for personal use only - australian securities exchange · clil, as the responsible entity of ckt,...

Level 15255 Pitt StreetSydney NSW 2000telephone 02 9994 7000facsimile 02 9994 7777

www.challenger.com.au

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Challenger Kenedix Japan Trust(ARSN 124 068 971)

Responsible EntityChallenger Listed Investments Limited(ABN 94 055 293 644)(AFSL 236887)

Challenger Kenedix Japan TrustAnnual Report 2008

Challenger K

enedix Japan Trust Annual Report 20

08

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Challenger Listed Investments Limited (ABN 94 055 293 644) (AFSL 236887) (CLIL) is the Responsible Entity of Challenger Kenedix Japan Trust (ARSN 124 068 971) (CKT).

CLIL, as the Responsible Entity of CKT, has prepared this Annual Report (Report) based on information available to it. The information in this Report should be regarded as general information only. Nothing contained in this Report constitutes investment, legal, tax or other advice. It has been prepared without taking account of any person’s objectives, fi nancial situation or needs. Recipients should, before acting on any such information, consider its appropriateness, having regard to their objectives, fi nancial situation and needs, and seek the assistance of their fi nancial or other licensed professional adviser before making any investment decision.

Any investment in CKT is subject to investment risk and other risks, including possible loss of income and principal invested. None of CLIL, Challenger Management Services Limited (ABN 29 092 382 842) (AFSL 234678) (CMSL), Challenger Financial Services Group Limited (ABN 85 106 842 371) (Challenger) or any other member of the Challenger Group gives any guarantee or assurance as to the performance of CKT or the repayment of capital.

Nothing in this Report should be considered a solicitation, offer or invitation to buy, subscribe or sell any, or a recommendation of, fi nancial products.

All reasonable care has been taken to ensure that the facts stated and opinions given in this Report are fair and accurate. To the maximum extent permitted by law, the recipient releases CLIL, each member of the Challenger Group, their directors, offi cers, employees, representatives and advisers from any liability (including, without limitation, in respect of direct, indirect or consequential loss or damage, or loss or damage arising by negligence) arising in relation to any recipient relying on anything contained in or omitted from this Report.

Any forward looking statements included in this Report involve subjective judgement and analysis and are subject to signifi cant uncertainties, risks and contingencies, many of which are outside the control of, and are unknown to, CLIL. In particular, they speak only as of the date of these materials, they assume the success of CKT’s business strategies, and they are subject to signifi cant regulatory, business, competitive and economic uncertainties and risks. Actual future events may vary materially from forward looking statements and assumptions on which those statements are based. Given these uncertainties, recipients are cautioned not to place undue reliance on such forward looking statements.

Any past performance information provided in this Report is not a reliable indication of future performance.

CLIL does not receive any specifi c remuneration for any general advice which may be provided to you in this Report. However, CLIL and CMSL receive trustee and management fees as issuer and manager of CKT, respectively. For more details on fees, please refer to the Financial Report contained in this Report and additional information on the Australian Securities Exchange (ASX) website www.asx.com.au. Financial advisers may receive fees or commissions if they provide advice to you or arrange for you to invest in a Challenger product (including CKT). CLIL and its associates may have an interest in the fi nancial products referred to in this Report and may earn fees or other benefi ts as a result of transactions in any such fi nancial products.

Members of the Challenger Group and their offi cers and directors may hold securities in CKT from time to time.

Important notice

Highlights 1Investment strategy 2Chair’s letter 3Fund Manager’s report 4About Kenedix 7Portfolio summary 8Property summaries 10About Challenger 17Corporate governance statement 18Directors’ report 25Financial report 34Unitholder information 73Additional information 76Directory IBC

Contents

Cover photo: Life Kema, Osaka, Japan

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Challenger Kenedix Japan Trust Annual Report 2008 1

CKT delivered profi t from operating activities of $21.7 million in FY08 (fi rst full year of operations since IPO in April 2007), underpinned by net property income of $26.2 million. Net profi t after tax attributable to members was $17.0 million.

Total assets at 30 June 2008 were $687 million. Borrowings were ¥34.8 billion ($356 million). Fund gearing (debt to assets) was 49.3%, and interest cover ratio of 4.3 times. No debt facility refi nancing before April 2012.

CKT continues to operate comfortably within fi nancial covenants. Importantly, no covenants relate to market capitalisation or currency movements, and CKT has no cash collateral requirements.

Hedging is effectively used for risk management. While the A$ exchange rate has ranged from around 92 Yen at IPO to over 100 Yen, CKT’s combination of income hedges with capital hedges of around 40% has signifi cantly reduced the impact of FX movements.

Net tangible assets (NTA) per unit of $1.91 at 30 June 2008.

CKT’s property portfolio grew signifi cantly in FY08 with the addition of 8 properties to take the total number to 20. Occupancy is 100% with a weighted average lease expiry of 16.3 years.

All properties independently valued during FY08. 10 properties were revalued as at 30 June 2008 with values remaining steady. The full-year impact of property revaluations resulted in a gain of $7.8 million.

Properties are quality retail properties in major urban and suburban locations across Japan, primarily focused on providing services and non-discretionary goods such as fresh foods to Japanese household consumers. In CKT’s view, these properties are well positioned to ride out economic cycles.

CKT has a unique and successful management platform and relationship with Kenedix, our JV partner company on the ground in Japan.

Distribution guidance for FY09 of 17.2 cents per unit.

i t ib ti idCKT h

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T t l t t

Highlights

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Investment strategy

CKT aims to provide investors with secure and sustainable income returns and the potential for capital growth through investments in, and active management of, a portfolio of quality Japanese retail properties sourced and managed by Kenedix – a leading Japanese real estate manager.

Lease expiry profile (by income)*

1. Assumes tenants do not terminate leases prior to specified lease term; some leases can be terminated at the tenant’s option prior to the end of the specified lease term

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Brenda ShanahanChair

Dear unitholders

Since taking on the role of Chair of the board of Challenger Listed Investments Limited (CLIL), the responsible entity of Challenger Kenedix Japan Trust (CKT), in December 2007, much has changed within the fi nancial and capital markets across the globe.

The year ended 30 June 2008 has been described by commentators as the worst in a quarter of a century. We have witnessed the cumulative impact of the sub-prime fallout, a credit crisis, infl ation spurred by rising oil prices, and rising interest rates in Australia.

The listed property trust (LPT) market was signifi cantly impacted by these global and domestic issues, and investor confi dence was dealt a further blow with the downfall of several high-profi le domestic LPT participants. The S&P/ASX200 LPT accumulation index fell 36.4% across the year, while the S&P/ASX300 LPT accumulation index fell 37.7%. CKT fell 50.76% across the year.

Whilst this fall in unit value is very disappointing, the results and performance of CKT in its fi rst full year of operations were pleasing. Profi t from operating activities was $21.7 million, and net profi t after tax attributable to unitholders was $17.0 million. CKT delivered a total distribution to unitholders of 13.6 cents per unit.

In February 2008, CKT issued a distribution guidance for FY09 of 17.2 cents per unit. This guidance was re-affi rmed when CKT released its FY08 results on 22 August 2008. With the unit price of CKT closing at 98.5 cents per unit on 22 August 2008, the FY09 distribution represents a yield of 17.5% on the closing price.

The CKT management team and staff have worked diligently during the past year to further strengthen the underlying fundamentals of the properties. I congratulate the team and thank them for the hard work required to achieve such a result in this challenging environment.

Following eight acquisitions, the portfolio now consists of interests in 20 quality properties located in regional urban and suburban centres across Japan. The portfolio has an occupancy rate of 100% and a weighted average lease expiry duration of 16.3 years.

CKT is in sound fi nancial shape and is well-positioned with borrowings of ¥34.8 billion ($356 million) and a gearing ratio (debt to total assets) of 49.3%. CKT continues to operate within its fi nancial covenants, and has no covenants linked to market capitalisation.

I encourage all unitholders to read the Fund Manager’s report that follows, and to review the portfolio details and fi nancial reports also contained in this document.

I would like to acknowledge the work of the CLIL Board. I am fortunate to have around me a team of highly experienced executive and non-executive Directors, focused on ensuring that CKT is positioned to maximise returns to its unitholders. Further details on the activities of the CLIL Board and its Committees can be found in the expanded corporate governance section in this Annual Report.

Finally, I thank you for your continued support of CKT, and I look forward to reporting to you on the future performance of our Fund.


Chair’s letter

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Dear unitholder

I am pleased to report to you again this year on the performance of Challenger Kenedix Japan Trust (CKT).

CKT reported profi t from operating activities of $21.7 million and net profi t after tax of $18.0 million1 for the 12 months ended 30 June 2008 (FY08).

This is a pleasing result for CKT in our fi rst full year of operations. It highlights the strength of CKT’s portfolio, with properties well located in good catchments with long-term leases in place to established tenants who predominantly focus on meeting the non-discretionary needs of local consumers. Despite challenging global market conditions, we have exceeded IPO expectations and have delivered distributions in line with guidance.

Through Kenedix’s knowledge of the property market and its efforts on the ground in Japan we have added a total of ¥18.3 billion ($179.9 million2) in assets since listing, taking our portfolio from 12 properties at IPO to 20 today. All properties were diligently assessed to ensure full compliance with our investment criteria.

Our distributions in FY08 totalled 13.6 cents per unit. And we have reaffi rmed our distribution guidance for FY09 of 17.2 cents per unit underpinned by strong underlying portfolio performance and accretive acquisitions made since IPO in April 2007.

Financial resultsFinancial performance3

For FY08, CKT generated net property income of $26.2 million and other income of $6.9 million – primarily interest income on cross-currency swaps. After borrowing costs of

$6.6 million and operating expenses of $4.7 million, CKT delivered a profi t from operating activities of $21.7 million.

After adjusting profi t from operating activities for unrealised movements, tax expenses and minority interests, CKT recorded a net profi t after tax attributable to unitholders of $17.0 million. Unrealised movements included a mark-to-market revaluation of interest rate and currency hedges of ($6.1) million, and revaluation of investment properties of $7.8 million.

CKT’s total realised income available for distribution was $20.4 million, equating to a distribution of 13.60 cents per unit for the fi nancial year. CKT confi rmed that the distribution for the half year ended 30 June 2008 of 7.55 cents per unit will be paid on 28 August 2008 to unitholders on the register at record date.

CKT has amended its distribution policy, now electing to pay distributions from profi t from operating activities after providing for maintenance capital expenditure. FY09 maintenance capital is forecast to be around 0.12 cents per unit. Noting this change, CKT has reaffi rmed its distribution guidance of 17.2 cents per unit which is fully paid from operating cash fl ows.

Financial positionAt 30 June 2008, CKT’s gross assets were $687.2 million, an increase of $217.9 million or 46% from the prior year, refl ecting the expansion of the property portfolio from 12 to 20 properties. Net assets attributable to unitholders was $286.8 million (compared to $215.4 million at 30 June 2007), with net tangible assets (NTA) attributable to unitholders of $1.91 per unit compared to $1.44 at the

close of FY07. Unitholder contributed equity increased to $284.6 million and includes the second instalment of 50 cents per unit paid in February 2008.

Capital managementAt its initial public offering, CKT raised equity of $300 million, with $225 million available in the fi rst instalment and a further $75 million (50 cents per unit) paid in February 2008. Funds from the second instalment were combined with Yen borrowings to fund the settlement of acquisitions completed in the second half of FY08.

CKT’s gearing (debt to total assets) ratio was 49.4% at 30 June 2008, up from 45.9% in the prior year. However, CKT has surplus cash of $12.4 million that if applied against the debt facilities would reduce gearing to 48.4%. The current gearing level is marginally below CKT’s preferred range of 50-60%.

At 30 June 2008, Japanese borrowings totalled ¥34.8 billion, and unused loan facilities were ¥1.5 billion. Importantly, no CKT borrowing facility expires until April 2012.

CKT has hedged 96% of its total borrowings for a weighted average term of 3.9 years through fi xed interest facilities and interest rate derivatives. The weighted averageall-in cost of borrowings is 1.96%.

Loan-to-valuation (LTV) and debt service cover ratios apply to CKT’s borrowing facilities from both Japanese banks – Shinsei and SMBC. CKT is trading comfortably within covenants and, with surplus cash applied against the Shinsei facility, headroom is capable of supporting a fall in property values of around 17%.

Fund Manager’s report

1 All currency in Australian dollars unless stated otherwise.2 Converted at 30 June 2008 spot rate of ¥101.7 to A$1.00.3 CKT listed in April 2007. As this is the fi rst full year reporting period, no prior full year comparatives are available.

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Foreign currency hedgingCKT enters into income and capital hedges to mitigate the volatility in currency movements on both income distributions and unitholders’ equity. CKT does not speculate on foreign exchange movements.

In line with CKT’s hedging policy, foreign currency hedges are in place over 100% of estimated distributions for a period of fi ve years, and a further 90% for years six and seven. Capital hedges are also in place over approximately 40% of CKT’s net investments in Japanese assets.

Portfolio update

CKT’s portfolio comprises quality neighbourhood shopping centres located in urban and suburban areas of Japan. This sector exhibits attractive investment characteristics, with favourable risk-adjusted returns relative to other property investment classes, and with potential to create value for unitholders through the application of Kenedix’s local market knowledge and property investment skills.

The portfolio is well diversifi ed across a range of retailer types, tenants, cities and regions. It is 100% leased to established anchor tenants, primarily focused on supplying non-discretionary goods to Japanese households and capable of producing steady income through economic cycles.

Properties are leased on a long-term basis. The portfolio’s weighted average lease term to expiry (WALE) is 16.3 years4 compared to 16.0 at the prior year-end.

Property revaluationsCKT revaluation policy is for 50% (by value) of the property portfolio to be revalued every half year. Consequently, all properties were independently valued during FY08, resulting in a gain of $7.8 million across the full year.

At 30 June 2008 10 properties were revalued. Valuation-to-valuation the net value of these properties remained relatively unchanged with the weighted average cap rate moving out to 4.88% from 4.85%. This result refl ects the quality of CKT’s property portfolio with their long lease terms, strong tenant covenants and steady and predictable underlying cash fl ows.

Rent reviewsThe fi rst rent review within the portfolio occurred in June this year. Rent for Life Asakusa remains unchanged as anticipated as a consequence of the review. No rent reviews are scheduled in FY09.

Acquisitions Focusing on maximising returns to CKT, Kenedix identifi ed a number of high-grade properties with potential for inclusion in the CKT portfolio. Following extensive due diligence during FY08, CKT announced its interest in eight acquisitions to take the portfolio from 12 properties at 30 June 2007 to 20 as at 30 June 2008.

As outlined at the time of each acquisition, each property has attractive investment characteristics and is rented to an established Japanese retailer or service provider.

FY09 guidance assumes no further acquisitions

1.42

11.64 12.19

1.42

13.6

17.2

FY07 FY08 FY09

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IPO forecast Guidance Actual distribution

4 Assumes tenants do not terminate leases prior to specifi ed lease terms. Some leases can be terminated at the tenant’s option prior to the end of the specifi ed lease term.

Distribution guidance of 17.2 centsper unit for FY09

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Brett McCarthyFund Manager

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Fund Manager’s report (continued)

Outlook

Japan is not immune from current global issues with recent indicators pointing to a slowing economy. Despite this, Japan is reasonably well placed to manage a slowdown. Importantly, CKT’s portfolio is weighted towards supermarket-anchored neighbourhood shopping centres focused on non-discretionary expenditure (fresh food and daily needs) which typically generate steady sales through the economic cycles.

CKT continues to perform to expectations and remains on target to deliver its FY09 distribution of 17.2 cents per unit. CKT’s performance is underpinned by the strength of its property portfolio and the quality of its tenants. When combined with CKT’s prudent income and capital hedging policy, long debt duration and available funding capacity, CKT is able to offer investors an attractive distribution outlook.

In these challenging times of volatility in the capital and fi nancial markets, our conservative approach to conducting business should provide added security to investors seeking security with high-yielding returns. Thank you for your ongoing support of CKT, especially during these times of uncertainty in global markets.

I look forward to working with CKT staff and our partner in Japan, Kenedix, to deliver strong results and attractive returns over the coming 12 months.

Yours sincerely

Brett McCarthyFund Manager

■ 39% Tokyo

■ 4% Hiroshima

■ 2% Sendai

■ 10% Saitama

■ 7% Kyushu

■ 15% Kansai

■ 5% Hokkaido

■ 15% Chubu

■ 3% Hyogo

Geographic diversification (by value)1

As at 30 June 2008

■ 7% Clothing

■ 8% Commercial Property Manager

■ 18% Fitness Chain

■ 14% General Merchandise Store

■ 4% Home Centre

■ 6% Mass Merchandiser

■ 43% Supermarket

Tenant type diversification (by income)1

As at 30 June 2008

1 Based on current annualised income.

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About Kenedix

Kenedix, Inc. is a leading provider of real estate advisory, property management and asset management services in Japan. At 30 June 2008, Kenedix had assets under management of over ¥840 billion ($8.3 billion), up 14% since December 2007.

Kenedix has a strong track record of acquiring and managing retail, offi ce, residential and logistics facilities, being one of the fi rst Japanese public companies to focus on real estate funds management since listing on the Tokyo Stock Exchange in 2002. In FY2007, Kenedix made ¥257.2 billion ($2.5 billion) of gross property acquisitions and ¥66.7 billion ($655 million) of property sales to buyers outside Kenedix Group.

Kenedix has a proven track record of generating strong returns for investors in associated J-REITs, pension funds and private funds through active asset management and by focusing on acquisitions that add value and increase fund investor returns. Kenedix also has extensive development experience across a range of property asset classes.

Kenedix has a dedicated team of 13 people committed to sourcing acquisitions. The acquisitions team is supported by a stringent investment committee process providing corporate governance and ensuring thorough due diligence. Part of Kenedix’s strength has been the network of relationships built up within the real estate sector. These relationships have helped ensure Kenedix has access to acquisition opportunities (many of them off market) and development opportunities in conjunction with committed tenants.

Kenedix provides property management, asset management, acquisition, debt management, development management and property reporting services to CKT.

10%

12%

15%

20%

Office ResidentialRetail Logistics Other

43%

Assets under management by sector

385.7

FY20

00

FY20

01

FY20

02

FY20

03

FY20

04

FY20

05

FY20

06

FY20

07

FY20

08

Yen

bill

ion

1,000

800

600

400

200

019 68.5 83.8 105.9

240.4

544.4734.9

840

Kenedix assets under management growing – up 14% since Dec ‘07

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Portfolio summary

Property name LocationNLA

(sqm)Occupancy

(%)Leasetype

Remainingspecifi ed

lease term(years)1

Date acquired

Retail

Carino Chitosedai Kanto area, Tokyo 9,925 100 Fixed-term lease 14.5 Jun-07

Carino Tokiwadai Kanto area, Tokyo 7,699 100 Standard lease 17.8 Apr-07

Izumiya Hakubaicho Kansai area, Kyoto 16,525 100 Fixed-term lease 17.8 Apr-07

Unicus Ina Kanto area, Saitama 13,044 100 Standard lease 18.2 Apr-07

Valor Toda Chubu area, Nagoya 14,921 100 Fixed-term lease 17.3 Apr-07

Life Higashinakano Kanto area, Tokyo 5,104 100 Standard lease 11.2 Apr-07

Life Asakusa Kanto area, Tokyo 3,753 100 Standard lease 10.0 Apr-07

Osada Nagasaki Kyushu area, Nagasaki 10,330 100 Fixed-term lease 17.7 Apr-07

Yaoko Sakado Chiyoda Kanto area, Saitama 5,492 100 Standard lease 13.2 Apr-07

Sunny Noma Kyushu area, Fukuoka 2,887 100 Fixed-term lease 28.7 Apr-07

Kansai Super Saigo Kansai area, Osaka 2,642 100 Standard lease 10.2 Apr-07

Kojima Nishiarai Kanto area, Tokyo 3,755 100 Standard lease 3.1 Apr-07

DeoDeo Kure Chugoku area, Hiroshima 13,021 100 Fixed-term lease 8.8 Aug-07

Seiyu Miyagino Tohuku area, Sendai 2,789 100 Standard lease 7.8 Sep-07

Valor Takinomizu Chubu area, Nagoya 11,265 100 Fixed-term lease 17.5 Mar-08

Valor Ichinomiya Chubu area, Nagoya 9,447 100 Fixed-term lease 19.2 Dec-07

Aeon Kushiro Hokkaido area 134,682 100 Standard lease2 22.2 Dec-07

Renaissance Fujimidai Kanto area, Tokyo 3,121 100 Fixed-term lease 19.4 Feb-08

Life Nagata Kansai area, Kobe 5,781 100 Fixed-term lease2 18.8 Feb-08

Life Kema Kansai area, Osaka 4,813 100 Fixed-term lease2 19.2 Mar-08

Portfolio total/average 280,996 100 16.3

1 Assumes tenants do not terminate leases prior to specifi ed lease term. Some leases can be terminated at the tenant’s option prior to the end of the specifi ed lease term.

