WESTFIELD GROUP REPORTS FULL YEAR PROFIT WITH FUNDS FROM OPERATIONS AND DISTRIBUTION IN LINE WITH FORECAST
26 February 2014
The Westfield Group (ASX:WDC) today announced its full year results to 31 December 2013 with AIFRS profit of $1.60bn and Funds from Operations (FFO) of $1.44bn. FFO per security was in line with forecast at 66.5 cents, up 2.3% on the prior year and included the impact of asset divestments and securities buyback completed during the year.
Distribution for the 12 months was $1.08bn or 51.0 cents per security, an increase of 3.0% and also in line with forecast. Return on contributed equity for the year was 11.8%, up from 11.4% in 2012.
Westfield Group Co-CEOs, Peter Lowy and Steven Lowy AM said: “We are pleased with the results for the year which reflect the solid performance of the portfolio with each market showing high productivity with growth in specialty sales and comparable net operating income.
“Our focus is on creating and owning world leading retail destinations. During the year we successfully continued the strategic repositioning of the Group by divesting non-core assets, introducing further joint ventures, investing in our development activity and announcing the acquisition of the remaining 50% interest in the Westfield World Trade Center in New York. Our business is in a strong position in each of the markets we operate.”
In December 2013, WDC announced a restructure proposal to split the Group’s Australia/NZ business from its international business thereby creating two pre-eminent, separate and fully integrated retail property groups.
As part of that proposal, WDC’s Australia/NZ business will merge with Westfield Retail Trust (WRT) to form Scentre Group. WDC’s international business will become Westfield Corporation. The proposal is subject to the approval of both WDC and WRT securityholders.
“WDC’s international business and its Australian/NZ business have both grown in scale and quality to the stage where they can now stand on their own. We believe that the restructure positions the new entities for better growth and thereby provides securityholders of both WDC and WRT with better long term returns,” Peter Lowy said.
The proposal has the unanimous support of the WDC Board and the independent directors of WRT. Consistent with the timetable outlined in December 2013, the Explanatory Memorandum is expected to be available in late April 2014 ahead of the securityholders meeting to consider the proposal which is expected to be held in late May 2014.
Net property income for the year was $2.0bn, consistent with the prior year. Adjusting for the asset divestments during 2012 and 2013, net property income increased 8%.
Management fee income for the 12 months increased by 9% to $140m and project income increased 5% to $204m.
For the 12 months, comparable property net operating income in the United States was up 4.7%, the United Kingdom up 4.3% and Australia up 2%.
At 31 December 2013 the portfolio in the United States was 94.5% leased, up 60 basis points on the prior year, with the United Kingdom at 99.3% and the Australian/NZ portfolio remaining over 99.5% leased.
WDC’s international portfolio achieved specialty sales productivity of US$667 per square foot and WDC’s Australian portfolio achieved specialty sales productivity of $9,901 per square metre. Comparable specialty retail sales for the year were up 5.7% in the United States, up 3.2% in the United Kingdom, up 0.4% in New Zealand and up 1.4% in Australia.
“Our Australian business and platform has proved highly resilient, due to the high quality of the portfolio with excellent sales productivity, almost full occupancy and continued growth in average rents and net property income. It is pleasing to note the improvement in retail sales growth with comparable specialty sales up 3% in the December quarter and up 4% in January 2014,” Steven Lowy said.
In the United Kingdom, the strong performance of Westfield London and Stratford City continued with combined annual sales of almost £2.0 billion, an increase of 3.1% for the year.
The Group’s digital strategy, at Westfield Labs, forms an integral part of WDC’s broader objective of better connecting retailers and consumers and enhancing the overall shopping and entertainment experience. During the year, digital initiatives included piloting interactive digital storefronts and same day delivery in the US and introducing seamless express parking in London as well as launching the searchable mall capability in Australia.
