Westfield Holdings Limited – chairman’s AGM address

15 November 2001

Countries: Australia

The Westin Hotel, 1 Martin Place, Sydney,
Thursday, 15 November 2001, 10.00am


Ladies and gentlemen, I’d now like to report to you on the key events during the financial year and then look at what’s happened post the balance date. The year to 30 June saw Westfield Holdings continue to perform well, and all facets of the business contributed to the result.

Westfield now has $24.1 billion of shopping centre assets under management in Australia, New Zealand, the UK and the US.

The company’s solid growth has been made possible through a two-part strategy. The first part aims to grow the business through intensive management and redevelopment of existing assets. The second is to expand the scope of our business both in existing locations and in new markets.

In the year under review, profit was up 14% to $169.1 million, continuing our tradition of unbroken profit growth for the past 41 years.

Ernings per share were 32.05 cents, up 13.9%.

The total dividend payout was 16.03 cents per share, up 13.3%.

Westfield has continued its global redevelopment program, with projects worth about $1.1 billion completed during the year and a further $4.5 billion either under construction or in the planning process.

In Australia and New Zealand the portfolio maintained an occupancy level of 99% while in the US it achieved an occupancy level of 94% which is at the top of the industry standard.

This year Westfield consolidated its UK shopping centre business which now has a portfolio of seven centres valued at $2.1 billion.

The operational and pre-development objectives set at the time of Westfield’s acquisition of the UK portfolio are being achieved with the centres performing well and plans are moving forward for major redevelopments of a number of centres.

Progress has been made in establishing Westfield’s team in the UK with executives from Australia, the US and New Zealand appointed to work with locally-based staff to ensure the successful introduction of Westfield’s intensive management approach.

Evidence from retailers in Westfield centres indicates that the UK is experiencing relatively good retail sales conditions.

In New Zealand we successfully launched the Westfield Shoppingtown brand.

That is a quick summary of the key events to 30 June this year.

Since then of course the world has changed.

The September 11 attacks have contributed further to what was an already slowing economy, and the attacks hit the company directly.

As you know, Westfield America had recently taken over a 99-year lease on the retail component of the World Trade Center. We had a small team there, on Level 17 of the Tower Two. One of our executives, Bruce Eagleson, had returned to the building after the first plane hit to help rescue survivors, only to become one of the many victims that day.

Recently, the company held a memorial service in Los Angeles for Bruce and the other victims and our deepest sympathy is extended to his family and all those who have been directly affected.

That was the human aspect of our involvement in the World Trade Center.

On the business side, I should re-state for the record that Westfield America Trust had no ownership interest in the office towers component of the World Trade Center.

Westfield America invested US$127 million in obtaining the lease on the retail component of the Center. US$100 million of this was via a limited recourse first mortgage and US$27 million from the company’s internal resources.

We expect that this investment, plus the loss of income, will be recovered under the insurance held by Westfield America Trust.

In fact, the first interim payment has been made by the insurance companies.

While there will inevitably be some delays and complications with the insurance process we remain confident that our claims will be met.

Ladies and gentlemen, retail sales conditions globally have softened, particularly since September 11 and I’ll talk about this in more detail in the Westfield America Trust and Westfield Trust meetings.

However, in this environment it is important to remember that Westfield is a strong company, with great prospects, and is well-equipped to withstand the more uncertain economic conditions.

We have been in business 40 years, and I have seen economic cycles come and go. Generally, Westfield has emerged from each of these downturns a stronger company.

We have been able to do this because of the underlying strength of our business.

Westfield Holdings generates profit from four main areas of shopping centre activity -investment income, management income, project income and funds management income.

These activities are not affected to the same extent by month-to-month fluctuations and we are therefore able to sustain our profitability even during periods of slower growth.

All facets of our business are underpinned by the 13,200 leases we manage around the world. Most of these are medium to long-term – at least five years and in many cases 10 or more.

This situation works to absorb many of the shocks felt in other businesses that are more susceptible to short-term economic fluctuations, although obviously we are not completely immune to long-term economic downturns.

In addition, we manage quality assets and we keep them that way through continual redevelopment.