2 Land lease.

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Purchase price

(million)

Indep-endent

valuation(million)

Valuation date

Land(%)

Building(%)

Discountrate (%)

Terminalyield (%)

DCFyears

Caprate(%)

Grosspassing rent

(sqTsubo/per month)

Carrying value($m)

¥9,489 ¥10,550 Dec-07 71.7 28.3 4.4 4.7 10 4.5 ¥16,088 103.7

¥6,029 ¥6,540 Jun-08 62.7 37.3 4.5 5.0 10 4.7 ¥12,312 64.3

¥5,630 ¥5,820 Dec-07 67.9 32.1 4.9 5.1 10 4.9 ¥10,099 57.2

¥4,666 ¥4,780 Jun-08 43.5 56.5 4.7 5.0 10 4.7 ¥5,771 47.0

¥3,657 ¥3,700 Jun-08 58.0 42.0 5.1 5.6 10 5.4 ¥4,559 36.4

¥2,659 ¥2,750 Dec-07 81.5 18.5 4.7 4.9 10 4.7 ¥12,625 27.0

¥2,309 ¥2,310 Jun-08 83.0 17.0 4.8 5.0 10 4.8 ¥15,933 22.7

¥1,750 ¥1,810 Dec-07 62.2 37.8 5.9 6.3 10 5.9 ¥3,746 17.8

¥1,510 ¥1,530 Dec-07 65.4 34.6 4.9 5.2 10 4.9 ¥6,914 15.0

¥1,417 ¥1,440 Jun-08 61.7 38.3 5.0 6.0 10 5.0 ¥9,877 14.2

¥1,057 ¥1,110 Jun-08 80.5 19.5 5.1 5.4 10 5.1 ¥12,770 10.9

¥837 ¥971 Dec-07 75.1 24.9 4.8 5.4 10 5.2 ¥16,546 9.6

¥2,780 ¥2,780 Jun-08 45.6 54.4 5.2 5.5 10 5.2 ¥12,360 27.3

¥875 ¥872 Jun-08 82.5 17.5 5.0 5.5 10 5.0 ¥16,263 8.6

¥2,550 ¥2,700 Feb-08 62.6 37.4 4.3 4.7 7 4.5 ¥5,604 26.4

¥2,620 ¥2,800 Jun-08 62.2 37.8 4.5 4.8 10 4.7 ¥5,538 27.5

¥2,500 ¥2,550 Jun-08 100.0 0.0 5.5 5.7 10 5.5 ¥350 25.1

¥2,510 ¥2,570 Feb-08 65.5 34.5 4.7 5.1 10 4.8 ¥12,711 25.3

¥2,060 ¥2,150 Dec-07 100.0 0.0 5.0 5.2 10 5.0 ¥6,002 20.7

¥2,430 ¥2,430 Mar-08 100.0 0.0 4.9 5.1 10 4.9 ¥8,013 24.4

¥59,335 ¥62,163 69.0 31.0 4.78 5.12 n/a 4.86 ¥8,241 611.1


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Property summaries

Izumiya Hakubaicho

Kyoto-shi, Kyoto, Japan

Carino Tokiwadai

Itabashi-ku, Tokyo, Japan

Carino Chitosedai

Setagaya, Tokyo, Japan

Property details

Property Land and buildings

Ownership interest1 97% (Economic interest)

Land area 4,939 sqm

Net lettable area 9,925 sqm

Car spaces 233

Occupancy 100%

WALE2 14.5 years

Lease type Fixed-term lease

Date acquired June 2007

Purchase price ¥9,489 million

Valuation ¥10,550 million

Valuation date 31 December 2007

Capitalisation rate 4.5%

Book value ¥10,551 million

Initial NOI yield 5.0%

PML 7.6%

Property description

Carino Chitosedai is a neighbourhood retail centre with a net lettable area of 9,925 sqm and car parking for 233 vehicles. Located in Setagaya, Tokyo, the property was developed by Kenedix to a high standard and has long-term leases in place with fi tness centre operator Central Sports Co and national clothing retailer UNIQLO. Carino Chitosedai is a 13 minute walk from Chitosefunabashi station on the Odakyu-Odawara Line.

Property details



Land area 4,511 sqm


Car spaces 163

Occupancy 100%

WALE2 17.8 years

Lease type Standard lease

Date acquired April 2007



Valuation date 30 June 2008




PML 4.8%


Carino Tokiwadai is a neighbourhood retail centre with a net lettable area of 7,699 sqm and car parking for 163 vehicles. Located in Itabashi-ku, Tokyo, the property has long-term leases in place with fi tness centre operator Central Sports Co and supermarket operator K.K. Santoku. Carino Tokiwadai is an eight minute walk from Tokiwadai station on the Tobu-Tojo Line.

Property details



Land area 4,534 sqm


Car spaces 152

Occupancy 100%

WALE2 17.8 years









PML 14.4%


Izumiya Hakubaicho is a neighbourhood retail centre with a net lettable area of 16,525 sqm and car parking for 152 vehicles. Located in Kyoto, the property has a long-term lease in place with general merchandise retailer Izumiya. Izumiya Hakubaicho is a one minute walk from Kitano hakubaicho station on the Keifuku Kitano Line.

1 Remaining 3% economic interest held by Japanese Master TK operator; for further details refer to the CKT IPO Product Disclosure Statement (PDS) dated 19 March 2007.2 Assumes tenants do not terminate leases prior to specifi ed lease term. Some leases can be terminated at the tenant’s option prior to the end of the specifi ed lease term.

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Valor Toda

Nagoya-shi, Chubu Area, Japan

Life Higashinakano

Nakano-ku, Tokyo, Japan

Unicus Ina

Ina-machi, Saitama Pref, Japan

Property details



Land area 32,560 sqm


Car spaces 682

Occupancy 100%

WALE2 18.2 years









PML 5.6%


Unicus Ina is a neighbourhood retail centre with a net lettable area of 13,044 sqm and car parking for 682 vehicles. Located in Ina-machi, Saitama, the property has a long-term lease in place with P&D Consulting and is currently operated as a supermarket based centre. Unicus Ina is a six minute walk from Hanuki station on the New Shuttle Line.

Property details





Car spaces 174

Occupancy 100%

WALE2 17.3 years









PML 12.2%


Valor Toda is a neighbourhood retail centre with a net lettable area of 14,921 sqm and car parking for 174 vehicles (with access to over 800 in total). Located in Nagoya, Aichi, the property has a long-term lease in place with supermarket operator Valor Co. Valor Toda is a 10 minute walk from Haruta station on the JR Kansai-Honsen Line.

Property details



Land area 2,711 sqm


Car spaces 53

Occupancy 100%

WALE2 11.2 years









PML 6.5%


Life Higashinakano is a neighbourhood retail centre with a net lettable area of 5,104 sqm and car parking for 53 vehicles. Located in Nakano-ku, Tokyo, the property has a long-term lease in place with supermarket operator Life Corp. Life Higashinakano is a three minute walk from Higashi-Nakano station on the JR Sobu Line.

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Property details



Land area 1,278 sqm


Car spaces 12

Occupancy 100%

WALE2 10.0 years









PML 8.4%


Life Asakusa is a neighbourhood retail centre with a net lettable area of 3,753 sqm and car parking for 12 vehicles. Located in Taito-ku, Tokyo, the property has a long-term lease in place with supermarket operator Life Corp. Life Asakusa is a nine minute walk fromTahara-machi station on the Ginza Line.

Property details





Car spaces 519

Occupancy 100%

WALE2 17.7 years









PML 2.6%


Osada Nagasaki is a neighbourhood retail centre with a net lettable area of 10,330 sqm and car parking for 519 vehicles. Located in Nishisonogi, Nagasaki, the property has a long-term lease in place with home centre retailer Osada Ltd. Osada Nagasaki is a 30 minute bus ride from Nagayo station on the JR Nagasaki-Honsen Line.

Property details





Car spaces 256

Occupancy 100%

WALE2 13.2 years









PML 8.2%


Yaoko Sakado Chiyoda is a neighbourhood retail centre with a net lettable area of 5,492 sqm and car parking for 256 vehicles. Located in Sakado, Saitama, the property has a long-term lease in place with supermarket operator Yaoko. Yaoko Sakado Chiyoda is a 15 minute walk from Wakaba station on the Tobu-Tojo Line.


12

Property summaries (continued)

Yaoko Sakado Chiyoda

Saitama Pref, Japan

Osada Nagasaki

Nishisonogi, Nagasaki Pref, Japan

Life Asakusa

Taito-ku, Tokyo, Japan

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Property details



Land area 5,973 sqm


Car spaces 130

Occupancy 100%

WALE2 28.7 years









PML 0.4%


Sunny Noma is a neighbourhood retail centre with a net lettable area of 2,887 sqm and car parking for 130 vehicles. Located in Fukuoka, the property has a long-term lease in place with supermarket operator Sunny Co. Sunny Noma is a nine minute walk from Takamiya station on the Nishitetsu-Ohmuta Line.

Property details



Land area 4,074 sqm


Car spaces 71

Occupancy 100%

WALE2 10.2 years









PML 11.9%


Kansai Super Saigo is a neighbourhood retail centre with a net lettable area of 2,642 sqm and car parking for 71 vehicles. Located in Moriguchi, Osaka, the property has a long-term lease in place with supermarket operator Kansai Super Market Ltd. Kansai Super Saigo is a 10 minute walk from Moriguchi-shi station on the Keihan-Honsen Line.

Property details



Land area 2,082 sqm


Car spaces 42

Occupancy 100%

WALE2 3.1 years



Purchase price ¥837 million

Valuation ¥971 million



Book value ¥971 million


PML 6.2%


Kojima Nishiarai is a neighbourhood retail centre with a net lettable area of 3,755 sqm and car parking for 42 vehicles. Located in Adachi-ku, Tokyo, the property has a lease in place with mass merchandise retailer Kojima Co. Kojima Nishiarai is a seven minute walk from Taishi-mae station on the Tobutaishi Line.


Kansai Super Saigo

Moriguchi-shi, Osaka, Japan

Kojima Nishiarai

Adachi-ku, Tokyo, Japan

Sunny Noma

Fukuoka Pref, Japan

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Property details



Land area 3,739 sqm


Car spaces 248

Occupancy 100%

WALE2 8.8 years


Date acquired August 2007







PML 5.5%


DeoDeo Kure is a neighbourhood retail centre with a net lettable area of 13,021 sqm (including car parking for 248 vehicles). Located in Kure, Hiroshima, the property has a long-term lease in place with electrical goods retailer DeoDeo Corporation. DeoDeo Kure is a 10 minute walk from Kure station on the Kure Line.

Property details



Land area 3,722 sqm


Car spaces 70

Occupancy 100%

WALE2 7.8 years


Date acquired September 2007

Purchase price ¥875 million

Valuation ¥872 million



Book value ¥872 million


PML 2.6%


Seiyu Miyagino is a neighbourhood retail centre with a net lettable area of 2,789 sqm and car parking for 70 vehicles. Located in Miyagino-ku, Sendai, the property has a long-term lease in place with supermarket operator Tohuku Seiyu. Seiyu Miyagino is a seven minute walk from Tsutsujigaoka station on the Senseki Line.

Property details



Land area 8,452 sqm


Car spaces 296

Occupancy 100%

WALE2 17.5 years


Date acquired March 2008



Valuation date 22 August 2007




PML 11.9%


Valor Takinomizu is a supermarket based neighbourhood shopping centre and is located in Midori Ward, a popular commuter suburb of Nagoya, the headquarters of Toyota. Constructed in 1998 and refurbished and extended in 2004, the property is located in a fast-growing residential area, with good road and rail access. The property is leased to Valor Co., Ltd, a dominant supermarket operator in the central Japan region.

Valor Takinomizu

Midori Ward, Nagoya, Japan

Seiyu Miyagino

Miyagino-ku, Sendai, Japan

Life Asakusa


Life Asakusa


DeoDeo Kure

Kure, Hiroshima, Japan

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Property details





Car spaces 442

Occupancy 100%

WALE2 19.2 years


Date acquired December 2007







PML 13.8%


Valor Ichinomiya is a supermarket-anchored neighbourhood shopping centre and is located in Ichinomiya, a city of 374,000 people approximately 15 km north of Nagoya City in Aichi prefecture. The property is a modern centre which services a growing residential population. The property is 100% leased to supermarket operator Valor Co., Ltd, a dominant supermarket operator in the central Japan region and an existing tenant of two properties in which CKT is currently invested.

Property details

Property Land only




Car spaces n/a

Occupancy 100%

WALE2 22.2 years


Date acquired December 2007







PML n/a


Aeon Kushiro is a 134,682 sqm land parcel with land leases in place to Japan’s largest general merchandise store (GMS) operator, Aeon Co., Ltd, which operates a 35,000 sqm GMS based shopping centre on the site. The property is located in Kushiro City, a regional city in eastern Hokkaido. Kushiro has a relatively high proportion of young families compared with the national average.

Property details



Land area 1,729 sqm


Car spaces 1 car + 62 bikes

Occupancy 100%

WALE2 19.4 years


Date acquired February 2008



Valuation date 1 February 2008




PML 9.1%


Renaissance Fujimidai is a 3,121 sqm fi tness centre located in Nerima Ward in Tokyo. Constructed in 2007, the centre is located in a residential precinct alongside the high volume Seibu-Ikebukuro train line, and services a growing population. Nerima Ward’s population grew 3.6% in the fi ve years to 2006. The property is 100% leased to Renaissance Co., Ltd, a subsidiary of Dai Nippon Ink & Chemical, on a 20-year lease which commenced in December 2007.

Aeon Kushiro

Kushiro, Hokkaido, Japan

Renaissance Fujimidai

Nerima Ward, Tokyo, Japan

Valor Ichinomiya

Ichinomiya, Nagoya, Japan

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Property details

Property Land only


Land area 5,781 sqm


Car spaces n/a

Occupancy 100%

WALE2 18.8 years


Date acquired February 2008







PML n/a


Life Nagata is a 5,781 sqm land parcel located in Kobe City. Life Nagata is 100% leased to Life Corporation on a 20-year fi xed-term land lease. Life Corporation, an existing CKT tenant and a major supermarket operator in Japan, has built a supermarket-anchored neighbourhood shopping centre on the site. The property is located close to a high-density residential area and within a few hundred metres of two railway stations.

Property details

Property Land only


Land area 4,813 sqm


Car spaces n/a

Occupancy 100%

WALE2 19.2 years


Date acquired March 2008



Valuation date 31 March 2008




PML n/a


Life Kema is a 4,813 sqm land parcel located in Miyakojima Ward, Osaka. The land is leased to Life Corporation on a 20-year fi xed-term land lease. A three-story steel-framed building and 89 car parking spaces have recently been constructed on the property by Life Corporation. Life Corporation is a major supermarket operator, listed on the Tokyo Stock Exchange, and has long-term leases on three existing CKT properties.

16


Life Kema

Miyakojima Ward, Osaka, Japan

Life Nagata

Hyogo Pref, Kobe, Japan


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About Challenger

Challenger Financial Services Group (Challenger) is a diversifi ed fi nancial services company listed on the Australian Securities Exchange.

With a business model that provides products and services to meet a broad range of fi nancial needs, Challenger manages activities that span mortgage management, funds management and asset management. At 30 June 2008, Challenger’s assets and loans under management and administration totalled $69.7 billion.

Asset Management

Through its annuity products, Challenger has built a strong reputation in the retirement income market. Challenger is the largest provider of annuities in Australia and manages more than $5 billion in assets for approximately 45,000 annuitants.* Offering competitive rates, Challenger’s annuities are backed by a diversifi ed portfolio of high quality assets across infrastructure, real estate andfi xed income.

The Asset Management team is now applying the expertise and investment disciplines developed in these asset classes to an expanding range of specialised funds. On behalf of institutional and retail investors, Challenger manages a further $5 billion plus of assets via a range of listed and unlisted vehicles.

Recognised as an innovative and performance focused manager, Challenger has attracted a highly skilled team with expertise in both the creation and management of specialised funds. To complement these skills, it has also invested to attract industry professionals with asset origination and management capabilities across the core asset classes. Located in both Sydney and London, these teams have highly skilled resources with deep industry relationships and a proven track record in securing assets which deliver value.

Challenger has a strong co-investment philosophy, and has invested alongside investors in all of its specialisedfunds. This alignment of managerand investor is further enhancedby the use of performance feesthat reward relative rather than absolute performance.

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18

Corporate governance statement

The Responsible Entity’s approach to corporate governance

The Board of the Responsible Entity (the Responsible Entity) recognises its duties and obligations to stakeholders to implement and maintain a robust system of corporate governance. The Responsible Entity believes that the adoption of good corporate governance adds real value tostakeholders and enhances investor confi dence.

The Responsible Entity determines the most appropriate corporate governance arrangements for Challenger Kenedix Japan Trust (CKT), taking into consideration Australian and international standards. This statement refl ects the Responsible Entity’s corporate governance system as at August 2008.

This statement reports against the ASX Corporate Governance Council’s ‘Corporate Governance Principles and Recommendations’ released in August 2007. As required by the ASX Listing Rules, this statement sets out the extent to which CKT has followed the Principles or, where appropriate, indicates a departure from them with an explanation.

Principle 1Lay solid foundations for management and oversightThe role of the Responsible Entity and delegationsThe role of the Responsible Entity is to manage CKT in the unitholders’ best interests in accordance with CKT’s constitution and the Corporations Act 2001 (Cth) (Corporations Act). The Responsible Entity is accountable to unitholders for the activities and performance of CKT by overseeing the development of sustainable fund value within an appropriate framework of risk, and regard for all stakeholder interests. The Responsible Entity has identifi ed the key functions which it has reserved for itself. These duties are outlined below and set out

in the Board Charter, a copy of which is available on CKT’s website:

• approval of the strategy and annual budgets of the Trusts;

• approval of accounting policies and fi nancial reports of the Trusts;

• approval of corporate governance structure and monitoring the performance and effectiveness of the corporate governance policies and procedures;

• oversight of the establishment and maintenance of effective risk management policies and processes;

• evaluation and approval of acquisitions and investments and other corporate actions of the Trusts that are outside the authority delegated to the Investment Committees;

• the power to issue unitsin a Scheme;

• the issuance of a PDS;

• monitoring the performance of the Manager; and

• the evaluation of the performance of the Board, Board Committees and individual Directors.

