1,334	-	-
Deferred tax liabilities	15	13,677		9,393	-	-
Total non-current liabilities		21,459		15,920	-	-
Total liabilities		150,766		104,494	76,786	56,488
Net assets		1,722,271		1,311,084	1,536,003	1,195,087
Equity
Equity holders of Charter Hall Limited
Contributed equity	19(a)	284,956		256,049	-	-
Reserves	20	(44,614)		(45,533)	-	-
Accumulated losses	21	(54,074)		(94,519)	-	-
Parent entity interest		186,268		115,997	-	-
Equity holders of Charter Hall Property Trust
Contributed equity	19(a)	1,456,853		1,201,346	1,456,853	1,201,346
Reserves	20	(450)		-	(450)	-
Accumulated profit/(losses)	21	79,600		(6,259)	79,600	(6,259)
Equity holders of Charter Hall Property Trust		1,536,003		1,195,087	1,536,003	1,195,087
(non-controllinginterest)
Total equity		1,722,271		1,311,084	1,536,003	1,195,087

1 Details of the restated deferred tax liability are included in note 15.

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

Charter Hall Group / 39

Consolidated statement of changes in equity – Charter Hall Group

for the year ended 30 June 2017

==> picture [511 x 55] intentionally omitted <==

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

Attributable to the owners of Charter Hall
Limited
Non-
Contributed Accumulated controlling Total
equity Reserves profit/(losses) Total interest equity
----- End of picture text -----

	Note	$'000		$'000	$'000	$'000	$'000	$'000	$'000	$'000	$'000	$'000	$'000
Restated balance at 1 July 2015		253,907		(44,615)		(112,490)		96,802		1,088,746		1,185,548
Profit for the year		-		-		17,971		17,971		197,269		215,240
Othercomprehensiveincome		-		-		-		-		46		46
Total comprehensive income		-		-		17,971		17,971		197,315		215,286
Transactions with equity holders in their
capacity as equity holders:
Contributions of equity, net of issue costs	19(b)	2,550		-		-		2,550		23,525		26,075
Buyback and issuance of securities for
exercised performance rights		(408)		(4,721)		-		(5,129)		(3,951)		(9,080)
Transfer due to deferred compensation
payable in service rights		-		1,722		-		1,722		-		1,722
Distribution provided for or paid	7	-		-		-		-		(110,548)		(110,548)
Security-based benefit expense		-		2,081		-		2,081		-		2,081
Equity accounted fair value movements
in cash flow hedges		-		-		-		-		-		-
		2,142		(918)		-		1,224		(90,974)		(89,750)
Restated balance at 30 June 2016		256,049		(45,533)		(94,519)		115,997		1,195,087		1,311,084
Balance at 1 July 2016		256,049		(45,533)		(94,519)		115,997		1,195,087		1,311,084
Profit for the year		-		-		39,610		39,610		217,951		257,561
Othercomprehensiveincome		-		-		-		-		(450)		(450)
Total comprehensive income		-		-		39,610		39,610		217,501		257,111
Transactions with equity holders in their
capacity as equity holders:
Contributions of equity, net of issue costs	19(b)	28,347		-		-		28,347		257,991		286,338
Buyback and issuance of securities for
exercised performance rights		(273)		(2,439)		-		(2,712)		(2,484)		(5,196)
Tax recognised direct to equity		833		1,710		(358)		2,185		-		2,185
Transfer due to deferred compensation
payable in service rights		-		1,427		-		1,427		-		1,427
Distribution provided for or paid	7	-		-		-		-		(132,092)		(132,092)
Security-based benefit expense		-		1,414		-		1,414		-		1,414
Transfer unvested securities to
accumulated losses		-		(1,193)		1,193		-		-		-
		28,907		919		835		30,661		123,415		154,076
Balance at 30 June 2017		284,956		(44,614)		(54,074)		186,268		1,536,003		1,722,271

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

Charter Hall Group / 40

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

for the year ended 30 June 2017

for the year ended 30 June 2017
		Attributable to the owners of the Charter Hall
			Property Trust Group
		Contributed		Accumulated	Total
		equity	Reserves	profit/(losses)	equity
	Note	$'000	$'000	$'000	$'000
Balance at 1 July 2015		1,181,772	(46)	(92,980)	1,088,746
Profit for the year		-	-	197,269	197,269
Other comprehensive income		-	46	-	46
Total comprehensive income/(loss)		-	46	197,269	197,315
Transactions with equity holders in their capacity as equity
holders:
Contributions of equity, net of issue costs	19(b)	23,525	-	-	23,525
Buyback and issuance of securities for exercised performance		(3,951)	-	-	(3,951)
rights
Distributionprovided for orpaid	7	-	-	(110,548)	(110,548)
		19,574	-	(110,548)	(90,974)
Balance at 30 June 2016		1,201,346	-	(6,259)	1,195,087
Balance at 1 July 2016		1,201,346	-	(6,259)	1,195,087
Profit for the year		-	-	217,951	217,951
Other comprehensive income		-	(450)	-	(450)
Total comprehensive income		-	(450)	217,951	217,501
Transactions with equity holders in their capacity as equity
holders:
Contributions of equity, net of issue costs	19(b)	257,991	-	-	257,991
Buyback and issuance of securities for exercised performance		(2,484)	-	-	(2,484)
rights
Distributionprovided for orpaid	7	-	-	(132,092)	(132,092)
		255,507	-	(132,092)	123,415
Balance at 30 June 2017		1,456,853	(450)	79,600	1,536,003

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

Charter Hall Group / 41

Consolidated cash flow statements

for the year ended 30 June 2017

Consolidated cash flow statements for the year ended 30 June 2017
		Charter Hall Group		Charter Hall Property
				Trust Group
		2017	2016	2017	2016
	Note	$'000	$'000	$'000	$'000
Cash flows from operating activities
Receipts from customers (inclusive of GST)		217,845	174,609	10,679	19,778
Payments to suppliers and employees (inclusive of GST)		(138,957)	(116,320)	(2,384)	(3,141)
Interest received		2,222	2,609	267	237
Interest paid		(1,279)	(1,121)	(1,181)	(976)
Distributions and dividends from investments		76,483	70,549	72,518	63,028
Net cash inflow from operating activities	23	156,314	130,326	79,899	78,926
Cash flows from investing activities
Payments for property, plant and equipment, net of lease		(4,599)	(4,917)	-	-
incentive received
Proceeds on disposal of investment property		67,238	15,874	-	-
Payments for investment properties		(40,537)	-	(40,537)	-
Payment for acquisition of subsidiary, net of cash acquired		(25,233)	-	-	-
Investments in associates and joint ventures		(383,950)	(160,988)	(379,846)	(160,238)
Proceeds on disposal and return of capital from		119,940	102,674	123,634	102,696
investments in associates and joint ventures
Loans to associates, joint ventures and related parties		(11,699)	(11,730)	(407,595)	(215,625)
Repayments of loans to associates, joint ventures and related		21,234	9,145	494,555	284,595
parties
Net cash(outflow)/inflow from investing activities		(257,606)	(49,942)	(209,789)	11,428
Cash flows from financing activities
Proceeds from issues/(buy back) of stapled securities		281,238	16,996	255,507	19,574
Proceeds from borrowings		88,800	-	88,800	-
Repayment of borrowings		(124,125)	-	(88,800)	-
Distributions paid to stapled securityholders		(115,561)	(103,644)	(115,561)	(103,644)
Net cash inflow/(outflow) from financing activities		130,352	(86,648)	139,946	(84,070)
Net increase/(decrease) in cash and cash equivalents		29,060	(6,264)	10,056	6,284
Cash and cash equivalents at the beginning of the year		145,358	151,593	43,321	37,037
Effects of exchange rate changes on cash and cash equivalents		-	29	-	-
Cash and cash equivalents at the end of theyear	9	174,418	145,358	53,377	43,321

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

Charter Hall Group / 42

Notes to the consolidated financial statements

for the year ended 30 June 2017

1 Summary of significant accounting policies

The significant policies which have been adopted in the preparation of these consolidated financial statements for the year ended 30 June 2017 are set out below. These policies have been consistently applied to the years presented, unless otherwise stated.

(a) Basis of preparation

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

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

As permitted by ASIC Corporations (Stapled Group Reports) Instrument 2015/838, this financial report is a combined financial report that presents the consolidated financial statements and accompanying notes of both the Charter Hall Group and the Charter Hall Property Trust Group.

The financial report of the Charter Hall Group comprises CHL and its controlled entities, including Charter Hall Funds Management Limited (Responsible Entity) as responsible entity for CHPT and CHPT and its controlled entities. The results and equity, not directly owned by CHL, of CHPT have been treated and disclosed as a non-controlling interest. Whilst the results and equity of CHPT are disclosed as a non-controlling interest, the stapled securityholders of CHL are the same as the stapled securityholders of CHPT. The financial report of the Charter Hall Property Trust Group comprises the Trust and its controlled entities.

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

On 6 June 2005, CHL acquired Charter Hall Holdings Pty Ltd (CHH). Under the terms of AASB 3 Business Combinations , CHH was deemed to be the accounting acquirer in this business combination. This transaction 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.

Group references in accounting policies

The accounting policies in Note 1 apply to both the Group and Charter Hall Property Trust Group unless otherwise stated in the relevant policy.

Compliance with IFRS

The consolidated financial statements of the Group also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

Historical cost convention

The consolidated financial statements have been prepared on a historical cost basis, except for the following:

• investments in associates at fair value through profit or loss – measured at fair value;

• investments in financial assets held at fair value - measured at fair value.

New and amended standards adopted

No new accounting standards or amendments have come into effect for the year ended 30 June 2017 that affect the Group’s operations or reporting requirements.

• (b) Principles of consolidation

(i) Controlled entities

The consolidated financial statements of the Charter Hall Group and the Charter Hall Property Trust Group incorporate the assets and liabilities of all controlled entities as at 30 June 2017 and their results for the year then ended.

Charter Hall Group / 43

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

1 Summary of significant accounting policies (continued)

(b) Principles of consolidation (continued)

The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Controlled entities are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.

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

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

(ii) Investments in associates Associates are entities over which the Group has significant influence but not control or joint control. Investments in associates are accounted for in the consolidated balance sheet at either fair value through profit or loss (CHPT only) or by using the equity method (CHPT and CHL). On initial recognition, the Group elects to account for investments in associates at either fair value through profit or loss or using the equity method based on assessment of the expected strategy for the investment.

Under the equity accounted method, the Group’s share of the associates’ post acquisition net profit after income tax expense is recognised in the consolidated statement of comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. Distributions and dividends received from associates are recognised in the consolidated financial report as a reduction of the carrying amount of the investment.

Investments in associates at fair value through profit or loss are initially recognised at fair value and transaction costs are expensed in the consolidated statement of comprehensive income.

(iii) Joint arrangements Under AASB 11 Joint Arrangements, investments in joint arrangements are classified as either joint operations or joint ventures. The classification depends on the contractual rights and obligations of each investor, rather than the legal structure of the joint arrangement.

Joint operations

The Group recognises its direct right to the assets, liabilities, revenues and expenses of joint operations and its share of any jointly held or incurred assets, liabilities, revenues and expenses. These have been incorporated in the consolidated financial statements under the appropriate headings.

Joint ventures

Interests in joint ventures are accounted for using the equity method, with investments initially recognised at cost and adjusted thereafter to recognise the Group’s share of post-acquisition profits or losses of the investee in profit or loss, and the Group’s share of movements in other comprehensive income of the investee in other comprehensive income. Dividends received or receivable from joint ventures are recognised as a reduction in the carrying amount of the investment.

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

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

(iv) Changes in ownership interests

When the Group ceases to equity account for an investment because of a loss of joint control or significant influence, any retained interest in the entity is remeasured to its fair value with the change in carrying amount recognised in profit or loss. This fair value becomes the initial carrying amount for the purposes of subsequently accounting for the retained interest as a joint venture entity or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss. The Group treats transactions with non-controlling interests that do not result in a loss of control as transactions with equity owners of the Group.

Charter Hall Group / 44

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

1 Summary of significant accounting policies (continued)

(b) Principles of consolidation (continued)

If the ownership interest in a joint venture entity or an associate is reduced but joint control or significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income is reclassified to profit or loss where appropriate.

(c) Segment reporting

Segment information is reported in a manner that is consistent with internal reporting provided to the chief operating decision maker. The chief operating decision maker is responsible for allocating resources and assessing performance of the operating segments.

(d) Foreign currency translation

(i) Functional and presentation currencies

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The consolidated financial statements are presented in Australian dollars, which is CHL’s and CHPT’s functional and presentation currency.

(ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the consolidated statement of comprehensive income, except when they are deferred in equity as qualifying cash flow hedges and qualifying net investment hedges or are attributable to part of the net investment in a foreign operation.

Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss.

(iii) Foreign operations

The results and financial position of foreign operations that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

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

• income and expenses for each income statement and consolidated statement of comprehensive income are translated at average exchange rates; and

• all resulting exchange differences are recognised in other comprehensive income.

(iv) Foreign currency translation

On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and of borrowings and other financial instruments designated as hedges of such investments, are recognised in other comprehensive income. On disposal of interests in foreign controlled entities, the cumulative foreign exchange gains/losses relating to these investments are transferred to the consolidated statement of comprehensive income in accordance with the requirements of AASB 121 The Effect of Changes in Foreign Exchange Rates .

(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) Management fees and expense recoveries

Management fees and expense recoveries are brought to account on an accruals basis when the services have been performed and, if not received at the reporting date, are reflected in the consolidated balance sheet as a receivable.

Where management fees are derived in respect of an acquisition or disposal of property, the fees are recognised where services have been performed and the fee can be reliably estimated.

(ii) Performance and transaction fees

Performance fees are only recognised when the services have been performed and the amount can be reliably measured and it is probable the performance fee criteria will be met. Transaction fees are recognised when the services have been performed and the fee can be reliably estimated. Detailed calculations are completed and the risks associated with the fee are assessed when deciding when it is appropriate to recognise revenue. Further information is provided in the critical accounting estimates and judgements in Note 2.

Charter Hall Group / 45

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

1 Summary of significant accounting policies (continued)

(e) Revenue recognition (continued)

(iii) 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 flows discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loans is recognised using the original effective interest rate.

(iv) Distributions

Distributions are recognised as revenue when the right to receive payment is established.

(v) Other investment-related revenue Other investment-related revenue represents amounts received in relation to investment commitments and rebates relating to investments and is recognised where the right to receive payment is established.

(f) Business combinations

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

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

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

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

(g) Income tax

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

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

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

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.

Charter Hall Group / 46

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

1 Summary of significant accounting policies (continued)

(g) Income tax (continued)

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

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

(h) Impairment of assets

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

An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal and value-in-use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash generating units). Non-financial assets that suffered impairment in prior years are reviewed for possible reversal of the impairment at each reporting date.

(i) Cash and cash equivalents

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

(j) Trade and other receivables

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

Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off in the year in which they are identified. A provision for doubtful debts is raised where there is objective evidence that the Group will not collect all amounts due. The amount of the provision is the difference between the carrying amount and estimated future cash flows. Cash flows relating to current receivables are not discounted.

(k) Other financial assets

Classification

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

(i) Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset held for trading is classified in this category if acquired principally for the purpose of selling in the short term. Derivatives are classified as held for trading unless they are designated as hedges. Assets in this category are classified as current assets if they are expected to be settled within 12 months; otherwise they are classified as non-current.

(ii) Loans and receivables

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

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

(iv) Available for sale financial assets

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

Charter Hall Group / 47

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

1 Summary of significant accounting policies (continued)

(k) Investments and other financial assets (continued)

Recognition and derecognition

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

Subsequent measurement

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

The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models making maximum use of market inputs and relying as little as possible on entity specific inputs. Further details on how the fair value of financial instruments is determined are disclosed in Note 1(w) and Note 25.

Impairment

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

(l) Plant and equipment

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

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

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

	Furniture, fittings and equipment	3	to	10 years
	Fixtures	5	to	10 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 consolidated statement of comprehensive income.

(m) Investment properties

Investment properties comprise investment interests in land and buildings (including integral plant and equipment) held for the purpose of producing rental income, including properties that are under construction for future use as investment properties.

Charter Hall Group / 48

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

1 Summary of significant accounting policies (continued)

(m) Investment properties (continued)

Initially, investment properties are measured at cost including transaction costs. Subsequent to initial recognition, the investment properties are stated at fair value. Fair value of investment property is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The best evidence of fair value is given by current prices in an active market for similar property in the same location and condition. Gains and losses arising from changes in the fair values of investment properties are included in the consolidated statement of comprehensive income in the year in which they arise.

