<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 333-22731
WESTFIELD AMERICA, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MISSOURI 43-0758627
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11601 WILSHIRE BOULEVARD 90025
12TH FLOOR (Zip Code)
LOS ANGELES, CALIFORNIA
(Address of principal executive
offices)
</TABLE>
Registrant's telephone number, including area code: (310) 478-4456
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days.
Yes _X_ No ____
As of November 14, 1997, 73,329,535 shares of common stock, par value $.01
per share, were outstanding.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
WESTFIELD AMERICA, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
PART I--FINANCIAL INFORMATION
Item 1: Financial Statements
Consolidated Balance Sheets as of September 30, 1997 (unaudited) and
December 31, 1996 3
Consolidated Statements of Income (unaudited) for the three months ended September 30, 1997 and 1996
and for the nine months ended September 30, 1997 and 1996 4
Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 1997 and 1996 5
Notes to Consolidated Financial Statements (unaudited) 6
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 15
PART II--OTHER INFORMATION
Items 1 through 6 25
Signatures 26
</TABLE>
2
<PAGE>
WESTFIELD AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Investment in Real Estate:
Land $ 273,860 $ 196,810
Buildings, improvements and equipment 1,386,975 975,224
Less accumulated depreciation (221,578) (110,260)
------------- ------------
Net property and equipment 1,439,257 1,061,774
Construction in progress 10,521 49,821
Investments in unconsolidated real estate
partnerships 50,570 106,488
Participating loan to an affiliate 145,000 --
Direct financing leases receivable, net 90,369 92,351
------------- ------------
Net investment in real estate 1,735,717 1,310,434
CASH AND CASH EQUIVALENTS 12,922 6,729
ACCOUNTS AND NOTES RECEIVABLE (net of
allowance of $3,571, and $6,441 in 1997
and 1996, respectively) 29,152 19,716
DEFERRED EXPENSES AND OTHER ASSETS, net 32,411 7,691
------------- ------------
Total assets $1,810,202 $1,344,570
------------- ------------
------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable and line of credit $ 954,057 $ 770,625
Accounts payable and accrued expenses 41,849 33,380
Distribution payable 28,350 21,981
Minority interests 24,741 54
------------- ------------
Total liabilities 1,048,997 826,040
------------- ------------
Shareholders' Equity (Note 7):
Common stock 733 529
Preferred stock 121,000 94,000
Additional paid-in capital 639,472 424,001
------------- ------------
Total shareholders' equity 761,205 518,530
------------- ------------
Total liabilities and shareholders'
equity $1,810,202 $1,344,570
------------- ------------
------------- ------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
WESTFIELD AMERICA, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED AND IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------- ------------------------
1997 1996 1997 1996
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Minimum rents $ 39,159 $ 30,452 $ 103,227 $ 72,376
Tenant recoveries 18,592 13,549 46,941 33,622
Percentage rents 55 313 2,562 2,030
Service fee income from unconsolidated real estate
partnerships 147 190 411 1,206
--------- --------- ----------- -----------
Total revenues 57,953 44,504 153,141 109,234
--------- --------- ----------- -----------
EXPENSES:
Operating 17,590 14,292 45,050 35,103
Management fees 1,152 788 3,223 2,162
General and administrative 41 131 335 378
Depreciation and amortization 14,952 10,926 38,686 27,185
--------- --------- ----------- -----------
Total expenses 33,735 26,137 87,294 64,828
--------- --------- ----------- -----------
OPERATING INCOME 24,218 18,367 65,847 44,406
INTEREST EXPENSE, NET (14,906) (12,484) (40,988) (27,674)
OTHER INCOME
Equity in income of unconsolidated real estate partnerships 1,122 830 3,245 1,787
Interest and other income 3,648 305 5,502 551
--------- --------- ----------- -----------
INCOME BEFORE MINORITY INTEREST 14,082 7,018 33,606 19,070
MINORITY INTEREST IN EARNINGS OF CONSOLIDATED REAL ESTATE
PARTNERSHIPS (938) (322) (1,690) (767)
--------- --------- ----------- -----------
NET INCOME $ 13,144 $ 6,696 $ 31,916 $ 18,303
--------- --------- ----------- -----------
--------- --------- ----------- -----------
