CHARTER HALL GROUP

Charter Hall Group Half Year Update Period ending 31 December 2011

ASX CODE:CHC ARSN 113 339 147

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Dear Investor

We are pleased to report solid performance across Charter Hall Group and our managed funds for the six months to 31 December 2011.

The Group delivered statutory profit of $19.6 million and operating earnings for the half year on a normalised basis of $33.2 million[1] , up 7.8% on the prior corresponding period. Earnings per security increased 6.6% on the prior corresponding period to 11.24 cents per security and half year distribution per security increased 13.8% to 9.10 cents per security.

As a fully integrated property group, our business comprises three core income streams – property investment, property funds management and development investment.

Property investment

The Group co-investment in its 19 managed funds was $575.7 million[2] at the half year, strongly aligning Charter Hall with our third party investors’ interests. The Group’s managed funds portfolio, which is diversified across the key property sectors of office, retail and industrial, performed strongly with over 173,775 square metres of space leased / re-leased across the total portfolio increasing Charter Hall’s total portfolio average occupancy to 97% and delivering a weighted average lease expiry of 6.5 years.

The income yield from the portfolio increased to 7.0% (annualised) from 6.4% in the year ending 30 June 2011. This strong operational performance, coupled with a reduced cost of debt and fixed rent reviews, were key contributors in enhancing the quality of earnings in these fund portfolios.

Property funds management

The value of property funds under management at 31 December 2011 was $10.1 billion compared to $10.7 billion at 30 June 2011, predominately reflecting Charter Hall Office REIT’s (CQO) United States (US) asset sales of $0.5 billion.

We have continued to implement the organisational restructure mentioned in our last Annual Report, ensuring we further enhance the Group’s effectiveness and right size our Australian operations post the sale of the CQO US platform. Together with growth in revenue this has resulted in the EBITDA[3] margin on revenue for this business increasing to 35.3%.

Unlisted funds

Since 1 July 2011, Charter Hall has raised a total of $154 million in its Core Plus Office Fund (CPOF) and Core Plus Industrial Fund (CPIF), enabling the Group to continue to build its capacity to source value accretive acquisitions and pre-leased developments. Charter Hall has also raised an additional $29 million in CPIF post 31 December 2011. These raisings resulted in the achievement of the target $200 million and $150 million capital raisings for both Funds.

Over the half year, CPOF and CPIF continued to outperform the weighted average performance of their respective core fund peers as measured by the IPD / Mercer Wholesale Unlisted Property Funds Index.

Charter Hall expects to see continued investment commitments from domestic and international wholesale clients as they take advantage of the current environment of low interest rates and strong market fundamentals with low vacancy levels, limited new supply and stable tenant demand in most metropolitan markets.

Within the retail funds platform, Charter Hall’s Direct Industrial Fund was awarded the Best New Unlisted Property Fund of the Year at the Property Investment Research (PIR) Annual Forum. The Charter Hall 130 Stirling Street Trust was also recognised as Australia’s strongest performing retail unlisted property fund in the IPD / PFA Retail Unlisted Property Funds index for the 12 months to 31 January 2012. These two accolades reinforce Charter Hall’s strong position in the retail property funds management industry.

Listed funds

Over the half year, both CQO and Charter Hall Retail REIT (CQR) outperformed the S&P / A-REIT 200 Index.

CQR continued to deliver on its strategic objective to build the quality and strength of its domestic portfolio, acquiring three Australian properties all of which are anchored by dominant Coles or Woolworths supermarkets. Its Australian portfolio performed strongly with occupancy of 98.7% at 31 December 2011, same property net operating income growth of 3.5%[4] and specialty rental rate growth of 4.1% following 82 new lease and 77 renewal transactions completed in the half year.

Pre CQO net earnings associated with the sale of its U.S. Platform, costs associated with the closure of its US office, costs of retaining management rights (net CQO fee) and organisational restructure costs
Calculated on a net contribution basis
Earnings before interest, taxes and amortisation
Calculated on a 12 month rolling basis

CQO also delivered strong operational results within its Australian portfolio achieving occupancy of 97% and maintaining a weighted average lease expiry of 4.5 years. During the period, CQO completed the sale of four of its 14 US assets as part of the sale of the entire US portfolio to entities affiliated with Beacon Capital Partners, LLC. A further three US assets have closed post 31 December 2011.