At each balance date, the fair values of the investment properties are assessed by the Responsible Entity with reference to independent valuation reports or through appropriate valuation techniques adopted by the Responsible Entity. Specific circumstances of the owner are not taken into account. Further information relating to valuation techniques can be found in Note 25(c).

Where the Group disposes of a property at fair value in an arm’s length transaction, the carrying value immediately prior to the sale is adjusted to the transaction price, and the adjustment is recorded in the consolidated statement of comprehensive income within net fair value gain/(loss) on investment property.

The carrying amount of investment properties recorded in the consolidated balance sheet takes into consideration components relating to lease incentives, leasing costs and assets relating to fixed increases in operating lease rentals in future years.

(n) Intangibles

(i) Intangibles – indefinite life assets

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

(ii) Management Rights – finite life assets

Management rights with a fixed life are amortised using the straight line method over their useful life. Management rights of Charter Hall Office Trust (CHOT) are amortised over nine years.

(o) Trade and other payables

Liabilities are recognised for amounts to be paid in the future for goods and services received, whether or not billed to the Group. The amounts are unsecured and are usually paid within 30 days of recognition. Trade and other payables are presented as current liabilities unless payment is not due within 12 months after the reporting period. They are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method.

(p) Borrowings

Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the consolidated statement of comprehensive income over the period of the borrowing using the effective interest rate method. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. If the facility has not been drawn down the fee is capitalised as a prepayment and amortised over the period of the facility to which it relates.

Borrowings are removed from the consolidated balance sheet when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss as other income or finance costs.

Where the terms of a financial liability are renegotiated and the entity issues equity instruments to a creditor to extinguish all or part of the liability (debt for equity swap), a gain or loss is recognised in profit or loss, which is measured as the difference between the carrying amount of the financial liability and the fair value of the equity instruments issued.

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

(q) Borrowing costs

Borrowing costs associated with the acquisition or construction of a qualifying asset, including interest expense, are capitalised as part of the cost of that asset during the period that is required to complete and prepare the asset for its intended use. Borrowing costs not associated with qualifying assets are expensed.

Charter Hall Group / 49

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

1 Summary of significant accounting policies (continued)

(r) Provisions

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

(s) Goods and Services Tax (GST)

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

Receivables and payables are inclusive of GST. The net amount of GST recoverable from or payable to the tax authority is included in receivables or payables in the consolidated balance sheet.

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

(t) Employee benefits

(i) Wages and salaries and annual leave

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

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

(iii) Retirement benefit obligations

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

(iv) Security-based benefits Security-based compensation benefits are provided to employees via the Charter Hall Performance Rights and Options Plan (PROP) and the General Employee Security Plan (GESP). Information relating to these schemes is set out in Note 33. For PROP, the fair value at grant date is independently valued using a Monte Carlo simulation pricing model that takes into account the exercise price, the term of the option, impact of dilution, stapled security price at grant date, expected price volatility of the underlying stapled security, expected dividend yield and the risk-free interest rate for the term of the option and market vesting conditions but excludes the impact of any non-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of stapled securities that are expected to vest. At each reporting date, the entity revises its estimate of the number of stapled securities that are expected to vest. The employee benefits expense recognised each year takes into account the most recent estimate.

Upon the vesting of stapled securities, the balance of the stapled security-based benefits reserve relating to those stapled securities is transferred to equity, net of any directly attributable transaction costs.

For GESP, eligible employees are entitled to receive up to $1,000 in stapled securities based on the stapled security price on the grant date. The cost of the stapled securities bought on market to settle the award liability is included in employee benefits expense. The stapled securities are held in trust on behalf of eligible employees until the earlier of the completion of three years’ service or termination.

(v) Bonus plans

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

(vi) Termination benefits Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or when an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits at the earlier of the following dates:

Charter Hall Group / 50

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

1 Summary of significant accounting policies (continued)

(t) Employee benefits (continued)

(a) when the Group can no longer withdraw the offer of those benefits; and

(b) when the entity recognises costs for a restructuring that is within the scope of AASB 137 and involves the payment of termination benefits. In the case of an offer made to encourage voluntary redundancy, the termination benefits are measured based on the number of employees expected to accept the offer. Benefits falling due more than 12 months after the end of the reporting period are discounted to present value.

(u) Contributed equity

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

(v) Distributions paid and payable

A liability is recognised for the amount of any distribution declared by the Group on or before the end of the reporting period but not distributed at balance date.

(w) Fair value estimation

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

A fair value measurement of a non-financial asset takes into account the Group’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

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

The fair value of financial instruments that are not traded in an active market is determined using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance date. Other techniques, such as estimated discounted cash flows, are used to determine fair value for the remaining financial instruments.

Certain unlisted property securities have been designated on initial recognition to be treated at fair value through profit or loss. Movements in fair value during the period have been recognised in the consolidated statement of comprehensive income. These assets have been acquired with the intention of being long-term investments. Where the assets in this category are expected to be sold within 12 months, they are classified as current assets; otherwise they are classified as non-current.

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

(x) Earnings per stapled security

Basic earnings per stapled security from continuing operations is determined by dividing profit from continuing operations attributable to the stapled securityholders by the weighted average number of ordinary stapled securities on issue during the year.

Basic earnings per stapled security is determined by dividing the profit by the weighted average number of ordinary stapled securities on issue during the year.

Diluted earnings per stapled security from continuing operations is determined by dividing profit from continuing operations attributable to the stapled securityholders by the weighted average number of ordinary stapled securities and dilutive potential ordinary stapled securities on issue during the year.

Diluted earnings per stapled security is determined by dividing the profit by the weighted average number of ordinary stapled securities and dilutive potential ordinary stapled securities on issue during the year.

(y) Parent entity financial information

The financial information for the parent entity of the Charter Hall Group, Charter Hall Limited, and for the parent entity of the Charter Hall Property Trust Group, Charter Hall Property Trust, disclosed in Note 34, has been prepared on the same basis as the Group’s financial statements except as set out below:

Charter Hall Group / 51

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

1 Summary of significant accounting policies (continued)

(y) Parent entity financial information (continued)

(i) Investments in controlled entities

Investments in controlled entities, associates and joint ventures are accounted for at cost or fair value through profit or loss in the financial statements of the parent entity. Such investments include both investments in equity securities issued by the controlled entity and other parent entity interests that in substance form part of the parent entity’s investment in the controlled entity. These include investments in the form of interest-free loans which have no fixed contractual term and which have been provided to the controlled entity as an additional source of long-term capital.

Dividends and distributions received from controlled entities, associates and joint ventures are recognised in the parent entity’s statement of comprehensive income, rather than deducted from the carrying amount of these investments.

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

(iii) Recoverable amount of assets The carrying amounts of investments in controlled entities, associates and joint ventures valued on the cost basis are reviewed to determine whether they are in excess of their recoverable amount at balance date. If the carrying value exceeds their recoverable amount, the assets are written down to the lower value. The write-down is expensed in the year in which it occurs.

(iv) Tax consolidation legislation

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

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

Assets or liabilities arising under a tax funding agreement with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the Group. Details about the tax funding agreement are disclosed in Note 6.

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

(z) Impact of new standards and interpretations issued but not yet adopted by the Group

Certain new accounting standards and interpretations have been published that are not mandatory for the year ended 30 June 2017 but are available for early adoption. The impact of these new standards and interpretations (to the extent relevant to the Group) is set out below:

(i) AASB 9 Financial Instruments (applicable 1 January 2018) AASB 9 Financial Instruments addresses the classification, measurement and derecognition of financial assets and liabilities and sets out new rules for hedge accounting. Management has completed a preliminary assessment and does not expect any changes to the above. 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, would therefore have to be recognised directly in the statement of comprehensive income. The Group has not yet decided when to adopt AASB 9 and management is currently assessing the impact of the new standard.

(ii) AASB 15 Revenue from Contracts with Customers (applicable 1 January 2018) The standard is based on the principle that revenue is recognised when control of a good or service is transferred to a customer, so the notion of control replaces the notion of risks and rewards. It applies to all contracts with customers, excluding leases, financial instruments and insurance contracts. The basis of the new standard is a new five step model that involves identifying the contract with the customer, identifying performance obligations under the contract, determining the transaction price in exchange for satisfying those performance obligations and recognising revenue as or when each performance obligation is satisfied. Variable consideration should be estimated and included in the transaction price to the extent it is highly probable that the cumulative amount of revenue recognised will not be significantly reversed.

AASB 15 requires reporting entities to provide users of financial statements with more informative, relevant disclosures. The Group has completed a preliminary assessment of the implications of the new standard to its operational and financial results.

The Group will adopt the standard in the financial year beginning 1 July 2018, applying the standard retrospectively, which may involve an adjustment to opening retained earnings to recognise the cumulative effect of applying the standard.

Charter Hall Group / 52

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

1 Summary of significant accounting policies (continued)

(z) Impact of new standards and interpretations issued but not yet adopted by the Group (continued)

(iii) AASB 16 Leases (applicable 1 January 2019 - early adoption allowed if AASB 15 is adopted at the same time) The standard will affect primarily the accounting by lessees and will result in the recognition of almost all leases on balance sheet. The standard removes the current distinction between operating and financing leases and requires recognition of an asset. The income statement will also be affected because the total expense is typically higher in the earlier years of a lease and lower in later years. Additionally, operating expense will be replaced with interest and depreciation, so key metrics such as Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) will change. The accounting by lessors will not significantly change. Management has completed a preliminary assessment that the operating lease commitments, as disclosed in Note 31, will result in the recognition of a right-of-use asset and a corresponding lease liability and how this will affect the Group’s results. The standard will primarily impact the Group’s office leases as lessee.

(aa) Comparative information

Where necessary, comparative information has been adjusted to conform with changes in presentation in the current year.

(ab) Rounding of amounts

Under the option provided by ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 issued by the Australian Securities and Investments Commission relating to the ‘rounding off’ of amounts in the financial statements, amounts in the Company and the Trust’s consolidated financial statements have been rounded to the nearest thousand dollars in accordance with that ASIC Corporations Instrument, unless otherwise indicated.

2 Critical accounting estimates and judgements

The Charter Hall Group and Charter Hall Property Trust Group make estimates and assumptions concerning the future. Estimates and judgements are continually evaluated and are based on experience and other factors, including expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates or assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below:

(a) Classification and carrying value of investments

The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Critical judgements are made in assessing whether an investee entity is controlled or subject to significant influence or joint control. These judgements include an assessment of the nature, extent and financial effects of the Group’s interest in investee entities, including the nature and effects of its contractual relationship with the entity or with other investors.

Investments in associates are accounted for at either fair value through profit or loss (CHPT only) or by using the equity method (CHPT and CHL). CHPT designates investments in associates as fair value through profit or loss or equity accounted on a case by case basis taking the investment strategy into consideration.

Management regularly reviews equity accounted investments for impairment and remeasures investments carried at fair value through profit or loss by reference to changes in circumstances or contractual arrangements, external independent property valuations and market conditions, using generally accepted market practices. When a recoverable amount is estimated through a value in use calculation, critical judgements and estimates are made regarding future cash flows and an appropriate discount rate. When a fair value is estimated through an earnings valuation, critical judgements and estimates are made in relation to the earnings measure and appropriate multiple.

Critical judgement is made in assessing the manner in which the cost of indefinite life intangible assets is expected to be recovered and corresponding deferred tax liability. Critical judgements and accounting estimates are made in assessing the extent to which the utilisation of tax losses carried forward is considered probable and the corresponding deferred tax asset recognised.

(b) Performance fee recognition

Critical judgements and estimates 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 they can be reliably estimated and are probable. Detailed calculations are completed and the risks associated with the fee are assessed when deciding when it is appropriate to recognise revenue.

Charter Hall Group / 53

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

2 Critical accounting estimates and judgements (continued)

(c) Valuation of intangibles

Critical judgements and estimates are made by the Charter Hall Group in assessing the recoverable amount of intangibles acquired, where the funds to which those intangibles relate have an indefinite life. Intangibles are considered to have an indefinite useful life if there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the entity. Refer to Note 13 for further details.

3 Segment information

(a) Description of segments

Charter Hall Property Trust Group

The Board allocates resources and assesses the performance of operating segments for the entire Charter Hall Group. Results are not separately identified and reported according to the legal structure of the Charter Hall Group and therefore segment information for CHPT is not prepared and provided to the chief operating decision maker.

Charter Hall Group

Management has determined the operating segments based on the reports reviewed by the Board that are used to make strategic decisions. The Board is responsible for allocating resources and assessing performance of the operating segments.

Operating earnings is a financial measure which represents statutory profit after tax adjusted for proportionally consolidated fair value adjustments, gains or losses on sale of investments, amortisation and/or impairment of intangible assets, deferred tax expense and other unrealised or one-off items. Operating earnings is the primary measure of the Group’s underlying and recurring earnings from its operations. Operating earnings is used by the Board to make strategic decisions and as a guide to assessing an appropriate distribution to declare.

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

Property Investments

This segment comprises investments in property funds.

Property Funds Management

This segment comprises funds management services, property management services and other property services.

Charter Hall Group

Corporate costs which were previously unallocated in the June 2016 financial report are now included in the property funds management segment. The impact of this reclassification is a decrease of property funds management operating earnings from $71,380,000 to $46,234,000 in June 2016. The reallocation has a $nil net effect on the total operating earnings.

Charter Hall Group / 54

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

3 Segment information (continued)

(b) Proportionally consolidated operating segments

The operating segments provided to the Board for the reportable segments for the year ended 30 June 2017 are as follows:

		Property
	Property	Funds
	Investments	Management	Total
30 June 2017	$'000	$'000	$'000
Property rental income1	157,447	-	157,447
Property expenses1	(31,441)	-	(31,441)
Management fee revenue	-	158,719	158,719
Net property development EBITDA2	3,568	-	3,568
Net operating expenses	(1,039)	(68,348)	(69,387)
Corporate expenses3	-	(24,178)	(24,178)
EBITDA	128,535	66,193	194,728
EBITDA as a % of total EBITDA	66.0%	34.0%
Inter-segment fees and expenses4	(14,072)	22,980	8,908
Depreciation and amortisation expense	(195)	(3,475)	(3,670)
Net interest expense	(28,647)	-	(28,647)
Income tax expense 5	(666)	(19,480)	(20,146)
**Operating earnings **	84,955	66,218	151,173
Basic weighted average number of stapled securities ('000)			420,838
Operating earnings per stapled security (cents)			35.9 cps
Other segment items
Realised gains/(losses) on disposal of investments6	32,570
EBITDA as a % of total EBITDA, including realised
gains/(losses) 7	70.9%	29.1%

• 1 Property rental income and property expenses are calculated on a proportionate equity accounted look-through basis.

• 2 Net property development EBITDA is the Group's share of EBITDA from its investment in CIP, an industrial development business.

• 3 Corporate expenses includes the costs to manage the listed stapled entity of CHC and non-sector costs of managing

the group wide platform including the Board, CEO, CFO, heads of group wide functions (People and IT), group finance, CHC investor relations, group marketing, corporate share of security-based benefits expense and restructuring costs.

• 4 Inter-segment fees and expenses are made up of fees and expenses paid by the funds to the Group whether treated as expenses or capitalised by the fund.

• 5 Current income tax expense in Property investments represents the Group's share of Commercial and Industrial Property Pty Ltd's income tax expense.

• 6 Realised gains/(losses) are calculated on property disposals based on sales price less historical acquisition costs plus capital expenditure on a look-through basis, excluding fair value movements.

• 7 This proportionate equity accounted ratio is calculated by dividing the Property investment EBITDA plus the realised gains/(losses) on disposal of investments by the total EBITDA plus realised gains/(losses) on disposal of investments.

Charter Hall Group / 55

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

3 Segment information (continued)

		Property
	Property	Funds
	Investments	Management	Total
30 June 2016	$'000	$'000	$'000
Property rental income1	146,743	-	146,743
Property expenses1	(28,846)	-	(28,846)
Management fee revenue	-	119,546	119,546
Net property development EBITDA2	6,229	-	6,229
Net operating expenses	(1,134)	(61,854)	(62,988)
Corporate expenses3	-	(24,495)	(24,495)
EBITDA	122,992	33,197	156,189
EBITDA as a % of total EBITDA	78.7%	21.3%
Inter-segment fees and expenses4	(11,352)	15,641	4,289
Depreciation and amortisation expense	(585)	(2,604)	(3,189)
Net interest expense	(31,180)	-	(31,180)
Income tax expense	(1,374)	-	(1,374)
**Operating earnings **	78,501	46,234	124,735
Basic weighted average number of stapled securities ('000)			409,980
Operating earnings per stapled security (cents)			30.4 cps
Other segment items
Realised gains/(losses) on disposal of investments5	22,356
EBITDA as a % of total EBITDA, including realised
gains/(losses) 6	81.4%	18.6%

1 Property rental income and property expenses are calculated on a look-through basis.

• 2 Net property development EBITDA is the Group's share of EBITDA from its investment in CIP, an industrial development business. 3 Corporate expenses includes the costs to manage the listed stapled entity of CHC and non-sector costs of managing the group wide platform including the Board, CEO, CFO, heads of group wide functions (People and IT), group finance, CHC investor relations, group marketing, corporate share of security-based benefits expense and restructuring costs.