Net income allocable to preferred shares $ 2,685 $ 2,067 $ 8,745 $ 2,069
Net income allocable to common shares 10,459 4,629 23,171 16,234
--------- --------- ----------- -----------
$ 13,144 $ 6,696 $ 31,916 $ 18,303
--------- --------- ----------- -----------
--------- --------- ----------- -----------
EARNINGS PER COMMON SHARE $ 0.14 $ 0.09 $ 0.37 $ 0.34
--------- --------- ----------- -----------
--------- --------- ----------- -----------
DISTRIBUTIONS DECLARED PER COMMON SHARE $ 0.35 $ 0.35 $ 1.24 $ 1.14
--------- --------- ----------- -----------
--------- --------- ----------- -----------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 73,330 52,930 62,868 47,774
--------- --------- ----------- -----------
--------- --------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
WESTFIELD AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED AND IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 31,916 $ 18,303
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 38,957 27,588
Equity in income of unconsolidated real estate partnerships (3,245) (1,787)
Minority interest in earnings of consolidated real estate partnerships 1,690 767
Changes in assets and liabilities:
Accounts and notes receivable (8,178) (6,737)
Deferred expenses and other assets (6,981) (2,264)
Accounts payable and accrued expenses 7,248 (591)
-------------- --------------
Net cash flows provided by operating activities 61,407 35,279
-------------- --------------
INVESTING ACTIVITIES:
Capital expenditures (257,717) (91,495)
Participating loan to an affiliate (145,000) --
Purchase Westfield Holdings Limited Options (15,184) --
Cash distributions received from unconsolidated real estate partnerships 8,524 8,336
Notes receivable repayments 581 76
Direct financing leases receivable payments 1,982 1,400
Cash and cash equivalents of consolidated real estate partnerships 1,083 2,389
Decrease in restricted cash -- 100
-------------- --------------
Net cash flows used in investing activities (405,731) (79,194)
-------------- --------------
FINANCING ACTIVITIES:
Proceeds from issuance of common stock 306,000 340,402
Proceeds from issuance of preferred stock 27,000 94,003
Initial public offering stock issuance costs (31,550) (29,000)
Cash distributions paid to preferred shareholders (8,253) (3)
Cash distributions paid to common shareholders (75,056) (50,946)
Shareholder recontribution of distributions -- 3,427
Cash distribution paid to minority interests (1,003) (218)
Redemption of common shares -- (218,000)
Redemption of preferred shares (53) --
Proceeds from notes payable and line of credit 433,243 96,924
Principal payments on notes payable and line of credit (299,811) (178,039)
-------------- --------------
Net cash flows provided by financing activities 350,517 58,550
-------------- --------------
Net increase in cash and cash equivalents 6,193 14,635
CASH AND CASH EQUIVALENTS, beginning of period 6,729 --
-------------- --------------
CASH AND CASH EQUIVALENTS, end of period $ 12,922 $ 14,635
-------------- --------------
-------------- --------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amounts capitalized) $ 40,729 $ 28,868
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
WESTFIELD AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED AND IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1. INTERIM FINANCIAL STATEMENTS
The accompanying Consolidated Financial Statements of Westfield America,
Inc. ("WEA" or the "Company") are unaudited; however, they have been prepared in
accordance with generally accepted accounting principles for interim financial
information and in conjunction with the rules and regulations of the Securities
and Exchange Commission. Accordingly, they do not include all of the disclosures
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting solely of
normal recurring matters) necessary for a fair presentation of the Consolidated
Financial Statements for these interim periods have been included. The results
for the interim period ended September 30, 1997 are not necessarily indicative
of the results to be obtained for the full fiscal year. These unaudited
Consolidated Financial Statements should be read in conjunction with the
December 31, 1996 audited Consolidated Financial Statements and notes thereto
included in the WEA registration statement on Form S-11 filed on May 15, 1997.