The Board has established Committees to assist in carrying out its responsibilities and to consider certain issues and functions in detail. The Board Committees are discussed in Principle 2 below.

Non-executive Directors are issued with formal letters of appointment governing their role and responsibilities. The responsibilities of the Chair andthe Directors are also set out in the Board Charter.

Management responsibilityThe Corporations Act empowers the Responsible Entity to engage agents on its behalf; however, it remains fully responsible for the actions of those agents. The Responsible Entity has

appointed Challenger Management Services Limited to manage CKT. Challenger Management Services Limited and the Responsible Entity are wholly owned subsidiaries of Challenger Life Holdings Limited, which is wholly owned byChallenger Financial ServicesGroup Limited (CFSG).

The Board has delegated to CKT’s Fund Manager the authority and powers necessary to implement the strategies approved by the Board for CKT and to manage the business affairs of CKT within the policies and specifi c delegation limits specifi ed by the Board from time to time.

CKT’s constitution governs, among other things, how CKT will operate, how the Responsible Entity remuneration will be calculated and the rights of unitholders. The Responsible Entity must also prepare and lodge a compliance plan with the Australian Securities and Investments Commission (ASIC). The compliance plan sets out the mechanism the Responsible Entity has in place to ensure compliance with CKT’s constitution and the Corporations Act.

Relationship with ChallengerFinancial Services GroupThe corporate governance structure adopted by the Responsible Entity refl ects its role as the responsible entity of CKT. In several ways, this will be different to the corporate governance structure of alisted company.

CFSG has expertise in developing and managing specialist investment funds in areas of property and infrastructure. The Responsible Entity makes extensive use of the resources available within CFSG in managing CKT.

The resources provided to assist the Responsible Entity to fulfi l its role include the services of senior executives and responsible offi cers.

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CFSG, in consultation with the Responsible Entity, may also appoint appropriately skilled Independent Directors and executives to ensure that CKT continues to be managed to maximise returns to unitholders within CKT’s stated strategy and mandate.

Executive performance assessmentThe performance of the Chief Executive, Asset Management and senior executives is reviewed at least annually against appropriately agreed and documented performance objectives and measures, consistent with the Performance Management framework that applies to all Challenger employees. All Challenger Group employees are also assessed against the Challenger Corporate Principles (refer Principle 3 below).

Performance evaluations for the Chief Executive, Fund Manager and senior executives have taken place in respect of the 2008 reporting period in accordance with the above process.

Principle 2Structure the Boardto add valueMembership of the BoardThe Board comprises Directors who possess an appropriate range of skills, experience and expertise to:

• have a proper understanding of, and competence to deal with, the current and emerging issues ofthe business;

• exercise independent judgement;

• encourage enhanced performance of the Trust; and

• effectively review and challenge the performance of management.

The Responsible Entity’s constitution provides for a minimum of three Directors and a maximum of 12 Directors. The table below summarises the current composition of the Board. Background details of each Director are set out in the Directors’ report.

Nomination and appointmentof new DirectorsThe Responsible Entity is a wholly owned subsidiary of CFSG. As a result, the Board has not appointed a formal nominations committee. This represents a departure from the ASX Principles. The Directors are appointed by CFSG, having regard to maintaining a majority of Independent Directors and to ensuring an appropriate balance of skills, experience and competence on the Board. All new Directors are provided with an appropriate induction into the Responsible Entity’s business.

Review of Board performanceThe Board Charter sets out the requirement for a formal review of the Board’s performance at least every two years. A formal review of the Board’s performance was conducted in March 2008. Each Director completed an extensive questionnaire, and responses were reviewed by the Chair and Company Secretary. The outcomes of the review were provided for discussion by the Board. The review indicated that the Board is performing soundly.

Independent DirectorsThe Responsible Entity has adopted an Independence Policy that states that an Independent Director should be independent of management and free from any business or other relationship that could materially interfere with, or could reasonably be perceived to materially interfere with, the independent exercise oftheir judgement.

The Board regularly considers and assesses the independence of each Director in light of the interests and information which Directors disclose. In accordance with the Corporations Act, Directors are required to advise the Responsible Entity of any material personal interests they havein a matter.

Name Position Independent First appointed

Brenda Shanahan Chair Yes 2007

Russell Hooper Non-executive Director Yes 2005

Ian Martens Non-executive Director Yes 2003

Geoff McWilliam Non-executive Director Yes 2006

Ian Moore Non-executive Director Yes 2005

Brendan O’Connor Executive Director No 2008

Rob Woods Executive Director No 2004

The roles of Chair and Chief Executive are not exercised by the same person.

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20

Corporate governance statement (continued)

In assessing independence, the Board will have regard to whether the Director has any of the following relationships with the Responsible Entity:

1. is a substantial shareholder (as defi ned by section 9 of the Corporations Act) of the Responsible Entity, or is a director or offi cer of, or otherwise associated directly with, a substantial shareholder of the Responsible Entity;

2. is employed, or has previously been employed in an executive capacity, by a Challenger Group company, and there has not been a period of at least three years between ceasing such employment and serving on the Board;

3. has within the last three years been a principal of a material professional adviser or a material consultant to the Responsible Entity or another Challenger Group company, or an employee materially associated with the service provided;

4. is a material supplier or customer of the Responsible Entity or other Challenger Group company, or an offi cer of or otherwise associated directly or indirectly with a material supplier or customer; and

5. has a material contractual relationship with the Responsible Entity or another Challenger Group company other than as a director.

The Responsible Entity will state its reasons if it considers a Director to be independent notwithstanding the existence of a relationship of the kind referred to in paragraphs 1-5 above. The Responsible Entity has considered Mr Hooper‘s position as

an independent director of CFSG and Challenger Life No.2 Limited, and determined him to be an Independent Director of the Responsible Entity by reason that Mr Hooper is cognisant of potential confl ict situations and has demonstrated that he is able to exercise independent judgement. While participating in Board meetings, Mr Hooper takes appropriate governance steps such as abstaining from voting or leaving the meeting for any matters where a confl ict of interest exists in respect of him being a director of another Challenger Group company. While Mr Hooper derives a portion of his income from Challenger Group directorships, the Responsible Entity is satisfi ed that he has suffi cient fi nancial independence from the Challenger Group.

In accordance with the ASX Corporate Governance Guidance for Independence, there is a majority of Independent Directors on the Board.

Confl icts of interestIn accordance with the Board Charter and the Corporations Act, any Director with a material personal interest in a matter being considered by the Board must declare such an interest and may only be present when the matter is being considered at the Board’s discretion. Directors with a material interest may not vote on any matter in which they have declared a personal interest.

Meetings of the BoardDuring the year the Board generally meets approximately every six weeks. In addition, the Board may meet whenever necessary to deal with specifi c matters needing attention between scheduled meetings. The Chief Executive Asset Management, in consultation with the Chair,

establishes the meeting agendas to ensure adequate coverage of strategic, fi nancial and material risk areas throughout the year. The Fund Manager and senior management are invited to attend Board meetings and are available for contact by Non-executive Directors between meetings. The Non-executive Directors hold a private session without any executive involvement at least annually.

Board access to information and adviceAll Directors have unrestricted access to the Responsible Entity’s records and information. The Company Secretary provides Directors with guidance on corporate governance issues and developments and on all other matters reasonably requested by the Directors and monitors compliance with the Board Charter. The Board or each individual Director has the right to seek independent professional advice at the Responsible Entity’s expense to assist them in discharging their duties. Whilst the Chair’s prior approval is required, it may not be unreasonably withheld or delayed.

Board CommitteesTo assist it in undertaking its duties, the Board has established the following Committees:

• the Audit and Compliance Committee;

• the Property Investment Committee; and

• the Infrastructure Investment Committee.

Each Committee has its own charter. A copy of the Audit and Compliance Committee Charter is available on CKT’s website atwww.challenger.com.au/ckt

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Directors’ meetings

Director Board Audit and Compliance Committee

PropertyInvestmentCommittee

Infrastructure Investment Committee*

Eligible to attend

Attended Eligibleto attend



Attended

Brenda Shanahan 13 12 4 4

Russell Hooper 16 14 5 5 11 10 8 7

Ian Martens 16 16 9 9

Geoff McWilliam 16 15 11 11

Ian Moore 16 16 9 9 8 8

Brendan O’Connor 8 8

Rob Woods 16 16 8 7

Peter Brook 8 7

Stephen Gerlach 4 4

* Not applicable to CKT.

The charters specify the composition, responsibilities, duties, reporting obligations, meeting arrangements, authority and resources available to the Committees and the provisions for review of the charter. Details of Directors’ membership of each Committee and their attendance at meetings throughout the period are set out below.

Investment CommitteesThe Board has established the Property Investment Committee and the Infrastructure Investment Committee to assist the Board to review and monitor investments by the Trusts including CKT.

The Committees each consist of at least three members, including two Non-executive Directors, one of whom will act as Chair, and relevant executives of the Challenger Group.

In accordance with their respective charter, the Committees are responsible for:

• reviewing and approving fund investments within the authority delegated by the Board;

• monitoring and reporting of market, liquidity and credit risk exposure;

• monitoring of investment policies and limits; and

• reporting on the above to the Board.

Principle 3Promote ethical and responsible decision-makingThe Responsible Entity’s commitment to ethical and responsible decision-making is refl ected in the internal policies and procedures, underpinned by the Challenger CorporatePrinciples of:

• Commercial ownership

• Compliance

• Creative customer solutions

• Working together; and

• Integrity.

Code of ConductChallenger has adopted a Code of Conduct which applies to all Directors, executives, management and employees of the Challenger Group. The Code of Conduct articulates the standards of honest, ethical and law-abiding behaviour expected by Challenger. Employees are actively encouraged to bring any problems to the attention of management

or the Board, including activities or behaviour which may not comply with the Code of Conduct, other policies and procedures in place, or other regulatory requirements or laws. A copy of the Code can be found at www.challenger.com.au/ckt

Political donations policyChallenger Group has adopted a policy of not making political donations in any country or jurisdiction of operation.

Staff Trading PolicyDirectors and staff of the Challenger Group are subject to restrictions under the law relating to dealing in securities, including the securities issued by the Challenger Group and listed funds, if they are in possession of insider information. The Board has approved the Challenger Group’s Staff Trading Policy which prescribes the manner in which staff can trade in the securities issued by the Challenger Group. A summary of the policy is available on CKT’s website.

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The policy applies to all Directors and staff and places restrictions and reporting requirements, including limiting trading to specifi c trading windows and in a specifi ed manner. Those staff designated as potentially having access to insider information are required to seek prior approval to trade in other securities. The policy prohibits margin lending over Challenger Group securities, including CKT.

Principle 4Safeguard integrity in fi nancial reportingIntegrity of fi nancial reportingThe Board has the responsibility to ensure truthful and factual presentation of CKT’s fi nancial position. The Board has established an Audit and Compliance Committee to assist the Board to focus on issues relevant to the integrity of CKT’s fi nancial reporting. In accordance with its charter, the Audit and Compliance Committee must have at least three members and is comprised of all Non-executive Directors and a majority of independent members. The Committee is chaired by an Independent Director, who is not Chair of the Board. The background details of the Audit and Compliance Committee members are set out in the Directors’ report. The Committee typically meets at least six times a year and additional meetings are scheduled as required. The members’ names and attendance at meetings are set out on page 21 of the corporate governance statement.

The Committee oversees the fi nancial reporting process, the system of internal control and risk management, the audit process and the Responsible Entity’s processes for monitoring compliance with laws and regulations. The Committee also assists the Board in discharging its responsibilities under the Compliance Plan adopted by the Responsible Entity. The Committee works on behalf of the Board with the

external auditor and reviews non-audit services provided by the external auditor to confi rm that they are consistent with maintaining external audit independence.

A copy of the Audit and Compliance Committee Charter is available on CKT’s website.

Declaration by the Fund Manager and Chief Financial Offi cerThe Fund Manager and Chief Financial Offi cer periodically provide formal assurance statements to theBoard that:

• the Trust’s fi nancial statements present a true and fair view of the Trust’s fi nancial condition and operational results; and

• the risk management and internal compliance and control systems are sound, appropriate and operating effi ciently and effectively.

Independent external auditThe Board requires the independent external audit to:

• provide stakeholders with assurance over the true and fair view of the fi nancial reports; and

• ensure accounting practices comply with applicable accounting rules and policies.

CKT’s independent external auditor is Ernst & Young (E&Y). External auditors are required to rotate the engagement partner assigned to the Challenger Group on a fi ve-year basis. Under this policy, the lead audit engagement partner assigned to the Challenger Group rotated at the conclusion of the 2007 fi nancial reporting period.

The external auditor will be invited to attend general meetings of CKT and be available to answer questions in relation to the conduct of its audit.

Principle 5Make timely andbalanced disclosureContinuous Disclosure PolicyThe Responsible Entity is committed to ensuring all investors have equal and timely access to material information concerning CKT and that CKT’s announcements are factual and presented in a clear and objective manner.

The Board has approved and implemented a Continuous Disclosure Policy. The policy is designed to ensure compliance with the Corporations Act and ASX Listing Rules continuous disclosure requirements. The Responsible Entity has a Continuous Disclosure Committee which is responsible for:

• making decisions on what should be disclosed publicly under the Continuous Disclosure Policy;

• maintaining a watching brief on information; and

• ensuring disclosure is made in a timely and effi cient manner.

Principle 6Respect the rightsof investorsThe Responsible Entity recognises the importance of enhancing our relationship with investors by:

• communicating effectively; and

• providing ready access to clear and balanced information about CKT.

As set out in Principle 5, it is CKT’s policy that material information concerning the Trust will be announced to the market in a timely and objective manner. Following release to the market, the Responsible Entity publishes annual and half-yearly reports, announcements, media releases and other relevant information on its website atwww.challenger.com.au/ckt.

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Internet web-casting is provided for market briefi ngs to encourage participation from all stakeholders, regardless of their location. CKT also encourages greater use of electronic media by providing investors with greater access to the electronic receipt of reports and meeting notices. CKT also provides a facility to ask questions about the Trust and have them answered directly via electronic means.

The Responsible Entity is not required to hold annual general meetings for CKT; however, it may convene general meetings from time to time. Where the Responsible Entity convenes a general meeting for CKT, unitholders are encouraged to attend and participate in such meetings. The Responsible Entity will provide unitholders with details of any proposed meeting well in advance of the relevant date.

Principle 7Recognise and manage riskRisk management and complianceThe management of risks is fundamental to the Trust’s business and to building unitholder value. The Responsible Entity recognises the broad range of risks which apply to CKT as a participant in the property industry, including, but not limited to, market risk, funding and liquidity risk, credit risk, investment, strategic and business risk, reputation, licence (compliance) and operational risk. The Responsible Entity is responsible for determining the Trust’s risk management strategy. Management is responsible for implementing the Responsible Entity’s strategy and for developing policies and procedures to identify, manage and mitigate risks across the whole of CKT’s operations.

The Responsible Entity has adopted a Risk Management Framework. The Responsible Entity utilises centralised risk management functions to support business managers to manage and mitigate risks across the Trust.

Operational, licence (compliance), credit, market, funding and liquidity risks are driven through centralised teams providing both scale and knowledge concentration benefi ts. The central functions have direct line of sight into the businesses with reporting and oversight for functions within the businesses, focused on their specifi c activities. Management are accountable for strategic, investment and business risk management within the delegated authority framework established by the Challenger Group Board. The framework is underpinned with a robust set of policies, delivery plans and procedures.

The framework and policies are developed and approved by management, reviewed and approved by the Responsible Entity’s Audit and Compliance Committee, and made available to all staff of the Challenger Group. The Challenger Group Risk Management functions have day to day responsibility for monitoring the implementation of the framework and policy with regular reporting provided to the Responsible Entity’s Audit and Compliance Committee on the adequacy and effectiveness of management controls for material business risk. The Committee provides reporting to the Board on compliance with the framework and policies. A summary of the Challenger Group Risk Framework can be found at the Trust’s website.

The Audit and Compliance Committee reviews the effectiveness of the risk management and internal control system on an annual basis.

Internal AuditThe Responsible Entity has appointed PricewaterhouseCoopers (PwC) to provide Internal Audit services for CKT. The Audit and Compliance Committee oversees the scope of the Internal Audit and monitors the progress of the internal audit work program. The Committee receives

reports from Internal Audit at least quarterly and monitors management’s responsiveness to internal audit fi ndings and recommendations. The internal audit function is independent of the external auditor. The internal audit function reports directly to the Audit and Compliance Committee.

AssuranceDuring the period, the Board has received formal assurance from the Chief Executive and Chief Financial Offi cer of Asset Management, that:

• CKT’s fi nancial statements presenta true and fair view of the fi nancialcondition and operational results; and

• the risk management and internal compliance and control systems are sound, appropriate and operating effi ciently and effectively.

This assurance forms part of the process by which the Board determines the effectiveness of its risk management and internal control systems in relation to fi nancial reporting risks.

Principle 8Remunerate fairly and responsiblyRemunerationThe Responsible Entity is entitled to be paid fees under the terms of the constitution for managing CKT. The details of fees paid in the period are set out in the notes to the fi nancial statements on page 67.

All executives involved in the management of CKT are employees of the Challenger Group and are not remunerated by CKT.F

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As CKT does not pay any remuneration directly to executives of the Responsible Entity, the Responsible Entity considers that the requirement to disclose its remuneration policies, to establish a remuneration committee and to distinguish the nature of executive remuneration from that of non-executives are not relevant to CKT. In addition, CKT does not have equity based executive remuneration in operation and thus the disclosure required by Principle 8 is not relevant to CKT. These represent departures from the ASX Principles.

Management FeesManagement Fees and Performance Fees are payable to Challenger Management Services Limited in accordance with the management agreement. The details of fees paid in the period are set out in the notes to the fi nancial statements on page 67.

Non-executive Director feesNon-executive Directors are paid an annual fee for their service on the Board and all Committees of the Board. Non-executive Directors are not entitled to participate in incentive schemes. There are no termination payments to Non-executive Directors on their retirement from offi ce other than payments accruing from superannuation contributions comprising part of their remuneration. All Non-executive Director remuneration is paid by the Responsible Entity and is not an expense of CKT.

The staff trading policy prohibits any executive or staff member from entering into a transactions that is designed or intended to hedge that component of their unvested remuneration which is constituted by Challenger securities.

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Directors’ report

The Directors of Challenger Listed Investments Limited (CLIL), the Responsible Entity of the Challenger Kenedix Japan Trust (herein known by its ASX code ‘CKT’), submit their report together with the fi nancial report for CKT, for the year ended 30 June 2008.

Principal activities

The principal activity of CKT during the period was investment in a retail property portfolio in Japan.

Trust information

CKT is an Australian registered managed investment scheme. CLIL, the Responsible Entity of CKT, is incorporated and domiciled in Australia. The registered offi ce of the Responsible Entity is located at Level 15, 255 Pitt Street, Sydney NSW 2000.

Directors’ summary

The following persons held offi ce as Directors of CLIL during the year and up to the date of this report:

• Brenda Shanahan – Chair(appointed 5 December 2007)

• Stephen Gerlach(resigned 5 December 2007)

• Peter Brook(resigned 12 March 2008)

• Russell Hooper

• Ian Martens

• Geoff McWilliam

• Ian Moore

• Brendan O’Connor(appointed 12 March 2008)

• Robert Woods

Qualifi cations, experience and special responsibilities of Directors and Key Management Personnel

CLIL has considerable expertise in the infrastructure, property and funds management sectors as illustrated by the experience of its Directors.

The names and details of the Directors in offi ce at the date of this reportare as follows.