• 4 Inter-segment fees and expenses are made up of fees and expenses paid by the funds to the Group whether treated as expenses or capitalised by the fund.

• 5 Realised gains/(losses) are calculated on property disposals based on sales price less historical acquisition costs plus capital expenditure on a look-through basis, excluding fair value movements.

• 6 This proportionate equity accounted ratio is calculated by dividing the Property investment EBITDA plus the realised gains/(losses) on disposal of investments by the total EBITDA plus realised gains/(losses) on disposal of investments.

Refer to Note 8 for statutory earnings per stapled security figures.

(c) The reconciliation of operating earnings to statutory profit after tax attributable to stapled securityholders is shown below:

(c) The reconciliation of operating earnings to statutory profit after tax attribut is shown below:	able to stapled securityhold	ers
	2017	2016
	$'000	$'000
Operating earnings attributable to stapled securityholders	151,173	124,735
Realised and unrealised gains/(losses) on derivatives1	8,166	(10,339)
Net fair value movements on investments and property1	118,314	107,757
Amortisation and impairment of intangibles	(4,342)	(8,517)
Impairment of investment in joint venture	(10,494)	-
Non-operating deferred income tax expense	(4,118)	(1,714)
Gain on disposal of property investments and inventory1	3,890	6,114
Other1	(5,028)	(2,796)
Statutory profit after tax attributable to stapled securityholders	257,561	215,240

1 Includes the Group's proportionate share of non-operating items of equity accounted investments on a look-through basis.

Charter Hall Group / 56

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

3 Segment information (continued)

(d) Reconciliation of operating earnings from the property investments segment to the share of net profit of investments accounted for using the equity method and the net gain on investment in associates at fair value in the statement of comprehensive income

investments accounted for using the equity method and the net gain on in the statement of comprehensive income	vestment in associates at fair	value in
	2017	2016
	$'000	$'000
Operating earnings - investments	84,955	78,501
Add: non-operating equity accounted profit	122,830	93,378
Less: fair value distributions in operating income	(377)	(3,610)
Add: net gain/(loss) on investment in associates at fair value	(17)	4,016
Add: other operating expenses	1,038	1,133
Less: net operating interest income	(1,192)	(1,118)
Less: rental income	(62)	-
	207,175	172,300
Share of net profit of investments accounted for using the
equity method	207,192	168,284
Net gain/(loss) on investment in associates at fair value	(17)	4,016
	207,175	172,300

(e) Reconciliation of property funds management income stated above to revenue per the statement of comprehensive income

	2017	2016
	$'000	$'000
Management revenue	158,719	119,546
Inter-segment revenue	22,980	15,641
Less: recoveries eliminated against expenses	(3,189)	(2,171)
Property funds management revenue	178,510	133,016
Add: recovery of property and fund-related expenses	31,729	26,052
Add: interest income	2,715	2,609
Add: distributions received for investments accounted for at fair value	377	3,610
Add: rental income	62	-
Revenueper statement of comprehensive income	213,393	165,287

Geographical segments are immaterial as the vast majority of the Group’s income is from Australian sources. Assets and liabilities have not been reported on a segmented basis as the Board is focused on the consolidated balance sheet.

4 Revenue

	Charter Hall Group	Charter Hall Group	Charter Hall Property	Charter Hall Property
			Trust Group
	2017	2016	2017	2016
	$'000	$'000	$'000	$'000
Sales revenue
Gross rental income	62	-	62	-
Management fees and expense recoveries	156,492	130,751	-	-
Transaction andperformance fees	53,747	28,317	-	-
	210,301	159,068	62	-
Other revenue
Interest	2,742	2,609	9,005	13,291
Distributions/dividends1	350	3,610	350	3,610
Other investment-related revenue	-	-	10,300	20,311
Total other revenue	3,092	6,219	19,655	37,212
Total revenue	213,393	165,287	19,717	37,212

1 Represents the distribution of income from investments in associates accounted for at fair value by the Group and Charter Hall Property Trust Group.

Revenue excludes share of net profits of equity accounted associates and joint ventures. Refer to Notes 28 and 29 for further details.

Charter Hall Group / 57

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

5 Expenses

for the year ended 30 June 2017 5 Expenses
	Charter Hall Group		Charter Hall Property
			Trust Group
	2017	2016	2017	2016
	$'000	$'000	$'000	$'000
Profit before income tax includes the following specific
expenses:
Depreciation
Plant and equipment	3,475	2,604	-	-
Impairment of joint ventures
Impairment of investments injoint ventures	10,494	-	-	-
Amortisation and impairment of intangibles
Intangibles - amortisation	5,143	8,517	-	-
Intangibles-reversal of impairment	(800)	-	-	-
Total amortisation and impairment	4,343	8,517	-	-
Finance costs
Interest and finance chargespaid/payable	1,522	1,742	1,295	1,562
Employee costs
Employee benefit expenses	94,528	83,878	-	-
Restructuring costs	243	5,057	-	-
Security-based benefits expense	1,414	2,081	-	-
Payrolltax	4,736	4,496	-	-
Total employee costs	100,921	95,512	-	-
Administration and other expenses
Legal and consulting costs	5,008	3,673	-	-
Rent expense and occupancy costs	3,267	2,848	-	-
Communication and IT expenses	5,534	4,914	30	-
Other expenses	7,377	6,834	84	87
Total administration and other expenses	21,186	18,269	114	87

Charter Hall Group / 58

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

6 Income tax expense

for the year ended 30 June 2017 6 Income tax expense
		Charter Hall Group		Charter Hall Property
				Trust Group
		2017	2016	2017	2016
	Note	$'000	$'000	$'000	$'000
(a) Income tax expense
Current tax expense/(benefit)		19,544	(73)	-	-
Deferredincome taxexpense		4,054	1,787	-	-
		23,598	1,714	-	-
Deferred income tax expense
Decrease/(increase) in deferred tax assets for the tax
consolidated group	15	768	(135)	-	-
Increase in deferred tax liabilities for the tax consolidated
group	15	4,868	1,922	-	-
Increase in deferred tax assets for entities outside the tax
consolidated group	15	(1,582)	-	-	-
		4,054	1,787	-	-
(b) Reconciliation of income tax expense/(benefit)
to prima facie tax payable
Profit before income tax expense		281,159	216,954	217,951	197,269
Prima facie tax expense at the Australian tax rate of 30%		84,348	65,086	65,385	59,181
Tax effect of amounts which are not deductible/(taxable)
in calculating taxable income:
Charter Hall Property Trust income		(65,385)	(59,181)	(65,385)	(59,181)
Non-allowable expenses		80	2,541	-	-
Other allowable deductions		(135)	(38)	-	-
Share-based payments expense		-	(3,857)	-	-
Sundry items		(9)	155	-	-
Net tax refund on foreign subsidiaries		-	(73)	-	-
Capital gain sheltered by unrecognised capital losses		-	(1,718)	-	-
Non-taxable dividends, net of equity accounted profit		(1,245)	(1,117)	-	-
Impairment of equity accounted investment		3,148	-	-	-
Recognition of deferred tax asset on previously		(1,582)	-	-	-
unrecognised income tax losses
Income sheltered by losses in subsidiary outside of the		(307)	-	-	-
tax consolidated group
Amounts under/(over) provided in respect of prior years		4,685	(84)	-	-
Income tax expense		23,598	1,714	-	-
(c) Amounts recognised directly in equity
Aggregate current and deferred tax arising in the
reporting period and not recognised in net profit or loss
or other comprehensive income but directly debited or
credited to equity:
Current tax: Deduction for rights vesting in excess of the
cumulative expense for the share-based payments		(833)	-	-	-
Deferred tax: Estimated future deduction for rights
vesting, in excess of the cumulative expense for the
rights		(1,710)	-	-	-
Deferred tax: Unwind of deferred tax assets on rights
which failed to meet vesting conditions		358	-	-	-
		(2,185)	-	-	-

Charter Hall Group / 59

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

6 Income tax expense (continued)

(d) Tax consolidation legislation

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

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

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

(e) Charter Hall Property Trust

Under current Australian income tax legislation, the Trust is not liable for income tax on its taxable income (including any assessable component of capital gains) provided that the unitholders are presently entitled to the income of the Trust.

(f) Capital tax losses - Charter Hall Group

At 30 June 2017, the Group has approximately $12.8 million (2016: $11.2 million) of tax effected unrecognised capital tax losses.

7 Distributions paid and payable

7 Distributions paid and payable
	Charter Hall Group		Charter Hall Property
			Trust Group
	2017	2016	2017	2016
	$'000	$'000	$'000	$'000
Ordinary stapled securities
Final ordinary distribution for the six months ended 30 June 2017	72,661	-	72,661	-
of 15.6 cents per stapled security payable on 31 August 2017
Interim ordinary distribution for the six months ended	59,431	-	59,431	-
31 December 2016 of 14.4 cents per stapled security paid on
28 February 2017
Final ordinary distribution for the six months ended	-	56,129	-	56,129
30 June 2016 of 13.6 cents per stapled security paid on
25 August 2016
Interim ordinary distribution for the six months ended	-	54,419	-	54,419
31 December 2015 of 13.3 cents per stapled security paid on
26 February2016
Total distributionspaid andpayable	132,092	110,548	132,092	110,548

Franking credits available in the parent entity (Charter Hall Limited) for subsequent financial years based on a tax rate of 30% (2016: 30%) are $3.3 million (2016: $3.3 million).

Charter Hall Group / 60

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

8 Earnings per stapled security

8 Earnings per stapled security
	Charter Hall Group		Charter Hall Property
			Trust	Group
	2017	2016	2017	2016
	Cents	Cents	Cents	Cents
(a) Basic earnings per security attributable to:
Equity holders of Charter Hall Limited	9.4	4.4	n/a	n/a
Equity holders of Charter Hall Property Trust
(non-controlling interest)	51.8	48.1	51.8	48.1
Stapled securityholders of Charter Hall Group	61.2	52.5	n/a	n/a
(b) Diluted earnings per security attributable to:
Equity holders of Charter Hall Limited	9.3	4.3	n/a	n/a
Equity holders of Charter Hall Property Trust
(non-controlling interest)	51.4	47.7	51.4	47.7
Stapled securityholders of Charter Hall Group	60.7	52.0	n/a	n/a
	$'000	$'000	$'000	$'000
(c) Reconciliations of earnings used in calculating earnings
per stapled security
Equity holders of Charter Hall Limited	39,610	17,971	n/a	n/a
Profit attributable to the ordinary stapled securityholders of the	257,561	215,240	217,951	197,269
Group used in calculating basic and diluted earnings per stapled
security
	Number	Number	Number	Number
(d) Weighted average number of stapled securities used as
the denominator
Weighted average number of ordinary stapled securities used as	420,838,262	409,979,949	420,838,262	409,979,949
the denominator in calculatingbasic earningsper stapled security
Adjustments for calculation of diluted earnings per stapled
security:
Performance rights	2,881,070	3,324,586	2,881,070	3,324,586
Service rights	546,854	733,776	546,854	733,776
Weighted average number of ordinary stapled securities and
potential ordinary stapled securities used as the denominator in	424,266,186	414,038,311	424,266,186	414,038,311
calculating diluted earnings per stapled security

(e) Information concerning the classification of securities

Performance rights, service rights issued under the Charter Hall Performance Rights and Options Plan

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

Stapled securities issued under the General Employee Share Plan (GESP)

Stapled securities issued under the GESP are purchased on market on behalf of eligible employees but held in trust until the earlier of the completion of three years’ service or termination. No adjustment to diluted earnings per stapled security is required under the GESP.

9 Cash and cash equivalents

9 Cash and cash equivalents
	Charter Hall Group		Charter Hall Property
			Trust Group
	2017	2016	2017	2016
	$'000	$'000	$'000	$'000
Cash at bank and on hand	174,418	145,358	53,377	43,321

These amounts earn fixed and floating interest rates of between 1.6% and 2.5% (2016: 1.8% and 2.0%).

Charter Hall Group / 61

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

10 Trade and other receivables

for the year ended 30 June 2017 10 Trade and other receivables
		Charter Hall Group		Charter Hall Property
				Trust Group
		2017	2016	2017	2016
	Note	$'000	$'000	$'000	$'000
Current
Trade receivables		27,938	14,008	2,698	2,330
Loans to joint ventures	26(e)	8,500	6,500	-	-
Loans to associates	26(e)	750	2,586	750	2,586
Distributions receivable		27,432	24,379	26,344	21,768
Other receivables		854	985	144	-
Prepayments		729	229	-	-
		66,203	48,687	29,936	26,684
Non-current
Loan receivablefromCharter Hall Limited		-	-	73,175	139,860
		-	-	73,175	139,860

(a) Bad and doubtful trade receivables During the year, the Charter Hall Group and Charter Hall Property Trust Group incurred $nil expense (2016: $nil) in respect of provisioning for bad and doubtful trade receivables.

(b) Fair values

Receivables are carried at amounts that approximate their fair value.

(c) Credit risk

There is a limited concentration of credit risk as the majority of current and non-current receivables are due from related parties of Charter Hall Group and Charter Hall Property Trust Group. Refer to Note 24 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:

	Charter Hall Group	Charter Hall Group	Charter Hall Property	Charter Hall Property
			Trust Group
	2017	2016	2017	2016
	$'000	$'000	$'000	$'000
Current	27,850	13,604	2,698	2,330
1 to 3 months	20	344	-	-
3 to 6 months	30	3	-	-
More than 6 months	38	57	-	-
	27,938	14,008	2,698	2,330

As at 30 June 2017, Charter Hall Group had trade receivables of $0.1 million (2016: $0.4 million) past due but not impaired. Charter Hall Property Trust had $nil receivables past due (2016: $nil).

11 Investments accounted for using the equity method

		Charter Hall Group	Charter Hall Group	Charter Hall Property	Charter Hall Property
				Trust Group
		2017	2016	2017	2016
	Note	$'000	$'000	$'000	$'000
Investments in associates	28	1,218,160	851,371	1,147,241	784,609
Investments injoint venture entities	29	258,470	285,356	239,020	256,893
		1,476,630	1,136,727	1,386,261	1,041,502

Investments in associates represent units in listed and unlisted Charter Hall managed funds which are accounted for using the equity method. Refer to Note 28(a) for carrying value of investments in associates. Investments in joint venture entities represent joint venture interests in Australia which are accounted for using the equity method. Refer to Note 29(a) for carrying value of investments in joint venture entities.

Charter Hall Group / 62

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

12 Investment properties

During the year, the Group established a new controlled entity investment fund, Charter Hall Direct Consumer Staples Fund, to facilitate the purchase of a portfolio of investment properties.

A reconciliation of the carrying amount of investment properties at the beginning and end of the year is set out below:

	Charter Hall Group	Charter Hall Group	Charter Hall Property	Charter Hall Property
			Trust Group
	2017	2016	2017	2016
	$'000	$'000	$'000	$'000
Opening balance	-	-	-	-
Additions	108,300	-	41,062	-
Net loss from fair value adjustment	(712)	-	(712)	-
Disposals	(67,238)	-	-	-
Closing balance	40,350	-	40,350	-

Key valuation assumptions used in the determination of the investment properties’ fair value and the Group’s valuation policy are disclosed in Note 25.

Leasing arrangements

The investment properties, excluding development properties, are leased to tenants under long-term operating leases with rentals payable monthly. Minimum lease payments under non-cancellable operating leases of investment properties not recognised in the financial statements are receivable as follows:

	Charter Hall Group	Charter Hall Group	Charter Hall Property	Charter Hall Property
			Trust Group
	2017	2016	2017	2016
	$'000	$'000	$'000	$'000
Due within one year	2,350	-	2,350	-
Due between one and five years	7,292	-	7,292	-
Over fiveyears	12,679	-	12,679	-
	22,321	-	22,321	-

13 Intangible assets

In March 2010, the Charter Hall Group completed a transaction to acquire the majority of Macquarie Group’s core real estate management platform. This transaction was structured to secure the management rights (i.e. future management fee revenue) of Macquarie Office Trust (now Charter Hall Office Trust), Macquarie CountryWide Trust (now Charter Hall Retail REIT) and Macquarie Direct Property Fund (now Charter Hall Direct Office Fund). The excess of consideration paid over net tangible assets acquired represents the value of these management rights.

