Chairman’s address annual general meeting of members of Westfield Holdings Ltd
13 November 2002
Countries: Australia, New Zealand, United Kingdom, United States
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Ladies and gentlemen
I would like to provide you with a summary of our results forthe past year.
I’d also like to talk about the prospects for the company in thecoming year and beyond.
It is in uncertain times that strong companies show theirstrength. We are a strong company, and we face the future withconfidence. It has been our experience that we have emerged fromperiods of volatility in an even stronger position than before.
First, let me give you an overview of the results and a briefdescription of the markets in which we operate.
The last 12 months have been a watershed year for the WestfieldGroup. It has been a year marked by significant transactions acrossthe US, Australia and New Zealand, and a year that has seenWestfield become the second-largest shopping centre company in theworld.
And in the year to 30 June 2002, Westfield Holdings produced avery good result:
- There was a 38.5% increase in after-tax profit.
- Earnings per share were up more than 31%.
- The total dividend pay out was up more than 31%.
- Our assets under management grew by nearly 31% to $31.5billion.
The result was due to the expansion of the business in theUnited States, where we increased the size of our US portfolio by50%, and good performances from all parts of the Westfieldoperation in Australia, the United States, the United Kingdom andNew Zealand.
In Australia, our centres recorded sales in excess of$9.2 billion for the year to September, up 7.2 per cent. Specialtystore sales have been particularly strong with an improving trendover the past twelve months.
Our intensive leasing program has seen our centres maintaintheir historically high occupancy rates – remaining consistentlyabove 99%.
There is continuing, steady demand from retailers for space inexisting centres as well as new projects such as our landmarkredevelopment at Bondi Junction in Sydney’s east.
In New Zealand, while retail sales were perhaps not asstrong as in Australia, our 11 centres did perform well with salesup 2.3% to $NZ1.5 billion. The occupany levels in our New Zealandcentres have also been maintained at historically high levels ofmore than 99%.
In Australia and New Zealand, we have a redevelopment pipeline ofmore than $1.8 billion involving plans to redevelop 19 centres overthe next five to seven years.
In the United States, retail sales have been sluggishalthough we have begun to see signs in the past few months thatthis may be improving.
For the combined US portfolio, total specialty store sales were$US5.7 billion for the year to September, which is steady for theyear, but an increase of 1.3 per cent for the last quarter.
While retailers in the US have been operating in a weaker salesenvironment they have been able to improve profitability bymanaging their cost structure and inventories of stock moreeffectively.
Within this environment, the occupancy level of the 39 Westfieldcentres we held prior to the RNA and Jacobs acquisitions hasincreased to 95% – a percentage point higher than one year ago, andat the high end of industry standards in the US.
As I said earlier, we have increased the size of our business by50% in the US through Westfield America Trust’s acquiring 22 newcentres from RNA and Jacobs.
I am pleased to advise that, despite the huge growth in the numberof centres in the US, these properties have already been thoroughlyintegrated into the Westfield portfolio.
We have put in place Westfield systems and branding and stamped ourmanagement style on the properties.
We are able to achieve this with our experienced executive teamthat is, I believe, the equal of any in the shopping centreindustry anywhere in the world. We continually look at how toretain and recruit the very best and succession planning is now abig part of our overall strategy.
The introduction of Westfield’s management to the RNA and Jacobsportfolios is already showing results.
The occupancy level in these new US centres has increased byalmost a percentage point – to 90.4% – since we took overmanagement of the centres just six months ago.
Again, this reflects our intensive approach to leasing and ongoingdemand from retailers for the quality space we provide.
Having successfully integrated the new centres, we are now ready totake advantage of other opportunities as they might arise.
In the United Kingdom, our seven centres have showncontinual evidence of improvement.
The UK retail market has generally remained very strong, with salesgrowing on average by 7.5% in the year to September. Occupancylevels are now in excess of 99%, again reflecting the introductionof our leasing strategy and management systems. This compares withan occupancy rate of 95.3% when we acquired the properties just twoyears ago.
We have plans to redevelop most of the UK portfolio and we havealready received planning consent to redevelop the first property -The Eagle Cente at Derby, in England’s East Midlands. This was asignificant milestone for the company.
Planning applications have also been lodged for theredevelopment and expansion of four other shopping centres in theUK at Nottingham, Guildford, Swindon and Belfast.
Westfield Holdings is now a significant funds manager withresponsibility for the performance of Westfield Trust and WestfieldAmerica Trust, which are now the largest and second largest listedproperty trusts on the Australian Stock Exchange, with marketcapitalisations of $7 billion and $6.8 billion respectively.
The trusts have performed well over their lifetime and theycontinue to produce good results.
This year is the 20th anniversary of Westfield Trust and it isworth noting that since listing it has achieved a compoundinvestment return to June 2002 of 16.2% per annum. This compareswith the All Ordinaries Index return over the same period of 14.6%and the Property Index which returned 14.1%.
Westfield America Trust has also outperformed its peers sincelisting in 1996, recording a compound investment return to June2002 of 19.8% per annum. This compares with the All OrdinariesIndex return of 9.8% and the Property Index return of 13.9%.
I am pleased to report that Westfield Holdings net profit-after-taxfor the coming year is expected to increase by in excess of 15%,reflecting Earnings Before Interest and Tax of around $400million.
We have a comprehensive corporate governance approach in place andthis has served the business well over many years. We continuallyreview our corporate governance arrangements to ensure we keep pacewith best practice in this rapidly evolving area.
Ladies and gentlemen, our prime objective remains to increaseshareholder value through earnings per share growth by increasingassets under management for the Westfield Group.
Growth in assets under management, either through acquisition orredevelopment, leads directly to increased profitability forWestfield Holdings through an immediate increase in property andfunds management income, and in the medium to longer-term, anincrease in development income.
Indeed, assets under management have increased ten-fold since1990, with substantial opportunities for further growth,particularly in the US and UK.
Our development pipeline is very strong. We currently have $5billion of development projects either under construction or due tostart over the next five years. These projects are spread acrossAustralia and New Zealand, the US and the UK.
The UK program is an excellent example of how we can grow ourexisting business through redevelopment. Through the projects wehave already identified, we plan to double the amount of leasablearea in the UK portfolio, creating a larger and more productivebase for future growth.
I am pleased to confirm today that we plan to generate another $5billion of projects – much of which will come from the RNA andJacobs portfolios in the US and our UK portfolio. That’ss a totalof $10 billion stretching out over the next five to ten years.
I can also report that we are actively preparing a range ofalternative proposals to fund our long-term expansion in the UK. Weplan to put this in place prior to commencement of construction ofthe projects – that is, within the next 18 months to two years.
This could take the form of an unlisted wholesale fund that wouldprovide us with access to the large UK and European managed funds.Alternatively, it could take the form of a publicly listed propertytrust, along the lines of Westfield America Trust, or a combinationof both.
Ladies and gentlemen, as you can see I am optimistic about ourprospects. The company is in good shape, with an excellent team ofexecutives leading us into the future.
Our results reflect the experience, dedication and hard work ofall Westfield staff and I thank them for their efforts.
I would like to thank the board and acknowledge their active rolein guiding the company.
And last, I would like to thank you, our shareholders, for thecontinued faith and support that you show in us.