Directors

Brenda ShanahanBComm, FAICDChairIndependent, Non-executive Director

Ms Shanahan is a Graduate of Melbourne University in Economics and Commerce and a Fellow of the Institute of Directors. She has a research and institutional background in fi nance in Australia and overseas economies and share markets. She has held executive positions in stock broking, investment management and an actuarial fi rm.

Ms Shanahan is a non-executive director of JM Financial Group Limited and non-executive Chairman of Clinuvel Pharmaceuticals Ltd. Ms Shanahan is a former director of Challenger Financial Services Group Limited. Ms Shanahan is currently Chair of both St Vincent’s Health and St Vincent’s Medical Research Institute in Melbourne.

Ms Shanahan is a member of the CLIL Audit and Compliance Committee.

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Directors

Russell HooperFAICD, FCPA, FFinIndependent, Non-executive Director

Mr Hooper has extensive experience in fi nancial services, including over 13 years at St.George Bank Limited and Advance Bank Limited, where he held senior management positions in life insurance, wealth management and listed investment trusts, including the role of Chief General Manager, Funds Management.

Mr Hooper is also a director of Challenger, Challenger Life and Century Australia Investments Limited, and was previously a director of (and Chairman of the Audit Committee for) Commonwealth Insurance Limited, a subsidiary of the Commonwealth Bank. Mr Hooper is a Fellow of the Australian Institute of Company Directors, the Australian Society of Certifi ed Practising Accountants and the Financial Services Institute of Australasia.

Mr Hooper is a member of the CLIL Property Investment Committee and the CLIL Infrastructure Investment Committee.

Ian MartensFCA, FAICDIndependent, Non-executive Director

Mr Martens is a chartered accountant and was senior partner at BDO Chartered Accountants (SA), where he is now a consultant. Throughout his career, Mr Martens has advised a broad range of public and private companies on fi nancial measurement and reporting, strategy development and evaluation and merger and acquisitions activities.

Mr Martens retired as Chairman of RAA Insurance Ltd in March 2008 and is currently a director of RAA Investments Pty Ltd and the Royal Automobile Association of SA Inc.

Mr Martens is Chairman of the CLIL Audit and Compliance Committee.

Geoff McWilliamBE (Civil)Independent, Non-executive Director

Mr McWilliam has had an extensive career in the Australian property investment industry. Most recently, Mr McWilliam spent 10 years building the Commonwealth Bank’s property funds management division, Colonial First State Property. As head of this business, he was responsible for the management and performance of over $16 billion in listed and unlisted property funds. Prior to this, Mr McWilliam spent 23 years with Lend Lease Corporation in a variety of senior management roles.

Mr McWilliam is a director of Lend Lease Funds Management Limited, Lend Lease Asian Retail Investments Limited, Lend Lease Real Estate Investments Limited, St Laurence Limited (NZ), Dunmore Lang College Limited, the Gandel Group Limited and the Dusseldorp Skills Forum Incorporated, and is a Fellow of the Australian Property Institute.

Mr McWilliam is Chairman of the CLIL Property Investment Committee.

Directors’ report (continued)

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Directors

Ian MooreBA, FIA, FIAAIndependent, Non-executive Director

Mr Moore has extensive experience in investment banking and structured fi nance. Mr Moore was Head of Corporate Finance at Bankers Trust Investment Bank where he was responsible for all forms of corporate debt, project debt and asset backed debt fi nancings.

Mr Moore is currently a director of Artesian Capital Management and a Fellow of the Institute of Actuaries of Australia and the Institute of Actuaries in London.

Mr Moore is a member of the CLIL Audit and Compliance Committee and Chairman of the CLIL Infrastructure Investment Committee.

Brendan O’ConnorBBus, CA, GAICDExecutive Director

Mr O’Connor is the Chief Financial Offi cer for Challenger’s Asset Management division. Mr O’Connor joined Challenger in June 2006, and is responsible for overseeing the fi nancial management and reporting for the Asset Management division’s specialist funds, including the Challenger Kenedix Japan Trust. Mr O’Connor has over 13 years’ experience in fi nancial services including senior fi nance roles within Westpac Banking Corporation.

Robert WoodsBCommExecutive Director

Mr Woods is Chief Executive, Asset Management at Challenger. In this role, Mr Woods is responsible for managing Challenger’s $10 billion portfolio of investments in direct property, infrastructure and fi xed income. The Asset Management business manages assets for third party investors, policyholders and shareholders, generating spread and fee based income.

Prior to joining Challenger, Mr Woods was a founder of Zurich Capital Markets Asia, where he was responsible for the alternative asset business. Prior to this, Mr Woods spent 11 years with Bankers Trust in investment banking.

Mr Woods is a member of the CLIL Infrastructure Investment Committee.

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Key Management Personnel

Trent AlstonBBuild (Hons), GMQ, AMPHead of Real Estate

Mr Alston joined Challenger in February 2006. As head of Real Estate, Mr Alston is responsible for Challenger’s property funds management and investment strategy, and for the management and performance of all Challenger wholesale property vehicles.

Prior to joining Challenger, Mr Alston spent seven years at Colonial First State, most recently in the role of General Manager, Wholesale Funds in the property division. In this role, Mr Alston was responsible for the management and performance of a portfolio of unlisted funds and client mandates valued at in excess of $8.0 billion.

Mr Alston has over 20 years’ experience in the property investment industry, including roles in property funds management, corporate real estate, development and project management with Colonial First State and Lend Lease.

Brett McCarthyBA (Hons), GDipBusFund Manager, CKT

Mr McCarthy joined Challenger in September 2006 in the role of Fund Manager. Mr McCarthy has specifi c responsibility for the ongoing management of CKT. This includes responsibility for strategy, fi nancial and investment performance and transaction evaluation and execution.

Prior to joining Challenger, Mr McCarthy was a director at UBS Investment Bank in Japan and Australia, holding roles over a seven-year period including structuring and marketing of Japanese real estate investment trusts, global real estate securities market analysis and Australian listed property trust analysis.

Mr McCarthy has 17 years’ experience in the property industry, and has worked in commercial property valuation and sales positions in Knight Frank, Richard Ellis and Raine & Horne Commercial. Mr McCarthy has lived for a total of nine years in Japan, and speaks and reads Japanese fl uently.

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Company secretary

Chris RobsonBA, LLB (Hons), LLMGeneral Counsel andGroup Company Secretary

Mr Robson is a qualifi ed solicitor and is the Group Company Secretary and General Counsel of the Challenger Financial Services Group. He is also a non-independent director of certain subsidiaries of the Challenger Group. His responsibilities include leading the legal and company secretariat teams within the Business Services division of the Challenger Group.

Suzie KoeppenkastropBComm, LLB, LLMCompany Secretary

Ms Koeppenkastrop is a qualifi ed solicitor and head of the company secretariat team at Challenger. Ms Koeppenkastrop has over 13 years’ experience in legal and company secretarial roles in the fi nancial services industry.

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30


Corporate governanceIn recognising the need for the highest standards of corporate behaviour and accountability, the Directors of CLIL support and have adhered to substantially all of the ASX Corporate Governance Principles and Recommendations. The corporate governance statement is contained in the Corporate governance section of the Annual Report.

Review and results of operationsThe consolidated profi t after tax for the year ended 30 June 2008 attributable to the unitholders of CKT was $16.98 million (2007 $34.23 million). The following table provides an analysis of the result:

Consolidated Consolidated Trust Trust

Year ended 5 March 2007 Year ended 5 March 2007 30 June 2008 to 30 June 2007 30 June 2008 to 30 June 2007 $’000 $’000 $’000 $’000

Revenue from operating activities 39,814 4,873 19,304 2,447

Profi t from operating activities(before fair value movements and tax) 21,747 3,032 16,211 2,039

Fair value movements 1,741 34,058 (2,611) 20,404

Income tax expense (5,537) (2,829) (1,441) –

Net profi t after tax attributable tounitholders of CKT 16,978 34,234 12,159 22,443

Distribution to unitholders (2008: 13.60 centsper unit, 2007: 1.42 cents per unit) 20,413 2,131 20,413 2,131

DistributionsOn 19 June 2008, CKT announced an estimated distribution to the ASX of 7.55 cents per unit. The distribution amount of $11.33 million (2007: $2.13 million) will be paid on 28 August 2008.


30 June 2008 30 June 2007 30 June 2008 30 June 2007 $’000 $’000 $’000 $’000

(a) Distributions declared and paidduring the year to unitholders

Interim distribution (2008: 6.05 cents per unit paid on 28 February 2008, 2007: Nil) 9,081 – 9,081 –

(b) Distributions proposed andrecognised as a liability

Final distribution (2008: 7.55 cents per unit payable on 28 August 2008, 2007: 1.42 cents per unit paid on 30 August 2007) 11,332 2,131 11,332 2,131

Total distribution (2008: 13.60 centsper unit, 2007: 1.42 cents per unit) 20,413 2,131 20,413 2,131

Units on Issue150,097,328 of fully paid units of CKT were on issue at 30 June 2008. On 17 December 2007, CKT announced the second instalment call of $75.05 million to partially fund the acquisition of interests in six Japanese retail properties. The second instalment of $0.50 per unit (150,097,328 units) was paid on 4 February 2008. No further units were issued or withdrawn during the year.

Earnings per unitBasic earnings per unit amounts are calculated by dividing the net profi t after tax attributable to ordinary unitholders by the weighted average number of securities outstanding during the period.

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The following refl ects the income and security data used in the basic earnings per unit computations.

Consolidated Consolidated

30 June 2008 30 June 2007

Net profi t attributable to unitholders ($’000) 16,978 34,234

Time weighted average number of units for basic and dilutedearnings per unit at year end (number of units in thousands) 150,097 150,097

Basic and diluted earnings per unit for net profi t attributableto unitholders (cents per unit) 11.31 22.81

Trust assetsAt 30 June 2008, CKT held assets to a total value of $687.16 million (2007: $469.30 million). The basis for valuation of the assets is disclosed in Note 2 to the fi nancial statements.

Fees paid to the Responsible Entity and associatesThe attached table discloses all fees paid or payable by CKT to Challenger Listed Investments Limited (CLIL) and Challenger Management Services Limited (CMSL) under the Trust Constitution and to CMSL under the Management Agreement with CLIL.



(a) Base Responsible Entity fees paid or 73 8 73 8payable to CLIL, equating to 5% of thebase management fee.

(b) Management fees paid or payable to 1,391 157 1,391 157CMSL, equating to 95% of the basemanagement fees plus all other feespayable.

(c) Performance fees payable to CLIL, 98 – 98 –equating to 50% of the assetperformance fee.

Total fees as per the Income statement 1,562 165 1,562 165

(d) Acquisition service fees and due diligence 1,118 – 1,118 –fees in relation to further acquisitionof properties and debt placement feesfor arranging the borrowings, paid orpayable to CLIL (Balance Sheet).

Total fees paid or payable at balance date 2,680 165 2,680 165

Total expenses paid by CKT to reimburse CMSL for the year ended 30 June 2008 in respect of costs paid on behalf of CKT were $348,986 (2007: $2,233,020).

Base responsible entity fees payable for the six months ended 30 June 2008 of $813,228 (2007: $164,793) will be paid two months after 30 June 2008.

All transactions were at arm’s length.

Interests held in CKT by the Responsible Entity and its associatesThe following related entity of CLIL holds interests of 5% or more in CKT:

• Challenger Life No.2 Limited – 5% (7,504,961 units).

Challenger Life No.2 Limited and CLIL are wholly owned subsidiaries of Challenger Financial Services Group Limited.

Signifi cant changes in the state of affairsThere were no signifi cant changes to the state of affairs of CKT during the year, other than those changes identifi ed in the fi nancial statements for the year ended 30 June 2008.

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Signifi cant events after the balance dateThere has been no matter or circumstance that has arisen since the end of the year that has signifi cantly affected, or may signifi cantly affect:

(a) CKT’s operations in future fi nancial years; or

(b) the results of those operations; or

(c) CKT’s state of affairs in future fi nancial years.

Likely developments and expected resultsFurther information on likely developments on the operation of CKT and the expected results of those operations have not been included in this report because the Responsible Entity believes it would be likely to result in unreasonable prejudice to CKT.

Environmental regulation and performanceThe operations of the CKT are not subject to any particular or signifi cant environmental regulation under a law of the Commonwealth or of a State or Territory. There have been no known signifi cant breaches of any other environmental requirements applicable to CKT.

Indemnifi cation and insurance of Directors and offi cersThe Responsible Entity has insured the Directors and offi cers against liabilities incurred in their role as Directors and offi cers of the Responsible Entity. The Responsible Entity is prohibited by the insurance contract itself from disclosing the nature of the liabilities covered and the amount of the premium. The auditors of CKT are not indemnifi ed out of the assets of CKT.

Fund Manager and Chief Financial Offi cer declarationThe Fund Manager and Chief Financial Offi cer have given a declaration to the Board of Directors that in their opinion the fi nancial records of CKT have been properly maintained in accordance with section 286 of the Corporations Act 2001, and the fi nancial statements and notes for the fi nancial year ended 30 June 2008 comply with accounting standards and give a true and fair view.

Rounding of amounts in the Directors’ report and the fi nancial reportCKT is a registered trust that is of a kind referred to in Class Order 98/0100, issued by ASIC, relating to the ‘rounding off’ of amounts in the Directors’ report and fi nancial report. Amounts in the Directors’ report and fi nancial report have been rounded off to the nearest thousand dollars in accordance with that Class Order, unless otherwise indicated.

Auditor’s Independence DeclarationWe have obtained an independence declaration from our auditor, Ernst & Young, as set out on page 33.

This report is made in accordance with a resolution of Directors of Challenger Listed Investments Limited.


Sydney21 August 2008

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Auditor’s independence declaration

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Income statementFor the year ended 30 June 2008


Year ended 5 March 2007 Year ended 5 March 2007 30 June 2008 to 30 June 2007 30 June 2008 to 30 June 2007 Notes $’000 $’000 $’000 $’000

Property income

Rental income 32,903 3,671 – –

Less: Property-related expenses 4 (6,734) (574) – –

Net property income 26,169 3,097 – –

Other income

Interest income 558 52 384 52

Interest income on cross currency swaps 4,968 1,150 4,968 1,150

Gain on foreign currency contracts 938 – 938 –

Other income 447 – – –

Distribution income – – 13,014 1,245

Total other income 6,911 1,202 19,304 2,447

Other trust expenses

Finance costs (6,587) (516) (136) –

Responsible Entity’s and Manager’s fees 23(d) (1,562) (165) (1,562) (165)

Asset Manager’s fees 23(e) (1,425) (150) – –

Unrealised foreign exchange loss (111) – (446) –

Other expenses (1,648) (436) (949) (243)

Profi t from operating activities 21,747 3,032 16,211 2,039

Fair value movements

Net gain/(loss) on revaluationof fi nancial derivatives 21 (6,099) 22,557 (2,611) 20,404

Net gain/(loss) from investmentproperties revaluations 12(a) 7,840 11,501 – –

Net profi t before tax 23,488 37,090 13,600 22,443

Japanese witholding tax expense 6 (2,562) (256) (1,441) –

Deferred tax expense 6 (2,975) (2,573) – –

Income tax expense (5,537) (2,829) (1,441) –

Net profi t after tax 17,951 34,261 12,159 22,443

Net profi t attributable tominority interests (973) (27) – –

Net profi t attributable tounitholders of CKT 16,978 34,234 12,159 22,443

Basic earnings per unit (cents) 7 11.31 22.81 8.10 14.95

Diluted earnings per unit (cents) 7 11.31 22.81 8.10 14.95

The above Income Statement should be read in conjunction with the accompanying notes.For

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Net profi t attributable to unitholders of CKT 16,978 34,234 12,159 22,443

Earnings per unit (cents) 11.31 22.81 8.10 14.95

Adjusted for transfers (to)/from reserves:

Fair value gain on investment properties (7,840) (11,501) – –

Fair value loss/(gain) on derivatives 6,099 (22,557) 2,611 (20,404)

Deferred tax expense 2,975 2,573 – –

Amortisation of borrowing costs 601 – 17 –

Performance fee 200 – 98 –

Minority interest share of fair valuemovements, deferred tax expenseand amortisation of borrowing costs 366 – – –

Gain on foreign currency contracts(mature in August 2008) relating tothe 30 June 2008 period 1,034 – 1,034 –

Total transfers (to)/from reserves 3,435 (31,485) 3,760 (20,404)

Total realised income availablefor distribution 20,413 2,749 15,919 2,039

Less: Current year undistributed incomecarried forward – (618) 4,494 92

Distribution to unitholders 5 20,413 2,131 20,413 2,131

Distribution per unit (cents) 13.60 1.42 13.60 1.42

The above Distribution Statement should be read in conjunction with the accompanying notes.

Distribution statementFor the year ended 30 June 2008

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Balance sheetAs at 30 June 2008


30 June 2008 30 June 2007 30 June 2008 30 June 2007 Notes $’000 $’000 $’000 $’000

Current assets

Cash and cash equivalents 8 29,796 12,093 3,249 3,167

Trade and other receivables 9 2,440 7,459 6,719 1,287

Derivative fi nancial instruments 21 9,814 5,966 9,814 5,966

Other assets 10 442 1,086 – –

Total current assets 42,492 26,604 19,782 10,420

Non-current assets

Other fi nancial assets 11 29 29 279,881 208,814

Derivative fi nancial instruments 21 10,130 18,574 10,045 15,588

Tenant deposits held by Trust Bank 23,417 17,771 – –

Investment properties 12 611,090 406,320 – –

Total non-current assets 644,666 442,694 289,926 224,402

Total assets 687,158 469,298 309,708 234,822

Current liabilities

Trade and other payables 13 9,059 8,451 1,648 2,913

Derivative fi nancial instruments 21 1,228 864 – –

Provision for distribution 14 11,332 2,131 11,332 2,131

Current tax liabilities 15 1,240 256 – –

Total current liabilities 22,859 11,702 12,980 5,044

Non-current liabilities

Interest bearing liabilities 16 339,083 215,263 – –

Deferred tax liabilities 17 5,496 2,534 – –

Tenant deposits 23,417 17,771 – –

Total non-current liabilities 367,996 235,568 – –

Total liabilities 390,855 247,270 12,980 5,044

Net assets 296,303 222,028 296,728 229,778

Unitholders’ equity

Contributed equity 18 284,640 209,466 284,640 209,466

Undistributed income 618 618 (4,586) (92)

Reserves 19 1,513 5,339 16,674 20,404

Total equity attributable tounitholders of the parent 286,771 215,423 296,728 229,778

Minority interest 9,532 6,605 – –

Total equity 296,303 222,028 296,728 229,778

Net tangible assets ($) 22 1.97 1.48 1.98 1.53

Net tangible assets attributable to CKTunitholders (excluding 3% minority interest) ($) 22 1.91 1.44 1.98 1.53

The above Balance Sheet should be read in conjunction with the accompanying notes.