Certain amounts in the 1996 Consolidated Financial Statements have been
reclassified to conform to the 1997 presentation.
2. ORGANIZATION AND CHANGES IN OWNERSHIP
WEA is primarily in the business of owning, operating, leasing, developing,
redeveloping and acquiring super regional and regional retail shopping centers
in major metropolitan areas in the United States.
On May 21, 1997 the Company completed an initial public offering whereby the
Company issued 20,400 common shares (including shares issued upon exercise of an
over allotment option) (the "Offering") and the sale of 270 preferred shares
resulting in proceeds totaling $300,200, net of underwriting discounts and
expenses of the Offering. The proceeds from the Offering, the sale of preferred
stock and an increase in borrowings under the Company's unsecured revolving
credit facility were used to make a $145,000 participating loan to two wholly
owned indirect subsidiaries of Westfield Holdings Limited ("WHL"), purchase the
70% interest in Annapolis Mall Limited Partnership that the Company did not
already own and certain adjacent property for $133,000, purchase a 68% managing
interest in Wheaton Plaza Regional Shopping Center, LLP for $51,500 and purchase
WHL Options to acquire ordinary shares of WHL for $15,184 (as further described
in footnote 4).
3. BASIS OF PRESENTATION
The Company conducts its business through its divisions, wholly-owned
subsidiaries and affiliates. The Consolidated Financial Statements include the
accounts of the Company and all subsidiaries and partnerships over which the
Company is able to exercise significant control. The Company does not consider
itself to be in control when the other partners have important approval rights
over major actions. Investments as a general and/or limited partner in
non-controlled partnerships are accounted for using the equity method. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, EARNINGS PER SHARE, which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior
6
<PAGE>
WESTFIELD AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effects of stock options will be excluded. The new standard will
have no impact on the Company's primary earnings per common share for the three
and nine months ended September 30, 1997 and 1996.
4. ACQUISITIONS
Prior to September 22, 1997, the Company held a 50% managing general
partnership interest in Meriden Square Partnership ("MSP"), the owner of Meriden
Square Shopping Center, located in Meriden, Connecticut. On September 22, 1997,
the Company contributed $50,000 to MSP for which the Company obtained an
additional 27.2% partnership interest in MSP. MSP used the proceeds to repay its
mortgage debt. Immediately thereafter, MSP distributed a 5.06% undivided
interest in the Meriden Square Shopping Center to the minority partner in MSP.
Simultaneously, the Company paid $23,500 for the remaining interest in MSP that
it did not currently own (22.8%). After these transactions, the Company owned
all of the Partnership interests in MSP and MSP owned a 94.9% undivided interest
in the Meriden Square Shopping Center.
Prior to June 4, 1997, the Company held a 30% general partnership interest
in Annapolis Mall Limited Partnership, the owner of Annapolis Mall, located in
Annapolis, Maryland. On June 4, 1997, the Company purchased the interest in
Annapolis Mall Limited Partnership that it did not currently own (70%) and an
adjoining 13.2 acre parcel of land for $133,000.
On May 31, 1997, the Company paid $51,500 to acquire a 68% managing interest
in Wheaton Plaza Regional Shopping Center, LLP, the owner of Wheaton Plaza,
which is located in Wheaton, Maryland.
In May 1997, the Company made participating loans totaling $145,000 to two
wholly-owned, indirect subsidiaries of WHL which have a combined 50% partnership
interest in Westland Garden State Plaza Limited Partnership, the owner of Garden
State Plaza, a super regional shopping center located in Paramus, New Jersey.
The non-recourse loans provide for interest only at a fixed annual rate of 8.5%
and are secured by the borrowers' 50% indirect interest in Garden State Plaza.