The softer economic conditions might affect the timing of one or two projects in our global redevelopment program but the intrinsic economic attractiveness of the projects remains and given that these developments occur over a 3 to 5-year timeline, we expect our program will be relatively unaffected by recent events.

The underlying strength of our shopping centre business itself is reinforced by the geographic spread of Westfield assets. We have shopping centres in four countries, which can to an extent help even out local economic conditions, and allows us to concentrate extra resources where necessary.

It also means we are well placed to seek out new acquisitions that might become available during tougher economic times as properties that would not otherwise be available come to market.

I’m very pleased to report that earlier this week Westfield Trust and AMP announced an in-principle agreement on a $555 million, 3-property transaction.

For Westfield Trust this will expand and strengthen the portfolio with high quality assets in a transaction that is accretive to unitholders. At the same time, it will increase Westfield Holdings assets under management and the overall quality of the portfolio we manage.

In short, Westfield Trust will acquire the Centrepoint complex in the Sydney CBD. This is one of Sydney’s best located and busiest shopping areas and we intend to introduce Westfield management and Westfield branding at the earliest opportunity.

AMP will sell its 50% interest in the Bondi Junction centre to Westfield Trust. As you would be aware, a major redevelopment of the centre is expected to get underway next year and the new centre will become a top-class property for the Westfield portfolio.

AMP will acquire a 50% interest in Westfield Liverpool in Sydney and Westfield Trust will retain a 50% interest in the centre.

This is another example of the strength of our long-term relationship with institutions like AMP in that we were able to discuss our respective strategic interests and produce a mutually beneficial result.

One of the things which perhaps gives me most confidence for the future is the strength of the Westfield management team.

We have executives across every aspect of the shopping centre business – from leasing, marketing and management through to capital markets and funding. We have development expertise built up over 40 years, and have built up a proprietary knowledge of the business.

It is a matter of some pride to me as chairman that Westfield is doing its bit to export Australian know-how, and highly skilled Australian executives, to new markets around the world.

Right now we have 40 Australian executives in the US, New Zealand the United Kingdom, transferring skills and knowledge – all under a strict Westfield discipline. All under the Westfield brand.

We have a solid core of senior managers – our top 50 executives have an average age of 48 and have been with Westfield 11 years. There is no substitute for that sort of stability and experience in the senior team.

Our senior executive team, our top 20 or so, have been the drivers of our global growth in the past few years. These people have grown with Westfield, assuming greater responsibility, and managing our international growth effectively.

We have also been very fortunate to have the services of this Board of Directors. It has been a stable board, and with the executives I just mentioned, they have overseen our global expansion since the early ’90s.

I would like to take this opportunity to acknowledge the contribution of the board, and of all Westfield staff.

Most of you would be aware that in August Westfield Holdings purchased a 23.9% interest in Rodamco North America, a Netherlands-based company with a portfolio of 41 shopping centres in the US.

You will have read much about this transaction in the newspapers and while I do not wish to understate the challenge involved, I am confident we will achieve our objectives.

The Rodamco centres are very good centres, in good locations, but the current management has failed, in our view, to realise their full potential.

We have prepared a strategic plan for RNA which would ultimately merge the RNA and Westfield America portfolios to create the pre-eminent shopping centre group in the US.

The Rodamco centres are very good centres, in good locations, but the current management has failed, in our view, to realise their full potential.

The Rodamco centres are very good centres, in good locations, but the current management has failed, in our view, to realise their full potential.

We have prepared a strategic plan for RNA which would ultimately merge the RNA and Westfield America portfolios to create the pre-eminent shopping centre group in the US.

We are a long-term investor in Rodamco. Our current investment is a good one in its own right, we are well funded, it is earnings positive from day one, and we are there to stay.

Given the uncertain international outlook it is difficult to forecast economic activity with any confidence.

However, for the reasons I outlined above – the underlying strength of our business, our sound management team and new opportunities for further growth – Westfield is well placed to continue its strong performance.

I expect to be able to report this time next year on another increased profit for your company.

I turn now to the business of the meeting.