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Consolidated Attributable to unitholders of CKT

Contributed Undistributed Reserves Minority equity income (Note 19) Total interest Total2008 $’000 $’000 $’000 $’000 $’000 $’000

Balance as at 1 July 2007 209,466 618 5,339 215,423 6,605 222,028

Net profi t/(loss) after tax – 16,978 – 16,978 973 17,951

Total recognised income andexpense for the period 209,466 17,596 5,339 232,401 7,578 239,979

Currency translation differences – – (391) (391) – (391)

Equity issue costs released/(paid) 125 – – 125 – 125

Contributions of equity 75,049 – – 75,049 2,142 77,191

Transfers to/(from) reserves – 3,435 (3,435) – – –

Distributions to unitholders – (20,413) – (20,413) (188) (20,601)

Balance as at 30 June 2008 284,640 618 1,513 286,771 9,532 296,303

Consolidated Attributable to unitholders of CKT

Contributed Undistributed Reserves Total Minority equity income (Note 19) interest Total2007 $’000 $’000 $’000 $’000 $’000 $’000

Balance as at 5 March 2007 – – – – – –

Net profi t/(loss) after tax – 34,234 – 34,234 27 34,261

Total recognised income andexpense for the period – 34,234 – 34,234 27 34,261

Currency translation differences – – (26,146) (26,146) – (26,146)

Equity issue costs paid (15,680) – – (15,680) – (15,680)

Contributions of equity 225,146 – – 225,146 6,578 231,724

Transfers to/(from) reserves – (31,485) 31,485 – – –

Distributions to unitholders – (2,131) – (2,131) – (2,131)

Balance as at 30 June 2007 209,466 618 5,339 215,423 6,605 222,028

The above Statement of Changes in Equity should be read in conjunction with the accompanying notes.

Statement of changes in equityFor the year ended 30 June 2008

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Statement of changes in equity (continued)For the year ended 30 June 2008

Trust Attributable to unitholders of CKT

Contributed Undistributed Reserves Minority equity income (Note 19) Total interest Total2008 $’000 $’000 $’000 $’000 $’000 $’000

Balance as at 1 July 2007 209,466 (92) 20,404 229,778 – 229,778

Net profi t/(loss) after tax – 12,159 – 12,159 – 12,159

Total recognised income andexpense for the period 209,466 12,067 20,404 241,937 – 241,937

Equity issue costs released 125 – – 125 – 125

Contributions of equity 75,049 – – 75,049 – 75,049

Transfers to/(from) reserves – 3,760 (3,730) 30 – 30


Balance as at 30 June 2008 284,640 (4,586) 16,674 296,728 – 296,728

Trust Attributable to unitholders of CKT

Contributed Undistributed Reserves Total Minority equity income (Note 19) interest Total2007 $’000 $’000 $’000 $’000 $’000 $’000

Balance as at 5 March 2007 – – – – – –

Net profi t/(loss) after tax – 22,443 – 22,443 – 22,443

Total recognised income andexpense for the period – 22,443 – 22,443 – 22,443

Equity issue costs paid (15,680) – – (15,680) – (15,680)

Contributions of equity 225,146 – – 225,146 – 225,146

Transfers to/(from) reserves – (20,404) 20,404 – – –


Balance as at 30 June 2007 209,466 (92) 20,404 229,778 – 229,778

The above Statement of Changes in Equity should be read in conjunction with the accompanying notes.

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Cash fl ows from operating activities

Rental income received 34,299 5,741 – –

Foreign exchange realised gainon currency contracts 938 – 938 _

Interest received 5,056 52 4,435 52

Distributions received – – 5,772 –

Consumption tax refund onproperty acquisitions 6,338 – – –

Borrowing costs paid (5,237) (2,129) (136) –

Payments to suppliers (11,471) (6,575) (1,507) (96)

Withholding tax paid (1,577) – – –

Net cash fl ows from/(used in)operating activities 8(a) 28,346 (2,911) 9,502 (44)

Cash fl ows from investing activities

Acquisition of investment inMaster TK Group – – (71,033) (208,814)

Purchase of investment properties (189,468) (445,075) – –

Property acquisition costs (5,735) (4,008) – –

Capital expenditure (7) – – –

Net cash fl ows from/(used in)investing activities (195,210) (449,083) (71,033) (208,814)

Cash fl ows from fi nancing activities

Proceeds from issue of units 75,049 225,146 75,049 225,146

Net contributions from minority interest 1,954 6,605 – –

Issue costs paid (2,224) (13,121) (2,224) (13,121)

Distribution paid (11,212) – (11,212) –

Proceeds from borrowings 134,712 246,812 10,000 –

Repayment of borrowings (18,181) – (10,000) –

Net cash fl ows from fi nancing activities 180,098 465,442 61,613 212,025

Net increase in cash and cash equivalents 13,234 13,448 82 3,167

Cash and cash equivalents atthe beginning of the period 12,093 – 3,167 –

Effects of foreign exchange 4,469 (1,355) – –

Cash and cash equivalents atthe end of the period 8 29,796 12,093 3,249 3,167

The above Cash Flow Statement should be read in conjunction with the accompanying notes.

Cash fl ow statementFor the year ended 30 June 2008

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Notes to the fi nancial statementsFor the year ended 30 June 2008

Note 1 – Trust informationThe fi nancial report for the year ended 30 June 2008 was authorised for issue in accordance with a resolution of the Directors of the Responsible Entity dated 21 August 2008.

Challenger Kenedix Japan Trust (herein known by its ASX code ‘CKT’) is an Australian registered managed investment scheme and is a publicly traded trust on the Australian Securities Exchange (ASX).

The principal activity of CKT during the year was investment in a retail property portfolio in Japan.

Note 2 – Summary of signifi cant accounting policiesThe accounting policies which have been adopted in the preparation of the fi nancial statements are stated to assist in a general understanding of this report.

(i) Basis of preparationThe fi nancial report is a general purpose fi nancial report, which has been prepared in accordance with the requirements of the Constitution, Corporations Act 2001 and applicable Australian Accounting Standards.

The fi nancial report has been prepared on an historical cost basis, except for investment properties and derivative fi nancial instruments that have been measured at fair value.

The accounting policies adopted in preparing these consolidated fi nancial statements have been consistently applied by CKT unless otherwise specifi ed.

The fi nancial report is presented in Australian Dollars and all values are rounded to the nearest thousand dollars ($’000) unless otherwise stated under the option available to the Trust under ASIC Class Order 98/100. The trust is an entity to which the class order applies.

The fi nancial report complies with Australian Accounting Standards and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.

A summary of the signifi cant accounting policies of CKT under IFRS is disclosed below.

(ii) New reporting standards issued and/or applied during the yearThe following standards, interpretations and amendments were available for early adoption but have not been applied by CKT in these fi nancial statements:

• AASB 8: Operating Segments. This is applicable for annual reporting periods beginning on or after 1 April 2009. The standard requires the Group to adopt the ‘management approach’ to disclosing information about reportable segments. The current Group segment report is not signifi cantly different to management presentations and so no major change is expected from the introduction of this standard in the 2009 accounts.

• AASB 101: Presentation of Financial Statements and AASB 2007-08: Amendments to Australian Accounting Standards arising from AASB 101. These are applicable for annual reporting periods beginning on or after 1 January 2009. The standard requires the presentation of a statement of comprehensive income which replaces the Income Statement and makes changes to the Statement of Changes in Equity. Any changes made with respect to a prior period adjustment or reclassifi cation in the fi nancial statement will require a third Balance Sheet as at the beginning of the comparative periods to be disclosed. The Group will need to reformat its Income Statement and Statement of Changes in Equity for its 30 June 2010 fi nancial statements.

• AASB 3: Business Combinations and AASB 127: Consolidated and Separate Financial Statements and AASB 2008-3 Amendments to Australian Accounting standards arising from AASB 3 and AASB 127 (effective from 1 July 2009). The revisions to the standards apply prospectively to business combinations and will be effective for the 30 June 2010 fi nancial year end. The main changes under the standards are that:

– acquisition-related costs are recognised as an expense in the Income Statement in the period they are incurred;

– earn-outs and contingent considerations will be measured at fair value at the acquisition date, however, remeasurement in the future will be recognised in the Income Statement;

– step acquisitions, impacting equity interests held prior to control being obtained, are remeasured to fair value, with gains and losses being recognised in the Income Statement. Similarly, where control is lost, any difference between the fair value of the residual holding and its carrying value is recognised in the Income Statement; and

– while control is retained, transactions with minority interests would be treated as equity transactions.

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(iii) Basis of ConsolidationThe consolidated fi nancial information of CKT incorporates the benefi cial interest in 100% of the assets and liabilities arising from the contractual relationship (Master Tokumei Kumiai Agreement) with Godo Kaisha Kenedix Master TK which is the Tokumei Kumiai (TK) Operator. This relationship is known under Japanese Commercial law as a TK. Under the contractual relationship, CKT is entitled to 97% of the profi ts and losses of the business of the TK. The Master TK Operator has invested in the business of two Sub TK Operators, Godo Kaisha Sub TK One and Godo Kaisha Sub TK Two, under other TK Agreements (Sub TK Agreements). The Sub TK Operators have used the invested funds to acquire the Trust Benefi ciary Interests of the Investment Properties.

The 3% of TK profi t payable to the Master TK Operator is shown as minority interests in the Income Statement.

The consolidated fi nancial report of CKT will incorporate the results of its interest in the TK from the date the TK agreements were signed.

All intercompany balances and transactions, including unrealised profi ts arising from intra-group transactions, have been eliminated in full.

(iv) ComparativesWhere necessary, comparative fi gures have been reclassifi ed to conform with changes in presentation in these fi nancial statements. CKT was registered on 5 March 2007. As a result, the fi nancial report for the year ended 30 June 2008 represents CKT’s fi rst full year fi nancial reporting period. Comparative fi gures have been prepared for the reporting period 5 March 2007 to 30 June 2007.

(v) RevenueRevenue is recognised and measured at the fair value of the consideration received or receivable to the extent it is probable that the economic benefi ts will fl ow to CKT and the revenue can be reliably measured. Revenue brought to account but not received at balance date is recognised as a receivable.

Rental income from operating leases is recognised on a straight-line basis over the lease term.

Contingent rental income is recognised as income in the fi nancial year that it is earned.

Fixed rental increases which do not represent direct compensation for the underlying cost increases or capital expenditure are recognised on a straight-line basis over the term of the lease until the next market review date.

Lease incentives granted are recognised in the Income Statement as an integral part of rental income.

Interest income is recognised as the interest accrues using the effective interest method.

Incidental revenues (and related costs) derived from an investment property undergoing construction or development, but not directly related to bringing an asset to the location and working condition of an investment property, are recognised in the Income Statement as they are earned.

Distribution income is recognised when CKT’s right to receive the payment is established.

(vi) Expense recognitionResponsible entity and manager fees payable to the Responsible Entity and Manager are recognised as expenses when the services are received.

Performance fee is payable in accordance with the Trust Constitution when performance criteria for the fee are met.

Fees relating to specifi c events or transactions are expensed upon completion or occurrence of a relevant service or event.

Property expenditure, including rates, taxes, insurance, and other costs associated with the upkeep of a building, are brought to account on an accruals basis. Repair costs are expensed when incurred. Other amounts that improve the condition of the investment are capitalised.

Recovery of outgoings as specifi ed in lease agreements are accrued on an estimated basis and adjusted at period end.

(vii) DepreciationIn accordance with Accounting Standard AASB 140: Investment Property, investment properties are not depreciated. Taxation allowances for buildings or plant and equipment depreciation are claimed by CKT and are declared as tax advantaged and are included as tax deferred components of distributions.

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Notes to the fi nancial statements (continued)For the year ended 30 June 2008

Note 2 – Summary of signifi cant accounting policies (continued)(viii) Income taxUnder current income tax legislation, CKT will not be subject to income tax provided all of its unitholders are presently entitled to the income of CKT each year. Any taxable income of CKT, including any taxable capital gains derived from the sale of an asset, is fully distributed to unitholders.

Non-refundable Japanese withholding tax payable on the distribution of profi ts under a TK agreement is recognised as an expense as incurred.

For Australian tax purposes this withholding tax paid on the distribution from the TK Operator to CKT would not be deductible to CKT; instead, unitholders may be entitled to a foreign tax credit for the withholding tax incurred. These foreign tax credits may be credited against the unitholder’s Australian income tax payable on certain types of foreign source income, including distributions from CKT (depending on their personal tax position).

A deferred tax liability or asset and related deferred tax expense or credit is recognised on differences between the carrying values of assets and liabilities in the Consolidated Balance Sheet and their tax cost base, principally due to property revaluations, interest rate derivatives fair values and Japanese accounting depreciation. Whilst accounting for deferred tax gives rise to a tax expense in the Consolidated Income Statement, it will not impact on cash fl ows from operations nor the cash distribution paid to unitholders.

Any deferred tax liability or asset is calculated using the current Japanese withholding tax rate of 20% applicable to the distribution of profi ts under a TK agreement.

(ix) DistributionsIn accordance with the Trust’s Constitution, CKT fully distributes its distributable income to unitholders by cash. In addition to the distributable income, as provided for in the Trust’s Constitution, CKT may distribute a portion of capital. Distributions determined by the Responsible Entity are paid every six months for the periods ended 31 December and 30 June where distributable income exists.

A provision for distribution is recognised where the distribution has been declared prior to the balance date.

(x) Cash and cash equivalentsCash and cash equivalents in the Balance Sheet comprise cash at bank and short-term deposits with an original maturity of three months or less.

For the purposes of the Cash Flow Statement, cash and cash equivalents consist of cash and cash equivalents as defi ned above, net of outstanding bank overdrafts.

(xi) Trade and other receivablesTrade receivables, which generally have 15-30 day terms, are recognised and carried at original invoice amount less an allowance for impairment. An impairment provision is recognised when there is objective evidence that CKT will not be able to collect the debts. Individual debts that are known to be uncollectible are written off when identifi ed.

(xii) Investment propertiesInitially, investment properties are measured at cost including all transaction costs. Subsequent to initial recognition the investment property is stated at fair value. The fair value represents the amount at which the assets could be exchanged between a knowledgeable willing buyer and a knowledgeable willing seller in an arm’s length transaction at the date of the valuation, in accordance with Australian Valuation Standards. Gains or losses arising from changes in the fair value of the investment property are included in the Income Statement in the year in which it arises.

CKT obtains independent valuations for all investment properties once a year from suitably qualifi ed valuers, unless the Directors determine that a valuation is to be obtained in the intervening period. Such valuations are refl ected in the fi nancial statements of CKT. Notwithstanding, the Directors of the Responsible Entity assess the carrying value of the investment property at each reporting date to ensure that its carrying value does not materially differ from its fair value. Where the carrying value differs from fair value, that asset is adjusted to its fair value.

In determining fair value, the expected net cash fl ows have been discounted to their present value using a market determined risk-adjusted discount rate applicable to the respective asset.

Expenditure capitalised to properties includes the cost of acquisition, capital and refurbishment additions, and during development includes fi nancing charges, related professional fees incurred and other directly attributable transaction costs.

Investment properties are derecognised when they have either been disposed of or when the investment is permanently withdrawn from use and no future benefi t is expected at its disposal. Any gains or losses on derecognition of an investment property are recognised in the income statement in the period of derecognition.

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(xiii) Leased assetsLeases where the lessor retains substantially all the risk and benefi ts of ownership are classifi ed as operating leases. Leasing fees in relation to the initial leasing of the investment property after a redevelopment are capitalised to the carrying value of the property as a cost of bringing the investment property to completion and intended use.

Incentives may be provided to tenants to enter into an operating lease. These incentives may be in the form of cash, rent free periods, lessee or lessor owned fi t-outs. The incentive is amortised over the term of the lease as a reduction in rental income. The unamortised carrying amount of the incentive is refl ected in the carrying value of the investment property.

Leasing fees that are directly associated with the negotiation and execution of a lease agreement (including commissions, legal fees and costs of preparing and processing documentation) are capitalised as part of the carrying value of the property and recognised as an expense over the lease term, on the same basis as rental income.

(xiv) Trade and other payablesTrade and other payables are carried at amortised cost and due to their short-term nature they are not discounted. They represent liabilities for goods and services provided to CKT prior to the end of the fi nancial year that are unpaid and arise when CKT becomes obliged to make future payments in respect of the purchase of the goods and services.

(xv) Goods and services tax (GST) and Japanese consumption tax (consumption tax)Revenue, expenses and assets (with the exception of receivables) are recognised net of the amount of GST or consumption tax to the extent that the GST is recoverable from the Australian Taxation Offi ce or Japanese tax authority. Where GST or consumption tax is not recoverable, it is recognised as part of the cost of acquisition of the asset, or as an expense, as applicable.

Receivables and payables are stated inclusive of GST or consumption tax. The net amount of GST recoverable from or payable to the Australian Taxation Offi ce or Japanese tax authority is included in the Balance Sheet as a receivable or payable.

Cash fl ows are included in the Cash Flow Statement on a gross basis. The GST component of cash fl ows arising from investing and fi nancing activities which is recoverable from, or payable to, the taxation authority is classifi ed as operating cash fl ows.

(xvi) Interest bearing loans and borrowingsAll loans and borrowings are initially recognised at the fair value of the consideration received less directly attributabletransaction costs.

After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Amortised cost is calculated by taking into account any issue costs, and any discount or premium on settlement.

Gains and losses are recognised in net profi t or loss when the liabilities are derecognised or impaired.

(xvii) Borrowing costsBorrowing costs are recognised as an expense in the period in which they are incurred except for borrowing costs that are directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for its intended use or sale. Such borrowing costs are capitalised as part of the cost of that asset. Investment income earned on the investment of specifi c borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.

(xviii) Contributed equityIssued and paid up capital is recognised at the fair value of the consideration received by CKT.

Any transaction costs arising on the issue of ordinary units are recognised directly in equity as a reduction of the unitproceeds received.

(xix) Earnings per unit (EPU)Basic EPU is calculated as net profi t attributable to ordinary equity holders of the parent entity, divided by the weighted average number of ordinary units. Diluted EPU is calculated as net profi t attributable to ordinary equity holders of the parent entity divided by the weighted average number of ordinary units adjusted for the effects of all dilutive potential ordinary units.

(xx) Derivative fi nancial instruments and hedgingCKT uses derivative fi nancial instruments such as foreign currency contracts and interest rate swaps to hedge its risks associated with interest rate and foreign currency fl uctuations. Such derivative fi nancial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured to fair value. Derivatives are carried as assets when their fair value is positive and as liabilities when their fair value is negative.

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Note 2 – Summary of signifi cant accounting policies (continued)(xx) Derivative fi nancial instruments and hedging (continued)Any gains or losses arising from changes in the fair value of derivatives, except for those that qualify as effective cash fl ow hedges, are taken directly to net profi t or loss for the year.

The fair value of forward exchange contracts is calculated by an internal investment management system which generates a fair market value based on market source data. The fair market value is compared to the counterparty valuation. The fair value of interest rate swap contracts is determined by reference to market values for similar instruments.

For the purposes of hedge accounting, hedges are classifi ed as either fair value hedges when they hedge the exposure to changes in the fair value of a recognised asset or liability; or cash fl ow hedges where they hedge exposure to variability in cash fl ows that is either attributable to a particular risk associated with a recognised asset or liability or a forecast transaction.

In relation to cash fl ow hedges to hedge fi rm commitments which meet the conditions for special hedge accounting, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in equity and the ineffective portion is recognised in the Income Statement.

CKT has elected not to undertake the hedge accounting treatment available under AASB 139 for its derivative fi nancial instruments and treats any changes in fair value of derivatives directly through its Income Statement.

(xxi) Segment reportingA business segment is a distinguishable component of the entity that is engaged in providing products or services that are subject to risks and returns that are different to those of other business segments. A geographical segment is a distinguishable component of the entity that is engaged in providing products or services within a particular economic environment and is subject to risks and returns that are different than those of segments operating in other economic environments.

(xxii) Signifi cant accounting judgements, estimates and assumptionsThe carrying amounts of certain assets and liabilities are often determined based on estimates and assumptions of future events. Other than the estimation of fair values described in Note 12 and the process for determining fair value of investment properties as described in Note 2(xii), there are no key estimates and assumptions that have a signifi cant risk of causing a material adjustment to the carrying amounts of the CKT Group’s assets and liabilities within the next annual reporting period.

