Westfield Group announces first full year result – strong performance in all markets

20 February 2006

Countries: Australia

The Westfield Group (ASX: WDC) today announced its first full year result as a merged entity, reporting a net profit of A$4.2 billion for the 12 months to 31 December 2005. The distribution for the year was A$1.8 billion representing 106.57 cents per stapled security.

The distribution is in line with forecasts contained in the Explanatory Memorandum of 25 May 2004 for the merger of Westfield Holdings, Westfield Trust and Westfield America Trust which was completed in July 2004. The second half distribution of 55.5 cents per stapled security is to be paid on 28 February 2006.

Group Managing Directors, Peter Lowy and Steven Lowy, said the strong result was due to a solid operational performance in all markets and the continued delivery of the Groups extensive development program during the year.

We are pleased that on a comparable basis the Groups profit after tax of $1.66 billion (96.8 cents per security) was ahead of the $1.59 billion (94.9 cents per security) forecast contained in the Explanatory Memorandum.

The size and quality of the portfolio, and its geographic diversity, provides the foundation for sustainable superior income and capital growth. This is achieved by the Groups intensive management of its centres and the ongoing redevelopment of its portfolio, they said.

The Group now has a significant development program with 18 projects underway at an investment of A$6.8 billion, with Westfields share being A$4.6 billion.

The Group expects to commence A$1.5 to 2.0 billion of redevelopment projects from the current portfolio in each of the next three years. These projects are expected to generate initial yields on cost in the range of 9-10%, with unleveraged internal rates of return of approximately 14%.

Last week Westfield announced the purchase of 15 Federated Department Stores at 11 Westfield Shopping Centres in the United States. In addition, Westfield and Federated have agreed upon 18 new redevelopments at Westfield-owned centres, enabling over US$2 billion of new projects to be started in the next four years, further strengthening the Groups overall redevelopment program.

Today the Group has interests in 128 shopping centres with a gross value of approximately A$52.5 billion. The value grew by 25% during 2005, and 43% in the 18 months since the Group was formed, as a result of acquisitions, investments in redevelopment projects and revaluations of the Groups portfolio.

Highlights for the year include

  • Strong operating performance across all markets

  • Comparable net operating income growth of 5.3% in Australia and New Zealand, 3.6% in the United States and 6.6% in the United Kingdom.
  • Close to 100% occupancy in Australia, New Zealand and the United Kingdom markets. In the US the portfolio is currently 95.1% leased, almost 1% ahead of the same time last year.
  • Consistent positive growth in specialty retail sales in the United States, Australian and New Zealand markets with the United Kingdom also showing positive signs more recently.
    • Revaluation increase of A$3.2 billion on the existing portfolio.
    • Acquisition of interests in A$1.5 billion of shopping centre properties.
    • Development activity:
    • A$1.6 billion investment in new development activities (excluding White City of A$0.8 billion).
    • Completed 8 major projects with an aggregate cost of A$1.0 billion delivering an average income yield of 9.9%.
    • Commenced 12 new developments with an aggregate project cost of A$2.1 billion.

    Business Segment Reporting

    The introduction of AIFRS reporting in 2005 has made analysing the performance of the Group more complex, particularly with the inclusion of certain non cash items.

    To make the Groups financial and operating performance clearer, Westfield will report on a segmented basis which mirrors the way the Group manages its business.

    Profits will be reported in three segments: Operational, Development & New Business and Corporate.

    • The Operational Segment will primarily comprise net property income from existing shopping centres, including completed developments and external fee income from third parties (eg. property management and development fees from joint ventures).
    • The Development & New Business Segment will primarily comprise value creation from global development activities and costs incurred in the review and assessment of potential new assets and corporate acquisitions.
    • The Corporate Segment will primarily include the revaluations of existing centres, changes in value of financial instruments, corporate entity expenses, income and withholding taxes, the effect of currency and balance sheet hedging and capital gains / losses.

    Distribution

    From 1 July 2006, the Group intends to distribute to security holders no more than 100% of the Operational Segment earnings adjusted for realised gains and losses from hedging the Groups overseas net income. These are the underlying earnings of the Group’sshopping centres. From that date project profits will no longer be distributed.

    A key aim of this distribution policy is to provide the Group with the flexibility andfinancial capacity to continue to invest in opportunities with strong returns.

    For the 2006 and 2007 yearsOperational Segmentearnings are forecast to grow at approximately 6% per annum on a constant currency basis. This reflects the underlying income growth from the existing portfolio and incremental income from developments completed during the year.

    The Directors estimate that the distribution for 2006 will be 106.5 cents per stapled security. This includes a distribution of 54.5 cents per stapled security for the 6 months to 30 June 2006, which includes project profits of 7 cents per stapled security, and is consistent with the distribution forecast contained in the Explanatory Memorandum for the merger.

    ENDS

    Note: As the merger to form the Westfield Group occurred in July 2004, there are no comparable results for the Group in respect of the twelve months ended 31 December 2005.

    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 in excess of 4,000 staff worldwide. It has investment interests in 128 shopping centres in four countries, with a total value in excess of A$52 billion and is the largest retail property group in the world by equity market capitalisation.