Further to our update in the Annual Report, Charter Hall Office Management Limited (CHOML) entered into a Scheme Implementation Agreement on 31 December 2011 with Reco Ambrosia Pte Ltd (an affiliate of the Government of Singapore Investment Corporation (Realty) Pte Ltd), the Public Sector Pension Investment Board (of Canada) and a member of the Charter Hall Group (the ‘Bidders’) in relation to a proposed trust scheme (the ‘Proposal’) under which they will acquire all CQO units, except certain of those held by the Bidders and their associates (‘Scheme Units’) subject to approval of unitholders and satisfaction of certain other conditions.

CHOML’s Independent Directors unanimously recommended the Proposal in the absence of a superior proposal and the Independent Expert has found the Proposal to be fair and reasonable to, and in the best interests of, holders of Scheme Units in the absence of a superior proposal.

The Proposal was approved at the CQO unitholder meeting held on 15 March, with over 96% of CQO unitholders that voted, voting in favour of the Proposal. Implementation remains subject to completion of CQO’s US assets sales and a number of other conditions precedent. These are expected to be completed by the end of March, which would mean CQO would be delisted upon the Proposal becoming effective shortly thereafter and implementation in mid-April, at which time it would become a Charter Hall managed wholesale fund, Charter Hall Office Trust.

Development Services

The Group has an active $1.4 billion development pipeline being managed for a range of Charter Hall managed funds and third party clients, with 13 development projects currently underway. The Group has recently commenced undertaking development management projects for third party clients and expects to grow this revenue stream over the medium term.

Development investment

Charter Hall has $46 million co-invested across eight development projects and we expect to be able to start recycling capital from these developments in mid-2012. We are currently sourcing both pre-lease tenants and capital partners for the 685 La Trobe Street, Melbourne project (to be undertaken in a joint venture) which will accommodate a 38,000 square metre A-grade office tower.

Charter Hall also has a 50% interest in Commercial and Industrial Property Pty Ltd (a national pre-lease developer) which contributed $0.9 million of earnings after tax to the Charter Hall earnings for the half year ending 31 December 2011.

Capital management initiatives

Charter Hall has low balance sheet gearing of 8.4%[5] and a sound liquidity position to manage its working capital and investment requirements. At 31 December 2011, the Group had available liquidity of approximately $85 million[6] comprising a combination of cash and undrawn debt facilities.

Charter Hall also implemented a number of capital management initiatives, continuing to improve the balance sheet strength, liquidity position and debt duration for its managed funds.

Outlook

Charter Hall aims to grow investor wealth by delivering smart property outcomes. Looking forward we remain focused on generating a higher return on equity through:

Maintaining the strong relative performance of our listed and unlisted managed funds;
Optimising returns from Charter Hall capital invested in funds and partnerships, recycling equity into higher return investments and improving earnings on underlying co-investments;
Growing the platform with a target growth in assets under management of 6-10% (post the US asset sales), EBITDA expansion through scalability, operational excellence and cost control/margin efficiencies;
Reducing risk through diversifying sources of debt and extending the overall debt expiry profile;
Charter Hall has balance sheet gearing of 1.4% on a deconsolidated basis
Excludes DRF cash balance and debt facilities and before 1HFY12 distribution
Demonstrating capability and high performance through access to high quality asset transactions and multiple sources of equity;
Recruiting, retaining, developing and motivating a high performing and engaged team; and
Integrating long term sustainability practices across the platform, ensuring best practice corporate governance and strengthening corporate citizenship in the communities in which we operate.

While the global economic environment remains challenging, Charter Hall is continuing to focus on delivering strong investment returns, growing the Australian business and improving operational efficiency of the Group.

Subject to unforeseen events, Charter Hall expects FY12 operating earnings to be approximately 24 cents per security. Approximately 2 cents per security relates to the net earnings associated with CQO’s US portfolio divestment, costs associated with the closure of the US office, costs associated with retaining the CQO management rights and implementation of the efficiencies identified in the organisational restructure.

