David Harrison

Charter Hall Group (Charter Hall or the Group) is pleased to announce its Charter Hall Prime Office Fund (CPOF) has ranked as a Global Sector Leader in the 2022 Global Real Estate Sustainability Benchmark (GRESB) for leadership in integrating environmental, social and governance (ESG) considerations.

This year, 24 Charter Hall funds participated in the GRESB Assessment with 17 of these achieving scores within the top 20% of the GRESB universe. Our unlisted Retail funds are also credited as Regional Sector Leaders for Oceania.

Established in 2009, GRESB is today used by more than 170 institutional investors and is considered to be the largest and leading assessment of the sustainability performance of real estate assets and portfolios. In 2022, more than 1,820 listed and unlisted portfolios participated in the assessment, representing USD$6.9 trillion in gross asset value under management across 74 countries.

Charter Hall’s performance in ESG benchmarks, including GRESB, is underpinned by our long-term commitment to integrating ESG into our business. This reflects our Group-wide approach to actively partnering with customers to drive mutual success, including environmental and social outcomes, alongside financial.

Charter Hall Managing Director & Group CEO, David Harrison, said, “We are pleased to see our funds perform as global and regional sector leaders with 17 of our funds and partnerships in the top quintile of the GRESB assessment in 2022, which is exceptional considering the benchmarks’ continued growth”.

“We have accelerated our commitment to net zero carbon for Scope 1 and 2 emissions from 2030 to 2025. We believe our approach to sustainability will continue to attract and retain the best tenant and investor customers, while making a valuable contribution to improving our communities and the planet.

“Combined, our efforts support a lower cost of operation as well as long-term risk adjusted returns for investors across our portfolios,” he said.

This year’s performance in GRESB is further evidence of Charter Hall’s continued approach to integrating ESG into asset creation and operation, through securing onsite and offsite renewables, transitioning buildings away from fossil fuel and reducing our carbon footprint.

Charter Hall Office CEO, Carmel Hourigan, said “At Charter Hall, we take pride in understanding what our customers need and value to deliver best-in-class, sustainable and future-ready assets.”

“Our Office portfolio offers leading green credentials, including designing carbon-ready developments with all electric plant and equipment, demonstrating our commitment to provide stabilised, sustainable assets and low carbon outcomes,” she said.

Charter Hall Retail CEO, Ben Ellis, added “ We are thrilled to see our listed and unlisted Retail funds increase performance in GRESB for the period. We have partnered with customers to install more than 22.5MW of onsite solar and 6.5MW of operating battery capacity in the portfolio – lowering our operating cost and supporting our goal to achieve net zero by 2025.”

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The creation of the Fund Manager role reflects the strong growth of Charter Hall’s Direct business from $3 bn to $5.3 bn in the past 18 months. Miriam will report to Direct CEO, Steven Bennett who sits on Charter Hall’s Executive Committee reporting to Group Managing Director and CEO, David Harrison.

Mr Harrison said “We are delighted to secure the services of Miriam who has 15 years’ experience in property and infrastructure and brings a diverse range of skills in portfolio and risk management, transactions, asset management and investment governance. Miriam will be an excellent fit for the Group as we grow the institutional quality of investments available to our Direct platform which has more than 20,000 retail, Self-Managed Super Fund (SMSF), High Net Worth (HNW) and family office customers.”

“We further expect Miriam’s experience to compliment the broader Group and her knowledge, experience and relationships in the wholesale market will be invaluable” said Mr Harrison.

Mr Bennett added “This is a key appointment for the Direct business. We are excited to see an executive of Miriam’s calibre to work with the whole Direct team to curate and grow our existing suite of funds, together with driving the growth of new offerings to our investors to give them diversity of investment choice across the property sector”.

Commenting on her appointment, Ms Miriam Patterson said, “I am thrilled to be joining one of the leading real estate investment platforms in Australia, which I have observed first hand having overseen Telstra Super’s investments in a number of Charter Hall’s funds and partnerships.”

“I look forward to working with the Direct team to take advantage of the exciting growth opportunities we are seeing to provide investors with secure, sustainable income streams underpinned by high quality, long leased properties” said Ms Patterson.

Miriam was appointed Telstra Super’s Head of Real Assets in May 2016, after almost 5 years as an investment manager, in the property and infrastructure investment team. As Head of Real Assets, Miriam was directly responsible for overseeing Telstra Super’s $4 bn real estate and infrastructure portfolio. Before joining Telstra Super, Miriam worked at Hastings Funds Management and Ernst & Young in corporate finance.

