CHARTER HALL GROUP Audio Webcast

CHARTER HALL GROUP (CHC)

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CHARTER HALL GROUP (CHC) Events

Company (Stock Code)	Date/Time	Event	Timezone: Australia/NSW
CHARTER HALL GROUP (CHC)	Mon, 25 Aug 2008 03:30PM	CHC - Annual Results Presentation - David Southon, Joint Managing Director; David Harrison, Joint Managing Director; Peter Roberts, Chief Financial Officer, Paul McKenna, MD, CIP
CHARTER HALL GROUP (CHC)	Mon, 10 Nov 2008 02:00PM	Annual General Meeting Ballroom 1, Westin Hotel, 1 Martin Place, Sydney, NSW
CHARTER HALL GROUP (CHC)	Fri, 29 Aug 2008	Date Payable
CHARTER HALL GROUP (CHC)	Mon, 25 Aug 2008	Full Year Results
CHARTER HALL GROUP (CHC)	Mon, 30 Jun 2008	Record Date
CHARTER HALL GROUP (CHC)	Tue, 24 Jun 2008	Ex Div Date
CHARTER HALL GROUP (CHC)	Fri, 29 Feb 2008	Date Payable
CHARTER HALL GROUP (CHC)	Tue, 26 Feb 2008	Interim Results
CHARTER HALL GROUP (CHC)	Mon, 31 Dec 2007	Record Date
CHARTER HALL GROUP (CHC)	Fri, 21 Dec 2007	Ex Div Date
CHARTER HALL GROUP (CHC)	Thu, 25 Oct 2007 02:00PM	Annual General Meeting The Hilton Hotel, Level 4, Room 1, 488 George Street, Sydney
CHARTER HALL GROUP (CHC)	Fri, 31 Aug 2007	Date Payable
CHARTER HALL GROUP (CHC)	Tue, 21 Aug 2007	Full Year Results
CHARTER HALL GROUP (CHC)	Fri, 29 Jun 2007	Record Date
CHARTER HALL GROUP (CHC)	Mon, 25 Jun 2007	Ex Div Date
CHARTER HALL GROUP (CHC)	Wed, 28 Feb 2007	Date Payable
CHARTER HALL GROUP (CHC)	Tue, 20 Feb 2007	Interim Results
CHARTER HALL GROUP (CHC)	Fri, 29 Dec 2006	Record Date
CHARTER HALL GROUP (CHC)	Thu, 21 Dec 2006	Ex Div Date
CHARTER HALL GROUP (CHC)	Thu, 26 Oct 2006 12:00PM	Annual General Meeting Angel Place Auditorium, 123 Pitts Street Sydney NSW 2000
CHARTER HALL GROUP (CHC)	Wed, 30 Aug 2006	Date Payable
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CHARTER HALL GROUP (CHC)

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DAVID SOUTHON, JOINT MANAGING DIRECTOR; DAVID HARRISON, JOINT MANAGING DIRECTOR; PETER ROBERTS, CHIEF FINANCIAL OFFICER, CHARTER HALL GROUP (CHC)

“Annual Results Presentation”

http://www.brr.com.au/event/48501

 

MONDAY, AUGUST 25, 2008, 3:30 PM.

 

            CHC    Firstly, I’d like to welcome you all to Charter Hall’s FY ’08 Annual Results

10                    Presentation. And I know it’s a very busy time of year for you all, so thank you for taking the time to come along and listen to our presentation today. I’d also specifically like to welcome members of the Charter Hall Board who are joining us here today: Our Chairman Kerry Roxburgh, Deputy Chairman Roy Woodhouse, Executive Chairman Cedric Fuchs, also independent non

15                    Executive Director, Glenn Fraser; so welcome to those members of the Board that are here today, and Patrice Derrington. They’re all sitting here in the front row, for those of you that haven’t met them and would like to meet them.

 

                        Just to introduce our team, most of you know our team but just to go through

20                    the introductions, most of you know, I’m David Southon, the Joint Managing Director. I’ve got my other Joint Managing Director here, David Harrison, alongside David is Peter Roberts and to Peter’s left is Paul McKenna, the Managing Director of CIP, a business that Charter Hall has 50% of. And Paul will present to us today a slide on his business and its contribution to Charter

25                    Hall for FY ’08. It’s a fair bit to get through today, so we will move through the slides fairly quickly. You can hold your questions till the end and happy to run through those with you in some detail at the end of the presentation. Just looking at the agenda quickly, what we’ll look through today are the highlights of the results for FY ’08. We’ll go through an earnings overview, giving you a

30                    bit more of insight into the composition of those earnings, Charter Hall Property Trust review and run through the returns from the Trust. Also looking closely at our managed funds, which is obviously important engine for the business. Looking at the corporate side of the business Charter Hall Limited, Peter Roberts will run through the financial summary, and then we’ll have

35                    some slides on the outlook and the strategy for the group going forward.