The Company is entitled to receive participating interest based on 80% of the
borrowers' share of the adjusted cashflow (as defined) from Garden State Plaza
subject to an annual aggregate limit of fixed and participating interest in an
amount equal to 11%. The loan matures in May 2007.
In May 1997, the Company acquired 9,800 non-transferable WHL Options (the
"WHL Options") for $15,184. Each WHL Option entitles the Company to acquire one
WHL ordinary share at a price equal to AUS $23.33 per share. The Company cannot
exercise the WHL Options until May 2000 and the WHL Options expire in May 2002.
The operations of the Company include Connecticut Post Mall, South Shore
Mall and Trumbull Shopping Park (the "Acquired Properties") the indirect
ownership of which was acquired by the Company on July 1, 1996, Wheaton Plaza,
Annapolis Mall and Meriden Square partnerships purchased on May 31, 1997, June
4, 1997 and September 22, 1997, respectively, and interest earned from loans
made to two wholly owned indirect subsidiaries of WHL on May 21, 1997. Funds for
the purchase of the Acquired Properties were obtained from the recapitalization
of the Company in July 1996 (the "Recapitalization"). Funds for the purchase of
Annapolis Mall and Wheaton Plaza, the purchase of WHL Options and the loans to
WHL subsidiaries were obtained from the Company's initial public offering of
20,400 shares of common stock at $15.00 per share, the sale of 270 shares of
Series B Preferred shares and an increase in the borrowings under the Company's
unsecured
7
<PAGE>
WESTFIELD AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
revolving credit facility. The funds for the purchase of Meriden Square
Partnership were obtained from the Company's unsecured revolving credit
facility.
The unaudited Pro Forma Condensed Consolidated Statements of Income, below,
are presented as if the Company's Recapitalization, initial public offering,
acquisitions of the Acquired Properties, Wheaton Plaza, Annapolis Mall, Meriden
Square Partnership and WHL Options and loans made to subsidiaries of WHL had
occurred on January 1, 1996. The unaudited Pro Forma Condensed Consolidated
Statements of Income is not necessarily indicative of what the actual results of
the Company would have been had these transactions been consummated as of the
beginning of the year presented, nor do they purport to present the future
operations of the Company.
<TABLE>
<CAPTION>
PRO FORMA FOR THE
NINE MONTHS ENDED
------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
-------------- --------------
<S> <C> <C>
REVENUES:
Minimum and percentage rents $ 124,118 $ 119,159
Tenant recoveries and service fee income 52,977 54,032
-------------- --------------
Total revenues 177,095 173,191
EXPENSES:
Operating 50,563 55,703
Management fees 4,307 4,238
General and administrative 335 378
Depreciation and amortization 45,106 41,689
-------------- --------------
OPERATING INCOME 76,784 71,183
Interest expense, net (45,628) (43,425)
Equity in income (loss) of unconsolidated real estate partnerships 1,128 (876)
Interest and other income 10,500 9,994
-------------- --------------
INCOME BEFORE MINORITY INTEREST 42,784 36,876
Minority interest in earnings of consolidated real estate partnerships (2,905) (2,492)
-------------- --------------
NET INCOME $ 39,879 $ 34,384
-------------- --------------
-------------- --------------
Net income allocable to preferred shares $ 7,693 $ 7,693
Net income allocable to common shares 32,186 26,691
-------------- --------------
$ 39,879 $ 34,384
-------------- --------------
-------------- --------------
EARNINGS PER SHARE $ 0.44 $ 0.36
-------------- --------------
-------------- --------------
</TABLE>
8
<PAGE>
WESTFIELD AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
5. INVESTMENTS IN UNCONSOLIDATED REAL ESTATE PARTNERSHIPS
As of September 30, 1997, the Company is a general and managing partner in
three real estate partnerships, a limited partner in one real estate partnership
and both a general and limited partner in one real estate partnership. On
September 22, 1997, the Company completed the acquisition of the 50% interest it