With the exception of management rights held over Charter Hall Office Trust (CHOT), management considers that the management rights have an indefinite life as there are no finite terms in the underlying agreements and the Charter Hall Group has no intention to cease managing these funds. On 1 May 2012, Charter Hall Office REIT (CQO) was privatised and CQO changed from a listed REIT to a wholesale unit trust (CHOT) with liquidity reviews every five years. In November 2016, CHOT’s investors agreed to extend the life of the fund by three years to 30 April 2020. The amortisation period for the CHOT management rights has also been extended prospectively by three years. The Group is amortising the associated intangible assets over a nine year period from 1 May 2012, which includes an additional year to source liquidity were the fund to be wound up as a result of a liquidity review.

On 15 August 2012, a subsidiary of the Group paid the previous manager of Charter Hall Direct PFA Trust (PFA) to facilitate the appointment of a Group subsidiary as the responsible entity of PFA. As PFA is an open ended fund with no termination date or review event contemplated in its constitution, these facilitation payments have been treated as an intangible asset which is considered to have an indefinite useful life.

Charter Hall Group / 63

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

13 Intangible assets (continued)

for the year ended 30 June 2017 13 Intangible assets (continued)
	Charter Hall Group		Charter Hall Property
			Trust Group
	2017	2016	2017	2016
	$'000	$'000	$'000	$'000
Indefinite life intangibles
Charter Hall Retail REIT
Opening and closing balance	42,288	42,288	-	-
Charter Hall Direct Office Fund
Opening and closing balance	7,423	7,423	-	-
Charter Hall Direct PFA Trust
Opening balance	4,417	4,417	-	-
Reversal of impairment	800	-	-	-
Closing balance	5,217	4,417	-	-
Total indefinite life intangibles	54,928	54,128	-	-
Finite life intangibles
Charter Hall Office Trust
Opening balance	15,615	24,132	-	-
Amortisation charge	(5,143)	(8,517)	-	-
Closingbalance	10,472	15,615	-	-
At balance date
Cost	50,283	50,283	-	-
Accumulated amortisation	(39,811)	(34,668)	-	-
Total finite life intangibles	10,472	15,615
Total intangible assets	65,400	69,743	-	-

All indefinite life intangible assets recognised on the consolidated balance sheet are subject to an annual impairment assessment. The impairment assessments support the carrying values and the methodology applied is an assessment of value in use based on discounted cash flows.

Key assumptions used for the indefinite life intangible impairment calculations are as follows:

• cash flow projections covering a three year period based on financial budgets approved by management. Cash flows beyond the three-year period are extrapolated using estimated growth rates appropriate for the business;

• pre-tax discount rate range of 14-16% (2016: 14-16%) which is in excess of the Group’s weighted average cost of capital;

• growth after three years of 2-3% (2016: 2-3%) per annum; and

• terminal value multiple of 7.0–8.0 times earnings (2016: 7.0–8.0 times).

Impairment is tested at the cash generating unit (CGU) level being each fund which generates management fee income.

14 Property, plant and equipment

14 Property, plant and equipment
	Charter Hall Group		Charter Hall Property
			Trust Group
	2017	2016	2017	2016
	$'000	$'000	$'000	$'000
Opening net book amount	14,855	11,931	-	-
Additions	7,384	6,289	-	-
Disposals	-	(761)	-	-
Depreciation charge	(3,475)	(2,604)	-	-
Closing net book amount	18,764	14,855	-	-
At balance date
Cost	29,275	21,890	-	-
Accumulated depreciation	(10,511)	(7,035)	-	-
Net book amount	18,764	14,855	-	-

Charter Hall Group / 64

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

15 Deferred tax assets and liabilities

for the year ended 30 June 2017 15 Deferred tax assets and liabilities
	Charter Hall Group		Charter Hall Property
			Trust Group
		Restated
	2017	2016	2017	2016
	$'000	$'000	$'000	$'000
Deferred tax assets comprises temporary differences
attributable to:
Tax losses carried forward1	1,582	-	-	-
Deferred tax assets comprises temporary differences
attributable to:
Tax losses carried forward	-	1,494	-	-
Employee benefits	11,886	8,968	-	-
Other	467	1,307	-	-
	12,353	11,769	-	-
Deferred tax liabilities comprises temporary differences
attributable to:
Intangible assets	(18,055)	(14,913)	-	-
Investment in associates	(6,364)	(5,387)	-	-
Other	(1,611)	(862)	-	-
	(26,030)	(21,162)	-	-
Net deferred tax liabilities	(13,677)	(9,393)	-	-

1 Tax losses carried forward in 2017 were acquired following the acquisition of Charter Hall Opportunity Fund No.5 (CHOF5) as a wholly owned entity. CHOF5 does not form part of the Charter Hall tax consolidated group and therefore is not included in the net deferred tax liability balance on the Balance Sheet.

Change in accounting policy and retrospective application

During the year, the Group changed its accounting policy in relation to the recognition of deferred income tax on its intangible assets. This change was made to reflect the view of the IFRS Interpretations Committee (IFRIC), published in November 2016, that the carrying amounts of intangible assets with indefinite useful lives may not necessarily be recovered through sale, but also through use.

Based on the IFRIC guidance, the Group has determined that it is appropriate to retrospectively change its accounting policy in relation to the assumed method of recovery of its intangible assets from recovery through sale to recovery through use. As the benefits of the intangible assets flow to the Group in the form of management fees over time, this is considered to provide reliable and more relevant information.

The impact of this change in accounting policy on the 2017 and previously reported 2016 and 2015 balance sheets is an increase of $14,913,000 of deferred tax liabilities and an increase to accumulated losses of $14,913,000. There was no impact on the statement of comprehensive income.

A reconciliation of the carrying amount of deferred tax assets for the tax consolidated group at the beginning and end of the current and previous years is set out below:

		Tax losses
		carried	Employee
		forward	benefits	Other	Total
	Note	$'000	$'000	$'000	$'000
Charter Hall Group
Balance at 1 July 2015		5,836	5,616	182	11,634
Charged/(credited) to income statement	6	(4,342)	3,352	1,125	135
Balance at 30 June 2016		1,494	8,968	1,307	11,769
Charged/(credited) to income statement	6	(1,494)	1,566	(840)	(768)
Charged/(credited) directly to equity		-	1,352	-	1,352
Balance at 30 June 2017		-	11,886	467	12,353

Charter Hall Group / 65

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

15 Deferred tax assets and liabilities (continued)

A reconciliation of the carrying amount of deferred tax liabilities for the tax consolidated group at the beginning and end of the current and previous years is set out below:

		Intangible	Investment
		assets	in associate	Other	Total
	Note	$'000	$'000	$'000	$'000
Charter Hall Group
Balance at 1 July 2015 (Restated)		14,913	4,108	219	19,240
Charged/(credited) to income statement	6	-	1,279	643	1,922
Balance at 30 June 2016 (Restated)		14,913	5,387	862	21,162
Charged/(credited) to income statement	6	3,142	977	749	4,868
Balance at 30 June 2017		18,055	6,364	1,611	26,030

16 Trade and other payables

16 Trade and other payables
	Charter Hall Group		Charter Hall Property
			Trust Group
	2017	2016	2017	2016
	$'000	$'000	$'000	$'000
Current
Trade payables	1,137	421	-	-
Accruals	3,271	5,970	467	359
Distribution payable	72,661	56,129	72,661	56,129
GST payable	765	2,149	(92)	(66)
Annual leave liability	3,473	3,110	-	-
Employee benefits liability	21,715	17,404	-	-
Other payables	4,536	630	3,750	66
Income tax payable	18,711	-	-	-
Lease incentive liability	1,146	1,081	-	-
	127,415	86,894	76,786	56,488
Non-current
Lease incentive liability	6,479	5,193	-	-

All current liabilities are expected to be settled within 12 months.

17 Provisions

Charter Hall Group	Charter Hall Property Trust Group
2017 2016 $'000 $'000	2017 2016
	$'000 $'000
Current Employee benefits - longservice leave 1,892 1,680
	- -
Non-current Employee benefits - longservice leave 1,303 1,334
	- -

Charter Hall Group / 66

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

18 Interest bearing liabilities

Charter Hall Property Trust loan

The $100 million debt facility was increased to $125 million in December 2016 with the maturity date unchanged at August 2018. At 30 June 2017, drawn borrowings of $nil (30 June 2016: $nil) and bank guarantees of $14.3 million (30 June 2016: $26.0 million) had been utilised under this facility, which under the terms of the agreement reduce the available facility. No liability is recognised for bank guarantees.

The carrying amounts of assets pledged as security for borrowings are:

$26.0 million) had been utilised under this facility, which under the t liability is recognised for bank guarantees. The carryingamounts of assetspledged as securityfor borrowings	erms of the agreement reduce are:	erms of the agreement reduce are:	the available facility. No	the available facility. No
	Charter Hall Group		Charter Hall Property
			Trust Group
	2017	2016	2017	2016
	$'000	$'000	$'000	$'000
Non-current
First ranking security
Investment in associates	1,415,951	1,041,710	1,415,951	1,041,710

(a) Financial arrangements The Charter Hall Group and Charter Hall Property Trust Group had unrestricted access at reporting date to the following lines of credit:

The Charter Hall Group and Charter Hall Property Trust Group had credit:	unrestricted access at reportin	unrestricted access at reportin	g date to the following lines of	g date to the following lines of
	Charter Hall Group		Charter Hall Property
			Trust Group
	2017	2016	2017	2016
	$'000	$'000	$'000	$'000
Total facilities	125,000	100,000	125,000	100,000
Used atreporting date	(14,267)	(26,049)	(14,267)	(26,049)
Unused at reporting date	110,733	73,951	110,733	73,951

(b) Gearing

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

The gearing ratio of the Charter Hall Group at 30 June 2017 was nil % (30 June 2016: nil %) and Charter Hall Property Trust Group nil % (30 June 2016: nil %). Debt covenants are monitored regularly to ensure compliance and reported to the debt provider on a six monthly basis. The Group Treasurer is responsible for negotiating new debt facilities and monitoring compliance with covenants.

Charter Hall Group / 67

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

19 Contributed equity

for the year ended 30 June 2017 19 Contributed equity
(a) Security capital
	2017	2016	2017	2016
	Securities	Securities	$'000	$'000
Charter Hall Limited			284,956	256,049
Charter Hall Property Trust			1,456,853	1,201,346
Ordinary securities - stapled securities, fully paid	465,777,131	412,717,802	1,741,809	1,457,395

(b) Movements in ordinary stapled security capital

				Charter Hall
			Charter Hall	Property
	Number of	Average	Limited	Trust	Total
Details	securities1	issueprice	$'000	$'000	$'000
Opening balance at 1 July 2015	406,817,856		253,907	1,181,772	1,435,679
Buyback and issuance of securities for exercised
performance and service rights1	-	$2.26	(408)	(3,951)	(4,359)
Issuance under DRP2	5,899,946	$4.45	2,563	23,669	26,232
Closing balance at 30 June 2016	412,717,802		256,062	1,201,490	1,457,552
Less: Transaction costs on stapled security issues			(13)	(144)	(157)
Closing balance per accounts at 30 June 2016	412,717,802		256,049	1,201,346	1,457,395
Buyback and issuance of securities for exercised
performance and service rights3	-	$2.63	(273)	(2,484)	(2,757)
Tax recognised directly in equity	-	-	833	-	833
Issued under institutionalplacement 4	53,059,329	$5.48	28,786	261,979	290,765
Balance at 30 June 2017	465,777,131		285,395	1,460,841	1,746,236
Less: Transaction costs on stapled security issues			(439)	(3,988)	(4,427)
Balanceper accounts at 30 June 2017	465,777,131		284,956	1,456,853	1,741,809

1 1,926,951 stapled securities bought on market at an average value of $4.37, offset by the exercise of 1,581,344 performance rights with a value of $1.91 and 474,902 service rights with an average value of $3.41.

2 2,345,435 stapled securities issued in September 2015 with an issue price of $4.60 and 3,554,511 issued in February 2016 with an issue price of $4.34.

3 879,616 stapled securities bought on market at an average value of $5.74, offset by the exercise of 445,518 performance rights with a value of $1.16 and 434,098 service rights with an average value of $4.11.

4 53,059,239 stapled securities issued under Institutional Placement and Security Purchase Plan in May 2017 with an issue price of $5.48.

(c) Ordinary stapled securities

Ordinary stapled securities entitle the holder to participate in distributions/dividends and the proceeds on winding up of the Company/Trust in proportion to the number of and amounts paid on the stapled securities held.

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

(d) Distribution Re-investment Plan

The Group has established a Distribution Re-investment Plan (DRP) under which holders of ordinary stapled securities may elect to have all or part of their distribution satisfied by the issue of new ordinary stapled securities rather than by being paid in cash. The DRP was in operation for the distribution paid on 26 February 2016, however was suspended for the distribution paid on 25 August 2016 and subsequent distributions.

Charter Hall Group / 68

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

20 Reserves

for the year ended 30 June 2017 20 Reserves
	Charter Hall Group		Charter Hall Property
			Trust Group
	2017	2016	2017	2016
	$'000	$'000	$'000	$'000
Business combination reserve	(52,000)	(52,000)	-	-
Security-based benefits reserve	5,676	6,467	-	-
Other reserves	1,260	-	(450)	-
	(45,064)	(45,533)	(450)	-
Charter Hall Limited	(44,614)	(45,533)	-	-
Charter Hall Property Trust	(450)	-	(450)	-
	(45,064)	(45,533)	(450)	-

Movements:

Movements:
	Charter Hall Group		Charter Hall Property
			Trust Group
	2017	2016	2017	2016
	$'000	$'000	$'000	$'000
Business combination reserve
Opening and closing balance	(52,000)	(52,000)	-	-
Security-based benefits reserve
Opening balance	6,467	7,385	-	-
Security-based benefits expense	1,414	2,081
Transfer due to deferred compensation payable in	1,427	1,722	-	-
performance rights
Transferred to equity on options and performance rights	(2,439)	(4,721)	-	-
exercised
Transfer unvested securities to accumulated losses	(1,193)	-	-	-
Closing balance	5,676	6,467	-	-
Other reserves
Opening balance	-	(46)	-	(46)
Exchange differences on translation of foreign operations	(8)	227	(8)	227
Equity accounted fair value movements in cash flow hedges	(442)	(181)	(442)	(181)
Deferred tax asset recognised directly in equity	1,710	-	-	-
Closing balance	1,260	-	(450)	-

(a) Business combination reserve

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

(b) Security-based benefits reserve

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

(c) Other reserves

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

Equity accounted fair value movements in cash flow hedges is the equity accounted portion of the gains or losses on hedging instruments in cash flow hedges that are determined to be an effective hedge relationship.

Deferred tax credits recognised directly in equity relate to the excess of the expected future tax deduction on performance and service rights on issue over the cumulative fair value expensed to date.

Charter Hall Group / 69

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

21 Accumulated losses

for the year ended 30 June 2017 21 Accumulated losses
	Charter Hall Group		Charter Hall Property
			Trust Group
		Restated		Restated
	2017	2016	2017	2016
	$'000	$'000	$'000	$'000
Opening balance	(100,778)	(205,470)	(6,259)	(92,980)
Profit for the year	257,561	215,240	217,951	197,269
Distributions	(132,092)	(110,548)	(132,092)	(110,548)
Transfer unvested securities to accumulated losses	1,193	-	-	-
Deferred taxassetrecognised directly to equity	(358)	-	-	-
Closing balance	25,526	(100,778)	79,600	(6,259)
Charter Hall Limited	(54,074)	(94,519)	-	-
Charter Hall Property Trust	79,600	(6,259)	79,600	(6,259)
Closing balance	25,526	(100,778)	79,600	(6,259)

22 Remuneration of auditors

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

	Charter Hall Group	Charter Hall Group	Charter Hall Property	Charter Hall Property
			Trust Group
	2017	2016	2017	2016
	$	$	$	$
(a) Audit services
PricewaterhouseCoopers - Australian Firm
Audit and review of financial reports	304,750	312,000	7,000	7,000
Other assurance services	18,000	-	-	-
Total remuneration for audit services	322,750	312,000	7,000	7,000
(b) Taxation services
PricewaterhouseCoopers - Australian Firm
Taxation services	135,781	228,744	-	-
Total remuneration for taxation services	135,781	-	-	-
.
23 Reconciliation of profit after tax to net	cash inflow from operating activities
	Charter Hall Group		Charter Hall Property
			Trust Group
	2017	2016	2017	2016
	$'000	$'000	$'000	$'000
Profit after tax for the year	257,561	215,240	217,951	197,269
Non-cash items:
Amortisation and impairment of intangibles	4,343	8,517	-	-
Impairment of joint ventures	10,494	-	-	-
Depreciation and amortisation	3,617	3,019	141	416
Non-cash security-based benefits expense	1,413	2,081	-	-
Net loss/(gain) on sale of investments, property and derivatives	(3,244)	(5,976)	(3,720)	(978)
Fair value adjustments	729	(4,016)	729	(4,016)
Foreign exchange movements	-	(29)	-	-
Change in assets and liabilities, net of effects from purchase of
controlled entity:
(Increase)/decrease in trade debtors and other receivables	(11,420)	999	(9,393)	(15,216)
Increase/(decrease) in trade creditors and accruals	20,053	10,048	57	69
Share of profit from investment in associates and joint venture	(129,935)	(101,344)	(125,866)	(98,618)
entities
(Increase)/decrease for net deferred income tax	2,703	1,787	-	-
Net cash inflow from operating activities	156,314	130,326	79,899	78,926

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

Charter Hall Group / 70

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

24 Capital and financial risk management

(a) Capital risk management

The key capital risk management objective of the Charter Hall Group and Charter Hall Property Trust Group is to optimise returns through the mix of available capital sources whilst complying with statutory and constitutional capital requirements, and complying with the covenant requirements of the finance facility. The capital management approach is regularly reviewed by management and the Board as part of the overall strategy. The capital mix can be altered by issuing new units, electing to have the DRP underwritten, adjusting the amount of distributions paid, activating a unit buyback program or selling assets.