 

                        So just stepping through some of the highlights, some of you will have had the opportunity to look at the presentation ahead of time somewhat, but as you can see there some of the pleasing elements on this slide, 34% growth in

40                    underlying earnings for security, up to 12.74 cents for security, 39% increase in funds under management from 2.8 billion up to 3.9 billion over 12 months. We’ve also really outperformed our target IRRs across our various funds, which we’ll go into in a little bit more detail in the presentation. Also the group using its in-house development skills has been able to deliver 68 million of

45                    development profits across our core plus and opportunistic funds, which is an important aspect of how the groups managed to create value across a number of funds. And we’ll look at that in a little bit more detail later in the presentation. The business platform for Charter Hall is now well established. We have with the Core Plus Retail Fund going off-balance sheet this year, now gearing has dropped now at the headstock level to around 7%. We’ve established two new funds during the year bringing the Umbrella Fund and the Core Plus Retail Fund. And we now have a total of 8 unlisted funds across the risk and return spectrum that the group manages. The table here

5                      just highlights the various numbers for the year and their comparison to the previous corresponding period in FY ’07. There are some pretty substantial increases there as you can see. Drawing your attention though to -- at the top of the table there, the underlying net profit after tax of 52.7 million, an increase of 54%. Underlying EPS as I mentioned, up 34% and our distribution

10                    for security as we indicated back in June at 12.6 cents for security, up 21% from last year. I’ve already mentioned, total assets of the group at 802 million. NTA is an important one, up 6%. Last reported NTA was $1.18 in December. We’re now at $1.19. We’ve managed to hold the line there and we’ll go into a little bit more detail as to how we’ve managed to do that through active

15                    management of the group, strong rental increases but also the creation of margins and value across our -- the plus element of the Core Plus Fund. And our gearing at 30 June is 31%, but as I mentioned with post-CPRF coming off-balance sheet, it is now down to 7%. Moving straight into the earnings. If we have a look firstly at the group revenue, the group revenue growth of 72%,

20                    you can see there that we’ve got -- the composition between the Trust and Charter Hall Limited, Charter Hall Limited up actually 87% and the Trust up 57.6% giving a total of 72% increase up to the total revenue of 88.5 million. The revenue composition there gives you the breakdown of the property trust revenue versus the services fees, performance fees, transactions fees and

25                    development. You’ll see good increases there in the Charter Hall Property Trust revenue up 57.6% as I mentioned, and the services fees are up 70% in the corporate side of our business. Performance fees have stayed pretty close to where they were in ’07. As we’ve mentioned previously and we’ll talk a little bit more the way we’ve structured our business model is that even

30                    though performance fees take on some elements of annuity characteristics and we’ll talk about that in a little bit more detail later in the presentation; transaction fees have had a significant increase. And the majority of that was the Umbrella Fund and the launch of that very successful fund and the transaction fees associated with that. And on the development side, the main

35                    driver for that increase has been the $7.2 million contribution from CIP. Just some further insight into that revenue breakdown between the trust, just another way of showing it in percentage terms, you’ll see there that 69% of that revenue comes from the property trust and also services fees. On the EBITDA another pleasing increase, 76%, and again we’ve given you the

40                    composition between the trust and the corporation. The corporation side of our business has actually increased its EBIT by 117%, which is a significant increase for an aspect of our business that’s not well recognized or valued in the current environment. You can see there though that the property trust has also increased in its EBITDA contribution by 56% over the previous

45                    corresponding period given that 76% increase. So just coming back to that split between the trust and the corporate, annuity style EBIT contributes to 78% of the EBITDA, which I think is an important focus issue in the current environment that we’re in. But we also, given our model, are pretty confident about the other contribution in corporate, the 22% that we’ll talk through a bit later. So the group EPS and DPS really underlying EPS and DPS is -- the underlying EPS is really what we’re more focused on. You can see there the 34% increase, but the other significant point on this slide is that EPS has overtaken DPS. And that’s a trend that we would like to see continue and to

5                      be maintained, and again we’ll put a little bit more colour on that later in the presentation. So I’ll hand over now to David Harrison, who will give you a run through on the property trust.

 

            CHC    Thanks, David. That feature is the end product of office development we’re

10                    just doing in the Core Plus Office Fund, which was the subject of last week’s stock change announcement with 5,000 square meter pre-lease to the Commonwealth government. Someone asked me to explain what the photos are. The property trust, as most of you know, has gone through a transformation during FY ’08 in July with the first close of the Core Plus Retail

15                    Fund. We took a decision to regularly update the vast majority of all of the assets across our managed funds on a three-monthly basis during the course of calendar year 2008 given the substantial movements in the market. So 90% of the portfolio was re-valued independently. Twenty-eight basis point expansion -- that should be basis points, not percentage, sorry, 28 basis point

20                    expansion in the weighted average cap rate and a 34% basis point weighted average expansion in the discount rate that has been applied to the valuations. And normally that would result in some valuation declines. We’ll go into a little more detail, but one of the pleasing things across all of our managed funds, the Core Plus Funds, has been that the cap and discount