did not own in Meriden Square Partnership and on June 4, 1997, the Company
completed the acquisition of the 70% interest it did not own in Annapolis Mall
Limited Partnership (Note 4). The Company's interest in each partnership as of
September 30, 1997, is as follows:
<TABLE>
<CAPTION>
PERCENTAGE
PROPERTY LOCATION INTEREST
- ---------------------- -------------------- -------------
<S> <C> <C>
Plaza Camino Real Carlsbad, CA 40.0
Topanga Plaza Canoga Park, CA 42.0
Vancouver Mall Vancouver, WA 50.0
West Valley Canoga Park, CA 42.5
North County Fair Escondido, CA 45.0
</TABLE>
A summary of the condensed balance sheets and statements of income for all
unconsolidated real estate partnerships on a combined basis is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
-------------- -------------
<S> <C> <C>
CONDENSED COMBINED BALANCE SHEETS
Investment in real estate:
Land, building and improvements, at cost $ 294,729 $ 551,145
Less accumulated depreciation (106,776) (167,020)
Construction in progress 1,208 1,115
-------------- -------------
Net investment in real estate 189,161 385,240
Note payable to affiliate -- (1,156)
Other notes payable (175,635) (226,619)
Other assets and liabilities, net, and interest of other partners 37,044 (50,977)
-------------- -------------
Investments in unconsolidated real estate partnerships $ 50,570 $ 106,488
-------------- -------------
-------------- -------------
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------ ------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
CONDENSED COMBINED STATEMENTS OF INCOME
Total revenues $ 18,608 $ 22,030 $ 60,135 $ 63,050
Costs and expenses:
Operating, general and administrative 5,495 6,982 17,749 20,912
Interest expense, net 5,287 5,548 16,578 16,746
Depreciation and amortization 3,432 6,242 14,989 17,470
-------------- -------------- -------------- --------------
Net income 4,394 3,258 10,819 7,922
Other partners' share of income (3,272) (2,428) (7,574) (6,135)
-------------- -------------- -------------- --------------
Equity in income of unconsolidated real estate
partnerships $ 1,122 $ 830 $ 3,245 $ 1,787
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
Significant accounting policies used by unconsolidated real estate partnerships
are similar to
those used by the Company.
9
<PAGE>
WESTFIELD AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
6. NOTES PAYABLE AND LINE OF CREDIT
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
-------------- -------------
<S> <C> <C>
Collateralized non-recourse notes to an insurance company, interest only payable
monthly at 6.15%, due in 1999. $ 172,000 $ 172,000
Collateralized recourse note to an insurance company, interest only payable
monthly at 8.09%, due in 1999. 15,000 15,000
Collateralized non-recourse notes to an insurance company, interest only payable
monthly at 6.51%, due in 2001. 167,000 167,000
Senior collateralized non-recourse notes, interest only payable quarterly at 6.39%
until 1997, thereafter principal and interest payable quarterly, due in 2004. 20,020 20,576
Senior collateralized non-recourse notes bearing interest at 7.33%, $1,620
principal and interest payable quarterly until 1997, interest only payable from
1997 until 2004, principal and interest payable thereafter, due in 2014. 55,167 56,429
Collateralized non-recourse note payable to an insurance company, interest at an
effective rate of 7.10%, $1,182 principal and interest payable monthly, due in
2000. 141,915 144,959
Unsecured revolving credit facility with a group of banks with a maximum
commitment of $600,000, interest only at LIBOR + 1% (6.656% at September 30,
1997) payable monthly, due in 2000 with options to extend. 339,000 --
Unsecured line of credit/collateralized project loan from a bank with a maximum
commitment of $50,000, interest only at LIBOR + 1.5%. This line of credit was
repaid and retired on June 4, 1997. -- 5,000
Collateralized recourse construction loan payable to a bank, interest only at
LIBOR + 1.5%. This loan was repaid and retired on June 4, 1997. -- 4,885
Collateralized non-recourse note payable to a bank, interest only at LIBOR + 1%.