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David Southon Joint Managing Director

David Harrison Joint Managing Director

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Results

Key financial results

Operating earnings of $33.2 million[1] up 7.8%, 11.24 cents per security[1] up 6.6%

Half year distribution up 13.8% to 9.10 cents per security

Net tangible assets of $2.19 per security

Balance sheet gearing of 8.4%[2]

Funds under management of $10.1 billion

Charter Hall is continuing to focus on delivering strong investment returns, growing the Australian business and improving operational efficiency of the Group

Pre CQO net earnings associated with the sale of its U.S. Platform, costs associated with the closure of its US office, costs of retaining management rights (net CQO fee) and organisational restructure costs
Calculated as total debt net of cash divided by total assets net of cash, consolidating the Direct Retail Fund. On a de-consolidated basis, Charter Hall has gearing of 1.4%

Half Year Results

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Group Key Metrics 1HFY12 1HFY11 Change
Statutory profit after tax [1] $19.6m $46.8m (58.1%)
Operating earnings (pre net CQO fee and
$33.2m $30.8m 7.8%
organisational restructure)
Operating earnings (post net CQO fee and
$30.9m $30.8m 0.3%
organisational restructure)
Operating earnings per security (pre net CQO
11.24cps 10.54cps 6.6%
fee and organisational restructure)
Operating earnings per security (post net CQO
10.47cps 10.54cps (0.7%)
fee and organisational restructure)
Distribution per security 9.10cps 8.00cps 13.8%
Balance Sheet At 31 Dec 2011 At 30 June 2011 Change
Funds under management [2] $10.1bn $10.7bn (5.2%)
Total Group assets $936m $958m (2.3%)
Net asset value (per security) $2.53 $2.55 (0.8%)
Net tangible assets (per security) $2.19 $2.21 (0.9%)
Balance sheet gearing [3] 8.4% 8.1% 0.3%
Look-through gearing 33.0% 36.6% (3.6%)
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Notes:

The difference between the operating earnings (post net CQO Fee and the organisational restructure) of $30.9 million and the statutory profit of $19.6 million (equating to $11.3 million) is predominantly comprised of non-cash items. These include net fair value adjustments ($0.6 million), security based benefits expense ($1.3 million), income tax expense associated with the Group and managed funds ($4.0 million), gains / loss on sale of derivatives, investments and property ($2.1 million) and amortisation and other expenses ($3.3 million).
FUM has been adversely affected by CQO US asset sales of $0.5bn.
Calculated as total debt net of cash divided by total assets, consolidating DRF. On a net contribution basis (de-consolidated), Charter Hall has gearing of 1.4%.

To access information on your holding or to update/change your details contact: Unit registry Link Market Services Limited Locked Bag A14 Sydney South NSW 1235 Telephone 1300 303 063 (within Australia) +61 2 8280 7134 (outside Australia)

[email protected]

Website

www.linkmarketservices.com.au

For other enquiries relating to your investment contact: Manager’s office Level 11, 333 George Street Sydney NSW 2000

GPO Box 2704 Sydney NSW 2001 Telephone

1300 365 585 (within Australia) +61 2 8280 4000 (outside Australia)

Facsimile

(02) 8908 4040 (within Australia) +61 2 8280 4040 (outside Australia)

[email protected]

Website

www.charterhall.com.au

This is the half year update for Charter Hall Group ARSN 113 339 147 (‘CHC’).

Disclaimer

Charter Hall Limited ABN 57 113 531 150; and Charter Hall Funds Management Limited (ABN 31 082 991 786 (AFSL 262861) (CHFML) is the responsible entity Charter Hall Property Trust.

Performance disclaimer

Past performance is not a reliable indicator of future performance. Due care and attention has 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 CHFML. Actual results may vary from any forecasts and any variation may be materially positive or negative.

Advice warning

This half year update has been prepared for general information purposes only and is not an offer or invitation for subscription or purchase of, or recommendation of, securities. It does not take into account any potential investors’ personal objectives, financial situation or needs. Before investing, you should consider your own objectives, financial situation and needs or you should obtain financial, legal and/or taxation advice.

CHFML does not receive fees in respect of the general financial product advice it may provide, however it will receive fees for operating CHC which, in accordance with CHC’s constitution, are calculated by reference to the value of the assets and the performance of CHC. Entities within the Charter Hall Group may also receive fees for managing the assets of, and providing resources to CHC. For more detail on fees, see CHC’s latest annual report. To contact us, call 1300 365 585 (local call cost).

Complaints handling

A formal complaints handling procedure is in place for CHC. CHFML is a member of the Financial Ombudsman Service (‘FOS’). Complaints should in the first instance be directed to CHFML. If you have any enquiries or complaints, please contact the Complaints Officer on 1300 365 585 (local call cost), or email [email protected]