25                    rate expansion has been cushioned by very strong rental growth and more importantly the under-renting of the portfolios together with the opportunity to take up unrealised gains in projects as they move through to construction completion. Just a summary of the Charter Hall Property Trust, you can see at year-end $497 million is the value of the investments. This is post the close

30                    of the Core Plus Retail Fund. The table shows you the average weighted market cap rate across the CHPT portfolio at 7%. Fixed rental reviews at 3-1/2% or 3.55%, that’s a minimum rent review. So that’s not having regard to any forecast increases in market reviews. And as I said earlier, on average the portfolios -- the Core Plus or Investment Portfolios are some 10% below

35                    market rent. You can the value of discount rate is close to 9% at 8.9%, and we’re sitting at about 93% of market rent. Importantly the like-for-like change in cap rate has been at 28 basis points, that’s being a little higher in some portfolios. And as I said earlier, the actual like-for-like movement in the discount rate has been closer to 40 basis points. The Property Trust has a

40                    very attractive weighted average lease expiry at 8.7 years. It’s something that we are being particularly focused on in the rollout of the Core Plus investment funds. Whilst up to 30% of those funds are undertaking enhanced or development activities, we have maintained a very strong weighted average lease expiry across those funds. The sector diversity is about where we

45                    would like to see it, 46% office, 35% retail and 19% industrial, a very typical balanced fund asset allocation by sector. Asset diversification, you can see there the largest investment by the listed group now is the co-investment in the $1.5-billion office fund. We have a 31% of the CHPT investments invested in the Core Plus Retail Fund. And then as you can see, smaller investments in the Core Plus Industrial Fund, DPF, CHOF, and one direct property that remains on our balance sheet that we intend selling over the course of FY ’09. Geographic diversity, as you can see very well-balanced between Victoria and New South Wales, Queensland and WA, and a small allocation

5                      in New Zealand and South Australia and AZT. I think in the market that we have experienced with the credit crunch and focus on sustainable income streams, one of the pleasing things about Charter Hall’s tenant list is that we have a very high calibre of tenant covenant. As you can see there, I’m not sure how clear it is, a number of large corporates or government represent

10                    our top 20 tenants: Telstra, subsidiaries of Wesfarmers, St. George Bank, Coles obviously now a subsidiary of Wesfarmers, Harvey Norman, you’ve got the Australian government, we’ve got various state government tenancies in Queensland and Victoria, Woolworths, Mercer, et cetera. One of the things that we do focus on in both the existing assets and in the development assets

15                    is securing long-term leases from covenants, strong covenants and a fairly consistent focus on the sustainability of earnings.

 

                        Just quickly, the Core Plus Retail Fund, I won’t go into a lot of detail, this has been a subject of an ASX announcement that we released in July with the

20                    first close. We have raised 95 million of external equity, Charter Hall, as it has done with all of the Core Plus series of funds, sells down its interest from 100% to a long-term stated target of 20%. This happened with the office fund. It happened with the industrial fund last April, where we had an initial close with -- that initial close were 46% and during the course of FY ’08, we’ve sold

25                    that down to a 25% stake. The equity raising continues and we’ll have progressive equity closes during FY ’09 to the Core Plus Retail Fund. Also the debt facility that has been secured, which is a club facility between National Australia Bank and St. George Bank, is a new three-year debt facility. It’s non-recourse. The security is over the assets, and it’s been

30                    pleasing in that this facility and various others, as you will see from our debt profile, we have continued to secure support from the major banks in Australia: NAB, St. George Bank, Commonwealth Bank, ING, et cetera, in extending the debt maturities and the facility terms across our funds. Just quickly, the Core Plus Retail Fund, fund metrics 595 million of assets,

35                    diversified at 7 million assets, the fund gearing is currently at 43%. I’ve just talked about that facility. Weighted average hedge expiry of 6.3 years, which is a feature of most of our funds, which you can also look up in the Appendix. And obviously, having just launched the fund, now IRR performance statistics at this stage, but importantly, a nine-year weighted average lease expiry,

40                    which I think is going to be important in this market in looking at where cap rates are for long-lease assets versus the shorter high-risk assets. Core Plus Office Fund launched in June 2006, now $1.6 billion on a fully completed basis, number of assets 17, CHPT stake at 23%. It’s been a very strong performing fund.