(b) Financial risk management

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

Risk management is carried out by the Group Treasurer, the Chief Financial Officer and the Managing Director and Group CEO in consultation with senior management, the Audit, Risk and Compliance Committee and the Board of Directors. The Group Treasurer identifies, evaluates and hedges financial risks in close cooperation with the Chief Financial Officer. The Board provides guidance for overall risk management, as well as covering specific areas, such as mitigating price, interest rate and credit risks, the use of derivative financial instruments and investing excess liquidity.

(i) Market risk

Unlisted unit price risk

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

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

in the price may be greater or less than anticipated due to definitive indicator of future price variations.	a number of f	actors. As a result,	historic price	variations are	not a
		-10%		+10%
	Carrying
	amount	Profit	Equity	Profit	Equity
	$'000	$'000	$'000	$'000	$'000
Charter Hall Group
2017
Assets - Charter Hall Group
Investments in associates at fair value through profit or	29,690	(2,969)	(2,969)	2,969	2,969
loss
2016
Assets - Charter Hall Group
Investments in associates at fair value through profit or	208	(21)	(21)	21	21
loss
Charter Hall Property Trust Group
2017
Assets - Charter Hall Property Trust Group
Investments in associates at fair value through profit or	29,690	(2,969)	(2,969)	2,969	2,969
loss
2016
Assets - Charter Hall Property Trust Group
Investments in associates at fair value through profit or	208	(21)	(21)	21	21
loss

Charter Hall Group / 71

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

24 Capital and financial risk management (continued)

Cash flow and fair value interest rate risk

The Charter Hall Group has no long-term interest bearing assets.

Charter Hall Property Trust has a loan receivable from Charter Hall Limited which is an unsecured stapled loan maturing on 30 June 2021 with interest charged on an arm’s length basis. Refer to note 26(e) for further details.

The Charter Hall Group’s and Charter Hall Property Trust Group’s external interest rate risk arises from the $125 million loan facility. At 30 June 2017 no borrowings were drawn on this facility (2016: $nil). Borrowings drawn at variable rates expose both Groups to cash flow interest rate risk. Borrowings drawn at fixed rates expose both Groups to fair value interest rate risk. The Charter Hall Group and Charter Hall Property Trust Group’s policy is to 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. The Group did not hold any derivatives as at 30 June 2017.

(ii) Interest rate risk exposure

As the Group has no drawn debt, interest rate risk exposure is minimal.

The Charter Hall Property Trust’s exposure arises predominantly from an unsecured stapled loan maturing on 30 June 2021 receivable from Charter Hall Limited bearing variable interest rates.

Interest rate sensitivity analysis

The following tables illustrate the potential impact a change in interest rates of +/-1% would have on the Charter Hall Group and Charter Hall Property Trust Group’s profit and equity.

				-1%		+1%
	Effective
	interest		Carrying
	rate	Fair value	amount	Profit	Equity	Profit	Equity
		$'000	$'000	$'000	$'000	$'000	$'000
Charter Hall Group
2017
Financial assets
Cash and cash equivalents	2.5%	174,418	174,418	(1,744)	(1,744)	1,744	1,744
2016
Financial assets
Cash and cash equivalents	2.0%	145,358	145,358	(1,454)	(1,454)	1,454	1,454
Charter Hall Property Trust Group
2017
Financial assets
Cash and cash equivalents	2.5%	53,377	53,377	(534)	(534)	534	534
Loan receivable from Charter Hall Ltd	9.3%	73,175	73,175	(732)	(732)	732	732
Total increase/(decrease)				(1,266)	(1,266)	1,266	1,266
2016
Financial assets
Cash and cash equivalents	2.0%	43,321	43,321	(433)	(433)	433	433
Loan receivable from Charter Hall Ltd	9.7%	139,860	139,860	(1,399)	(1,399)	1,399	1,399
Total increase/(decrease)				(1,832)	(1,832)	1,832	1,832

The fair value of interest-bearing liabilities is inclusive of costs which would be incurred on settlement of a liability, and is based upon market prices, where a market exists, or by discounting the expected future cash flows by the current interest rates for liabilities with similar risk profiles.

(iii) Foreign exchange risk

The Charter Hall Group’s principal exposure to foreign exchange risk arises from its investments in foreign subsidiaries. The major asset held by foreign subsidiaries is cash in foreign denominated bank accounts. The Charter Hall Property Trust Group does not have any exposure of this type.

Charter Hall Group / 72

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

24 Capital and financial risk management (continued)

(c) Credit risk

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

50% of the Charter Hall Group’s income is derived from management fees, transaction and other fees from related parties. 49% of the Charter Hall Group’s income is derived from equity accounted investments in property funds and distributions from investments in property funds held at fair value through the profit and loss. The balance relates to interest income, gross rental income and gains on sales of investments and inventory.

89% of the Charter Hall Property Trust Group’s income is derived from equity accounted investments in property funds and distributions from investments in property funds held at fair value through profit and loss.

All tenants in the underlying property funds for Charter Hall Group and the Charter Hall Property Trust Group are assessed for creditworthiness, taking into account their financial position, past experience and other factors. Refer to Note 10(c) for more information on credit risk.

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

(d) Liquidity risk

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

Maturities of financial liabilities

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

do not equate to the value shown in the balance sheet. Repa given immediately.	yments which	are subject	to notice are tr	eated as if no	tice were
	Carrying	Less than	Between 1	Over	Total cash
	amount	1 year	and 2 years	2 years	flows
	$'000	$'000	$'000	$'000	$'000
Charter Hall Group
2017
Trade and otherpayables	133,894	127,415	1,146	5,333	133,894
2016
Trade and otherpayables	92,087	86,894	790	4,403	92,087
Charter Hall Property Trust Group
2017
Trade and otherpayables	76,786	76,786	-	-	76,786
2016
Trade and otherpayables	56,488	56,488	-	-	56,488

Charter Hall Group / 73

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

25 Fair value measurement

(a) Recognised fair value measurement

The Charter Hall Group and the Charter Hall Property Trust Group measure and recognise the following assets and liabilities at fair value on a recurring basis:

• Investments in associates at fair value through profit and loss (refer to Note 28).

• Investment properties.

AASB 13 Fair Value Measurement requires disclosure of fair value measurements by level of the following fair value measurement hierarchy:

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

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

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

The following table presents the Charter Hall Group and Charter Hall Property Trust Group’s assets and liabilities measured and recognised at fair value:

The following table presents the Charter Hall Group and Charter Hall Prope recognised at fair value:	rty Trust Gro	ups assets an	d liabilities m	easured and
	Level 1	Level 2	Level 3	Total
	$'000	$'000	$'000	$'000
Charter Hall Group
30 June 2017
Investments in associates at fair value through profit and loss	-	-	29,690	29,690
Investment properties	-	-	40,350	40,350
Total assets	-	-	70,040	70,040
30 June 2016
Investments in associates at fair value through profit and loss	-	-	208	208
Total assets	-	-	208	208
Charter Hall Property Trust Group
30 June 2017
Investments in associates at fair value through profit and loss	-	-	29,690	29,690
Investment properties	-	-	40,350	40,350
Total assets	-	-	70,040	70,040
30 June 2016
Investmentsinassociates atfair value throughprofit andloss	-	-	208	208
Total assets	-	-	208	208

There have been no transfers between Level 1, Level 2 and Level 3 during the period.

(b) Disclosed fair values

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

(c) Valuation techniques used to derive Level 3 fair values Investments in associates

The fair value of investments in associates held at fair value through profit and loss, which are investments in unlisted securities, are determined giving consideration to the unit prices and net assets of the underlying funds. The unit prices and net asset values are largely driven by the fair values of investment properties and derivatives held by the funds. Recent arm’s length transactions, if any, are also taken into consideration.

The fair value of investments in associates at fair value through profit or loss is impacted by the price per security of the investment. An increase to the price per security results in an increase to the fair value of the investment.

Charter Hall Group / 74

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

25 Fair value measurement (continued)

Investment property

The fair value measurement of investment property takes into account the Group’s ability to generate economic benefits by using the asset in its highest and best use.

The use of independent external valuers is on a rotational basis at least once every 12 months, or earlier, where the Responsible Entity deems it appropriate or believes there may be a material change in the carrying value of the property.

Where an independent valuation is not obtained, the fair value is determined using Discounted Cash Flow and income capitalisation methods. The table below identifies the inputs, which are not based on observable market data, used to measure the fair value (Level 3) of the investment properties:

	Adopted Adopted terminal	Adopted
	Fair value capitalisation rate yield	discount rate
	$'000 (% p.a.) (% p.a.)	(% p.a.)
2017	40,350 6.8–8.5 7.0–9.0	7.5–9.3
Term	Definition
Discounted Cash Flow (DCF)	A method in which a discount rate is applied to future expected income streams to
method	estimate the present value.
Income capitalisation method	A valuation approach that provides an indication of value by converting future cash flows to
	a single current capital value.
Gross market rent	The estimated amount for which an interest in real property should be leased to a major
	tenant on the valuation date between a willing lessor and a willing lessee on appropriate
	lease terms in an arm’s length transaction, after proper marketing and where the parties
	had each acted knowledgeably, prudently and without compulsion.
Capitalisation rate	The return represented by the income produced by an investment, expressed as a
	percentage.
Terminal yield	A percentage return applied to the expected net income following a hypothetical sale at the
	end of the cash flow period.
Discount rate	A rate of return used to convert a future monetary sum or cash flow into present value.

Movement in the inputs are likely to have an impact on the fair value of investment properties. An increase in gross market rent will likely lead to an increase in fair value. A decrease in adopted capitalisation rate, adopted terminal yield or adopted discount rate will likely lead to an increase in fair value.

Charter Hall Group / 75

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

26 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 27.

(c) Key management personnel

The following persons were considered key management personnel (excluding Non-Executive Directors) during the year:

Executive director

D Harrison

Other key management personnel

G Chubb

P Ford

S McMahon[ 1]

A Taylor

Former key management personnel

P Altschwager[ 2 ]

1 Commenced being key management personnel on 18 August 2016.

2 Ceased being key management personnel on 7 December 2016.

Below are the aggregate amounts paid or payable to key management personnel (including Non-Executive Directors):

	Charter Hall Group	Charter Hall Group	Charter Hall Property	Charter Hall Property
			Trust Group
	2017	2016	2017	2016
	$	$	$	$
Salary and fees	3,988,438	6,561,264	-	-
Non-Executive Director remuneration	948,741	993,900	-	-
Short-term incentives	3,975,652	5,070,682	-	-
Superannuation	107,887	165,906	-	-
Value of securities vested	931,165	1,972,796	-	-
Non-monetary benefits	23,955	47,635	-	-
Termination benefits	893,344	1,112,400	-	-
	10,869,182	15,924,583	-	-

Charter Hall Group / 76

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

26 Related parties (continued)

(d) Transactions with related parties

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

	Charter Hall Group	Charter Hall Group	Charter Hall Property	Charter Hall Property
			Trust Group
	2017	2016	2017	2016
	$	$	$	$
Associates
Accounting cost recoveries	7,320,825	7,000,934	-	-
Marketing cost recoveries	2,342,380	1,806,214	-	-
Transaction and performance fees	44,596,526	8,573,615	-	-
Management and development fees	63,449,515	53,178,149	-	-
Property management fees and cost recoveries	48,557,784	39,816,970	-	-
Joint ventures
Accounting cost recoveries	658,290	427,524	-	-
Marketing cost recoveries	204,765	303,796	-	-
Transaction and performance fees	3,901,109	5,399,262	-	-
Management and development fees	11,004,826	5,332,194	-	-
Property management fees and cost recoveries	4,216,980	4,411,135	-	-
Other
Accounting cost recoveries	1,603,926	1,485,338	-	-
Marketing cost recoveries	50,430	45,290	-	-
Transaction and performance fees	8,079,222	4,997,852	-	-
Management and development fees	10,619,575	7,853,635	-	-
Property management fees and cost recoveries	1,976,327	1,817,967	-	-
Investment-related revenue	-	-	10,300,164	20,310,647

The following balances arising through the normal course of business were due from related parties at balance date:

Charter Hall Group	Charter Hall Property Trust Group
2017 2016 $ $	2017 2016
	$ $
Associates Management fee receivables 8,368,874 6,017,451 Other receivables 13,518,435 4,831,481 Joint ventures Management fee receivables 2,282,187 860,520 Other receivables 1,180,909 423,351 Other Management fee receivables 682,148 677,194 Other receivables 1,412,695 1,132,936
	- -
	- -
	- -
	- -
	- -
	- -

Charter Hall Group / 77

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

26 Related parties (continued)

(e) Loans to/(from) related parties

for the year ended 30 June 2017 26 Related parties (continued) (e) Loans to/(from)relatedparties
	Charter Hall Group		Charter Hall Property
			Trust	Group
	2017	2016	2017	2016
	$	$	$	$
Loans to joint ventures
Opening balances	6,500,000	6,500,000	-	-
Loans advanced	2,000,000	9,144,662	-	9,144,662
Loan repayments received	-	(9,144,662)	-	(9,144,662)
Closing balance	8,500,000	6,500,000	-	-
Loans to other related parties
Opening balances	2,585,658	-	2,585,658	-
Loans advanced	19,398,622	2,585,658	19,398,622	2,585,658
Loan repayments received	(21,234,280)	-	(21,234,280)	-
Closing balance	750,000	2,585,658	750,000	2,585,658
Loans to Charter Hall Limited
Opening balance	-	-	139,860,499	198,426,764
Loans advanced	-	-	397,896,815	203,960,533
Loan repayments received	-	-	(473,320,830)	(275,450,051)
Interest charged	-	-	8,738,212	12,923,253
Closing balance	-	-	73,174,696	139,860,499

No provisions for doubtful debts have been raised in relation to any outstanding balances.

The loan to CHL comprises an unsecured stapled loan maturing on 30 June 2021. Interest is charged on an arm’s length basis which, at 30 June 2017, amounted to a weighted average rate of 9.30% (June 2016: 9.97%).

(f) Fees paid to the Responsible Entity or its associates

Fees paid to the Responsible Entity of the Charter Hall Property Trust, and its associates, by the Charter Hall Property Trust Group amounted to $1,382,000 (2016: $1,193,000). At 30 June 2017, related fees payable amounted to $414,000 (2016: $311,000).