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The Executive Committee of PFA recently elected Steven Bennett, Head of Charter Hall Direct, as the new President of PFA’s National Executive Committee, taking over the role from Mark Pratt, Executive General Manager –  Property at Australian Unity.

The Association also elected Andrew Cannane, Executive Director at Evans Dixon as the Committee’s new Vice President.

Formed in 1998 PFA was established to provide the growing number of direct property investors and managers with an organisation to represent their interests, promote their industry and provide a forum for research and education.

Paul Healy, Chief Executive Officer, PFA noted: “We welcome our new President and Vice President to the Executive Commitee. The Executive Committee is the decision-making body of the Association and comprises of PFA members which represent the various areas of the Association’s constituency. Both Steven and Andrew are regarded as experienced direct property professionals in the commercial property space and we look forward to their insights and contribution in growing investor awareness around the direct property sector.

“I would like to thank our previous President, Mark Pratt, for his contribution towards growing the Association’s scope to represent the advisors, consultants and representatives of property investors and managers.”

Steven Bennett, Head of Charter Hall Direct, added: “I am honoured to be appointed in this new role. Having been a member of the Association since 2014, I believe the Association will continue to play an integral role in representing the interests of the direct property industry.

“Over the last two decades, this sector has grown dramatically and has become a core investment class for growing the wealth of Australian investors by providing strong risk adjusted returns and a stable source of regular income.

“Apart from the high levels of ongoing income, what makes direct property so compelling is its low correlation with other asset classes providing effective diversification benefits and lower relative volatility. This means direct property investments react in a different manner to varying economic conditions compared to other major investment classes such as shares and bonds.

“For this reason, we believe, investors will continue to hold direct property as an essential component in their portfolios,” said Mr Bennett.

The Annual PFA Conference for 2019 will be held in Hobart from 5-7 May. It will review the activity in global and local markets and examine whether current times are a crisis, challenge or catalyst for property investment.

Key Conference speakers include:

• David Harrison, Managing Director and Group CEO, Charter Hall
• Simon Garing, Acting Chief Executive Officer and Executive Director, Cromwell EREIT Management
• Justin Smirk, Director – Senior Economist, Westpac Institutional Bank
• Penny Ransom, Group Executive, Head of Investment Management, Investa Property Group
• Rob de Vos, Managing Director, Arena REIT

More information about the Conference.

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David Harrison

Charter Hall Group (ASX:CHC) (Charter Hall) and Folkestone Limited (ASX:FLK) (Folkestone) are pleased to announce that they have entered into a scheme implementation agreement for Charter Hall to acquire Folkestone (Scheme) for consideration of $205 million funded by cash from available investment capacity.

Under the terms of the Scheme, Folkestone shareholders will be entitled to receive $1.39 cash per share (Scheme Consideration), comprising a Charter Hall cash consideration of $1.354 per share^[1] and a special dividend of $0.036 per share^[2] (Special Dividend). In addition, Folkestone shareholders on the register as at 11 September 2018 will be entitled to a $0.03 per share ordinary dividend for FY18, payable on 27 September 2018 (FY18 Dividend). The FY18 Dividend will be paid to Folkestone shareholders regardless of whether the Scheme is approved.

Folkestone is a property fund manager and developer with listed, unlisted and private funds, with a strategy similar to Charter Hall of accessing, deploying and managing property for its stable of property funds to deliver above benchmark returns for its fund investors and securityholders.

The transaction will grow Charter Hall’s funds under management (FUM) by $1.6 billion, delivering fund management and development investment earnings, driving earnings accretion for the Group.

The acquisition of Folkestone expands Charter Hall’s investable universe into the social infrastructure and early learning sector. Early learning is a growth sector underpinned by population growth, increasing workforce participation and government funding. The early learning sector is still highly fragmented with low institutional participation, but with high quality covenants and long WALE triple net leases.

Charter Hall’s Managing Director and Group CEO, David Harrison said: “We see the Folkestone business model as consistent with our existing strategy. We are attracted to their leading position in the social infrastructure sector and the suite of listed and unlisted funds adds to our diversity of sources of equity, whilst their origination capability is expected to generate property investments for the expanded list of managed funds.

“Importantly, the Folkestone culture shares many similarities to Charter Hall’s own culture and we see the two organisations as a close fit. We look forward to Folkestone executives joining Charter Hall and the complementary skills they will bring as we work together to grow the funds management platform.”