45

                        As you can see at the bottom, 99.2% gross IRR. Unit price has risen from inception at $1 to $1.22, weighted average cap rate for a very strong office portfolio, with predominantly new office assets in growth markets, a WALE of eight years, average fixed minimum increases of 4% per annum, and this fund will, in our opinion, continue to grow and continue to manage strong return -- sorry, secure a strong IRRs for our investors. Similarly the Core Plus Industrial Fund loss -- I mean, launched in April of 2007 is now $340-odd million. The fund to date has achieved 16.1% gross IRR. Excuse me, the unit

5                      price is up to a $1.10, weighted average cap rate over 7% and that statistic at the bottom 12.6 weighted average lease expiry sets that fund up for -- to be well positioned to take advantage of enhanced acquisition opportunities. There are still some 40% of the 350 million of equity that is still to be allocated and drawn in that fund, placing it in a good position to take advantage of

10                    opportunities that emerged. Diversified property funds set up in 2005. It’s a retail fund where we’ve raised equity from financial planners, dealer groups and has received good support in the market, 249 million of assets. We have de-leveraged this fund. It has a maximum LVR of 65%. We’ve moved the fund gearing down to 48%, that’s something that we are looking at doing

15                    across the funds, a weighted average hedge expiry of 5.9 years and a weighted average lease expiry of 7.6 years. As you can see, the fund has performed very well with a 25-1/2% gross IRR to date. And the performance fee that -- which is payable at the third anniversary of this fund is payable to Charter Hall in November 2008.

20

                        Just moving on to Charter Hall Limited, the corporation, which is the fund manager and essentially the development machine within our business. We just wanted to highlight across the funds where the investment returns are delivered. Obviously, the direct property through FY ’08 were the retail

25                    assets. We’ve just got the Chullora industrial asset still on the balance sheet, and we’re going through various value-add initiatives there and we’ll look to sell that. Co-investment income obviously comes from our co-investment in the office fund, the industrial fund, the retail fund, DPF and CHUF. And the development investment income is our investment in Paul’s CIP business and

30                    our co-investment in the CHOF 4 and CHOF 5 Opportunistic Funds. In terms of the fees that enhanced the return on equity to the group, as you can see base fund management fees apply right across all of the managed funds, our property management fees obviously across the investment funds, development management fees across both the opportunistic funds and the

35                    core plus series of funds and that has been a significant contributor to the out-performance in those funds, and equally, performance fees across both the opportunistic and the core plus series of funds and the retail investment funds and transactional fees really relate to the retail business.

 

40                    Some of you who followed our presentations have seen this slide in a couple of different format. What we’re trying to highlight is the return on equity that comes from being a co-investor in our managed funds as opposed to being an asset-heavy listed entity that just earns the assets directly. In terms of the first table on the left-hand side, indicative return on equity based on actual

45                    revenue for each of the funds have shown there CPOF 20%, CPIF 15%, CHOF 4 & 5 a meagre 413% but that is a reflection of our very small co-investment in CHOF 4, and we’ll go into a little more detail on that co-investment going forward. And equally in DPF, which is a retail equity fund, the return on equity is higher because those funds attract acquisition fees.

 

                        As you can see, with the right-hand table, provides a little more detail on that and what we have highlighted there is pre-performance fees, the indicative return on equity for Core Plus Office Fund and Core Plus Industrial Fund at

5                      25.3% and 19.2%, respectively. Then if you move into DPF, clearly because of the acquisition fees, the return on equity rises to 26.9%, that’s without any valuation uplift or performance fee potential, and obviously with those two metrics, the ROE rises to 43%, which is why when we have said in the past, we are confident of deploying capital in an accretive way, you can see our co

10                    investment strategy allows us to do that across those funds. And obviously on the right-hand side, the CHUF is indicative of our actual investment during FY ’08 and as I said earlier, that co-investment stake is relatively modest to 300,000 because of the 3% minor investment stake we had in CHOF 4, that sort of return on equity would not be maintained, obviously, but the principal

15                    is that as we move forward, we get a very high return on equity from our co-investments in CHOF 5 and then ultimately in CHOF 6, which we’ll be launching during FY ’09.

 

                        In summary, funds under management just splits to $3.9 million – billion

20                    between 3.3 in the wholesale-invested funds and 596 in the retail invested funds and obviously one direct asset remaining. Group Fund, once again, just highlights the growth in the individual components. David went through that earlier. I won’t dwell on that. But it does indicate that not only have we been able to grow our fund over a challenging year, we still have an allocated

25                    equity commitment so those are going to allow us to continue to grow during FY ’09 and beyond. Just interesting split in the fund growth between wholesale and retail, 66% growth in wholesale of a relatively significant base that sets us up for further growth going forward. And you know importantly, we now have a diversity where we have an office, an industrial and a retail

30                    fund in the Core Plus series, and obviously the two retail funds that had been well supported during FY ’08. Just the retail fund, at 600 million despite the challenges in the retail sector, we believe that there’ll be a flight to institutional quality managers in this space, people -- and that’s been vindicated by the very successful raising we had for our Charter Hall Umbrella Fund, where

35                    retail investors engaged and supported that fund because they wanted to co-invest alongside very large domestic and international wholesale investors that have invested in our wholesale funds. So we expect that that will create opportunities for Charter Hall in the next 12 to 18 months to grow our penetration in the retail fund sector. Just importantly, capacity to grow, the

40                    slide shows you a $3.9 billion of existing fund. There is further both acquisition capacity, but also there’s a capacity to grow the fund through the development pipeline and what this highlights is that there’s an additional $700 million of development pipeline and an additional $1 billion of acquisition capacity, which means that the group has the capacity to go from $3.9 to

45                    about $5.5 billion of assets under management with existing equity capacity and within the development pipeline within the funds. This is probably the most important slide for a fund manager. At the end of the day, our success is based on delivering returns to investors. Unfortunately we had been able to do that over a long period of time since the establishment of the fund -- of the group in 1991. You can see there DPF, CPOF, CPIF and the CHOF 4 and CHOF 5 funds have all outperformed their return hurdles and the table on the right-hand side indicates the target return and also the hurdle return before performance fees are earned. I’ll just hand over to David to talk through the

5                      development slides, and then we’ll move on to Peter and to Paul.