This note was repaid and retired on June 4, 1997. -- 73,350
Collateralized non-recourse note payable to a bank, interest only at LIBOR + 1%.
This note was repaid and retired on June 4, 1997. -- 73,450
Collateralized non-recourse construction loan payable to a bank with a maximum
commitment of $48,000, interest only payable monthly at LIBOR + 1.45% due in
December 1997, with an option to extend to 2000. 43,955 37,976
-------------- -------------
$ 954,057 $ 770,625
-------------- -------------
-------------- -------------
</TABLE>
Interest costs capitalized for the three months ended September 30, 1997 and
1996 and the nine months ended September 30, 1997 and 1996, totaled $177, $426,
$1,325 and $866, respectively.
The Company's unsecured revolving credit facility will be used to fund
acquisition and redevelopment activities and as a revolving working capital
facility. The credit facility agreement provides for restrictive covenants
relating to the maintenance of specified financial performance ratios such as
10
<PAGE>
WESTFIELD AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
minimum net worth, debt service coverage ratio, loan to value, ownership
percentages and restrictions on future distribution payments. As of September
30, 1997, the Company was in compliance with these covenants.
The annual maturities of notes payable and line of credit as of September
30, 1997 are as follows:
<TABLE>
<S> <C>
1997 $ 1,676
1998 7,022
1999 194,542
2000 517,612
2001 170,157
Thereafter 63,048
---------
$ 954,057
---------
---------
</TABLE>
7. CAPITAL STOCK
At September 30, 1997 and December 31, 1996, the total number of shares
authorized, issued and outstanding were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
----------------------------- -----------------------------
NUMBER OF NUMBER OF NUMBER OF NUMBER OF
SHARES SHARES SHARES SHARES
AUTHORIZED OUTSTANDING AUTHORIZED OUTSTANDING
-------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Common stock, $.01 par value 200,000,000 73,329,535 225,006,300 52,929,535
Excess stock, $.01 par value 205,000,000 -- -- --
Non-voting senior preferred stock, $1.00 par value 200 9 200 105
Preferred stock, $1.00 par value of which 940,000
shares are designated Series A cumulative
redeemable preferred stock and 270,000 shares
are designated Series B cumulative redeemable
preferred stock 5,000,000 1,210,000 5,000,000 940,000
Excess Preferred Stock, $1.00 par value -- -- 5,000,000 --
Excess Common Stock, $.01 par value -- -- 200,006,300 --
</TABLE>
A distribution was declared on September 19, 1997 to shareholders of record
on September 30, 1997 of $28,350 or $0.35 per share, for the quarter ended
September 30, 1997, which equates to $1.40 per share on an annualized basis.
In connection with the Offering, the Company received $2,528 from the sale
of warrants (the "1997 Warrants") to Westfield America Trust ("WAT") which
entitles WAT the right to acquire at any time, in whole, or in part, 2,089,552
shares of the Company's common stock at an exercise price of $15 per share. The
1997 Warrants expire in May 2017.
In conjunction with the Offering, 270,000 shares of Series B Preferred
Shares were sold. The holders of Series B Preferred Shares shall be entitled to
receive, when declared, cumulative cash distributions equal to the greater of
$8.50 per annum or an amount equal to 6.6667 times the dollar amount declared on
common shares, subject to adjustment. Series B Preferred Shareholders are
11
<PAGE>
WESTFIELD AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
entitled to distributions before distributions are distributed to common
shareholders. The holders of Series B Preferred Shares have no voting rights
unless a distribution is not declared for four quarters, at which time the
holders of Series B Preferred Shares (together with the holders of the Series A
Preferred Shares) may elect a Director to be added to the Board of Directors.
The Company has an option to redeem the Series B Preferred Shares anytime after
May 21, 2004 at a redemption price of $100 per share, which is equal to the
liquidation preference.