(xxiii) Foreign currency translationTranslation of foreign currency transactionsThe functional and presentation currency of CKT is the Australian Dollar.

Transactions in foreign currencies are initially recorded in the functional currency at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date.

All differences in the consolidated fi nancial report are taken to the Income Statement with the exception of differences on foreign currency borrowings that provide a hedge against a net investment in a foreign entity. These are taken directly to equity until the disposal of the net investment, at which time they are recognised in the Income Statement.

A non-monetary item that is measured in terms of historical cost in a foreign currency is translated using the exchange rate at the date of the transaction.

A non-monetary item that is measured at fair value in a foreign currency is translated using the exchange rates at the date when the fair value was determined.

Foreign interestAs the TK Operator is self-sustaining, the benefi cial interest in the assets and liabilities arising from the TK is translated into the presentation currency of CKT at the rate of exchange ruling at the balance sheet date and the income statements are translated at the weighted average exchange rates for the year. The exchange differences arising on the retranslation are taken directly to the foreign currency translation reserve.

Exchange rates usedThe following exchange rates are used in translating foreign currency transactions, balances and fi nancial statements:

Year ended 25 April 2007 30 June 2008 to 30 June 2007 ¥ ¥

Weighted average exchange rate 98.6048 101.2825

Spot rate at the balance date 101.7277 104.7732

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(xxiv) Tenant depositsTenant deposits are recognised at fair value as an asset held by the Trust Bank, with a corresponding liability for the obligation to return the deposits to tenants.

(xxv) Rounding of amountsCKT is a registered trust that is of a kind referred to in Class Order 98/0100, issued by the ASIC, relating to the ‘rounding off’ of amounts in the directors’ report and fi nancial report. Amounts in the Directors’ report and fi nancial report have been rounded off to the nearest thousand dollars in accordance with that Class Order, unless otherwise indicated.

(xxvi) Impairment of assetsCKT assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of its fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash infl ows that are largely independent of those from other assets or groups of assets and the asset’s value in use cannot be estimated to be close to its fair value. In such cases the asset is tested for impairment as part of the cash-generating unit to which it belongs. When the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, the asset or cash-generating unit is considered impaired and is written down to its recoverable amount.

In assessing value in use, the estimated future cash fl ows are discounted to their present value using a discount rate that refl ects current market assessments of the time value of money and the risks specifi c to the asset. Impairment losses relating to continuing operations are recognised in those expense categories consistent with the function of the impaired asset unless the asset is carried at revalued amount (in which case the impairment loss is treated as a revaluation decrease).

An assessment is also made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in profi t or loss unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase. After such a reversal the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.

Note 3 – Financial risk managementCKT’s activities expose it to a variety of fi nancial risks:

• market risk (including currency risk and interest rate risk);

• credit risk; and

• liquidity risk.

The Responsible Entity believes that the management of fi nancial risks is fundamental to CKT’s operations and to building unitholder value. The Board is responsible for CKT’s risk management strategy and management is responsible for implementing the Board’s strategy and for developing policies and procedures to identify, manage and mitigate risks across CKT’s operations.

The Responsible Entity as a subsidiary of the Challenger Financial Services Group (CFSG) is subject to periodic review by the CFSG internal audit function.

The Board has adopted the CFSG Operational Risk Framework and formal policies in respect of compliance and operational risk management. Risks at both the Responsible Entity and CKT level are managed through the CFSG Operational Risk Framework and include:

• regulatory and reporting risks;

• fi nancial risks (such as liquidity, interest rate, currency and investment);

• legal risks (such as contract enforceability, covenants);

• operational risks (such as people, processes, infrastructure, technology); and

• reputation risk (such as investor relations, media management).

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Note 3 – Financial risk management (continued)At the time of approving the fi nancial statements of CKT, the Board requires representation letters from management addressing risk management and internal compliance and controls relevant to risk.

Exposure to credit, liquidity, interest rate and currency risks arises in the normal course of the CKT’s business. Derivative fi nancial instruments are used to hedge exposures to fl uctuations in foreign exchange rates and interest rates. Instruments used include forward foreign exchange contracts, cross currency swaps and interest rate swap contracts.

All derivative fi nancial instruments held within CKT are stated at fair value with any gains or losses arising from changes in fair value being taken directly to the Income Statement for the year. CKT has elected not to undertake the hedge accounting treatment available under AASB 139 for its derivative fi nancial instruments.

Financial risks impact the fi nancial assets and liabilities of CKT. CKT’s principal fi nancial instruments, other than derivatives, comprise cash and cash equivalents, receivables, payables and interest bearing liabilities.

Details of the signifi cant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of fi nancial instruments are disclosed in Note 2.

(a) Market riskMarket risk is the risk that the fair value or future cash fl ows of a fi nancial instrument will fl uctuate because of changes in market factors. Market risk comprises (amongst others) various types of risk including currency risk (due to fl uctuations in foreign exchange rates) and interest rate risk (due to fl uctuations in interest rates).

(i) Currency riskThe consolidated entity’s exposure to foreign currency risk relates primarily to revenue, expenses and borrowings that are denominated in Japanese Yen.

Economic income hedgeCKT has a policy to undertake foreign exchange hedging (using fi nancial instruments) of the expected distributions of the TK Business to insulate against movements in exchange rates, both favourable and unfavourable. The policy is to arrange foreign exchange hedges on a rolling basis equivalent to 80-100% of CKT’s estimated distributions for fi ve years and up to 90% for years six to ten. The Responsible Entity has hedged 100% of estimated distributions for the fi rst fi ve years and 90% of estimated distributions for years six and seven. CKT has not entered into any income hedges for years eight to 10.

Economic capital hedgeWith respect to the equity capital of CKT, the policy is to arrange foreign exchange hedges for up to 50% of its net investment in Japanese assets, for periods of up to six years. CKT has hedged 39% of its net equity investment in the investment properties for Australian Dollars, with staggered settlement dates with a weighted duration of 3.9 years.

The net receipts under the cross currency swaps will be brought to account in the Consolidated Income Statements over the life of the contracts.

Natural capital hedgeCKT Group borrows in Yen which mitigates balance sheet volatility on converting assets acquired in Yen to AUD at each reporting date.

(ii) Interest rate riskInterest rate risk is the risk to CKT’s earnings arising from movements in the interest rates, including changes in the absolute levels of interest rates, the shape of the yield curve, the margin between the different yield curves and the volatility of the interest rates.

Financial instruments with fl oating rate interest expose CKT to cash fl ow interest rate risk.

It is CKT’s policy to manage the impact of interest rate movements on its debt servicing capacity, profi tability and business requirements by entering into interest rate derivatives.

The purpose of using derivative fi nancial instruments is to minimise fi nancial risk from movements in interest rates. CKT’s exposure to interest rate risk arises predominantly from liabilities bearing variable interest rates.

Hedging activity is performed using interest rate swaps. A swap transaction obliges the two parties to the contract to exchange a series of cash fl ows at specifi ed intervals known as payment or settlement dates.

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CKT’s policy is to hedge interest rate exposure through fi xed interest facilities or interest rate derivatives to protect approximately 90% of its fl oating rate borrowings denominated in Yen from exposure to movements in interest rates in Japan. The contracts require settlement of net interest receivable or payable on a quarterly basis. These derivative instruments are fair valued with changes in value recognised in the Income Statement. Currently 96% of debt is hedged either through fi xed interest facilities or interest rate derivatives.

(b) Credit riskCredit risk is the risk that one party to a fi nancial instrument will cause fi nancial loss to the other party by failing to discharge an obligation. CKT aims to ensure that at all times it has appropriate credit risk management in place and that the Board and senior management are appropriately informed of the credit risks.

CKT’s approach to credit management utilises a credit risk framework to ensure that the following principles are adhered to:

• independence from the fund manager;

• appropriate segregation practices in place to avoid confl icts of interest;

• credit exposures are systematically controlled and monitored;

• credit exposures are regularly reviewed in accordance with existing credit procedures;

• credit personnel are appropriately qualifi ed and experienced; and

• credit exposures include such exposures arising from derivative transactions.

CKT makes primary use of both external and internal ratings. Internal ratings are expressed on the basis of S&P rating defi nitions. Where an external rating is available (predominantly from Japanese based credit rating agencies, Standard & Poor’s, Moody’s or Fitch), the internal rating will ordinarily be no greater than the lowest external rating assigned.

The credit risk in respect of derivative transactions is mitigated by entering into trades with counterparties with A rating or above.

CKT minimises concentration of credit risk in relation to trade receivables by ensuring no more than 30% of the property portfolio shall be let by one tenant and providing leases only to tenants who are considered creditworthy third parties. It is CKT’s policy that all customers who wish to trade on credit terms are subject to credit verifi cation procedures. In addition, rent receivable balances are monitored on an ongoing basis to ensure the CKT group’s exposure to bad debts is managed through normal payment terms and review of any rental in arrears. There have been no bad debts in CKT group since the IPO.

(c) Liquidity riskLiquidity risk is the risk that an entity will encounter diffi culty in raising funds to meet cash commitments associated with fi nancial instruments. This may result from either the inability to recover or settle fi nancial assets at their face values or at all; or a counterparty failing on repayment of a contractual obligation; or the inability to generate cash infl ows as anticipated.

CKT aims to ensure that it has suffi cient liquidity to meet its obligations on a short-term and medium-term basis. In setting the level of suffi cient liquidity, CKT considers new asset purchases and equity origination in addition to current contracted obligations. In summary it considers: minimum cash requirements; cash fl ow forecasts; acquisition and disposal pipeline and cash mismatches by maturity.

Note 4 – Property-related expenses Consolidated Consolidated Trust Trust


Property-related expenses comprise:

– Rates and property-related taxes 1,914 108 – –

– Maintenance, repairs, consumables andother property expenses 3,945 350 – –

– Property management fees 722 87 – –

– Insurance expenses 153 29 – –

Total property-related expenses 6,734 574 – –

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Note 5 – Distributions paid and proposed Consolidated Consolidated Trust Trust


(a) Distributions declared and paidduring the year to unitholders

Interim distribution (2008: 6.05 cents per unit paid on 28 February 2008, 2007: Nil) 9,081 – 9,081 –

(b) Distributions proposed andrecognised as a liability

Final distribution (2008: 7.55 cents per unit payable on 28 August 2008, 2007: 1.42 cents per unit paid on 30 August 2007) 11,332 2,131 11,332 2,131

Total distribution (2008: 13.60 centsper unit, 2007: 1.42 cents per unit) 20,413 2,131 20,413 2,131

Note 6 – Income tax expense Consolidated Consolidated Trust Trust


(a) Income tax expense

Current Japanese withholding tax 2,562 256 1,441 –

Deferred Japanese tax 2,975 2,573 – –

5,537 2,829 1,441 –

(b) Reconciliation of tax expense

Profi t for the period 23,488 37,090 13,600 22,443

Tax at 30% (7,046) (11,127) (4,080) (6,733)

Non-assessable amounts 7,046 11,127 4,080 6,733

Income tax expense – statutory – – – –

Distributions received/receivable from Master TK 13,917 1,210 7,205 –

Withholding tax on distributions at 20% 2,783 242 1,441 –

Foreign currency translation differences (221) 14 – –

Japanese withholding tax on distributions 2,562 256 1,441 –

Fair market value of investment properties (Note 12) 611,090 406,320 – –

Acquisition costs incurred outside the MTK Business (574) – – –

Fair market value of derivatives (1,144) – – –

Fair market value of investment propertiesand derivatives 609,372 406,320 – –

Cost base of investment properties and derivativesat Master TK Business level (581,894) (393,649) – –

Deferred tax on difference between fair market valueand cost base at 20% 5,495 2,534 – –

Opening balance at beginning of the period (2,573) – – –

Foreign currency translation differences 53 39 – –

Deferred Japanese tax 2,975 2,573 – –

Income tax expense 5,537 2,829 1,441 –

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Note 7 – Earnings per unit Consolidated Consolidated Trust Trust

Year ended 5 March 2007 Year ended 5 March 2007 30 June 2008 to 30 June 2007 30 June 2008 to 30 June 2007

Basic earnings per unit (cents) 11.31 22.81 8.10 14.95

Diluted earnings per unit (cents) 11.31 22.81 8.10 14.95

The diluted earnings per unit is the same as basic earnings per unit as no dilutionary potential ordinary units have been issued.

Basic earnings per unit and diluted earnings per unit amounts are calculated by dividing net profi t after tax for the period attributable to the ordinary unitholders of CKT by the weighted average number of ordinary units outstanding during the year.

The following refl ects the income and unit data used in the calculations of basic and diluted earnings per unit computations:


Year ended 5 March 2007 Year ended 5 March 2007 30 June 2008 to 30 June 2007 30 June 2008 to 30 June 2007

Net profi t attributable to unitholders ($’000) 16,978 34,234 12,159 22,443

Weighted average number of ordinary unitsfor basic and diluted earnings per unit 150,097,328 150,097,328 150,097,328 150,097,328

Note 8 – Cash and cash equivalents Consolidated Consolidated Trust Trust


Cash at bank 17,059 5,583 3,249 3,167

Conditional cash reserves 1,656 – – –

Cash held by Trust Bank 11,081 6,510 – –

Total cash and cash equivalents 29,796 12,093 3,249 3,167

Conditional cash reserves are insurance premium and trust fee reserves required to be maintained as part of borrowing facilities.

(a) Reconciliation of operating profi t to the net cash fl ow from operations:



Net profi t after tax attributable to unitholders of CKT 16,978 34,234 12,159 22,443

Unrealised gain/(loss) from revaluationof fi nancial derivatives 6,099 (22,557) 2,611 (20,404)

Unrealised gain/(loss) from investmentproperty revaluations (7,840) (11,501) – –

Amortisation of debt establishment costs 600 40 – –

Equity costs classifi ed as investing activities 2,224 – 2,224 –

Minority interest classifi ed as fi nancing activities 973 – – –

Change in assets and liabilities

Decrease/(Increase) in trade and other receivables 5,019 (7,459) (5,433) (1,287)

Increase/(Decrease) in trade and other payables 608 3,778 (1,142) 354

Decrease/(Increase) in other assets 644 (1,086) – –

Increase in interest receivables (917) (1,150) (917) (1,150)

Increase in tax liabilities 3,958 2,790 – –

Net cash fl ows from operating activities 28,346 (2,911) 9,502 (44)

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Note 9 – Trade and other receivables Consolidated Consolidated Trust Trust


Trade receivables 251 15 – –

Allowance for impairment loss 1 – – – –

251 15 – –

Consumption tax and GST receivable 1,033 7,403 43 –

Distribution receivable – related party 2 – – 6,676 1,210

Other receivables 1,156 41 – 77

Total trade and other receivables 2,440 7,459 6,719 1,287

1 Trade receivables are non-interest bearing and are generally on 15-30 day terms. A provision for impairment loss is recognised when there is objective evidence that an individual trade receivable is impaired. There was no impairment loss in the consolidated entity and Trust during the fi nancial year.

2 Details of related party receivables are set out in Note 23.

Note 10 – Other assets Consolidated Consolidated Trust Trust


Prepayments 442 1,086 – –

Note 11 – Other fi nancial assets Consolidated Consolidated Trust Trust


Investment in Master TK – at cost 1 – – 279,881 208,814

Other investments 29 29 – –

Total other fi nancial assets 29 29 279,881 208,814

1 Under the contractual relationship with Godo Kaisha Kenedix Master TK (Master Tokumei Kumiai Agreement), CKT is entitled to 97% of the profi ts and losses of the Master TK business. The Master TK Operator has invested in the business of two Sub TK Operators, Godo Kaisha Sub TK One and Godo Kaisha Sub TK Two under other TK Business (Sub TK Agreements). The Master TK Operator is entitled to 99.9% of the profi ts and losses of the Sub TK businesses.

Note 12 – Investment properties Consolidated Consolidated Trust Trust


Investment properties at fair value 611,090 406,320 – –

(a) Reconciliation of carrying amounts

Carrying amount beginning of period 406,320 – – –

Additions:

– Acquisitions 195,210 415,233 – –

– Capital expenditure 7 – – –

Net gains from fair value adjustments toinvestment properties 7,840 11,501 – –

Foreign currency translation differences 1,713 (20,414) – –

Carrying amount at end of period 611,090 406,320 – –

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(b) Details of investment properties Original acquisition cost (including transaction Additions, costs) acquisitions Consolidated Consolidated translated and 30 June 30 June at spot rate Latest disposals 2008 2007 balance external Valuation since Carrying Carrying Acquisition date valuation amount valuation value valueInvestment property date $’000 date Valuer $’000 $’000 $’000 $’000

Carino Chitosedai 26-Jun-07 93,970 31-Dec-07 TOEI 103,708 7 103,7151 95,444

Carino Tokiwadai 25-Apr-07 59,709 30-Jun-08 TOEI 64,289 – 64,289 62,421

Izumiya Hakubaicho 25-Apr-07 55,825 31-Dec-07 Hiro & Reas 57,212 – 57,2121 54,594

Unicus Ina 25-Apr-07 46,276 30-Jun-08 Hiro & Reas 46,988 – 46,988 45,622

Valor Toda 25-Apr-07 36,342 30-Jun-08 TOEI 36,372 – 36,372 35,314

Life Higashinakano 25-Apr-07 26,363 31-Dec-07 Hiro & Reas 27,033 – 27,0331 25,961

Life Asakusa 25-Apr-07 22,923 30-Jun-08 Hiro & Reas 22,708 – 22,708 22,048

Osada Nagasaki 25-Apr-07 17,397 31-Dec-07 Hiro & Reas 17,793 – 17,7931 16,703

Yaoko Sakato Chiyoda 25-Apr-07 14,984 31-Dec-07 Hiro & Reas 15,040 – 15,0401 14,603

Sunny Noma 25-Apr-07 14,133 30-Jun-08 Hiro & Reas 14,155 – 14,155 13,744

Kansai Super Saigo 25-Apr-07 10,585 30-Jun-08 Hiro & Reas 10,911 – 10,911 10,594

Kojima Nishiarai 25-Apr-07 8,351 31-Dec-07 TOEI 9,545 – 9,5451 9,272

DeoDeo Kure 02-Aug-07 27,908 30-Jun-08 Hiro & Reas 27,328 – 27,328 –

Seiyu Miyagino 07-Sep-07 8,837 30-Jun-08 Hiro & Reas 8,572 – 8,572 –

Aeon Kushiro 21-Dec-07 25,115 30-Jun-08 TOEI 25,067 – 25,067 –

Valor Ichinomiya 21-Dec-07 26,286 30-Jun-08 TOEI 27,524 – 27,524 –

Life Nagata 15-Feb-08 20,699 18-Jan-08 Hiro & Reas 20,699 – 20,6991 –

Renaissance Fujimidai 15-Feb-08 25,289 01-Feb-08 TOEI 25,289 – 25,2891 –

Valor Takinomizu 19-Mar-08 26,401 18-Feb-08 TOEI 26,401 – 26,4011 –

Life Kema 31-Mar-08 24,449 11-Mar-08 Hiro & Reas 24,449 – 24,4491 –

Total properties 591,842 611,083 7 611,090 406,320

1 Directors’ valuation.

The fair value represents the amount at which the assets could be exchanged between a knowledgeable willing but not anxious buyer and a knowledgeable willing but not anxious seller in an arm’s length transaction at the date of valuation, based on current prices in an active market for similar properties in the same location and condition and subject to similar leases. In determining fair value, the independent valuers or the Directors have discounted the expected net cash fl ows applicable to each property to their present value using a market determined, risk-adjusted discount rate applicable to the respective asset.

CKT holds an indirect interest in the investment properties arising from the contractual relationship between CKT and the Master TK Operator. The benefi cial legal ownership of the investment properties is held in the name of the Sub TK Operators.