Folkestone Managing Director, Greg Paramor AO, commented “We see this as an excellent fit of two likeminded businesses. Folkestone brings significant expertise and skills in the fields of social infrastructure and early learning. Folkestone’s other existing unlisted funds also complement Charter Hall’s existing platform, providing opportunities for Charter Hall to either grow these funds, or create new fund initiatives leveraging Folkestone’s extensive private client network and Charter Hall’s extensive distribution network.”

Chair of Charter Hall, David Clarke, commented: “Should the Scheme be successfully implemented, it is the intention of the Board to invite Greg Paramor to become a Non-Executive Independent Director of Charter Hall Group. Greg is an experienced Director who is held in high esteem given his significant experience in the property sector and corporate life more broadly. We believe Greg’s experience and skill set and his broad-ranging property experience will be a valuable addition to the Charter Hall Group Board.”

The Scheme Implementation Agreement and Scheme are subject to the usual conditions precedent including:

• All necessary regulatory and court approvals;
• Independent Expert’s opinion;
• Folkestone shareholder approval by the requisite majorities (being a majority in number of shareholders who vote and at least 75% of the total number of shares voted); and
• Other customary conditions

Folkestone’s Board of Directors unanimously recommends that Folkestone shareholders vote in favour of the Scheme, in the absence of any superior proposal and subject to the Independent Expert concluding that the Scheme is in the best interests of Folkestone shareholders.

The proposed Scheme Consideration of $1.39, represents a 25% premium to the previous close of $1.11.

Based on the FY18 FLK reported EBITDA of $20.05 million, the Charter Hall cash consideration of $205 million represents an approximate 10.2x EBITDA multiple.

Consistent with their recommendation, each member of the Folkestone Board intends to vote the Folkestone shares in his control in favour of the Scheme in the absence of a superior proposal and subject to the Independent Expert concluding that the Scheme is in the best interests of Folkestone shareholders.

The obligations of Charter Hall and Folkestone regarding the implementation of the Scheme, the Scheme conditions and deal protections are set out in the Scheme Implementation Agreement.

Folkestone shareholders do not need to take any action at the present time. A Scheme Booklet containing information relating to the Scheme, an independent expert’s report on whether the Scheme is in the best interests of Folkestone shareholders, the reasons for the Board’s recommendation in favour of the Scheme, and details of the Scheme meeting is expected to be sent to Folkestone shareholders shortly.

The timetable is as follows:

• Process Date First court hearing to approve scheme booklet dispatch to Folkestone shareholders: Mid September 2018
• Dispatch scheme booklet to Folkestone shareholders: Mid September 2018
• Scheme meeting for Folkestone shareholders: Mid October 2018
• Second court hearing to approve scheme meeting for Folkestone shareholders: Mid/late October 2018
• Transaction completion (if approved): Early November 2018

Further details about the Scheme can also be found in the Charter Hall FY18 Full Year Results Presentation and the Folkestone FY18 Full Year Results Presentation, both of which have been released on the ASX.

1 As at the date of this announcement, Folkestone has 148,099,564 shares on issue and 3,268,128 unvested performance rights. In accordance with the terms of the Folkestone Executive Incentive Plan these performance rights will vest and as a result will receive the Scheme Consideration. 2 Folkestone is applying to the ATO for a class ruling in relation to the tax implications of the Scheme, including the availability of franking credits for the Special Dividend

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Financial highlights:

• Statutory profit after tax of $215.2 million, up $97.3 million
• Operating earnings of $124.7 million, up 26.2%
• Operating earnings per security of 30.4 cents, up 10.5%
• Distribution per security of 26.9 cents, up 11.2%
• Net Tangible Assets per security of $3.04, up 10.1%

Operational performance:

• Access: Gross equity inflows of $1.5 billion from diversified equity sources.
• Deploy: Completed $3.7 billion of property transactions. $3.0 billion in acquisitions, $0.7 billion in
  non-core divestments.
• Manage: 29% growth in funds under management (FUM) to $17.5 billion. Completed 545 leasing
  transactions.
• Invest: Net $56 million invested alongside our capital partners. 6.46% WACR and 7.9% discount
  rate. Property Investment earnings growth of 26.4%.

Charter Hall’s Group CEO and Managing Director, David Harrison said: “Growth of 29% in FUM to $17.5 billion and 10.5% OEPS growth reflects the Group’s strategy focussing on accessing, deploying, managing and investing capital.”