The Australia/NZ business continued to make good progress on the $4.9bn (Group share: $1.3bn) of current and future projects. $1.9bn of current projects (Group share: $300m) includes Miranda in Sydney and Mt Gravatt in Brisbane. In early 2014, works commenced at Pacific Fair in Queensland, on behalf of AMP Capital.
The future development pipeline for Australia/NZ of $3.0bn (Group share: $1.0bn) includes major projects at Warringah in Sydney, Chermside in Brisbane and Marion in Adelaide.
The Group’s international business also continued to make good progress on current and future projects. Current projects include Garden State Plaza in New Jersey and Montgomery in Maryland. In 2014, works have already commenced at Bradford in the United Kingdom, on behalf of Meyer Bergman, and WDC expects to commence the US$250m development of The Village at Topanga in Los Angeles.
The future development pipeline for the international business of US$9.0bn (Group share: US$4.0bn) includes landmark developments at Croydon in London and Milan in Italy together with the expansion of Westfield London, and the redevelopments of Century City, Valley Fair and UTC in California.
During the year, WDC announced it would increase its ownership in the retail development of Westfield World Trade Center in New York, from 50% to 100%. The project is expected to open in 2015.
“We see the key trends of the expansion of luxury and high street brands, together with the integration of food, fashion and entertainment experiences, combined with the greater use of digital technology will be brought together in our existing centres and future redevelopments,” Steven Lowy said.
The Group’s development activity is expected to result in earnings accretion and create significant long term value. The target unlevered internal rates of return for the development projects is between 12% – 15%.
Transactions and Capital Management
During 2013, the Group completed a number of strategic transactions including establishing a US$1.28bn joint venture over a portfolio of six existing malls in the US, formed a joint venture for the redevelopment of Croydon, divested seven non-core malls in the United States for US$1.64bn and disposed the joint venture interests in Brazil and Karrinyup in Australia.
The Group bought back 150.3m securities in 2013, with a total of 230.9m securities acquired, representing 10% of securities on issue prior to the commencement of the buyback in 2012. The securities were bought back for $2.43bn representing an average price of $10.53 per security.
During the year, WDC raised and extended $4bn of debt facilities. WDC has total assets of $37.2bn, a gearing ratio of 35.8%, interest cover of 3.9 times and available liquidity of $4.3bn.
WDC’s assets under management at 31 December 2013 were $70.0bn, a $5.6bn increase from December 2012.
The Group confirms its 2014 forecast for FFO, prior to the restructure proposal, of 68.6 cents per security. This would represent an increase of 3.2% and takes into account the full year impact of the asset divestments and buyback completed during 2013. The forecast assumes no capital transactions or material change in foreign currency exchange rates.
The distribution forecast for 2014, prior to the restructure proposal, is 52.5 cents per security, up 3% from 2013.
As part of the proposal announcement, WDC announced forecast pro forma FFO for 2014 of: –
– Scentre Group – 21.5 cents per security
– Westfield Corporation – US39.8 cents per security
The combined FFO forecast for Scentre Group and Westfield Corporation equates to 70.5 cents per equivalent WDC security for 2014, representing an increase of 6% on WDC’s FFO per security for 2013.
The Westfield Group (ASX Code: WDC) is an internally managed, vertically integrated, shopping centre group undertaking ownership, development, design, construction, funds/asset management, property management, leasing and marketing activities and employing approximately 4,000 staff worldwide. The Westfield Group has interests in and operates one of the world’s largest shopping centre portfolios with investment interests in 90 shopping centres across Australia, the United States, the United Kingdom and New Zealand, encompassing over 20,500 retail outlets and total assets under management of $70bn.
This release contains forward-looking statements, including statements regarding future earnings and distributions. These forward-looking statements are not guarantees or predictions of future performance, and involve known and unknown risks, uncertainties and other factors, many of which are beyond our control, and which may cause actual results to differ materially from those expressed in the statements contained in this release. You should not place undue reliance on these forward-looking statements. These forward-looking statements are based on information available to us as of the date of this presentation. Except as required by law or regulation (including the ASX Listing Rules) we undertake no obligation to update these forward-looking statements.