Westfield Group Annual Report 2008 The Westfield Group Contents Portfolio Overview IFC The Westfield Group is the world’s largest listed retail Chairman’s Review 2 property group by equity market capitalisation. The Group Group Managing Directors’ Review 4 has interests in and operates a portfolio of 119 high quality Environment and Community 10 regional shopping centres in Australia, New Zealand, the United States and the United Kingdom, valued at Human Resources 12 around $69 billion, with almost 24,000 retailers in more Property Portfolio 14 than 10 million square metres of retail space. Board of Directors 18 Financial Report 20 Westfield is a vertically integrated shopping centre group. Investor Relations 118 It manages all aspects of shopping centre development Corporate Directory IBC from design and construction through to leasing, management and marketing. The Group creates value through intensive operational management and a strategic development program which continually improves the quality of the portfolio to generate sustainable long term returns for investors. SEATTLE,SEAATTLE, WAWA UNITED STATES 55 CENTRES NEWEWWWY YORK,Y NY CHICAGCHICAGO,AGOAGGO, IL NNENEWEWEW JERSEYJERSEY,, NJ WAWASHINGTON,ASHINS INGTONIN N,N DDC SANAN FRANCISFRANCISCO,CISCOCICIS O,O CA LOSOS ANANGELESANGELES,S,S CA SSAN DIEGDIEGO,GO,G CAA TATAMPA,AMMPPA, FL BELFAST UNITED KINGDOM 8 CENTRES NOTTINGHAM DERBY BIRMINGHAM LONDONON Front cover image: Westfield London All amounts in Australian dollars unless otherwise specified Westfield Holdings Limited ABN 66 001 671 496 Assets Under Management Gross Lettable Area Australia 42% Australia 35% New Zealand 4% New Zealand 4% United States 39% United States 55% United Kingdom 15% United Kingdom 6% New United United Portfolio Summary Australia Zealand States Kingdom Total Centres 44 12 55 8 119 Retail Outlets 12,070 1,670 8,843 1,256 23,839 GLA (million sqm) 3.7 0.4 5.9 0.6 10.6 Westfi eld Asset Value (billion) $20.9 NZ$3.0 US$15.5 £1.9 $49.9 Assets Under Management (billion) $29.3 NZ$3.2 US$18.7 £4.9 $69.4 AUSTRALIA 44 CENTRES CAIRNS NEW ZEALAND 12 CENTRES BRISBANE PERTH SYDNEY ADELAIDE AUCKLAND CANBERRA MELBOURNE WELLINGTON CHRISTCHURCH 1 Chairman’s Review The world economy has changed beyond And we are taking steps now to preserve that recognition since the Chairman’s Review I provided position. This year the Group will concentrate on for 2007 and we now confront the most challenging two high-profi le projects – Stratford City in the economic conditions in our experience. United Kingdom adjacent to the London 2012 Olympic site, and Sydney City in a prime retail To successfully navigate the Group through this precinct in Australia. period will require an extraordinary effort and sound judgement. Fortunately, we have the resources – Redevelopment remains a fundamental aspect of our fi nancial and human – to do just that. business and it is the investment in redeveloping our assets over the years that has made them resilient We enter this downturn as we have entered previous and able to weather the current storm. We will economic downturns over our 49 year history – from therefore continue to invest capital and resources a position of relative strength. And our goal now is into predevelopment work so that other projects not simply to weather the downturn, severe though are ready to go when we believe the time is right. it is, but to focus our energy and resources on taking advantage of the opportunities that such a downturn On the capital management side, with gearing in can often produce. the mid 30% range, and high available liquidity of $8.7 billion, our balance sheet is in a good position We are in a position to do this because over the to weather the storm, allow us to continue our past few years we consistently took the view that the projects and predevelopment work, refi nance good times of cheap, easily available capital that led maturing facilities, and be positioned to acquire to unrealistic asset prices, would not last forever. new assets should the opportunity arise. We responded accordingly with a clear strategy to One of the historical strengths of Westfi eld is its own the best centres in the best markets, and so ability to continually redefi ne its product. Retail is by sold 14 shopping centres that did not meet that its very nature constantly evolving as are the markets criterion. We raised $10.5 billion of equity through we do business in. Our centres not only have the asset sales, joint ventures, and the issue of equity potential to adapt to these changes, it is vital that between 2005 and 2007. All of this activity put they do so to create new income streams. They must Westfi eld in a relatively strong position. We recently adapt to these changes to gain market share and raised a further $3.2 billion