 

            CHC    HomeHQ is the picture of the property that we’ve got there, was undertaken in CHOF 4, 22.5 thousand square meter fully integrated to bulky good centre with major anchors, Good Guys, JB HiFi, Nick Scali, very successful project

10                    within CHOF 4. Just giving a look at the composition of the development exposure. David mentioned the various elements to that, but the chart here just sets that out for you a little more clearly. What’s important to recognize here is that Charter Hall has no on-balance sheet exposure to development through its funds management model and also its investment into those

15                    funds, it’s able to get exposure to development without having the exposure directly on balance sheet.

 

                        As you are aware, we have a very experienced and proven in-house development team that’s enabled us to be able to satisfy wholesale investors

20                    that we arrived at the managed risk at that space and identify opportunities and deliver the returns over a long track history. As I’ve mentioned, all of those developments are undertaken either in our Core Plus Funds or our Opportunistic Funds. And we derive development investment income from CIP and also those CHOF investments. The development pipeline, David also

25                    touched on that, but essentially overall, we have about a $2 billion pipeline and you can see that 500,000, sorry, 500 million of that is made up in the Core Plus space and 1.5 billion in Opportunistic. And we’ve just gone a rundown there of the various projects in the Core Plus space, the seven projects there in Core Plus. And really as we touched on earlier in the

30                    presentation, the value creation that we’re able to achieve through the development side of the business does counter somewhat that copyright expansion that we’ve been seeing in the marketplace. The long-term target for the Core Plus portfolio is 30% exposure to enhanced and 70% exposure to Core. If we look at a case study here of what is an enhanced transaction

35                    the Core Plus Office Fund require the hatch building in Perth that was an adjoining site that was part of that hatch site that house the car parking. We ascribed a small value to that component of the land and we are able to get a development approval on that site for a 12,000 square meter office building. We made a decision on the investment committee of that fund made a

40                    decision to proceed with that development, given the supply and demand on MX of the Perth market on a spec basis. And we now have 78% of that pre-leased to major tenants, as we’ve mentioned here Police and Nurses Credit Union and the Commonwealth government. If you look down in the value that’s been created through the portfolio, the metrics there, we’ve got a

45                    development margin of 16% and an IRR over the project period of 35%. So that’s a significant value accretion through that active development process.

 

                        So coming back to the development pipeline, you’ll see the box there that’s now picked out is the 1.5 billion in the Opportunistic space. CHOF 4, $165 million in equity that was committed in CHOF 4 has now been fully allocated. In CHOF 5, a 165 million of the 300 million has been allocated.  Its gross IRR over the last 12 years is across all of Charter Hall’s Opportunistic Funds and the realized project. So that’s money in the bank star projects at 30% IRR.

5                      And for CHOF 4 and 5, the projected equity IRR for those two funds based on the projects that are either realized or currently captive within those funds is 42%. And you can see a rundown there of the various projects on completion value that make up the $1.5 billion of development pipeline. So quick look at the case study for CHOF 4, Northbank Plaza, has been a significant

10                    outperformer for the group. It’s an existing building; it was an existing building in the Brisbane CBD market. The group acquired it together with an adjoining site and undertook a refurbishment reposition and release of that asset, nearly 27,000 square meters, 67% of that was pre-leased to Telstra, with strong fixed increase of 4.5% percent per annum. And it was 100% pre

15                    leased by practical completion. So you can see development profit there, $35 million, that’s CHOF 4’s 15% interest in this project. So the development profit overall, $17 million for this project. And the IRR achieved there of 97.6% is the best return that we’ve had out of the any of the funds. Importantly, there’s a good project duration there of 28 months and very strong level of equity that

20                    was invested to achieve that solid return. I’ll now hand across to Paul McKenna.

 

            CHC    Thanks, David. This year had a good result. We ended up with a profit before tax of 20.6 million, giving us a net profit after tax of 49.4. Charter Hall’s, as

25                    you are aware, has a 50% interest in CIP, delivering at a $7.2 million contribution. During the year, we completed a 175,000 square meters of projects, primarily for repeat tenants; that’s a pleasing feature of our past results and it’s good to see that continued that we’ve got in the order of 70% repeat business across the relationships that we have developed with our

30                    tenant base. Currently, we’ve got 210,000 square meters of projects that are due for completion in financial year 09. And I guess we recognize that we’ve got more challenging market conditions in the year going forward. However, we’ve certainly got a team that’s well equipped to compete in this business. We did most of our value adding in-house. So we’ve got a well-experienced

35                    team and we’ve certainly got very good relationships with our client base, and we will be continuing to expand that in the coming year. During the year, we opened an office in Brisbane and that’s heading to our existing offices in Sydney and Melbourne, and pleasingly, we’ve had projects under construction in each of the capital cities. And we’ll be looking forward to

40                    expanding on opportunities as they arose throughout the year. Thank you.