Assets pledged as securityFirst mortgages have been granted as security for bank loans (Note 16) over all investment properties, except Life Kema. The carrying value pledged as security is $586.64 million (2007: $406.32 million). The terms of the fi rst mortgages preclude the assets being sold or being used as security for further mortgages without the permission of the fi rst mortgage holder.

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Note 13 – Trade and other payables Consolidated Consolidated Trust Trust


Trade creditors and accruals 3,072 4,753 737 2,748

Rent paid in advance 3,017 2,069 – –

Interest payable 1,210 461 – –

Other liabilities – 820 – –

Amounts payable to related parties 1 1,760 348 911 165

Total trade and other payables 9,059 8,451 1,648 2,913

1 Details of related party payables are set out in Note 23.

Note 14 – ProvisionsDistributions payable represent a fi nal distribution of 13.60 cents per unit for the year ended 30 June 2008 (2007: 1.42 cents per unit).



Distributions payable 11,332 2,131 11,332 2,131

Distributions to unitholders

Opening balance at beginning of the period 2,131 – 2,131 –

Distributions proposed during the year 11,332 2,131 11,332 2,131

Payment of distributions (2,131) – (2,131) –

Balance at end of year 11,332 2,131 11,332 2,131

Note 15 – Current tax liabilities Consolidated Consolidated Trust Trust


Japanese withholding tax 1,240 256 – –

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Note 16 – Interest bearing liabilities Consolidated Consolidated Trust Trust


Current

Bank loans – unsecured 1 – – – –

Non-current

Bank loans – secured 1 341,942 217,069 – –

Less: Unamortised borrowing costs (2,859) (1,806) – –

Total non-current interest bearing liabilities 339,083 215,263 – –

Total interest bearing liabilities 339,083 215,263 – –

1 Total bank loans at balance date were $341.94 million (30 June 2007: $217.07 million). All loans are denominated in Yen (2008: ¥34.79 billion (2007: ¥22.74 billion)). The Sub TK Operators have entered into loan facilities with Sumitomo Mitsui Banking Corporation (SMBC) and Shinsei Bank Limited. The SMBC facility comprises one tranche (¥24.93 billion ($245.02 million)) expiring on 27 April 2012. The Shinsei facility comprises one tranche (¥9.86 billion ($96.92 million)) expiring on 7 September 2012. The SMBC facility fi xed components of the loans comprise fi xed interest rate swap contracts calculated at a base rate plus a margin. The Shinsei facility is fully fi xed. The loans are secured by way of fi rst ranking mortgages over the investment properties of the Sub TKs.

The weighted average term of the loans is 3.9 years as at 30 June 2008. After interest rate swaps, 96% of the loans are fi xed at a rate of 1.97% per annum. The remaining 4% is fl oating debt with a current rate of 1.59% per annum.

Unless otherwise disclosed, the carrying amount of CKT’s current and non-current borrowings approximate their fair value.

During the current and prior year, there were no defaults or breaches on any of the loans.

Financing facilities availableAt reporting date, the following fi nancing facilities had been negotiated and were available



Total facilities:

Bank loans 356,365 250,971 – –

Facilities used at reporting date:

Bank loans 341,942 217,069 – –

Facilities unused at reporting date:

Bank loans 14,423 33,902 – –

The following table sets out the carrying amount, by maturity, of CKT’s bank loans and facilities as at balance date:

< 1 >1-<2 >2-<3 >3-<4 > 4 TotalYear ended year years years years years30 June 2008 $’000 $’000 $’000 $’000 $’000 $’000

Consolidated

Bank loans – – – 245,017 96,925 341,942

Effective interest rate 1.98% 1.86%

Facilities unused – – – 13,467 956 14,423

Total facilities – – – 258,484 97,881 356,365

Trust

Bank loans – – – – – –

Facilities unused – – – – – –

Total facilities – – – – – –

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Note 16 – Interest bearing liabilities (continued)Financing facilities available (continued)

< 1 >1-<2 >2-<3 >3-<4 > 4Year ended year years years years years Total30 June 2007 $’000 $’000 $’000 $’000 $’000 $’000

Consolidated

Bank loans – – – – 217,069 217,069

Effective interest rate 1.64%

Facilities unused – – – – 33,902 33,902

Total facilities – – – – 250,971 250,971

Trust

Bank loans – – – – – –

Facilities unused – – – – – –

Total facilities – – – – – –

Note 17 – Deferred tax liabilities Consolidated Consolidated Trust Trust


Deferred tax liabilities 1 5,496 2,534 – –

Total deferred tax liabilities 5,496 2,534 – –

1 Deferred tax liabilities are attributable to investment properties, representing the withholding tax payable on the difference between the Japanese tax written down value versus fair value of investment properties and interest rate derivatives, and depreciation.

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Note 18 – Contributed equity Consolidated Consolidated Trust Trust


Issued units opening balance 209,466 – 209,466 –

Ordinary units issued 1 75,049 225,146 75,049 225,146

Costs associated with the issueof units released/(paid) 125 (15,680) 125 (15,680)

Issued units closing balance 284,640 209,466 284,640 209,466

Number of Number of Number of Number of securities securities securities securities Whole units Whole units Whole units Whole units

Ordinary units on issue at the beginningof the period 150,097,328 – 150,097,328 –

Ordinary units issued – 150,097,328 – 150,097,328

Total units on issue at end of the year 150,097,328 150,097,328 150,097,328 150,097,328

1 All units in CKT are fully paid and ranked equally with each other in all respects.

Capital managementCKT manages its capital to ensure the Trust will be able to continue as a going concern while maximising optimal returns to unitholders through the optimisation of debt and equity balances. Management also aims to maintain a capital structure that ensures the lowest cost of capital available to the entity.

The capital structure of CKT consists of debt which includes borrowings disclosed in Note 16, cash and cash equivalents disclosed in Note 8, issued capital disclosed above, and reserves and retained profi ts in Note 19. CKT’s management reviews the capital structure regularly and balances its overall capital structure through payment of distributions, new unit issues and unit buy-backs as well as the drawing of new debt or repayment of existing debt.

Hedging is utilised to minimise risk exposure. Details of hedges are contained in Note 21.

Capital risk is monitored against policies, guidelines and externally imposed covenants:1

Policy 30 June 2008 30 June 2007

Gearing Not exceeding 60% of drawn debt 49.35% 45.95%

Interest rate risk To fi x the interest on greater than 90% of drawn debt 96% 92%

Foreign currency risk Income hedging – Distribution next fi ve years: 80% to 100% 100% 100% – Distribution years six to 10: Up to 90% 2 90% 90%

Capital hedging – Up to 50% of net investment in Japanese assets 39% 39%

1 During the current and prior year, the fi nancial covenants under the borrowing facilities were complied with.2 Distribution years six to seven only.F

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Note 19 – Reserves Consolidated Consolidated Trust Trust


Unrealised gains reserve 28,050 31,485 16,674 20,404

Foreign currency translation reserve (26,537) (26,146) – –

1,513 5,339 16,674 20,404

(a) Unrealised gains reserve

The unrealised gains reserve representsunrealised gains that have not been distributed.

Movements in reserve

Opening balance at beginning of the period 31,485 – 20,404 –

Transfers gain/loss from undistributed income:

– Fair value movements on investment properties 7,840 11,501 – –

– Fair value movements on derivatives (6,099) 22,557 (2,611) 20,404

– Deferred tax (2,975) (2,573) – –

– Amortisation of borrowing costs (601) – (17) –

– Performance fee1 (200) – (98) –

– Minority interest share of fair value movements,deferred tax expense and amortisation ofborrowing costs (366) – – –

– Gain on foreign currency contracts (1,034) – (1,034) –

Total transfers gain/loss fromundistributed income (3,435) 31,485 (3,760) 20,404

Transfer from FCTR to Income Statement – – 30 –

Balance at end of year 28,050 31,485 16,674 20,404

(b) Foreign currency translation reserveThe foreign currency translation reserve is used torecord exchange differences arising from the translationof the fi nancial statements of the interests inself-sustaining foreign operations.

Movements in reserve

Opening balance at beginning of the period (26,146) – – –

Gain/(loss) on translation of foreign operations (391) (26,146) – –

Balance at end of year (26,537) (26,146) – –

1 Performance fees are payable to Challenger Listed Investments Limited ($98,000) and the Japan Asset Manager ($102,000).

Note 20 – Segment informationCKT operates in one geographical segment in Japan and in one business segment being retail property.F

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Note 21 – Financial instrumentsDerivative fi nancial instrumentsThe following table sets out CKT’s outstanding derivative fi nancial instruments as at the balance date:



Current assets

Interest receivable on cross currency swaps 2,067 1,150 2,067 1,150

Cross currency swaps at fair value 2,350 3,710 2,350 3,710

Foreign currency income hedges at fair value 5,397 1,106 5,397 1,106

Total current assets 9,814 5,966 9,814 5,966

Non-current assets

Cross currency swaps at fair value 3,044 5,755 3,044 5,755

Interest rate swaps at fair value 85 2,986 – –

Foreign currency income hedges at fair value 7,001 9,833 7,001 9,833

Total non-current assets 10,130 18,574 10,045 15,588

Total assets 19,944 24,540 19,859 21,554

Current Liabilities

Cross currency swaps at fair value – – – –

Interest rate swaps at fair value (1,228) (864) – –

Foreign currency income hedges at fair value – – – –

Total current liabilities (1,228) (864) – –

Non-current liabilities

Cross currency swaps at fair value – – – –

Interest rate swaps at fair value – – – –

Foreign currency income hedges at fair value – – – –

Total non-current liabilities – – – –

Total liabilities (1,228) (864) – –

Summary of unrealised gain/(loss) onrevaluation of fi nancial derivatives

Fair value movements

– Cross currency swaps (4,071) 9,465 (4,071) 9,465

– Interest rate swaps (3,265) 2,122 – –

– Foreign currency income hedges 1,459 10,939 1,460 10,939

Foreign currency translation differences (222) 31 – –

Fair value movements (per Income Statement) (6,099) 22,557 (2,611) 20,404

Currency riskCKT manages its exposure to currency risk by maintaining a natural foreign exchange hedge between Japanese Yen denominated assets and borrowings.

Income hedgesThe Trust is exposed to foreign exchange risk on Japanese Yen denominated earnings which are fully hedged against movements in the Japanese Yen exchange rate (Refer Note 3 policies). Any gains or losses arising from changes in fair value are refl ected in the Income Statement. The effect on the Trust’s profi t and loss for the year ended 30 June 2008 was a gain of $1.46 million (30 June 2007: gain of $10.94 million).

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Note 21 – Financial instruments (continued)Income hedges (continued)The notional and fair values of income hedges for 2008 and 2007 are presented in the table below:

Description Consolidated Consolidated Trust Trust

30 June 2008 30 June 2007 30 June 2008 30 June 2007Foreign currency income hedges $’000 $’000 $’000 $’000

Notional contract value 166,663 117,683 166,663 117,683Fair value movements 1,459 10,939 1,459 10,939Fair value (assets) 12,398 10,939 12,398 10,939

The details of the outstanding income hedge contracts are as follows:

Trust sells Average Trust sells Average Japanese exchange rate Japanese exchange rate ¥’000 ¥’000Buy Australian Dollars 2008 2008 2007 2007

MaturityLess than one year 1,810,081 86.12 777,411 88.52One to two years 1,859,257 81.73 1,289,761 84.55Two to three years 1,839,752 77.58 1,287,595 80.37Three to four years 1,834,682 73.94 1,285,729 76.58Four to fi ve years 1,835,364 70.93 1,285,623 73.19Greater than fi ve years 3,284,566 67.73 2,951,674 68.22

Capital hedgesThe Trust is exposed to foreign exchange risk on Japanese Yen denominated assets and liabilities which are partly hedged against movements in the Japanese Yen exchange rate. Any gains or losses arising from changes in fair value are refl ected in the Income Statement. The effect on the Trust’s profi t and loss for the year ended 30 June 2008 was a loss of $4.07 million (30 June 2007: gain of $9.47 million).

The notional and fair values of capital hedges for 2008 and 2007 are presented in the table below:


30 June 2008 30 June 2007 30 June 2008 30 June 2007Cross currency swaps $’000 $’000 $’000 $’000

Notional contract value 114,801 81,000 114,801 81,000Fair value movements (4,071) 9,465 (4,071) 9,465Fair value (assets) 5,394 9,465 5,394 9,465

The details of the outstanding capital hedge contracts are as follows:

Gross-settled capital hedges Trust sells Average Australian Japanese Japanese exchange rate interest interestBuy Australian Dollars ¥’000 rate rate

Maturity – 2008Less than one year – – – –One to two years – – – –Two to three years – – – –Three to four years 2,840,030 92.6 6.49% 1.20%Four to fi ve years 3,121,189 92.5 6.49% 1.28%Greater than fi ve years 2,989,192 93.5 6.46% 1.46%

Maturity – 2007Four to fi ve years 2,502,900 92.7 6.41% 1.23%Greater than fi ve years 5,005,800 92.7 6.34% 1.39%

Gross-settled capital hedges comprise two components. CKT delivers Japanese Yen to the counterparty and in return, receives Australian Dollars from the same counterparty. Likewise, coupon interest is paid in Japanese Yen and is received in Australian Dollars.

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Net-settled capital hedges Trust sells Average Australian Japanese Japanese exchange interest interestBuy Australian Dollars ¥’000 rate rate1 rate1

Maturity – 2008Less than one year – – – –One to two years – – – –Two to three years 863,361,602 93.6 6.31% –Three to four years 582,203,183 94.9 6.14% –Four to fi ve years 301,044,764 98.6 6.00% –Greater than fi ve years – – – –

Maturity – 2007Not applicable 1 – – – –

1 Net-settled capital hedges were entered into during the year ended 30 June 2008. These hedges receive only interest denominated in Australian Dollars after deducting Japanese Yen interest.

Sensitivity analysisThe analysis below shows a summary of the impact on profi t after tax and equity of a movement in foreign currency exchange rates against the Australian Dollar on the Japanese Yen exposure at the balance date:

Movement in P&L Equity P&L Equity variable against 2008 2008 2007 rateCurrency A$ (%) $’000 $’000 $’000 $’000

Consolidated

Yen +10% 19,391 (25,334) 14,037 (18,279)

–10% (23,701) 30,885 (17,157) 22,340

Trust

Yen +10% 19,391 – 14,037 –

–10% (23,701) – (17,157) –

The analysis below shows the impact on profi t after income tax and equity of a movement in foreign currency exchange rates against the Australian Follar on the Japanese Yen exposure for the foreign currency translation reserve (FCTR) at the balance date:

Movement in P&L Equity P&L Equity variable against 2008 2008 2007 rateFCTR A$ (%) $’000 $’000 $’000 $’000

Consolidated

Yen +10% – (25,334) – (18,279)

–10% – 30,885 – 22,340

The analysis below shows the impact on profi t after income tax and equity of a movement in foreign currency exchange rates against the Australian Dollar on the Japanese Yen exposure for the fair value of currency hedges at the balance date:

Movement in P&L Equity P&L EquityFair value of variable against 2008 2008 2007 ratecurrency hedges A$ (%) $’000 $’000 $’000 $’000

Consolidated

Yen +10% 20,117 – 14,147 –

–10% (24,588) – (17,291) –

Trust

Yen +10% 20,117 – 14,147 –

–10% (24,588) – (17,291) –

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Note 21 – Financial instruments (continued)Income hedges (continued)Sensitivity analysis (continued)The analysis below shows the impact on profi t after income tax and equity of a movement in foreign currency exchange rates against the Australian Dollar on the Japanese Yen exposure for the foreign currency denominated accounts at the balance date:

CKT Trust Movement in P&L Equity P&L Equityforeign currency variable against 2008 2008 2007 ratedenominated accounts A$ (%) $’000 $’000 $’000 $’000

Consolidated

Yen +10% (726) – (110) –

–10% 887 – 134 –

Trust

Yen +10% (726) – (110) –

–10% 887 – 134 –

Interest rate riskInterest rate swaps

ConsolidatedThe notional and fair values for 2008 and 2007 are presented in the table below:

Weighted Notional Net fair average contract Fair value value interest < 1 1-2 2-3 3-4 4-5 >5Year value movements assets rate year years years years years years

2008 326,302 (3,266) (1,144) 1.97% – – – 229,377 96,925 –

2007 198,371 2,122 2,122 2.02% – – – – 198,371 –

The effective interest rate on fl oating facilities (which are 96% hedged) is 1.98%. The effective interest rate on fi xed interest facilities is 1.86%.

Sensitivity analysisThe analysis below shows the impact on profi t after tax and equity of a movement in fi ve-year Japanese swap rates at the balance date:

Movement in P&L Equity P&L Equity variable 2008 2008 2007 rate (%) $’000 $’000 $’000 $’000

Consolidated

Interest rate movement –fi nancial assets/liabilities +1% 6,921 – 10,375 –

–1% (9,600) – (6,640) –

Trust

Interest rate movement –fi nancial assets/liabilities +1% 115 – (175) –

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The analysis below shows the impact on profi t after income tax and equity of a movement in interest rates for interest bearing liabilities at the balance date:


Consolidated

Interest rate movement –interest bearing liabilities +1% (156) – (187) –

–1% 156 – 187 –

The analysis below shows the impact on profi t after income tax and equity of a movement in interest rates for derivative fi nancial instruments at the balance date:


Consolidated

Interest rate movement –derivative fi nancial instruments +1% 7,077 – 10,562 –

–1% (9,756) – (6,827) –

Trust

Interest rate movement –derivative fi nancial instruments +1% 115 – (175) –

–1% (135) – 167 –

Credit riskConsolidatedThe credit risk in respect of derivative transactions is spread among three counterparties within specifi ed limits, each with an S&P rating of A or higher.

Tenants are credit risk assessed with reference to both external and internal ratings. The concentration of tenant credit risk for approximately 80% of the portfolio have a BB rating or higher. As at 30 June 2008, the largest tenant comprises 15% of the property portfolio. As at 30 June 2008, there are no impairments for CKT group (2007: Nil).

TrustThe credit risk in respect of derivative transactions is spread among two counterparties within specifi ed limits, each with an S&P rating of A or higher.

As at 30 June 2008, there are no impairments for the Trust (2007: Nil).

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Note 21 – Financial instruments (continued)Liquidity riskThe following table summarises the maturity profi le of CKT’s fi nancial assets and liabilities.

Carrying amount Consolidated per Balance ContractualYear ended Sheet amount <1 year 1-2 years 2-3 years 3-4 years 4-5 years >5 years30 June 2008 Notes $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Financial assets

Non-derivativefi nancial assets

Cash andcash equivalents 8 29,796 29,796 29,796 – – – – –

Trade andother receivables 9 2,440 2,440 2,440 – – – – –

Other fi nancial assets 11 29 29 – – – – – 29

Derivativefi nancial assets

Interest rate swaps 21 463 463 – – 27 436 – –

Foreign exchangecontracts 21 28,632 28,632 9,813 12,313 6,506 – – –

Total fi nancial assets 61,360 61,360 42,049 12,313 6,533 436 – 29

Financial liabilities

Non-derivativefi nancial liabilities

Trade andother payables2 13 9,059 9,059 9,059 – – – – –

Unsecured bank facility 16 – – – – – – – –

Interest bearingliabilities 1 16 339,083 368,051 6,656 6,656 6,656 250,822 97,261 –

Derivativefi nancial liabilities

Interest rate swaps 21 1,607 1,607 1,229 378 – – – –

Foreign exchangecontracts 21 8,773 8,773 – – – 1,052 4,637 3,084

Total fi nancialliabilities 358,522 387,490 16,944 7,034 6,656 251,874 101,898 3,084

Net fi nancialassets (liabilities) (297,162) (326,130) 25,105 5,279 (123) (251,438) (101,898) (3,055)

1 The contractual amount of interest bearing liabilities at the year end represents the undiscounted future principal and interest payments until expiry of the facility terms. Interest payments are calculated using the weighted average cost of debt at the year end.