of equity through greater penetration of their markets in order to an institutional placement and the Distribution deliver sustainable long term returns. Reinvestment Plan. 2 WESTFIELD GROUP ANNUAL REPORT 2008 Frank Lowy AC While much of our optimism rests on the foundation I would like to take this opportunity to acknowledge of our financial strength, it is also based on the the dedicated service of Carla Zampatti AM who confidence we have in the people who produce has served on the board since 1997 and will retire our results year in, year out. This starts, of course, this year. Her contribution over such a long period with the wisdom and judgement of our board of has been highly valued by her fellow directors and directors and extends through our senior executive we extend to her our very best wishes. management and professional staff who have The Group has forecast operational earnings and consistently performed at the highest levels to distribution for 2009 in the range of 94 to 97 cents produce our operating results. I would like to per security. Essentially, this forecast assumes acknowledge their contribution and thank them for difficult conditions continuing in New Zealand, their continued service on behalf of all members. United States and the United Kingdom, offset to It is also worth noting that the board has welcomed a some extent by an ongoing solid performance for number of new directors over the past two years who our Australian business. have provided fresh insight and deep experience While this forecast reflects the reality of market to an already strong board. The new members conditions globally, I remain optimistic about the are Professor Judith Sloan, Mr John McFarlane Group’s potential. and, most recently, Lord (Peter) Goldsmith, who resides in the United Kingdom and is a partner in the international law firm Debevoise & Plimpton. For six years until 2007 Lord Goldsmith served as the United Kingdom’s Attorney General. Former Chief Executive of Investec Bank (Australia), and former Chief Executive of Ernst & Young Australia and member of Ernst & Young’s Global Executive Board, Mr Brian Schwartz AM, has Frank Lowy AC Chairman been endorsed by the board as a director and he will stand for election at the forthcoming annual general meeting. 3 Group Managing Directors’ Review We are pleased to report on the These asset revaluation The Group’s portfolio of 119 performance of the Group during adjustments were offset by high quality shopping centres what has been a very signifi cant currency gains of $4.7 billion, across Australia, New Zealand, period of global turmoil. principally as a result of the United States and the United appreciation of the US dollar that Kingdom is well positioned in the Operational segment earnings for is shown in the balance sheet current economic environment the year ended 31 December 2008 rather than the income statement, and benefi ts from the substantial were $1.94 billion, representing as required under Australian investment in the portfolio 100 cents per security, up 10.4% accounting standards. through the redevelopment on the prior year and up 5.6% activity over recent years. per security, on a constant In the four and half years since currency basis. the Group’s merger in July A key characteristic of our asset 2004, the Group has achieved class is its ability to generate Distribution for the year was cumulative asset revaluation gains stable cash fl ows that have $2.07 billion representing of approximately $9.9 billion, proven to be resilient through 106.5 cents per security, including the 2008 revaluations. economic cycles – with 98.8% of comprising operational segment the Group’s rental income being earnings per security of 100 cents Total assets of the Group were minimum contracted rent and and associated income hedging $57.7 billion at 31 December 2008, 1.2% being percentage rent, per security of 6.5 cents. with gross property investments directly tied to retail sales. increasing to $53.4 billion from Notwithstanding the diffi cult $48.5 billion at 31 December 2007. Global occupancy at 31 December conditions, the operating result and 2008, remained high at 97.1% distribution were in line with the The Group remains focused on leased, with just under 5,000 forecast provided in February 2008. prudent capital management. leasing deals completed Since the beginning of 2008, the The statutory result prepared throughout the year representing Group has issued $1.6 billion of under AIFRS was a loss of approximately 874,000 sqm of new debt, extended $1.5 billion of $2.2 billion and includes retail space. This is equivalent facilities and raised over $3 billion non-cash mark to market to the lease up of approximately in equity capital. Facilities adjustments of fi nancial 10 regional shopping centres.