Charter Hall Group / 78

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

27 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

	Country of	Principal	Class of	2017	2016
Name of entity	incorporation	activity	securities	%	%
Controlled entities of Charter Hall Limited
Charter Hall Holdings Pty Limited	Australia	Property management	Ordinary	100	100
CH La Trobe Trust	Australia	Property investment	Ordinary	100	100
Controlled entities of Charter Hall Holdings Pty
Ltd
Bieson Pty Limited	Australia	Trustee company	Ordinary	100	100
Charter Hall Nominees Pty Limited	Australia	Trustee company	Ordinary	100	100
Charter Hall Asset Services Pty Limited	Australia	Property management	Ordinary	100	100
Charter Hall Development Services Pty Ltd	Australia	Property management	Ordinary	100	100
Charter Hall Direct Property Management Limited	Australia	Responsible entity	Ordinary	100	100
Charter Hall Escrow Agent Pty Limited	Australia	Holding company	Ordinary	100	100
Charter Hall Funds Management Limited	Australia	Responsible entity	Ordinary	100	100
Charter Hall Holdings Investment Trust	Australia	Holding company	Ordinary	100	100
Charter Hall Holdings Real Estate Pty Limited	Australia	Holding company	Ordinary	100	100
Charter Hall International Office Pty Limited	Australia	Holding company	Ordinary	100	100
Charter Hall Investment Management Limited	Australia	Responsible entity	Ordinary	100	100
Charter Hall (NZ) Pty Limited	Australia	Property management	Ordinary	100	100
Charter Hall Office Collins Street Pty Limited	Australia	Holding company	Ordinary	100	100
Charter Hall Office Investments Pty Limited	Australia	Holding company	Ordinary	100	100
Charter Hall Opportunity Fund No.5	Australia	Property development	Ordinary	100	-
Charter Hall Opportunity Fund No.5 Bringelly Trust	Australia	Property development	Ordinary	100	-
Charter Hall Wholesale Management Limited	Australia	Responsible entity	Ordinary	100	100
Charter Hall Real Estate Inc	USA	Property management	Ordinary	100	100
CHREI US Office LLC	USA	Property management	Ordinary	100	100
CHREI US Retail LLC	USA	Property management	Ordinary	100	100
Charter Hall Real Estate Europe Limited	UK	Property management	Ordinary	100	100
Charter Hall Real Estate Management Services
(ACT) Pty Limited	Australia	Property management	Ordinary	100	100
Charter Hall Real Estate Management Services
(NSW) Pty Limited	Australia	Property management	Ordinary	100	100
Charter Hall Real Estate Management Services
(QLD and NT) Pty Limited	Australia	Property management	Ordinary	100	100
Charter Hall Real Estate Management Services
(SA) Pty Limited	Australia	Property management	Ordinary	100	100
Charter Hall Real Estate Management Services
(TAS) Pty Limited	Australia	Property management	Ordinary	100	100
Charter Hall Real Estate Management Services
(VIC) Pty Limited	Australia	Property management	Ordinary	100	100
Charter Hall Real Estate Management Services
(WA) Pty Limited	Australia	Property management	Ordinary	100	100
Charter Hall Retail Management Limited	Australia	Responsible entity	Ordinary	100	100
Visokoi Pty Limited	Australia	Trustee company	Ordinary	100	100
Votraint No.1622 Pty Limited	Australia	Trustee company	Ordinary	100	100
Charter Hall WALE Limited	Australia	Responsible entity	Ordinary	100	100

Charter Hall Group / 79

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

27 Controlled entities (continued)

	Country of	Principal	Class of	2017	2016
Name of entity	incorporation	activity	securities	%	%
Controlled entities of Charter Hall Property Trust
Charter Hall Co-Investment Trust1	Australia	Property investment	Ordinary	100	100
CHC CDC Holding Trust	Australia	Property investment	Ordinary	100	100
CHPT RP2 Trust	Australia	Property investment	Ordinary	100	100
CHPT Dandenong Trust	Australia	Property investment	Ordinary	-	100
Charter Hall Direct Consumer Staples Fund	Australia	Property investment	Ordinary	100	-
DCSF NZ Trust	New Zealand	Propertyinvestment	Ordinary	100	-

1 Charter Hall Co-Investment Trust is an entity which was set up by Charter Hall Property Trust to hold its investments in Charter Hall Retail REIT (CQR), Charter Hall Office Trust (CHOT), BP Fund 1 (BP1), BP Fund 2 (BP2), Core Logistics Partnership (CLP), TTP Wholesale Fund (TTP), Retail Partnership No.6 Trust (RP6), Charter Hall Prime Retail Fund (CPRF), Brisbane Square Wholesale Fund (BSWF) and Charter Hall Long WALE REIT (CLW).

(b) Details of controlled entities of the Charter Hall Property Trust Group

	Country of	Principal	Class of	2017	2016
Name of entity	incorporation	activity	securities	%	%
Controlled entities of Charter Hall Property Trust
Charter Hall Co-Investment Trust1	Australia	Property investment	Ordinary	100	100
CHC CDC Holding Trust	Australia	Property investment	Ordinary	100	100
CHPT RP2 Trust	Australia	Property investment	Ordinary	100	100
CHPT Dandenong Trust	Australia	Property investment	Ordinary	-	100
Charter Hall Direct Consumer Staples Fund	Australia	Property investment	Ordinary	100	-
DCSF NZ Trust	New Zealand	Propertyinvestment	Ordinary	100	-

1 Charter Hall Co-Investment Trust is an entity which was set up by Charter Hall Property Trust to hold its investments in Charter Hall Retail REIT (CQR), Charter Hall Office Trust (CHOT), BP Fund 1 (BP1), BP Fund 2 (BP2), Core Logistics Partnership (CLP), TTP Wholesale Fund (TTP), Retail Partnership No.6 Trust (RP6), Charter Hall Prime Retail Fund (CPRF), Brisbane Square Wholesale Fund (BSWF) and Charter Hall Long WALE REIT (CLW).

Charter Hall Group / 80

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

28 Investments in associates

(a) Carrying amounts

Information relating to associates is set out below. All associates are incorporated and operate in Australia.

Unless otherwise noted all associates have a 30 June year end.

CHARTER HALL GROUP		Ownership Interest		Carrying	amount
		2017	2016	2017	2016
Name of entity	Principal activity	%	%	$'000	$'000
Accounted for at fair value through profit or loss: 1
Unlisted
Charter Hall Direct Industrial Fund No.42	Property investment	21.2	-	29,472	-
Charter Hall Direct PFA Fund	Property investment	0.1	0.1	218	208
				29,690	208
Equity accounted
Unlisted
Charter Hall Prime Office Fund	Property investment	10.5	10.7	236,426	183,301
Charter Hall Office Trust3	Property investment	14.3	14.3	212,859	164,107
Core Logistics Partnership	Property investment	13.8	16.1	139,154	170,040
Charter Hall Prime Industrial Fund	Property investment	6.0	6.8	117,128	94,801
Long WALE Investment Partnership4	Property investment	5.0	-	19,011	-
Retail Partnership No.2 Trust	Property investment	5.0	5.0	6,440	6,051
Charter Hall Opportunity Fund No.55	Property development	100.0	16.7	-	6,337
Charter Hall Opportunity Fund No.4	Property development	-	3.0	-	18
Listed
Charter Hall Retail REIT6	Property investment	18.6	14.3	321,171	226,716
Charter Hall Long WALE REIT7	Property investment	20.0	-	165,971	-
				1,218,160	851,371
Total investments in associates				1,247,850	851,579

1 These investments comprise units in certain unlisted Charter Hall managed funds which have been designated at fair value through profit or loss. Changes in fair values of investments in associates at fair value through profit or loss are recorded in fair value adjustments in the consolidated statement of comprehensive income. Information about the Charter Hall Group and Charter Hall Property Trust Group’s material exposure to share and unit price risk is provided in Note 24.

2 Initial acquisition of DIF4 units in December 2016 was settled in a single transaction involving the simultaneous sale of CLP units to DIF4 for $20.0 million offset by advancing a loan to DIF4 of $9.7 million and acquisition of units for $6.4 million with the balance settled in cash. The loan was repaid progressively in December 2016 and January 2017 and the units redeemed in February 2017. CHC’s current holding of DIF4 units was acquired progressively in April and May 2017.

3 The entity has a 31 December balance date.

4 Reclassified from joint venture to associate on reduction of ownership to 14.8% and a change in voting arrangements. The reduction in ownership was settled by the sale of LWIP units to Charter Hall Long Wale REIT (CLW) for $152.2 million offset by acquisition of CLW units for $134.2 million with the balance settled in cash.

5 On 25 January 2017, CHL acquired 500 units of CHOF5 to increase the Group’s ownership to 100%. This investment has been consolidated since this date.

6 Fair value at the ASX closing price as at 30 June 2017 was $306.6 million (30 June 2016: $274.5 million).

7 Fair value at the ASX closing price as at 30 June 2017 was $171.2 (30 June 2016: n/a).

Charter Hall Group / 81

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

28 Investments in associates (continued)

CHARTER HALL PROPERTY TRUST GROUP		Ownership Interest		Carrying	amount
		2017	2016	2017	2016
Name of entity	Principal activity	%	%	$'000	$'000
Accounted for at fair value through profit or loss:
Unlisted
Charter Hall Direct Industrial Fund No.41	Property investment	21.2	-	29,472	-
Charter Hall Direct PFA Fund	Property investment	0.1	0.1	218	208
				29,690	208
Equity accounted
Unlisted
Charter Hall Prime Office Fund	Property investment	10.0	10.0	223,028	171,359
Charter Hall Office Trust2	Property investment	14.3	14.3	212,859	164,107
Core Logistics Partnership	Property investment	13.8	16.1	139,154	170,040
Charter Hall Prime Industrial Fund	Property investment	2.9	3.3	56,436	46,336
Long WALE Investment Partnership3	Property investment	5.0	-	19,011	-
Retail Partnership No.2 Trust	Property investment	5.0	5.0	6,440	6,051
Charter Hall Opportunity Fund No.5	Property development	7.5	-	3,171	-
Listed
Charter Hall Retail REIT4	Property investment	18.6	14.3	321,171	226,716
Charter Hall Long WALE REIT5	Property investment	20.0	-	165,971	-
				1,147,241	784,609
Total investments in associates				1,176,931	784,817

1 Initial acquisition of DIF4 units in December 2016 was settled in a single transaction involving the simultaneous sale of CLP units to DIF4 for $20.0 million offset by advancing a loan to DIF4 of $9.7 million and acquisition of units for $6.4 million with the balance settled in cash. The loan was repaid progressively in December 2016 and January 2017 and the units redeemed in February 2017. CHC’s current holding of DIF4 units was acquired progressively in April and May 2017.

• 2 The entity has a 31 December balance date.

3 Reclassified from joint venture to associate on reduction of ownership to 14.8% and a change in voting arrangements. The reduction in ownership was settled by the sale of LWIP units to Charter Hall Long Wale REIT (CLW) for $152.2 million offset by acquisition of CLW units for $134.2 million with the balance settled in cash.

• 4 Fair value at the ASX closing price as at 30 June 2017 was $306.6 million (30 June 2016: $274.5 million).

• 5 Fair value at the ASX closing price as at 30 June 2017 was $171.2 (30 June 2016: n/a).

(b) Summarised movements in carrying amounts of associates accounted for at fair value through profit or loss

(b) Summarised movements in carrying amounts of ass loss	ociates accounted for at fair	ociates accounted for at fair	value through profit or	value through profit or
	Charter Hall Group		Charter Hall Property
			Trust Group
	2017	2016	2017	2016
	$'000	$'000	$'000	$'000
Opening balance	208	65,535	208	65,535
Investment	35,900	-	35,900	-
Net (loss)/gain on investment in associates at fair value	(17)	4,016	(17)	4,016
Disposal of units	(6,441)	(70,321)	(6,441)	(70,321)
Gain on disposal	40	978	40	978
Closing balance	29,690	208	29,690	208

Charter Hall Group / 82

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

28 Investments in associates (continued)

(c) Summarised movements in carrying amounts of equity accounted associates

	Charter Hall Group	Charter Hall Group	Charter Hall Property	Charter Hall Property
			Trust Group
	2017	2016	2017	2016
	$'000	$'000	$'000	$'000
Opening balance	851,371	655,980	784,609	592,722
Investment	288,726	153,530	280,899	152,890
Share of profit after income tax	192,814	123,029	185,151	115,799
Distributions received/receivable	(72,152)	(53,163)	(68,173)	(48,797)
Share of movement in reserves	(450)	47	(450)	47
Return of capital	(32,797)	(32,176)	(32,773)	(32,176)
Disposal of units	(19,241)	-	(19,241)	-
Transfer of associate acquired as subsidiary1	(7,330)	-	-	-
Transfer from investmentinjointventures 2	17,219	4,124	17,219	4,124
Closing balance	1,218,160	851,371	1,147,241	784,609

1 CHOF5 was reclassified in 2017 from associate to controlled entity on increase of ownership to 100%.

2 LWIP was reclassified in 2017 from joint venture to associate on reduction of ownership to 5% and a change in voting arrangements. Retail Partnership No.2 Trust was reclassified in 2016 from joint venture to associate on reduction of ownership to 5% and a change in voting arrangements.

Charter Hall Group / 83

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

28 Investments in associates (continued)

(d) Summarised financial information for material associates

The tables below provide summarised financial information for the associates that are material to CHC and CHPT. Materiality is assessed on the investments’ contribution to Group income and net assets. The information presented reflects the amounts in the financial statements of the associates, not the Group’s proportionate share.

			Charter Hall	Core	Charter Hall
	Charter Hall	Charter Hall	Prime Office	Logistics	Long WALE
	Office Trust	Retail REIT	Fund	Partnership	REIT
2017	$'000	$'000	$'000	$'000	$'000
Summarised balance sheet:
Current assets	53,755	245,048	128,299	33,450	12,157
Non-current assets	2,589,298	2,462,227	2,986,262	1,318,442	1,180,468
Current liabilities	57,029	96,281	105,771	28,431	17,686
Non-current liabilities	1,098,983	936,450	742,761	321,572	357,553
Net assets	1,487,041	1,674,544	2,266,029	1,001,889	817,386
Summarised statement of comprehensive income:
Revenue	146,941	215,462	202,155	97,819	45,550
Profit for the year from continuing
operations	523,068	251,271	333,745	101,681	34,583
Other comprehensive loss	(1)	(2,159)	-	-	-
Total comprehensive income	523,067	247,858	333,745	101,681	34,583
2016
Summarised balance sheet:
Current assets	235,495	54,689	43,384	58,678	-
Non-current assets	2,120,610	2,394,257	2,388,833	1,463,573	-
Current liabilities	53,726	92,594	66,926	39,100	-
Non-current liabilities	1,156,704	824,074	626,083	430,200	-
Net assets	1,145,675	1,532,278	1,739,208	1,052,951	-
Summarised statement of comprehensive income:
Revenue	213,540	211,855	159,920	93,206	-
Profit for the year from continuing
operations	288,375	180,628	219,488	112,874	-
Loss from discontinued operations	-	-	-	-	-
Other comprehensive income	1,593	-	-	-	-
Total comprehensive income	289,968	180,628	219,488	112,874	-

Charter Hall Group / 84

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

28 Investments in associates (continued)

(e) Reconciliation of net assets of associates to carrying amounts of equity accounted investments

			Charter Hall	Core	Charter Hall
	Charter Hall	Charter Hall	Prime Office	Logistics	Long WALE
Charter Hall Group	Office Trust	Retail REIT	Fund	Partnership	REIT
2017	$'000	$'000	$'000	$'000	$'000
Net assets of associate	1,487,041	1,674,544	2,266,029	1,001,889	817,386
Group's share in %	14.3	18.6	10.5	13.8	20.0
Group's share in $	212,647	311,465	237,933	138,261	163,477
Other movements not accounted for
underthe equitymethod1	212	9,706	(1,507)	893	2,494
Carrying amount	212,859	321,171	236,426	139,154	165,971
Movements in carrying amounts:
Opening balance	164,107	226,716	183,301	170,040	-
Investment	-	73,306	30,000	-	165,428
Disposal	-	-	-	(19,241)	-
Share of profit after income tax	74,799	42,637	34,812	15,231	7,192
Other comprehensive loss	(8)	(442)	-	-	-
Distributions received/receivable	(10,309)	(21,046)	(11,687)	(9,833)	(6,649)
Return of capital	(15,730)	-	-	(17,043)	-
Closing balance	212,859	321,171	236,426	139,154	165,971
2016
Net assets of associate	1,145,675	1,532,278	1,739,208	1,052,951	-
Group's share in %	14.3	14.3	10.7	16.1	-
Group's share in $	163,832	219,116	186,095	169,525	-
Other movements not accounted for
underthe equitymethod1	275	7,600	(2,794)	515	-
Carrying amount	164,107	226,716	183,301	170,040	-
Movements in carrying amounts:
Opening balance	163,959	146,968	168,603	95,712	-
Investment	-	70,890	-	66,000	-
Share of profit after income tax	41,217	25,242	25,023	17,769	-
Other comprehensive income/(loss)	228	(181)	-	-	-
Distributions received/receivable	(9,121)	(16,203)	(10,325)	(9,441)	-
Return on capital	(32,176)	-	-	-	-
Closing balance	164,107	226,716	183,301	170,040	-

1 Other movements are primarily due to the funds issuing new units to external investors at a price above or below the underlying net assets of the fund or, for listed investments, where the Group has acquired units on market at a price different to the fund's NTA.