 

            CHC    Thanks and good afternoon. Well, I can’t believe it’s been 6 months since I stood in front of you and the time is going relatively quick in one way but there’s been a lot of changes since February. And that time I mentioned to

45                    you as a CFO who is pleasing to stand in front of you presenting strong financial results from emanating from a robust property funds management business and its model. And this hasn’t changed; in effect, this has been reinforced as you can see from the results. The Davids have provided a quite significant information about the business operations. So I’ll be brief and I’ll run through the income statement, earnings, some cash flow reconciliations, obviously cash is still very important and has been king, if it remains king, and capital management. There’s been minimal increase in the accounting standards, well, the impact on that to CHC, except for the magic (inaudible)

5                      (00:37:07) financial instruments. Yet again this year, we have some over 75 pages, just in the financial statements or static accounts, what they call static accounts themselves. And that compares to some 60 last year. So it’s not getting any less. And as you all know, there’s been significant scrutiny from the market from authorities in particular, ASEC and others. It’s pleasing to

10                    note that CHC and its funds have come through this period clean and with no major issues. And from my point of view and my team’s, it’s probably easy to prepare financial statements that I guess are not complex, and in this case, have no major things like international exposure which has market influences and trust border debts and foreign exchange, except for our counterparts in

15                    New Zealand.

 

                        This income slides provided before you, I think the Davids have already given you a flavour of all that and this puts it back in what I call, I guess in the financial arena on the income statement. And it’s pretty straightforward; it

20                    reflects our business and our model. It’s pleasing that all areas of revenue have increased, as you can see there’s CHPT up for some 58%, and that’s been talked about as a result of their property income, growth on our investments and hence, in investment distribution. Funds and performance fees have been talked about and of course, Paul just in our contribution, the

25                    first year contribution from CIP of some over $7 million. Of course this revenue growth has been achieved through, as I think David Southon mentioned and David Harrison on active management, and that’s what’s this about. And obviously that’s true, strengthening of the Charter Hall team in expanding a national presence and obviously this has resulted in increased

30                    operating expenses such as employees’ accommodation travel, etcetera. The expense line, the interest expense line there is a net position that we show. The gross interest spent was around $20 million with some other interest income. We have fair value adjustments, and mostly familiar with it too and they’ve talked about the revaluation, particularly in the first half of the year.

35                    There’s a gain on the sale and this relates to sale of some direct assets, 400 Ken Street and Burk Street, as well as some divestment of our units in some of our underlying funds. The gain recognized obviously is after increase in value, as you would appreciate, have already been reflected in fair value adjustments in previous periods. There’s a small, unrealized foreign

40                    exchange gain relating to our New Zealand assets that in fact were transferred to CPRF, belong to CPRF post balance state. And so overall, as you can see in the bottom there, our NPAT for our AIFRS is some 56% up compared to the previous period. And also it’s worth noting that the impact before that’s about 75% of the total impact after all adjustments. I am not

45                    going to talk about this at length. I think we have all seen this before. This is the, obviously, the reconciliation between AIFRS and underlying NPAT, and fairly straight forward adjustments, nothing tricky in there. The major item is being obviously fair value adjustment of some $15 million and the other major components -- the non-cash long-term share remuneration plan in accordance with the accounting standards.

 

                        This is a new slide that I might just talk about for a moment. It is about the

5                      cash flows and the cash reconciliations. What this slide is actually doing is taking the underlying earnings that I have talked about a minute ago. There are some adjustments in respect to the cash from the operations which gets you to a net cash from operating activities. And what is also showing is as with any business, you have got receipts where they are, obviously, post

10                    balance type. And we have given you a bit of an idea. So the overall message is their cash distribution coverage is around 106%. Because if you look at the three major items, they have received in August including the dividend from Paul, thank you for that Paul, acquisition fees and performance fees that adds up to some $10 million is banked in August. So you can see that the

15                    coverage from a cash point of view is very strong, and of course capital management.

 

                        I guess before I get into the stats there and the key metrics and David alluded to it before and I knew when I arrived, the group has a very strong focus on

20                    debt capital management and has a very strong relationship with its debt service providers. Quite a few of them are here today. So that makes dealing with this issue relatively easy, though I am sure that it is still strong negotiations from my friends in the audience. In respect to the metrics you can see in there that it is worth looking probably at the post CPRF that is

25                    being called at, the headstock goes from around 31% to around 7%. And the look through goes from about 44, down to below 40%. The other key metric is still very sound, interest cover, good hedging and duration profiles. In the appendices, we’ve provided a more detailed schedule in respect of the debt profiles of their various funds. Also at this time around, we have put the

30                    balance sheet in the appendix so that shows you at June and also post CPRF off balance sheet. And I ordered the financial statements that have been lodged with ASX and are posted on our website. And back to David.

