Charter Hall Strategic acquisitions

Charter Hall Strategic Acquisitions (Presentation)

Charter Hall strategic acquisitions:

1. 50% interest in CIP
2. 2. $197 million of retail assets for the Core Plus Retail Fund (CPRF)

• 50% investment in CIP, a private industrial development group initially for $40 million
• Acquisition of $130 million Bunnings portfolio and $67 million neighbourhood shopping centre
• Transaction estimated to deliver 10% DPS accretion on average consensus FY07 forecasts
• Announcement of at least $120 million capital raising through an institutional placement underwritten by Macquarie Equity Capital Markets
• Security Purchase Plan (SPP) offer to all eligible pre-placement security holders at the placement price

Charter Hall is pleased to announce the strategic acquisition of a 50% interest in Commercial Industrial Property ("CIP"), as well as a prime portfolio of six Bunnings Warehouses and a neighbourhood shopping centre to add to the seed portfolio of the Core Plus Retail Fund ("CPRF").

These strategic acquisitions will facilitate Charter Hall's continued growth in funds under management and earnings. CIP enhances Charter Hall's capabilities in the industrial sector and complements its vertically integrated model to produce product across the risk/return spectrum. The retail properties are ideal core assets to add to an already impressive seed portfolio for the Core Plus Retail Fund to be launched in FY08.

Commercial Industrial Property (CIP)

Charter Hall has agreed to acquire a 50% interest in CIP for $40 million, with CIP management retaining the other 50%. The initial purchase price represents 4.76x FY07 forecast profit before tax (PBT). The consideration comprises $25 million in cash and $15 million in CHC scrip escrowed for a period of 1-3 years. In addition, Charter Hall will pay the CIP vendors an incentive in July 2009 of 4.76x 50% of the average PBT for FY07, FY08 and FY09, reduced by the initial purchase price of $40 million. This additional consideration is capped at $30 million. Charter Hall also has a call option to acquire the remaining 50% in CIP on the same 4.76x PBT multiple, exercisable in July 2010. If Charter Hall does not exercise its call option, the CIP vendors have a call option on the same terms to buy back Charter Hall's 50% interest.

David Southon, Joint Managing Director said, "We are very excited about the acquisition of CIP as we believe it is highly strategic for Charter Hall and enables us to leverage off CIP's industrial sector expertise. Charter Hall already has a long standing relationship with CIP having acquired a number of properties from the company and its joint venture partners. CIP is an excellent business, complementing our vertically integrated model and provides significant opportunities for our business."

"We are pleased to have formed this strategic relationship with Charter Hall given its impressive track record in property development and funds management," said Paul McKenna, Managing Director of CIP. "I believe Charter Hall's cultural fit with CIP is excellent and the group's co-investment will facilitate CIP's ability to develop industrial product for our longstanding clients and joint venture partners on a greater scale and frequency".

CIP is a private company with offices in Sydney and Melbourne that focuses on developments in the industrial sector, specialising in distribution/warehouse centres and commercial business parks. CIP was formed by the merger of the Santilli Group and Paul Mckenna's team in 2003. The Santilli Group had a long history in industrial development. CIP's industrial sector expertise draws on its strong customer relationships in sourcing projects and is evidenced by the development of over 500,000m2
with completion value of $651 million. CIP employs 40 staff and has an experienced senior management team with, on average, over 22 years experience in the property industry.

Charter Hall announced the successful raising of $350 million in equity commitments for the Core Plus Industrial Fund (CPIF) in April 2007. This fund has a seed portfolio of $248 million and remaining asset acquisition capacity of over $450 million. CIP provides a strong product pipeline for CPIF and also for the Diversified Property Fund.

$197 million of additional seed assets for CPRF

Charter Hall has also acquired a portfolio of six prime bulky goods retail assets located in NSW, QLD, VIC and ACT from the Bunnings Group. The assets are located in well established retail/bulky retail precincts within close proximity to major shopping centres or malls. The Bunnings portfolio has been acquired for $130 million on an initial yield of 6.2% and has been leased to Wesfarmers' wholly owned subsidiary Bunnings Group Ltd, with lease terms of 12 years and rental growth of 3% p.a.

In addition, Charter Hall has acquired Bluewater Plaza Shopping Centre, located in Redcliffe, Queensland for $15 million with an expected on completion consideration of $67 million, reflecting an initial yield of 6.25%. The centre is anchored by a 20 year lease to Woolworths Ltd.

David Harrison, Joint Managing Director commented, "These quality assets are underpinned by very strong national tenants with long term leases. These properties together with our other retail assets create an impressive $438 million seed portfolio for the Core Plus Retail Fund to be launched in FY08".

Retail Director and CPRF Fund Manager, Richard Champion explained: "The Bunnings stores have each been constructed in the last two years and are all located in established retail/bulky goods precincts with excellent exposure to major road and transport networks".

Impact on Charter Hall

These acquisitions can be expected to deliver 10% DPS accretion on a proforma basis to market consensus FY07 forecasts. The capital raising is expected to improve Charter Hall's liquidity and with it, prospects for inclusion in the S&P/ASX LPT 200 Index.

Following the acquisitions and capital raising, Charter Hall's gearing is expected to be 34% which means Charter Hall retains significant balance sheet capacity to fund future growth opportunities.
An institutional placement to raise a minimum of $120 million has been underwritten by Macquarie Equity Capital Markets.

In addition to the placement Charter Hall will be offering eligible securityholders the ability to participate by way of a Security Purchase Plan (SPP). Securities issued under the SPP will be offered to all eligible pre-placement security holders at the placement price. The record date for the SPP will be 4 June 2007.