8. SUPPLEMENTAL CASH FLOW INFORMATION:
NON CASH INVESTING AND FINANCING INFORMATION:
Mission Valley Partnership ("Mission Valley") was accounted for under the
equity method in 1995 and has been consolidated beginning in 1996. The condensed
assets and liabilities of Mission Valley at December 31, 1995 were as follows:
<TABLE>
<S> <C>
Net investment in real estate $ 45,886
Cash and cash equivalents 2,389
Accounts and notes receivable 891
Deferred expenses and other assets, net 1,201
Notes payable (28,988)
Accounts payable (798)
Minority/other partners interest 693
---------
WEA's investment in Mission Valley $ 21,274
---------
---------
</TABLE>
Annapolis Mall Limited Partnership ("Annapolis") was accounted for under the
equity method until June 4, 1997 when the Company purchased the remaining 70%
partnership interest that it did not already own. Annapolis is now consolidated
with the Company. The Company's 30% interest in the condensed assets and
liabilities of Annapolis on June 3, 1997, were as follows:
<TABLE>
<S> <C>
Net investment in real estate $ 38,676
Cash and cash equivalents 184
Accounts and notes receivable 323
Deferred expenses and other assets, net 322
Accounts payable (91)
---------
WEA's investment in Annapolis $ 39,414
---------
---------
</TABLE>
Meriden Square Partnership ("MSP") was accounted for under the equity method
until September 22, 1997 when the Company purchased the remaining 50%
partnership interest that it did not
12
<PAGE>
WESTFIELD AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
already own. MSP is now consolidated with the Company. The Company's 50%
interest in the condensed assets and liabilities of MSP on September 21, 1997,
were as follows:
<TABLE>
<S> <C>
Net investment in real estate $ 35,373
Cash and cash equivalents 235
Accounts and notes receivable 381
Deferred expenses and other assets, net 527
Accounts payable (291)
Note payable (25,000)
---------
WEA's investment in MSP $ 11,225
---------
---------
</TABLE>
The Company's purchase of a 68% managing interest in Wheaton Plaza Regional
Shopping Center, LLP ("Wheaton Plaza") resulted in an increase in minority
interest totaling $24,000.
For the nine months ended September 30, 1997 and 1996, construction in
process totaling $83,762 and $4,004, respectively, was placed into service.
9. RELATED PARTIES
Westfield Management Company ("WMC") (formerly known as CenterMark
Management Company), an entity wholly owned by WHL, entered into an agreement
with WEA to manage the properties in WEA's portfolio beginning January 1, 1995.
Property management fees totaling $1,152 and $788, net of capitalized leasing
fees of $662 and $499 were expensed for the three months ended September 30,
1997 and 1996, respectively. Property management fees totaling $3,223 and
$2,162, net of capitalized leasing fees of $1,689 and $1,165 were expensed for
the nine months ended September 30, 1997 and 1996, respectively. Included in
accounts payable and accrued expenses at September 30, 1997 and December 31,
1996, are management fees payable to WMC totaling $579 and $711, respectively.
In addition reimbursements to WMC of recoverable property operating costs
for the three months ended September 30, 1997 and 1996 and the nine months ended
September 30, 1997 and 1996 totaled $3,600, $2,640, $10,178 and $6,581,
respectively.
The Company entered into a Master Development Framework Agreement with
Westfield Corporation, Inc. ("WCI"), which is controlled by WHL, whereby the
Company granted WCI the exclusive right to carry out expansion, redevelopment
and related works on WEA wholly owned shopping centers and to endeavor to have
WCI be appointed by the relevant partner to carry out similar activities for
jointly owned real estate partnerships. During the three months ended September
30, 1997 and 1996 and the nine months ended September 30, 1997 and 1996, the
Company reimbursed WCI $14,552, $9,170, $38,089 and $19,379, respectively, for
expansion, redevelopment and related work.