Property Investment Performance

During the period, Charter Hall Group invested a further $56 million (net) alongside our capital partners with the Group’s Property Investments increasing by $154 million to $1.1 billion, generating an earnings yield of 7.4% p.a. The active management and diversification of the Group’s Property

Investments portfolio ensured the total portfolio occupancy remained strong at 98.6% and the Weighted Average Lease Expiry (WALE) stable at 8.8 years. “We are proud to highlight that the Group’s Property Investments have consistently outperformed their respective benchmarks. The total property return from our Property Investments over five years of 16.0% p.a. has outperformed the MSCI/IPD Unlisted Wholesale Pooled Property Funds Index of 9.7% p.a. over the same period.” Mr Harrison said.

Property Funds Management

FUM increased $3.9 billion or 29% in FY16 to $17.5 billion, reflecting a 15.9% annual growth rate since June 2010.The continued growth was driven by $2.3 billion of net acquisitions, $1.1 billion of revaluations and $0.5 billion of development capex.

The high quality and diversified $17.5 billion portfolio comprises 296 properties, leased to 2,550 tenants delivering $1.3 billion of gross rental income.

Growth in the Group’s managed funds was driven by $1.5 billion of gross equity inflows across Charter Hall’s diversified equity sources. This equity was deployed into $3.0 billion of acquisitions and value accretive development opportunities. The Group’s platform also divested $0.7 billion of non-core assets to reinvest capital into higher growth opportunities.

Strategy and Outlook

The Group continues to focus on our strategy to access, deploy, manage and invest alongside our listed, retail and wholesale investors. The Group aims to create value and deliver sustainable and growing returns for investors. Our focus continues to be:

• Securing quality assets within our core property sectors and developing new industry leading
  institutional investment grade opportunities
• Continuing to deliver strong fund performance for our investors through active management of our
  portfolio and partnering closely with tenant customers
• Improving the efficiency and scalability of the managed funds platform
• Providing our highly capable people with the support, development and flexibility they need to
  achieve optimal property and investment outcomes for our customers
• Driving diversity, particularly gender, to achieve diversity of thought and enhance business
  performance

Absent unexpected events, our FY17 guidance is 8-9% growth pre-tax and approximately 2% growth post-tax on FY16 operating earnings per security. The distribution payout ratio is expected to remain between 85% and 95% of operating earnings per security post tax.

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Half Year Financial Results Summary

• Statutory profit after tax of $143.5 million, up 259.6% from pcp, including $89m property valuation gains
• Operating earnings of $61.2 million, up 26.3% from pcp
• Operating earnings of 15.0 cents per security up 9.5% over pcp
• NTA growth of 22 cents per security to $2.98, up 8.0%
• Distribution of 13.3 cents per security up 9.9% over pcp

Key Achievements for the six months to 31 December 2015

• 17.0% growth in funds under management to $15.9 billion
• Secured $730 million of gross equity flows with $532 million of net flows post investor equity returns
• Completed $1.7 billion of property transactions
• Deployed $97 million (net) in Property Investments which together with the $89 million of net revaluations increased Property Investments to $1.13 billion

Charter Hall’s Managing Director and Group CEO, David Harrison said: “The active growth and management of our Australian platform over the past six months has delivered a 9.5% increase in operating earnings per security and a 17.0% increase in our Australian portfolio value, which now totals $15.9 billion.

“Our high quality and diversified property portfolio has seen the Group outperform both the S&P/ASX 200 Property Accumulation Index and MSCI/IPD Wholesale Pooled Property Funds Index over three and five years delivering total securityholder returns of 17.8% and 20.2% respectively,” Mr Harrison added.

Charter Hall’s business is focused on two key earnings streams; Property Investment income generated from investing alongside the Group’s capital partners in property funds and partnerships and earnings generated from Property Funds Management, utilising our full service integrated platform.

The Group has continued to use its property expertise to access, deploy, manage and invest equity in our core real estate sectors of office, retail, industrial and hospitality to generate superior returns for our investors.

Property Investments – Operating Earnings up 26.3% to $35.9 million

Charter Hall invested a further $97 million (net) alongside its capital partners, which together with $89 million of net revaluations increased Property Investments to $1.13 billion.

The Group’s Property Investment portfolio generated a 7.2% yield with a weighted average cap rate of 6.58%. The diversification and exposure of the Group’s portfolio to high quality assets with strong tenant covenants and lease durations is actively managed at a sector, fund and asset level with the total portfolio occupancy remaining strong at 98.2% and a stable portfolio weighted average lease expiry (WALE) of 8.8 years.