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Carrying amount Trust per Balance ContractualYear ended Sheet amount <1 year 1-2 years 2-3 years 3-4 years 4-5 years >5 years30 June 2008 Notes $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Financial assets




Other fi nancial assets 11 279,881 279,881 – – – – – 279,881


Foreign exchangecontracts 21 28,632 28,632 9,813 12,313 6,506 – – –

Total fi nancial assets 318,481 318,481 19,781 12,313 6,506 – – 279,881





Foreign exchangecontracts 21 8,773 8,773 – – – 1,052 4,637 3,084

Total fi nancialliabilities 10,421 10,421 1,648 – – 1,052 4,637 3,084

Net fi nancialassets (liabilities) 308,060 308,060 18,133 12,313 6,506 (1,052) (4,637) 276,797

1 Future Trade and other payables are calculated using the balance date spot rate as disclosed in Note 2.

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Note 21 – Financial instruments (continued)Liquidity risk (continued) Carrying amount Consolidated per Balance ContractualYear ended Sheet amount <1 year 1-2 years 2-3 years 3-4 years 4-5 years >5 years30 June 2007 Notes $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Financial assets




Other fi nancial assets 11 29 29 – – – – – 29


Interest rate swaps 21 3,063 3,063 – – 542 1,065 1,456 –

Foreign exchangecontracts 21 23,366 23,366 5,966 5,584 5,167 4,805 1,844 –

Total fi nancial assets 46,010 46,010 25,518 5,584 5,709 5,870 3,300 29




Interest bearingliabilities 1 16 215,263 234,245 3,560 3,560 3,560 3,560 220,005 –


Interest rate swaps 21 941 941 864 77 – – – –

Foreign exchangecontracts 21 1,813 1,813 – – – – – 1,813

Total fi nancialliabilities 226,468 245,450 12,875 3,637 3,560 3,560 220,005 1,813

Net fi nancialassets (liabilities) (180,458) (199,440) 12,643 1,947 2,149 2,310 (216,705) (1,784)

1 The contractual amount of interest bearing liabilities at the year end represents the undiscounted future principal and interest payments until expiry of the facility terms. Interest payments are calculated using the weighted average cost of debt at year end.


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Carrying amount Trust per Balance ContractualYear ended Sheet amount <1 year 1-2 years 2-3 years 3-4 years 4-5 years >5 years30 June 2007 Notes $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Financial assets


Cash and cash equivalents 8 3,167 3,167 3,167 – – – – –


Other fi nancial assets 11 208,814 208,814 – – – – – 208,814


Foreign exchangecontracts 21 23,366 23,366 5,966 5,584 5,167 4,805 1,844 –

Total fi nancial assets 236,634 236,634 10,420 5,584 5,167 4,805 1,844 208,814





Foreign exchangecontracts 21 1,813 1,813 – – – – – 1,813

Total fi nancialliabilities 4,726 4,726 2,913 – – – – 1,813

Net fi nancialassets (liabilities) 231,908 231,908 7,507 5,584 5,167 4,805 1,844 207,001


Fair valuesAll assets and liabilities recognised in the Balance Sheet, whether they are carried at cost or at fair value, are recognised at amounts that represent a reasonable approximation of fair value unless otherwise stated in the applicable notes.

Note 22 – Net asset backing Consolidated Consolidated Trust Trust

30 June 2008 30 June 2007 30 June 2008 30 June 2007

Basic net asset backing ($) 1.97 1.48 1.98 1.53

Basic net asset backing attributable to CKT unitholders (excluding minority interest) ($) 1.91 1.44 1.98 1.53

Basic net asset backing is calculated by dividing the equity attributable to CKT by the number of partly paid ordinary units on issue. The number of units used in the calculation of net asset backing is 150,097,328.

Further details can be found in Note 2 (iii) Basis of Consolidation.

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Note 23 – Related party disclosures(a) Responsible EntityThe responsible entity of CKT is CLIL, a wholly owned subsidiary of Challenger Life Holdings Pty Limited.

(b) Consolidated entities % economic % economic Country of interest interest

incorporation 2008 2007

Tokumei Kumiais (TKs) established underthe Tokumei Kumiai Agreements with:

Godo Kaisha Kenedix Master TK Japan 97% 97%

Godo Kaisha Sub TK One Japan 97% 97%

Godo Kaisha Sub TK Two Japan 97% –

Under the contractual relationship with Godo Kaisha Kenedix Master TK (Master Tokumei Kumiai Agreement), CKT is entitled to 97% of the profi ts and losses of the Master TK business. The Master TK Operator has invested in the business of two Sub TK Operators, Godo Kaisha Sub TK One and Godo Kaisha Sub TK Two under other TK Agreements (Sub TK Agreements). The Master TK Business is entitled to 99.9% of the profi ts and losses of the Sub TK business.

The ultimate parent of CKT Group is Challenger Kenedix Japan Trust.

(c) Details of Key Management Personnel(i) DirectorsThe Directors of CLIL, the Responsible Entity of CKT, are considered to be Key Management Personnel.

• Brenda Shanahan – Chair (appointed 5 December 2007)

• Peter Brook (resigned 12 March 2008)

• Stephen Gerlach (resigned 5 December 2007)

• Russell Hooper

• Ian Martens

• Geoff McWilliam

• Ian Moore

• Brendan O’Connor (appointed 12 March 2008)

• Robert Woods

During the year ended 30 June 2008, Directors were paid $694,733 (2007: $639,150) in respect of their directorship of the Responsible Entity. This amount includes all fees paid to the Directors of CLIL in respect of their Responsible Entity Board and Committee duties for all trusts, including CKT and three other ASX listed funds (ASX: CDI, CWT and CIF).

(ii) Other Key Management PersonnelIn addition to the Directors noted above, the following were considered Key Management Personnel during the period with the authority for the strategic direction and management of CKT:

• Trent Alston (Head of Real Estate)

• Brett McCarthy (Fund Manager, CKT)

• CLIL (Responsible Entity, CKT)

(iii) Compensation of the Key Management Personnel of CKTNo amounts are paid by CKT directly to the Key Management Personnel individuals of the Trust.

CLIL, as the Responsible Entity of CKT, is deemed to be the Key Management Personnel of CKT. Compensation paid directly to CLIL in the form of fees is disclosed in Note 23(d).

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(d) CLIL feesCLIL provides strategic and compliance management to CKT and outsources management, custodial and administrative functions to associated entities that are wholly owned by Challenger Financial Services Group Limited (CFSGL). It is entitled to a fee under the CKT Trust Constitution.

Challenger Management Services Limited (CMSL) provides custodial and management services to CKT in accordance with the CMSL Management Services Agreement (‘Management Agreement’).

(i) Management fees policyThe total base management fee payable is calculated as 0.25% per annum of the gross asset value of CKT’s direct and indirect proportionate interest in the assets held in the Master TK business and other assets of CKT. The fee is calculated and accrued monthly and paid half-yearly within two months of the end of each half-year. Further details on base management fees can be found in the Product Disclosure Statement issued 19 March 2007.

(ii) Performance fees policyCLIL may also be entitled to a Performance Fee, with an element related to asset level performance and an element related to the relative equity level performance of CKT. The amount payable to the Responsible Entity will be from the assets of CKT. This fee is payable two months after the end of each fi nancial year. Further details on performance fees can be found in the Product Disclosure Statement issued 19 March 2007.

(iii) Reimbursement policyAll costs associated with custodial and management services are paid for by CMSL. CMSL is entitled to recover all out of pocket expenses included in the Management Agreement. CLIL is entitled to recover costs from CKT under the Constitution.

Transactions between CLIL, CMSL and CKT result from normal arm’s length dealings with that company as the Responsible Entity. CLIL is an Australian Financial Services Licence holder.

Challenger Treasury is a wholly owned subsidiary of CFSG and is an associate of CLIL.

The attached table discloses all fees paid by CKT to CLIL and CMSL under the Trust Constitution and to CMSL under the Management Agreement with CLIL.



(a) Base Responsible Entity fees paid or 73 8 73 8payable to CLIL, equating to 5% of thebase management fee.

(b) Management fees paid or payable to 1,391 157 1,391 157CMSL, equating to 95% of the basemanagement fees plus all other feespayable.

(c) Performance fees payable to CLIL, 98 – 98 –equating to 50% of the assetperformance fee.

Total Fees as per the Income Statement 1,562 165 1,562 165

(d) Acquisition service fees and due diligence 1,118 – 1,118 –fees in relation to further acquisitionof properties and debt placement feesfor arranging the borrowings, paid orpayable to CLIL (Balance sheet).

Total fees paid or payable at balance date 2,680 165 2,680 165

Total expenses paid by CKT to reimburse CMSL for the year ended 30 June 2008 in respect of costs paid on behalf of CKT were $348,986 (2007: $2,233,020).

All transactions were at arm’s length.

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Note 23 – Related party disclosures (continued)(e) Transactions with related partiesThe following transactions occurred with related parties:



Asset management fees – paid/payable toJapan Asset Manager 1,323 146 – –

TK minority interest – paid/payable byMaster TK Operator 457 27 – –

Distributions receivable from Master TK Business – – 6,676 1,210

Performance fees payable to Japan Asset Manager,equating to 50% of the asset performance fee 102 – – –

(i) Asset management fees policyThe asset management fee is a fee for the management and operation of the Sub TK Business. An annual fee of 0.25% of the gross value of assets held in the Sub TK Business less the Japan Investment Management Fee is payable to the Japan Asset Manager from the assets of the TK Business. The fee is paid semi-annually within two months of the end of each half year.

(ii) Performance fees policy – Japan Asset ManagerThe Japan Asset Manager may also be entitled to a performance fee, with an element related to asset level performance and an element related to the relative equity level performance of CKT. The amount payable to the Japan Asset Manager will be from the assets of the Sub TK Business. This fee is payable two months after the end of each fi nancial year.

(f) Units in CKT held by Key Management PersonnelThe interests of Key Management Personnel in units of CKT at year end are set out below:

Balance – Change Balance at beginning during end ofName of year the year year

R Hooper 80,000 – 80,000

G McWilliam 200,000 – 200,000

I Moore – 400,000 400,000

T Alston 225,000 – 225,000

B McCarthy 25,000 202,500 227,500

Challenger Life No.2 Limited owns 5.00% of CKT (7,504,961 units).

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Note 24 – Auditor’s remuneration Consolidated Consolidated Trust Trust


Amounts received or due and receivableby Ernst & Young for:

– An audit or review of the fi nancial reportof the entity and any other entity in theconsolidated entity 212 114 152 85

– Compliance plan audit 3 25 3 –

No amounts were received or due andreceivable by auditors other than Ernst & Young.

Note 25 – Commitments and contingencies(a) Leasing commitmentsOperating lease commitments – Group as lessor Consolidated Consolidated Trust Trust


Future minimum rental revenues undernon-cancellable operating leases at30 June are as follows:

– Not later than one year 35,029 27,274 – –

– Later than one year andnot later than fi ve years 139,013 107,764 – –

– Later than fi ve years 396,995 300,611 – –

Total lease commitments 571,037 435,649 – –

(b) Commitments relating to investment propertyThere was no capital expenditure contracted, but not provided for, at balance date.

Note 26 – Events subsequent to balance dateThere has been no matter or circumstance that has arisen subsequent to 30 June 2008 that has signifi cantly affected, or may affect, CKT’s operations in future fi nancial years, the results of those operations or CKT’s state of affairs in future fi nancial years.

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Statement by the Directors of theResponsible Entity of CKTOn the fi nancial report of the Challenger Kenedix Japan TrustIn accordance with a resolution of the Directors of Challenger Listed Investments Limited (the Responsible Entity of the Challenger Kenedix Japan Trust (herein known by its ASX code ‘CKT’)), I state that:

1. In the opinion of the Directors:

(a) The fi nancial statements and notes of CKT are in accordance with the Trust Constitution and the Corporations Act 2001, including:

(i) giving a true and fair view of CKT as at 30 June 2008 and of its performance for the period ended on that date; and

(ii) complying with Accounting Standards and Corporations Regulations 2001; and

(b) There are reasonable grounds to believe that CKT will be able to pay its debts as and when they become due and payable.

2. This declaration has been made after receiving the declarations required to be made to the Directors in accordance with section 295A of the Corporations Act 2001 for the fi nancial period ended 30 June 2008.

On behalf of the Board


Sydney21 August 2008

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Independent audit report to membersof CKT

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Independent audit report to membersof CKT (continued)

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Unitholder information

ASX listingChallenger Kenedix Japan Trust (CKT) is listed on the Australian Securities Exchange (ASX). The Trust’s units trade under the code ‘CKT’. Unit prices are published daily in major Australian metropolitan newspapers, and are also accessible from the CKT website.

The CKT websiteThe CKT websitewww.challenger.com.au/cktcontains important information about the Trust, including unit prices, announcements, annual reports and an overview of each asset in the CKT portfolio.

Unitholder enquiriesIf you have queries relating to your unitholding or wish to provide a change of address, Tax File Number, instructions for payment of distributions or annual report elections, please contact the Registry, Link Market Services Limited, using the contact details below.

Challenger Kenedix Japan TrustC/– Link Market Services LimitedLocked Bag A14Sydney South NSW 1235Telephone: 1800 754 866Telephone (outside Australia):

+61 2 8280 7489Facsimile: +61 2 9287 0303

Alternatively, visit the LinkInvestor Service Centre atwww.linkmarketservices.com.au, where you can access information about your unitholding and update your holding details online.

If you have any questions relating to the management of CKT, please contact Challenger on +61 2 9994 7000, or send an email to [email protected].

DistributionsCKT pays distributions six-monthly for the periods ending 30 June and 31 December. Distribution payments can be paid by:

• direct credit to a nominated Australian fi nancial institution account; or

• a cheque mailed to your registered unitholding address.

Annual Taxation StatementsThe taxable income shown on your Annual Taxation Statement is taxable in the year of entitlement rather than the year of receipt. This means that taxable income included in distributions paid in February 2008 and August 2008 is assessable in the taxation year ended 30 June 2008.

An Annual Taxation Statement is sent to unitholders in August each year. This statement includes important taxation information and should be retained by unitholders to assist in the completion of their taxation return.

Unitholder complaintsIf you are dissatisfi ed with a service or process relating to your investment, please let us know. There is no charge to make a complaint. Complaints can be made either verbally or in writing by contacting:

Complaints ManagerChallenger Kenedix Japan TrustC/– Link Market Services LimitedLocked Bag A14Sydney South NSW 1235Telephone: 1800 754 866Telephone (outside Australia):

+61 2 8280 7489Facsimile: +61 2 9287 0303

The Responsible Entity has a documented internal dispute and resolution policy in line with the Australian Standard for Complaint Handling ISO 10002_2006.

If you are not happy with how the complaint has been handled, you may contact the Financial Ombudsman Service (FOS), of which the Responsible Entity is a member. This is an independent body and is approved by ASIC to consider complaints. The contact details for FOS are:

Financial Ombudsman ServiceGPO Box 3Melbourne VIC 3001Tel: 1300 780 808www.fos.org.au

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Unitholder information (continued)

Substantial unitholdings as at 18 August 2008 Effective Number % issued date of units capital

Challenger Financial Services Group Limited 24-4-2007 7,504,961 5.00

Commonwealth Bank of Australia 27-4-2007 17,153,520 11.43

APN Funds Management 23-10-2007 21,508, 752 14.33

Top 20 unitholders as at 18 August 2008Number Name Number of units % issued capital

1 UBS Wealth Management Australia Nominees Pty Ltd 22,800,713 15.19%

2 RBC Dexia Investor Services Australia Nominees Pty Limited 19,582,712 13.05%

3 HSBC Custody Nominees (Australia) Limited 11,566,506 7.71%

4 Citicorp Nominees Pty Limited 11,564,989 7.70%

5 National Nominees Limited 8,295,524 5.53%


7 Challenger Property Noms P/L 7,504,961 5.00%

8 Netwealth Investments Limited 6,431,052 4.28%

9 Feta Nominees Pty Limited 6,081,345 4.05%

10 ANZ Nominees Limited 4,686,911 3.12%

11 HSBC Custody Nominees (Australia) Limited – A/C 2 3,914,731 2.61%

12 J P Morgan Nominees Australia Limited 2,375,928 1.58%

13 Sandhurst Trustees Ltd 2,177,000 1.45%

14 M F Custodians Ltd 1,548,800 1.03%

15 Trust Company Limited 1,426,000 0.95%


17 Suncorp Custodian Services Pty Limited 1,323,136 0.88%


19 L J K Nominees Pty Ltd 1,050,000 0.70%

20 Cherryoak Investments Pty Ltd 980,000 0.65%

Total 124,004,077 82.62%

At 18 August 2008 there were two unitholders each holding less than a marketable parcel of 555 ordinary units.

Voting rightsOn a show on hands, each member of CKT, being a holder of units (Member) has one vote. On a poll, each Member has one vote for each dollar of the value of the total units in CKT held by that Member.

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Spread of unitholders as at 18 August 2008 Number of Number of Holding unitholders units fully paid %

1 to 1,000 13 10,802 0.01

1,001 to 5,000 67 241,770 0.16

5,001 to 10,000 129 1,100,918 0.73

10,001 to 50,000 353 8,397,451 5.59

50,001 to 100,000 42 2,960,768 1.97

100,001 and over 71 137,385,619 91.53

Total 675 150,097,328 100.00

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Additional information

Use of proceeds of initial public offeringIn accordance with ASX Listing Rule 4.10.19, the Responsible Entity confi rms that cash or assets readily convertible to cash held at the time of admission of CKT to the offi cial list of the ASX have been used in line with the business objectives set out in the PDS dated 19 March 2007.

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Challenger Kenedix Japan Trust

ARSN 124 068 971

Australian Securities Exchange (ASX) code

CKT

Responsible Entity

Challenger Listed Investments LimitedABN 94 055 293 644AFSL 236887

Directors of theResponsible Entity

Brenda Shanahan (Chair)Russell HooperIan MartensGeoff McWilliamIan MooreBrendan O’ConnorRobert Woods

Company Secretary

Christopher RobsonSuzie Koeppenkastrop

Manager

Challenger ManagementServices LimitedABN 29 092 382 842Level 15255 Pitt StreetSydney NSW 2000Telephone: +61 2 9994 7000Facsimile: +61 2 9994 7777Email: [email protected]: www.challenger.com.au/ckt

Japan Asset Manager

Kenedix, Inc.KDX Shimbashi Building2-2-9 Shimbashi, Minato-ku,Tokyo 105-0004

Registry

Link Market Services LimitedLocked Bag A14Sydney South NSW 1235Telephone: 1800 754 866Telephone (outside Australia):

+61 2 8280 7489Facsimile: +61 2 9287 0303

Directory

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Level 15255 Pitt StreetSydney NSW 2000telephone 02 9994 7000facsimile 02 9994 7777

www.challenger.com.au

7255

/CG

570

/070

8

Challenger Kenedix Japan Trust(ARSN 124 068 971)

Responsible EntityChallenger Listed Investments Limited(ABN 94 055 293 644)(AFSL 236887)

Challenger Kenedix Japan TrustAnnual Report 2008

Challenger K

enedix Japan Trust Annual Report 20

08

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for personal use only - australian securities exchange · clil, as the responsible entity of ckt,...

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