Charter Hall Group / 85

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

28 Investments in associates (continued)

			Charter Hall	Core	Charter Hall
	Charter Hall	Charter Hall	Prime Office	Logistics	Long WALE
Charter Hall Property Trust	Office Trust	Retail REIT	Fund	Partnership	REIT
2017	$'000	$'000	$'000	$'000	$'000
Net assets of associate	1,487,041	1,674,544	2,266,029	1,001,889	817,386
Group's share in %	14.3	18.6	9.9	13.8	20.0
Group's share in $	212,647	311,465	224,337	138,261	163,477
Other movements not accounted for
under the equity method1	212	9,706	(1,309)	893	2,494
Carrying amount	212,859	321,171	223,028	139,154	165,971
Movements in carrying amounts:
Opening balance	164,107	226,716	171,359	170,040	-
Investment	-	73,306	30,000	-	165,428
Disposal	-	-	-	(19,241)	-
Share of profit after income tax	74,799	42,637	32,606	15,231	7,192
Other comprehensive loss	(8)	(442)	-	-	-
Distributions received/receivable	(10,309)	(21,046)	(10,937)	(9,833)	(6,649)
Return of capital	(15,730)	-	-	(17,043)	-
Closing balance	212,859	321,171	223,028	139,154	165,971
2016
Net assets of associate	1,145,675	1,532,278	1,739,208	1,052,951	-
Group's share in %	14.3	14.3	10.0	16.1	-
Group's share in $	163,832	219,116	173,921	169,525	-
Other movements not accounted for
under the equity method1	275	7,600	(2,562)	515	-
Carrying amount	164,107	226,716	171,359	170,040	-
Movements in carrying amounts:
Opening balance	163,959	146,968	157,628	95,712	-
Investment	-	70,890	-	66,000	-
Share of profit after income tax	41,217	25,242	23,377	17,769	-
Other comprehensive income/(loss)	228	(181)	-	-	-
Distributions received/receivable	(9,121)	(16,203)	(9,646)	(9,441)	-
Disposal	(32,176)	-	-	-	-
Closing balance	164,107	226,716	171,359	170,040	-

1 Other movements are primarily due to the funds issuing new units to external investors at a price above or below the underlying net assets of the fund or, for listed investments, where the Group has acquired units on market at a price different to the fund's NTA.

Charter Hall Group / 86

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

28 Investments in associates (continued)

(f) Summarised financial information and movement in carrying amounts of other equity accounted associates The following table shows the Group’s share of the summarised profit and loss of equity accounted associates that are not material to the Group, and a reconciliation of the movement in the aggregated carrying amount of these investments.

	Charter Hall Group	Charter Hall Group	Charter Hall Property	Charter Hall Property
			Trust Group
	2017	2016	2017	2016
	$'000	$'000	$'000	$'000
Aggregate amount of the Group's share of:
Profit/(loss) from continuing operations	18,138	3,340	12,687	3,424
Total comprehensive income	18,138	3,340	12,687	3,424
Movements in aggregate carrying amount:
Opening balance	12,406	5,799	6,051	-
Reclassification from material associates1	94,801	-	46,336	-
Investment	19,990	640	12,161	-
Share of profit after income tax	18,138	3,340	12,687	3,424
Distributions received/receivable	(12,627)	(1,497)	(9,396)	(1,497)
Return of capital	(7,348)	-	-	-
Transfer from investments in joint ventures	17,219	4,124	17,219	4,124
Closing balance	142,579	12,406	85,058	6,051

1 Charter Hall Prime Industrial Fund was reclassified from material associates during the year, as a result of the listing of the Charter Hall Long WALE REIT during the year ended 30 June 2017.

(g) Commitments and contingent liabilities of associates Charter Hall Office Trust’s (CHOT) capital expenditure contracted for at the reporting date but not recognised as liabilities was $18.1 million (2016: $16.3 million). In addition, CHOT’s share of significant capital expenditure contracted for at the reporting date but not recognised as liabilities through joint venture entities was $12.1 million (2016: $21.1 million).

CHOT has a contingent liability for a performance fee payable on 30 April 2020. As at 30 June 2017 this is estimated to be $84.6 million. This amount is reflected in the 30 June 2017 CHOT unit price and reflects 30 June 2017 independent valuations. Valuation movements between 30 June 2017 and 30 April 2020 will impact the final amount payable. It is noted that the contingent liability of $84.6 million is in addition to the interim performance fee of $12.9 million paid in May 2017 on sold properties.

Charter Hall Retail REIT (CQR) has entered into contracts for the acquisition, construction and development of properties in Australia. The commitments of CQR total $203.3 million (2016: $28.0 million). These commitments have not been recognised as liabilities in the consolidated financial statements of CQR.

Charter Hall Prime Office Fund’s capital expenditure contracted for at the reporting date but not recognised as liabilities was $85.2 million (2016: $83.8 million) relating to investment properties. These commitments include capital expenditure commitments of $10.6 million (2016: $25.2 million) relating to property development and $15.6 million relating to property settlements. In addition, the Fund’s share of the committed expenditure through investments in financial assets at fair value is $110.0 million (2016: $360.2 million).

Core Logistics Partnership’s capital expenditure contracted for at the reporting date but not recognised as liabilities was $33.1 million (2016: $92.4 million).

Charter Hall Long Wale REIT has a $49.4 million equity commitment to CH DC Fund being the balance owing on partially paid units. In addition, as at 30 June 2017, the REIT has a commitment under an unconditional agreement to acquire Bunnings, South Mackay QLD for $28.5 million.

Charter Hall Prime Industrial Fund’s capital expenditure contracted for at the reporting date but not recognised as liabilities was $276.7 million (2016: $102.2 million). In addition, the Fund has a $91.2 million (2016: $96.0 million) equity commitment to CH DC Fund being the balance owing on partially paid units.

Charter Hall Group / 87

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

29 Investments in joint ventures

(a) Carrying amounts

Information relating to joint ventures is set out below. All joint ventures are incorporated and operate in Australia.

Unless otherwise noted all associates have a 30 June year end.

Unless otherwise noted all associates have a	30 June year end.
		**Ownership **	interest	**Carrying **	amount
Charter Hall Group		2017	2016	2017	2016
Name of entity	Principal activity	%	%	$'000	$'000
Unlisted
Brisbane Square Wholesale Fund	Property investment	16.8	-	99,594	-
Charter Hall Prime Retail Fund	Property investment	38.0	-	44,834	-
Retail Partnership No.6 Trust	Property investment	20.0	20.0	34,251	32,249
Commercial and Industrial Property Pty Ltd	Property development	50.0	50.0	19,450	28,463
BP Fund 11	Property investment	8.4	10.0	28,443	23,767
BP Fund 21	Property investment	13.2	13.2	13,793	14,992
Long WALE Investment Partnership 2	Property investment	10.0	10.0	10,108	8,433
TTP Wholesale Fund (TTP)1	Property investment	10.0	10.0	7,997	7,603
CIP CH (Bringelly) Pty Limited	Property development	50.0	-	-	-
Long WALE Investment Partnership2	Property investment	-	50.0	-	165,246
CH DC Fund	Property development	-	26.0	-	4,603
				258,470	285,356

1 These funds comprise the Long WALE Hardware Partnership. During the period there was a $2.0 million capital distribution from BP Fund 2 which was settled by a simultaneous capital call in the BP Fund. 2

Reclassified from joint venture to associate on reduction of ownership to 5.0% and a change in voting arrangements. The reduction in ownership was settled by the sale of LWIP units to CLW for $152.2 million offset by acquisition of CLW units for $134.2 million with the balance settled in cash.

ownership was settled by the sale of LWIP balance settled in cash.	units to CLW for $152.2 million of	fset by acquisitio	n of CLW units f	or $134.2 milli	on with the
		**Ownership **	interest	**Carrying **	amount
Charter Hall Property Trust Group		2017	2016	2017	2016
Name of entity	Principal activity	%	%	$'000	$'000
Unlisted
Brisbane Square Wholesale Fund	Property investment	16.8	-	99,594	-
Charter Hall Prime Retail Fund	Property investment	38.0	-	44,834	-
Retail Partnership No.6 Trust	Property investment	20.0	20.0	34,251	32,249
BP Fund 11	Property investment	8.4	10.0	28,443	23,767
BP Fund 21	Property investment	13.2	13.2	13,793	14,992
Long WALE Investment Partnership 2	Property investment	10.0	10.0	10,108	8,433
TTP Wholesale Fund (TTP)1	Property investment	10.0	10.0	7,997	7,603
Long WALE Investment Partnership2	Property investment	-	50.0	-	165,246
CH DC Fund	Property development	-	26.0	-	4,603
				239,020	256,893

1 These funds comprise the Long WALE Hardware Partnership. During the period there was a $2.0 million capital distribution from BP Fund 2 which was settled by a simultaneous capital call in the BP Fund.

2 Reclassified from joint venture to associate on reduction of ownership to 5.0% and a change in voting arrangements. The reduction in ownership was settled by the sale of LWIP units to CLW for $152.2 million offset by acquisition of CLW units for $134.2 million with the balance settled in cash.

Charter Hall Group / 88

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

29 Investments in joint ventures (continued)

(b) Summarised financial information and movements in carrying amounts

	Charter Hall Group	Charter Hall Group	Charter Hall Property	Charter Hall Property
			Trust Group
	2017	2016	2017	2016
	$'000	$'000	$'000	$'000
Movements in aggregate carrying amount:
Opening balance	285,356	257,885	256,893	227,867
Investment	149,679	52,334	149,679	22,945
Share of profit after income tax	14,378	45,255	12,883	42,106
Distributions received/receivable	(8,500)	(20,940)	(8,486)	(16,236)
Impairment of carrying amount	(10,494)	-	-	-
Return of capital	(1,973)	(198)	(1,973)	(198)
Disposal of units	(152,757)	(44,856)	(152,757)	(15,467)
Transfertoinvestmentsinassociates	(17,219)	(4,124)	(17,219)	(4,124)
Closing balance	258,470	285,356	239,020	256,893

The Group’s investment in Commercial and Industrial Property Pty Ltd was impaired to its recoverable amount of $19.5 million, which was determined by reference to the investment’s fair value less costs of disposal. The main valuation inputs used were an EBIT of $8.9 million and earnings multiple of 8.1 times.

(c) Commitments and contingent liabilities of joint ventures

BP Fund 1’s capital commitments contracted for at the reporting date but not recognised as liabilities was $178.3 million (2016: $39.6 million) estimated to settle in September 2017.

BP Fund 2’s capital commitments contracted for at the reporting date but not recognised as liabilities was $70.9 million (2016: $nil) estimated to settle in September 2017.

30 Interests in unconsolidated structured entities

The Charter Hall Group considers its investments in associates and joint ventures to be unconsolidated structured entities. An unconsolidated structured entity is an entity where the Group’s voting rights are not the sole factor in determining whether control over an entity exists. Where the Group determines that control over an entity does not exist, the entity is recognised as an associate or joint venture of the Group for reporting purposes.

The activity and objective of the unconsolidated structured entities of the Group include property investment for annuity income and medium to long-term capital growth and/or development profit.

The aggregate of all the Group’s interests and maximum exposure to loss in unconsolidated structured entities, being the Group’s interests in associates and joint ventures, are included in the table below:

	Charter Hall Group	Charter Hall Group	Charter Hall Property	Charter Hall Property
			Trust Group
	2017	2016	2017	2016
	$'000	$'000	$'000	$'000
Current assets
Trade receivables	1,025	508	-	-
Distributions receivable	27,432	24,379	26,344	21,768
Loans to associates and joint ventures	9,250	6,500	-	-
Investments accounted for using the equity method	144	-	-	-
Total current assets	37,851	31,387	26,344	21,768
Non-current assets
Investments in associates at fair value through profit or loss	29,690	208	29,691	208
Investments accounted for using the equity method	1,477,295	1,136,727	1,376,432	1,041,502
Total non-current assets	1,506,985	1,136,935	1,406,123	1,041,710
Total carrying amount of interests in unconsolidated
structured entities	1,544,836	1,168,322	1,432,467	1,063,478
Total funds under management in unconsolidated
structured entities	18,388,650	14,462,645	18,375,700	14,294,852

Charter Hall Group / 89

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

30 Interests in unconsolidated structured entities (continued)

There are no additional arrangements that would expose the Charter Hall Group or Charter Hall Property Trust Group to losses beyond the carrying amounts.

During the year, the Charter Hall Group earned fees from structured entities in its capacity as investment manager. Refer to Note 26 for further information.

No financial support has been provided to the funds beyond the loans disclosed in the above table.

31 Commitments

(a) Lease commitments – Group as lessee

31 Commitments (a) Lease commitments – Group as lessee
	Charter Hall Group		Charter Hall Property
			Trust Group
	2017	2016	2017	2016
	$'000	$'000	$'000	$'000
Due within one year	3,445	3,943	-	-
Due between one and five years	14,372	14,186	-	-
Over fiveyears	6,411	10,353	-	-
	24,228	28,482	-	-

Commitments are payable in relation to non-cancellable operating leases contracted for at the balance sheet date but not recognised as liabilities.

Capital commitments

Charter Hall Group

The Group had no contracted capital commitments as at 30 June 2017 (30 June 2016: $nil).

Charter Hall Property Trust Group

The Trust Group had no contracted capital commitments as at 30 June 2017 (30 June 2016: $nil).

32 Contingent liabilities

The Group did not have any contingent liabilities as at 30 June 2017 (30 June 2016: $nil) other than the bank guarantees of $14.3 million provided for under the bank facility (refer to Note 18(a)).

Charter Hall Group / 90

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

33 Security-based benefits expense

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

The performance rights and options are unquoted securities and conversion to stapled securities and vesting to executives are subject to service and performance conditions which are discussed in the Remuneration Report.

Charter Hall Group and	2014	2015	2016	2017	Total
Charter Hall PropertyTrust Group	Number	Number	Number	Number	Number
Performance rights
Rights issued 22/11/13	1,422,660	-	-	-	1,422,660
Rights issued 19/12/14	-	1,051,804	-	-	1,051,804
Rights issued 30/11/15	-	-	1,085,276	-	1,085,276
Rights issued 25/11/16	-	-	-	998,453	998,453
Performance rights issued	1,422,660	1,051,804	1,085,276	998,453	4,558,193
Number of rights forfeited/lapsed
Prior years	(131,633)	(72,713)	(54,138)	-	(258,484)
Current year	(845,509)	(60,851)	(151,443)	(121,270)	(1,179,073)
Number of rights vested
Prior years	-	-	-	-	-
Current year	(445,518)	-	-	-	(445,518)
Closing balance	-	918,240	879,695	877,183	2,675,118
Service rights
Rights issued 22/11/13	403,582	-	-	-	403,582
Rights issued 19/12/14	-	554,401	-	-	554,401
Rights issued 30/11/15	-	-	409,195	-	409,195
Rights issued 25/11/16	-	-	-	344,548	344,548
Service rights issued	403,582	554,401	409,195	344,548	1,711,726
Number of rights forfeited/lapsed
Prior years	(4,699)	-	-	-	(4,699)
Current year	-	-	(10,422)	(16,616)	(27,038)
Number of rights vested
Prior years	(398,883)	(244,306)	(19,295)	-	(662,484)
Current year	-	(244,305)	(200,114)	-	(444,419)
Closing balance	-	65,790	179,364	327,932	573,086

(b) PROP expense

Total expenses related to the PROP recognised during the year as part of employee benefit expense were as follows:

	Charter Hall Group	Charter Hall Group	Charter Hall Property	Charter Hall Property
			Trust Group
	2017	2016	2017	2016
	$'000	$'000	$'000	$'000
Performance rights and optionplan	1,414	2,081	-	-

All PROP expenses were recognised in operating expenses during the year (2016: $0.7 million of operating expenses and $1.4 million of non-operating expenses).