“Our strong performance has been led by consistent high growth in our OEPS with the OEPS CAGR at 11.7% since 1H FY10. Over the same period, distributions have grown at an annualised 13.7% p.a.; an achievement we are proud to highlight,” Mr Harrison said.

Property Funds Management – Operating Earnings of $26.4m, up 24.0%

The Property Funds Management business experienced significant growth, up $2.3 billion or 17.0% to $15.9 billion during 1H FY16. This growth was driven by activity in the industrial sector, with $710 million of 1H FY16 acquisitions and positive valuation uplifts across all sectors.

Operating earnings increased by 24% to $26.4 million and property funds management EBITDA margin increased from 39.7% to 41.8%.

Across the Group’s managed funds, $730 million of gross equity was secured with this equity being invested in $1.4 billion of new acquisitions. Australian funds under management has a CAGR of 15.5% since June 2010. During 1H FY16, inflows were weighted towards the Wholesale Funds Management business and the Direct Property business following the creation of a number of new Charter Hall managed funds and investment inflow into established funds.

Strong portfolio performance

Charter Hall’s high quality and diversified $15.9 billion property portfolio delivered a total occupancy of 98.1% and a stable WALE of 7.9 years. This followed 283 leasing deals across the portfolio including new lease deals with Target and The Reject Shop at the Drystone Industrial Estate in Melbourne, major office leasing deals including new leases to Department of Human Services at 570 Bourke Street in Melbourne, Amazon Corporate Services and Twitter at 2 Park Street, Sydney and a renewal to Suncorp at 266 George Street, Brisbane along with 182 leasing deals over 41,649sqm in our retail business.

David Harrison said: “The active management of our portfolio is now well supported by a sector based model that will ensure the Group has the right capability to provide the agility, accountability and innovation required to create value and generate superior returns for our customers.”

Strategy and Outlook

The Group remains in a strong position to continue to access, deploy, manage and invest equity from listed, retail and wholesale sources. The Group continues to deliver sustainable and growing returns for its investors through a firm focus on:

• Continuing to grow and deliver strong fund performance for investors across all equity sources
• The active management of its property portfolio supported by a sector based approach
• Securing high quality assets within the core property sectors
• Creating high quality investment products and investing alongside capital partners
• Focusing on growing high quality earnings streams
• Providing healthy, collaborative environments for our people that create an inclusive culture fostering diversity and innovative thinking

Absent unexpected events, Charter Hall’s guidance for FY16 operating earnings per security is upgraded to 8-10% growth over FY15.

“Given volatility across global equity markets, we expect quality property with secure cash flow to remain highly attractive to both institutional and retail investors. We will continue to focus on portfolio security by investing in assets with strong tenant covenants and long lease durations delivering sustainable income and capital growth for securityholders,” Mr Harrison added.

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The $700 million in acquisitions over the past three months have been acquired by Charter Hall’s unlisted managed funds, the Core Plus Industrial Fund (CPIF), Core Logistics Partnership (CLP) and Direct Industrial Fund No.3 (DIF3).

David Harrison, Joint Managing Director, said: “We continue to improve the quality of these portfolios through a disciplined approach to asset selection, a preference for off market transactions and an emphasis on quality tenants, long leases and prime estates and single tenant assets.

“We will continue to refine these fund portfolios through the pre-leasing of land banks, recycling of non core assets and future acquisitions,” Mr Harrison added.

CPIF Fund Manager Paul Ford said: “Our focus is on owning and managing a geographically diverse and high quality portfolio of industrial and logistics properties leased to high calibre tenants on long term leases.

“Evidencing our strategy to reduce the building age of our portfolios, we have delivered 24 new preleased logistics assets across the Group industrial platform valued at over $770 million and covering approximately 490,000 square metres. The development pipeline will be pre-leased to deliver further high quality investments to deliver upon fund objectives,” Mr Ford added.

Commenting on the growth of the CLP portfolio in less than three years since inception, Fund Manager Simon Greig said: “We’ve grown the CLP portfolio from one asset in January 2013 to a $1.2 billion national portfolio with a sector leading WALE of 10.3 years. The portfolio has a tenant register of high quality international and national logistics companies and a resilient logistics theme consistent with the mandate created by Charter Hall and endorsed by our institutional CLP partners.”

Settlement of the acquisitions has or will occur prior to 30 September 2015.

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