 

            CHC    Okay, thanks Peter. We will just wrap up. A couple of comments on – in

35                    terms of the summary and then we will move on to questions. I think there is a few key messages that management would like to leave you. Charter Hall, its common investment funds management model is now well established with the completion of the third in a series of the Core Plus Funds having been launched. We are a real estate fund manager with common investments

40                    in our managed funds. How we have evolved the model during FY08 is in line with our stated strategy and we believe it substantially enhances return in equity as indicated by the slides previously. Charter Hall is well supported in the current market. The management team, David and I, have been very intent on recruiting high-quality staff and obviously retaining our existing staff.

45                    And I think we have done that very well. We are seen as an employer of choice. There are several candidates that are regularly looking for roles within Charter Hall and that is indicated by the feedback those candidates get when they do their research and start searching out what the wholesale investors, the ASX consultants and the research houses within the retail sector feel about Charter Hall. And ultimately, as our chairman reminds us all the time, it is about performance. If you do not deliver the returns, you’re not going to keep the equity commitments and you’re not going to increase your equity commitments and that’s something that is a constant focus of Charter Hall

5                      and hopefully as per the year, the performance slides we have shown is born out in the results.

 

                        I think, interestingly, and we really didn’t spend any time, some detailed analysis in the appendices of what has happened with cap rate and discount

10                    rate expansion. It is very hard to crystal ball going forward. We are considerably and cautiously planning the year ahead to account for exploiting under renting. We are actively bringing forward rent reviews by negotiating new leases in high growth market such as Brisbane and Perth and Sydney and looking to extend leases and give tenants an opportunity to look into the

15                    market range now in the expectation that they may be potentially doing a better deal than writing for a market review in 12 months time or 18 months, you know, that is helping us to close that gap between market and passing rents and we will continue to do that.

 

20                    I think the other thing to focus on obviously; there has been a lot of attention on the potential for cap and discount rate expansion. Certainly, it is about what the buyers are prepared to pay in the market. There is investment demand. It is not just international investors, there are still wholesale capital source domestically that is sitting on the side lines and is ready to invest. We

25                    have unutilized capacity and many of our peers in the wholesale sector do. There is buy demand. I’ve been through periods where there is no buy demand and there has been a lack of cash sitting on the side lines. This period at the moment is definitely one way. There is capital to spend. Debt is more expensive and it is harder to achieve but it is at least obtainable, if you

30                    are a Tier 1 borrower. So I think as the third point says the substantial fall in the 10-year swap rate and the bond yielding in the last eight weeks has and hopefully will continue to support the expectations of buyers and obviously values in terms of discount rates. Because we are now seeing average discount rates with a fairly substantial premium to the risk-free rate. Our line

35                    portfolio has an average discount rate across very strong quality assets of around 9% with a risk-free rate sitting some 300 plus basis points. Below that, that study historically getting towards an attractive risk-free premium and certainly above 10- and 15-year averages.

 

40                    I think we will continue to capitalize on demand from investors, clearly in the wholesale space. There is focus on enhanced and opportunistic funds. We are confidently of a successful raising for our CHOF 6 fund which, as most of you aware, once we get towards 75% of allocated equity in each of the CHOF series, we then go on raise capital for the next one. And we are moving

45                    towards that in CHOF 5 and we will move into CHOF 6 during FY09. And we will also have a number of other enhanced fund initiatives for new funds where we are hopeful of them being able to announce new fund initiatives during the rest of this financial year. I think the industry consolidation and the flight to institutional quality manages will definitely become something to Charter Hall can take advantage off and doing market share in the retail space.

 

                        As I said earlier, we are continuing to focus on on-off balance sheet model.

5                      Clearly, having minimal debt at the balance sheet, no capital expenditure obligations put a lot less risk on our earnings at a headstock level. We are continuing to maintain strong investor relationships to secure further off balance sheet equity and to launch new funds which will still require us to make a common investments in those funds or where we will be looking to

10                    potentially make those common investments a little more modest and perhaps the percentages that we have had in the past. And as I said earlier, I think the Number 1 focus for any business is to retain and recruit specialist real estate skills in this market. This is the market where you need to know how to work the assets at an asset level as oppose to working the assets

15                    from a financial point of view. It is all important, but you need to able to create the value at the asset level.

 

                        Capital management, we will continue to maintain a target gearing at zero to 20%. It is fair to say the whole of the board is going to focus out our gearing

20                    for common investments in our funds, a close to 0% level or in the bottom half of that range. We will continue to manage the debt facilities which are all on a non-recore basis within the CHC managed funds.

