Westfield America Trust – chairman’s address to unitholders’ information meeting
15 November 2001
Countries: United States
Thursday, 15 November 2001
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Good morning ladies and gentlemen, this is the first of theinformation meetings which we are going to hold each year. We havemeetings for all Westfield entities today because many of you haveinvestments in the various vehicles and I think this is a veryefficient way of giving you the opportunity to attend them all ifyou wish.
I would like to begin with a summary of the year to 30 June,then deal with more recent events and our prospects for the yearahead.
If you have attended the earlier meeting there will inevitablybe some repetition.
Peter Lowy has just released our third quarter results forWestfield America and I’d like to cover the highlights for you.
Despite the slowing economy, I am pleased to say that theoccupancy rate in our US centres remains at 94% which is at the topof the industry standard.
In the nine months to 30 September 2001, comparative store salesper square foot were up 0.6% – the first quarter had been strong,the second quarter flat and third quarter sales declined 1.6%. Forthe month of September, sales per square foot declined 6.9%,primarily due to the aftermaths of September 11. It should also beremembered that all of Westfield’s US centres were closed onSeptember 11.
On the positive side, customer visits to our malls have returnedto normal levels, probably reflecting the fact that more Americansare staying closer to home and travelling less. This could be animportant factor in helping sales during the holiday tradingseason.
Westfield America’s redevelopment program continues, with aboutUS$650 million of projects currently underway and I will give youthe highlights:
- In St Louis Missouri, we opened the first stage of the US$54million redevelopment of the South County Center, which includes anew Sears store. It is scheduled for completion in mid-2002.
- Also in St Louis, the US$230 million redevelopment of WestCounty is progressing. The existing centre has been demolished andthe new centre is expected to open in late 2002, anchored by theonly Nordstrom store in that state.
- In California, we launched a US$30 million redevelopment at thePalm Desert centre, and continued the $35 million repositioning ofthe Promenade centre. We also opened the first stage of theredevelopment of Valley Fair in San Jose.
The softer economic conditions might affect the timing of one ortwo projects in our redevelopment program but the intrinsiceconomic attractiveness of the projects remains, and given thatthese developments occur over a 3 to 5-year timeline we expect ourprogram will be relatively unaffected by recent events.
I spoke earlier in the Westfield Holdings meeting about the attackon the World Trade Center. As most of you know, we lost anexecutive in the tragedy – Bruce Eagleson. Our thoughts and prayersare with his family, and with the families of all the victims.
That was the human cost of the tragedy.
On the business side, I should re-state for the record thatWestfield America had no ownership interest in the office towerscomponent of the World Trade Center.
Westfield America invested US$127 million in obtaining the lease onthe retail component of the Center. US$100 million of this was viaa limited recourse first mortgage and US$27 million from thecompany’s internal resources.
We expect that this investment, plus the loss of income, will berecovered under the insurance by Westfield America Trust.
In fact, the first interim payment has been made by the insurancecompanies.
While there will inevitably be some delays and complicationswith the insurance process we remain confident that our claims willbe met.
On October 1 we finalised the merger of Westfield America Inc. andWestfield America Trust with Westfield America Trust acquiring thepublicly-held shares of common stock of Westfield America Inc.
In simple terms, we found that we could raise capital more easilyand cost-effectively via the Australian market.
Ladies and gentlemen, you will be aware of the strong corporategovernance regime that is part of the Westfield America Truststructure.
Until last year this was overseen by a Trustee which wasresponsible for ensuring that the interests of unitholders wereprotected.
When the Government introduced the new managed investments regimein April 2000, we introduced a Compliance Plan that we registeredwith the Australian Securities and Investments Commission.
This plan continues to be monitored by a separate ComplianceCommittee which comprises a majority of external members and whichreports independently to the Board.
This Compliance Committee operates in addition to the continuingrole of the separate Audit & Compliance Committee set up by theBoard to ensure that an adequate compliance and control frameworkexists for the Trust. This committee also maintains regular contactwith the Trust’s external and internal auditors and also reportsdirectly to the Board.
Following the merger of Westfield America Inc. with WestfieldAmerica Trust we propose to adopt a board and corporate governancestructure for Westfield America Trust along the lines of that whichapplied for Westfield America Inc., the main feature of which was amajority of external members on the Board.
In the past 40 years we have been through a number of downturns andwe have learnt how to deal with them.
In fact, Westfield companies historically have emerged strongerfrom such downturns. This is easier to see when comparing theperformance of Westfield Holdings and Westfield Trust which havebeen around much longer than Westfield America Trust.
Even so, although Westfield America Trust was only listed in 1996,it has performed strongly since then, as you can see from thefigures on the screen.
We have been able to achieve these results for a number ofreasons.
Westfield America Trust’s income is now underpinned by the 5,300leases in our US shopping centres, which are long-term – around 10years or more in most cases.
This situation works to absorb many of the shocks felt in otherbusinesses that are more susceptible to short-term economicfluctuations, although obviously we are not completely immune tolong-term economic downturns.
For example, in the upcoming 12 months we expect just 8% of our USleases to come up for renewal and we expect most of these will berenewed.
Our assets are high quality, and our ongoing redevelopment programmeans the centres are continually updated to increase the capitalvalue of the properties, improve their income-generating potential,and respond to changes in consumer demand.
Periods of slower growth also provide opportunities to makeimportant acquisitions, as properties that would not otherwise beavailable come to market.
We are well-funded, and ready to take advantage of anyopportunities that may arise.
Most of you would be aware that in August Westfield Holdingspurchased a 23.9% interest in Rodamco North America, aNetherlands-based company with a portfolio of 41 shopping centresin the US.
You will have read much about this transaction in the newspapersand while I do not wish to understate the challenge involved, I amconfident we will achieve our objective – which has great potentialfor Westfield America Trust.
The Rodamco centres are very good centres, in good locations, butthe current management has failed, in our view, to realise theirfull potential.
We have prepared a strategic plan for RNA which would ultimatelymerge the RNA and Westfield America portfolios to create thepre-eminent shopping centre group in the US.
If you look at the maps here, you can see how well the RNAportfolio complements Westfield America’s – they fit like a hand ina glove.
It will give us an even spread of properties between the WestCoast, the mid west and east coast and generate more income andgrowth than either portfolio could generate on a stand-alonebasis.
I am sure you can see why we are so determined to achieve ourobjectives with Rodamco.
Given the uncertain outlook it is difficult to forecast with anyaccuracy global economic activity.
However, for the reasons I outlined above – the underlying strengthof our business and opportunities for further growth – WestfieldAmerica Trust is well placed to continue its strongperformance.
Despite the prevailing economic conditions, we can reconfirm thatthe distribution per unit will meet the consensus forecast for thisyear and we expect distribution growth per unit next year to beapproximately 4%.