Charter Hall Group / 91

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

33 Security-based benefits expense (continued)

(c) Option inputs

The Black-Scholes or Monte Carlo method, as applicable, is utilised for valuation and accounting purposes. The model inputs for the PROP issued during FY 2014 through FY 2017 to assess the fair value are as follows:

Performance rights
Grant date	20/11/2013	20/11/2013	19/12/2014	30/11/2015	25/11/2016
Stapled security price at grant date	$ 3.68	$ 3.68	$ 4.68	$ 4.47	$ 4.55
Opening TSR measurement price	$ 2.34	$ 3.89	$ 4.23	$ 4.64	$ 5.11
Fair value of right	$ 1.42	$ 1.11	$ 2.09	$ 1.41	$ 1.39
Expected price volatility	30.4%	30.4%	30.4%	24.0%	21.2%
Risk-free interest rate	2.9%	3.0%	2.5%	2.1%	1.9%
Service rights
Grant date	20/11/2013	19/12/2014	19/12/2014	30/11/2015	25/11/2016
Stapled security price at grant date	$ 3.68	$ 4.68	$ 4.68	$ 4.47	$ 4.55
Fair value of right	$ 3.42	$ 4.28	$ 4.36	$ 4.37	$ 4.26
Expected price volatility	27.4%	26.5%	24.6%	25.4%	21.8%
Risk-free interest rate	2.6%	2.5%	2.5%	2.0%	1.8%

(d) Charter Hall General Employee Security Plan (GESP)

During the year, eligible employees received up to $1,000 (2016: $1,000) in stapled securities which vested immediately on issue but are held in trust until the earlier of the completion of three years’ service or termination. An expense of $350,000 (2016: $325,000) was recognised in relation to this plan during the year.

34 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 the Charter Hall Property Trust, show the following aggregate amounts:

	Charter Hall Limited	Charter Hall Limited	Charter Hall Property Trust	Charter Hall Property Trust
	2017	2016	2017	2016
Balance sheet	$'000	$'000	$'000	$'000
Current assets	8,986	8,036	62,631	56,276
Totalassets	177,539	204,671	1,300,926	1,081,246
Current liabilities	85,899	116,507	73,166	56,557
Total liabilities	85,899	116,507	73,166	56,557
Shareholders' equity
Issued capital	232,123	204,049	1,456,853	1,201,359
Accumulatedlosses	(140,483)	(115,884)	(229,093)	(176,670)
Net equity	91,640	88,165	1,227,760	1,024,689
Profit/(loss) for theyear	20,013	(3,572)	52,729	58,721
Total comprehensiveprofit/(loss) for theyear	20,013	(3,572)	52,729	58,721

Notwithstanding the net current liability, Charter Hall Limited has been prepared on a going concern basis. Charter Hall Limited has net assets of $91.6 million and substantial cash and cash equivalents, held within Charter Hall Holdings Pty Ltd (CHH) with which Charter Hall Limited is party to a deed of cross guarantee (refer to note 35), to support liquidity.

Notwithstanding the net current liability, Charter Hall Property Trust has been prepared on a going concern basis. Charter Hall Property Trust has total net assets of $1.2 billion, and liquidity through the inter-staple loan with Charter Hall Limited.

(b) Contingent liabilities of the parent entity

Charter Hall Limited and Charter Hall Property Trust had no contingent liabilities as at 30 June 2017 (30 June 2016: $nil) other than the bank guarantees of $14.3 million provided for under the bank facility held by Charter Hall Property Trust (refer to Note 18(a)).

(c) Contractual commitments

As at 30 June 2017, Charter Hall Limited and Charter Hall Property Trust had no contractual commitments (2016: $nil).

Charter Hall Group / 92

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

35 Deed of cross guarantee

Charter Hall Group

Charter Hall Limited and its wholly owned subsidiary, Charter Hall Holdings Pty Ltd (CHH), are parties to a deed of cross guarantee under which each company guarantees the debts of the other. By entering into the deed, CHH has been relieved from the requirement to prepare financial statements and a directors’ report under ASIC Instrument 2016/785 issued by the Australian Securities and Investments Commission.

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

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

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

		Restated
	2017	2016
	$'000	$'000
Statement of comprehensive income
Revenue	205,729	145,055
Depreciation	(3,475)	(2,604)
Finance costs	(9,947)	(12,937)
Foreign exchange (loss)/gain	(156)	153
Share of net gain of associates accounted for using the equity method	2,493	3,066
Amortisation and impairment of intangibles	(5,142)	(8,517)
Other expenses	(131,154)	(106,217)
Profit/(loss) before income tax	58,348	17,999
Income tax benefit	(23,614)	545
Profit/(loss) for theyear	34,734	18,544
Summary of movements in consolidated accumulated losses
Accumulated losses at the beginning of the financial year	(99,557)	(118,101)
Profit for theyear	34,734	18,544
Accumulated losses at the end of the financialyear	(64,823)	(99,557)

Charter Hall Group / 93

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

35 Deed of cross guarantee (continued)

(b) Balance sheet

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

Set out below is a consolidated balance sheet of the closed group consisting of C Pty Ltd.	harter Hall Limited and Charter Ha	ll Holdings
		Restated
	2017	2016
	$'000	$'000
Assets
Current assets
Cash and cash equivalents	117,466	92,912
Trade and other receivables	44,756	35,989
Total current assets	162,222	128,901
Non-current assets
Trade and other receivables	824	829
Investments accounted for using the equity method	59,078	34,819
Investment in associates at fair value through profit or loss	15,074	15,074
Investments in controlled entities	55,662	49,662
Property, plant and equipment	18,764	14,855
Intangible assets	65,400	69,743
Total non-current assets	214,802	195,847
Total assets	377,024	324,748
Liabilities
Current liabilities
Trade and other payables	46,695	25,000
Provisions	1,892	1,680
Total current liabilities	48,587	26,680
Non-current liabilities
Trade and other payables	6,479	5,193
Loans from Charter Hall Property Trust	129,665	158,398
Deferred tax liabilities	7,358	4,048
Provisions	1,303	1,334
Total non-current liabilities	144,805	179,838
Total liabilities	193,392	206,518
Net assets	183,633	118,230
Equity
Contributed equity	291,405	263,320
Reserves	(42,948)	(45,533)
Accumulated losses	(64,824)	(99,557)
Total equity	183,633	118,230

Charter Hall Group / 94

Notes to the consolidated financial statements (continued)

for the year ended 30 June 2017

36 Events occurring after the reporting date

The following event has occurred subsequent to 30 June 2017:

• In August 2017, the CHPT $125 million debt facility was extended by two years with the maturity date changing to August 2020.

Except for the matters discussed above, no other matter or circumstance has arisen since 30 June 2017 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.

Charter Hall Group / 95

Directors’ declaration to securityholders

for the year ended 30 June 2017

In the opinion of the Directors of Charter Hall Limited (Company), and the Directors of the Responsible Entity of Charter Hall Property Trust (Trust), Charter Hall Funds Management Limited (collectively referred to as the Directors):

• (a) the financial statements and notes of Charter Hall Limited and its controlled entities including Charter Hall Property Trust and its controlled entities (Charter Hall Group) and Charter Hall Property Trust and its controlled entities (Charter Hall Property Trust Group) set out on pages 37 to 94 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 2017 and of their performance for the 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 35 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 35.

Note 1(a) confirms that the financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board.

The Directors have been given the declarations by the Managing Director and Group CEO and Joint Acting Chief Financial Officers required by section 295A of the Corporations Act 2001 .

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

==> picture [107 x 47] intentionally omitted <==

David Clarke Chair Sydney 23 August 2017

==> picture [77 x 59] intentionally omitted <==

Independent auditor’s report

To the securityholders of Charter Hall Limited and Charter Hall Property Trust

Report on the audit of the financial reports

Our opinion

In our opinion:

The accompanying financial reports of Charter Hall Group and Charter Hall Property Trust Group are in accordance with the Corporations Act 2001 , including:

• (a) giving a true and fair view of Charter Hall Group's and Charter Hall Property Trust Group’s financial positions as at 30 June 2017 and of their financial performance for the year then ended

• (b) complying with Australian Accounting Standards and the Corporations Regulations 2001 .

What we have audited

We have audited the accompanying financial reports of Charter Hall Group and Charter Hall Property Trust Group which comprise:

• the consolidated balance sheets as at 30 June 2017

• the consolidated statements of comprehensive income for the year then ended

• the consolidated statement of changes in equity – Charter Hall Group for the year then ended

• the consolidated statement of changes in equity – Charter Hall Property Trust Group for the year then ended

• the consolidated cash flow statements for the year then ended

• the notes to the consolidated financial statements, which include a summary of significant accounting policies

• the directors’ declaration for Charter Hall Group and Charter Hall Property Trust Group.

The Charter Hall Group comprises Charter Hall Limited and the entities it controlled at year’s end or from time to time during the financial year and Charter Hall Property Trust and the entities it controlled at year’s end or from time to time during the financial year. The Charter Hall Property Trust Group comprises Charter Hall Property Trust and the entities it controlled at year’s end or from time to time during the financial year.

Basis for opinion

We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial reports section of our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

PricewaterhouseCoopers, ABN 52 780 433 757

One International Towers Sydney, Watermans Quay, Barangaroo, GPO BOX 2650, SYDNEY NSW 2001 T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au

Liability limited by a scheme approved under Professional Standards Legislation.

==> picture [77 x 59] intentionally omitted <==

Independence

We are independent of Charter Hall Group and Charter Hall Property Trust Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial reports in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code.

Our audit approach

An audit is designed to provide reasonable assurance about whether the financial report is free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report.

We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial reports as a whole, taking into account the operational and management structure of Charter Hall Group and Charter Hall Property Trust Group, their accounting processes and controls and the industry in which they operate.

==> picture [210 x 116] intentionally omitted <==

Materiality

• For the purpose of our audit of Charter Hall Group we used overall materiality of $7.5 million, which represents approximately 5% of Charter Hall Group’s operating earnings.

• We applied this threshold, together with qualitative considerations, to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on the financial report as a whole.

• We chose operating earnings (an adjusted profit metric) as the benchmark because, in our view, it is a generally accepted industry metric against which the performance of Charter Hall Group is regularly measured.

• We utilised a 5% threshold based on our professional judgement, noting it is within the range of commonly acceptable profit-related materiality thresholds.

Audit Scope

• Our audit focused on where the directors made subjective judgements; for example, significant accounting estimates involving assumptions and inherently uncertain future events.

• The group audit team identified separate components of Charter Hall Group and Charter Hall Property Trust

==> picture [77 x 59] intentionally omitted <==

Group representing individually financially significant equity accounted investments and instructed component audit teams to perform audit procedures on those components.

• At the group level, procedures were performed over group transactions, other financial statement line items and financial report disclosures.

• The work performed by component audit teams, together with the additional procedures performed at the group level provided us with sufficient evidence for our opinion on the financial reports as a whole.

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial reports for the current period. The key audit matters were addressed in the context of our audit of the Charter Hall Group and Charter Hall Property Trust Group financial reports as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Further, any commentary on the outcomes of a particular audit procedure is made in that context. We communicated the key audit matters to the Audit, Risk and Compliance Committee.

Key audit matter How our audit addressed the key audit matter Investments accounted for using the equity method (Refer to note 11) Charter Hall Group and Charter Hall Property Trust To assess the carrying amount and classification of Group invest in certain underlying funds managed by the Investments accounted for using the equity method Charter Hall Group. These funds comprise listed and our audit included the following procedures: unlisted funds which invest in a range of office, industrial, retail and diversified property portfolios.

• Updating our understanding of market conditions relating to the investments and discussing with management the particular circumstances affecting the investments

• Reperforming the equity method of accounting calculations for a sample of material investments by reference to underlying investee financial information

• For a sample of material acquisitions made during the year, we agreed transaction details to appropriate source documents and considered the relevant accounting classification of the investment in accordance with Australian Accounting Standards

These investments are typically classified as Associates or Joint Ventures as the investor is considered to have significant influence or joint control. Charter Hall Group also holds an equity accounted investment in an unlisted property development company, Commercial and Industrial Property Pty Limited (CIP).

Investments in Associates and Joint Ventures contribute a significant proportion of total income and total assets. Given the significance of these investments to the results and balance sheets, we consider this to be a key audit matter. These investments are presented in the Consolidated Statements of Comprehensive Income and Consolidated Balance Sheets respectively as follows:

• Assessed the carrying value of a sample of equity accounted investments for impairment indicators by reference to the investor’s share of the investee’s net assets or market capitalisation for listed investments as appropriate.

• Share of net profit of investments accounted for using the equity method (Charter Hall Group $207 million and Charter Hall Property Trust Group $198 million)

• Investments accounted for using the equity method (Charter Hall Group $1,477 million and Charter Hall Property Trust Group $1,386 million).

Together with PwC internal valuation experts we considered the Group’s impairment assessment of its investment in CIP and assessed the key estimates and assumptions adopted by the Group in performing

==> picture [77 x 59] intentionally omitted <==

Key audit matter	How our audit addressed the key audit matter
Australian Accounting Standards require that these	that assessment.
investments are initially recognised at cost and adjusted
thereafter for the post-acquisition change in the
investor’s share of the investee’s total comprehensive
income and distributions.
Revenue recognition - Charter Hall Group
(Refer to note 4)
Charter Hall Group revenue for the year ended 30 June 2017 was $213 million. This revenue is substantially derived from funds management activities and comprises recurring and non-recurring fee revenue.	Our procedures included evaluating the design and implementation of relevant controls relating to the recognition and measurement of revenue.
Recurring fee revenue includes fund management fees,
property management fees and expense recoveries. Non-	We recalculated revenue for a sample of fees based on
recurring fee revenue includes transaction and	management agreements or trust constitutions and
performance fees.	traced a sample of receipts to bank statements as
	appropriate.

We considered revenue recognition to be a key audit matter due to the:

• increased judgement and complexity in relation to the recognition and measurement of performance fees

• financial significance of revenue to the Charter Hall Group results.

Intangible assets – management rights –

Charter Hall Group

(Refer to note 13)

Charter Hall Group’s intangible assets comprise management rights in relation to four of the Group’s managed funds. These assets had a carrying value of $65 million at 30 June 2017.

Other than the Charter Hall Office Trust management rights, these management rights are considered to have indefinite useful lives and accordingly an annual impairment test is required by Australian Accounting Standards.

Charter Hall Group performed an impairment test for each of the management rights assets with indefinite useful lives by calculating the value in use of each asset. These tests require judgement in relation to key assumptions which are applied to future revenue forecasts. The key assumptions used include growth rates, discount rates and terminal value multipliers. As a

For a sample of impairment tests performed by the Charter Hall Group over management rights assets with indefinite useful lives, our audit included the following procedures:

• We evaluated cash flow forecasts and the process by which they were developed, including performing tests over the mathematical accuracy of the underlying calculations and comparing forecasts to approved budgets

• We compared the current year (2017) results with figures included in the forecasts made in the prior period (2016) to assess the historical reliability of management’s forecasting process

• We obtained input from PwC valuation experts and considered the methodology applied and assessed the appropriateness of key

==> picture [77 x 59] intentionally omitted <==

Key audit matter	How our audit addressed the key audit matter
result of the judgement required in determining key	assumptions used.
assumptions, we considered this to be a key audit matter.	We also considered whether there were any
The impairment tests performed by Charter Hall Group	impairment indicators in relation to the Group’s
at 30 June 2017 supported the carrying value of each	management rights held over the Charter Hall Office
management rights asset.	Trust by reference to the underlying performance of
	the Fund and related fee revenue.
The Charter Hall Group also performed an assessment of
the carrying amount of the management rights in relation
to Charter Hall Office Trust for impairment indicators at
30 June 2017 and determined that there were no
impairment indicators.

Other information

The directors are responsible for the other information. The other information comprises the Directors’ Report (but does not include the financial report and our auditor’s report thereon), which we obtained prior to the date of this auditor's report. We also expect other information which will be included in the Annual Report to be made available to us after the date of this auditor’s report, including the Chair’s Report, MD and Group CEO’s letter, Corporate Governance Statement, Securityholder Analysis and other information on the performance of the Group for the year.

Our opinion on the financial report does not cover the other information and we do not and will not express an opinion or any form of assurance conclusion thereon.

In connection with our audit of the financial report, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

When we read the other information not yet received as identified above, if we conclude that there is a material misstatement therein, we are required to communicate the matter to the directors and use our professional judgement to determine the appropriate action to take.

Responsibilities of the directors for the financial reports

The directors 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 financial reports that give a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of financial reports that give a true and fair view and are free from material misstatement, whether due to fraud or error.

==> picture [77 x 59] intentionally omitted <==

In preparing the financial reports, the directors are responsible for assessing the groups’ ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Groups or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the financial reports

Our objectives are to obtain reasonable assurance about whether the financial reports as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinions. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report.

A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our auditor's report.

Report on the remuneration report

Our opinion on the remuneration report

We have audited the remuneration report included in pages 18 to 33 of the directors’ report for the year ended 30 June 2017.

In our opinion, the remuneration report of Charter Hall Limited for the year ended 30 June 2017 complies with section 300A of the Corporations Act 2001.

Responsibilities

The directors of Charter Hall Limited are responsible for the preparation and presentation of the remuneration report in accordance with section 300A of the Corporations Act 2001 . Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards.

PricewaterhouseCoopers

Wayne Andrews Partner

Sydney 23 August 2017