 

                        Capital requirements going forward, clearly, we still have some undrawn

25                    equity commitments to our managed funds of circa $55 million. And as I said earlier as we roll that new funds, we will be looking to make common investments in those funds, but as I have said earlier, we do not have any balance sheet capital expenditure requirements going forward once the last direct asset has moved off balance sheet. I think just to put some perspective

30                    in that, we also have some capital release at the CHC level that comes from the potential further selldown of CHC stakes in the Core Plus Retail Fund, Core Plus Office Fund, and Core Plus Industrial Fund. That is the cash that would be realised that our headstock if we and when we sell our common investment stakes down to the stated 20% long-term target and obviously the

35                    sell of the remaining direct asset.

 

                        I guess finally the group is guiding the market with an expectation of underlying EPS growth of approximately 5% in ’09. This is always a challenging question in uncertain markets, but we are confident that we have

40                    a robust model and are able to guide the market with EPS growth for that magnitude. Given the current market however, the board is going to maintain the FY09 DPS of 2.6 cents into FY09. We feel that we will conserve capital and it will obviously given our guidance for EPS growth maintain the DPS substantially below the underlying EPS expectation. Okay. I think we will

45                    hand over to questions. We will take questions from the floor initially and then we will invite people on the teleconference to direct questions.

 

            Q         Callum Bramah from Macquarie. Just wondering if you can give us an idea of what you see is the sort of case swing factors for that 5% EPS growth forecast, in particular maybe if you can just talk about any of the assumptions you are making on performance fees, you know, and also maybe sort of impact of the selldown of CPRF if that is required and what content.

 

5          CHC    In terms of performance fees as I indicated earlier, we have taken a pretty conservative approach in FY08. The FY08 numbers do not recognize at the CHC level any performance fee from the Core Plus Office Fund. The performance fee that relates to the first three years of that fund is payable in  June 2009. Therefore, we’re quite comfortable that that fund will make a

10                    contribution of performance fees as we are quite comfortable with our forecast for performance fees being generated from other projects in the opportunistic series.

 

                        In terms of the Core Plus Retail Fund at the moment, our common investment

15                    in that fund generates an investment income. As you can imagine, we’ve been conservative about the velocity of new equity that we raised in this environment. We have gone through a marketing exercise with bought domestic and international investors which means that we’re not starting from scratch. We are well advanced with a number of people that for whatever

20                    reason did not make the first close and therefore we are confident as we have with other Core Plus Funds to have progressive closes over ’09. And the movement in that further equity rising is not going to make a material impact on the EPS for ’09 but clearly as we can recycle that capital and either reduce debt or deploy it in a creative way, it is creative as we selldown now common

25                    investment stake.

 

            Q         But there is no assumption of a launch of the third fund, is there, within ’09 at all? No? And can you just talk about fund inflows particularly retail inflows maybe in July and August on a redemption request if they are relevant at all?

30

            CHC    Yeah. The two retail funds we have -- DPF and CHUF. CHUF had its initial raising in December last year. It was open to new investment until May. We went through the process of producing a new PDS that had to strip out a number of things that were relevant to the raising prior to Christmas, not the

35                    least of which was NAB acting as underwriter for the initial raising. There have been redemptions in both DPF and the Umbrella Fund as we have stated previously, the manager being Charter Hall Property Trust Funds, a liquidity facility in both funds. There is a maximum cap on the liquidity facility in both those funds in DPF, its $7.5 million and in CHUF, its $30 million. To

40                    be more specific, Callum, over the last three or four months, we have had pleasing net inflows, obviously inflows well exceeding outflows. July and August have seen an increase, predominantly August, actually an increase in redemption request and that’s well publicized. We have had a couple of large competing funds close their funds for new applications and redemptions. And

45                    we will just monitor that very closely. But I think importantly with both funds, the PDS has allowed us, as we utilize our liquidity facility, to replenish it from new inflows.

 

            Q         Assuming a material reduction in those inflows in fiscal year 09 in your 5% forecast?

 

            CHC    We have been very conservative about the net inflows for ’09. The inflows

5                      obviously do not affect the asset management fee or fund management fees. It obviously has an impact on the growth of the funds and therefore the transactional fees from, you know, the net equity increase in those funds and the ability to acquire more investments.

 

10        Q         And if I can push my luck and just ask two quick ones, I would be on that, operating expenses was $39 million in the second half, are you expecting that that should annualise into fiscal year 09. And then second one, just the size of CHOF 6, maybe if you can give us an idea of what you can do there. And one last one, is it just an allocation issue?

15

            CHC    That is two -- that is three questions.

 

            Q         Is it just an allocation issue between the first half and second half in your presentation pack between direct net property income and investment income

20                    because on the numbers in here, you are in backwards in the second half, but it looks like it is a massive step up there. If you just allocated income from one place to another within the (inaudible) (00:59:47)?

 

            CHC    Why do not we answer the first two? Your reference on the second half is the

25                    first half is on the property investment income?

 

            Q         Yeah, just in the first half pack you did investment income of 14.9 and net property income of 4.5, but in the second half, for the full year, you did 9.5 in investment income and 31 million in net property inco