In conjunction with the Company's Recapitalization on July 1, 1996, the
Company engaged Westfield U.S. Advisory, L.P. ("Advisor"), which is controlled
by WHL, to provide a variety of asset management and investment services,
subject to supervision of the Company. In conjunction with the Offering, the
Advisory Agreement was amended to entitle the Advisor to an annual fee equal to
25% of the annual Funds from Operations ("FFO") in excess of the Advisory FFO
Amount ($114.7 million), but not to exceed 55 basis points of the Net Equity
Value (as defined) of the Company's assets.
13
<PAGE>
WESTFIELD AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
The Advisory FFO Amount shall thereafter be increased whenever the Company
issues additional Common Stock. The Advisory Fee is not payable for periods
through December 31, 1997.
Included in interest and other income for the three and nine months ended
September 30, 1997 is interest income earned on a participating loan to two
wholly owned indirect subsidiaries of WHL totaling $3,300 and $4,669,
respectively.
10. COMMITMENTS AND CONTIGENCIES
The Company is currently involved in several development projects and had
outstanding commitments with WCI totaling approximately $22,369 at September 30,
1997.
Under the Wheaton Plaza Shopping Center LLP's partnership agreement, each
non managing partner may elect, at its option and at any time, to transfer all
or a part of its partnership interest to the Company in exchange for a sum equal
to the Fair Market Value of the partner's partnership interest, as defined, in
cash or shares of the Company.
11. SUBSEQUENT EVENTS
On October 30, 1997, the Company paid a distribution of $28,350 to its
shareholders.
On November 3, 1997, the Company's former partner in MSP exercised its right
to sell the 5.06% undivided interest in the Meriden Square Shopping Center to
the Company. As consideration, the Company transferred its interest in a net
leased property (having an agreed-upon value of $5,500) in a tax free exchange,
plus $500.
14
<PAGE>
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with the Consolidated
Financial Statements of the Company and Notes thereto for the three and nine
months ended September 30, 1997 (unaudited) and the Consolidated Financial
Statements of the Company for the year ended December 31, 1996 included in the
Registration Statement on Form S-11 filed on May 15, 1997.
GENERAL BACKGROUND
On May 21, 1997 the Company completed an initial public offering whereby the
Company issued 20.4 million common shares (including shares issued upon exercise
of an over allotment option) (the "Offering") and the sale of 270,000 preferred
shares resulting in proceeds totaling $300.2 million, net of underwriting
discounts and expenses of the Offering. The proceeds from the Offering, the sale
of preferred stock and an increase in borrowings under the Company's unsecured
revolving credit facility were used to make a $145 million participating loan to
two wholly owned indirect subsidiaries of WHL secured by a 50% indirect interest
in Garden State Plaza, purchase the 70% interest in Annapolis Mall Limited
Partnership that the Company did not already own and certain adjacent property
for $133 million, purchase a 68% general partnership interest in Wheaton Plaza
Regional Shopping Center, LLP for $51.5 million and purchase WHL Options for
$15.2 million.
At September 30, 1997 and for the nine months then ended, the Consolidated
Financial Statements and Notes thereto reflect the consolidated financial
results of 12 centers, the equity in income of five unconsolidated real estate
partnerships, the Acquired Properties following their acquisition on July 1,
1996, Annapolis Mall and Wheaton Plaza following their acquisition on or about
June 1, 1997, Meriden Square Partnership following its acquisition on September
22, 1997, 13 separate department store properties that are net leased to the May
Company under financing leases, and a 116-unit apartment complex. At September
30, 1996 and for the nine months then ended, the Consolidated Financial
Statements and Notes thereto reflect the Annapolis Mall Limited Partnership, the
owner of Annapolis Mall, and Meriden Square Partnership, the owner of Meriden
Square Shopping Center as unconsolidated real estate partnerships. As a result
of the above described items and Westfield Holdings management of the Company's
properties, the Company's Funds from Operations has increased 44% to $78.8
million for the nine months ended September 30, 1997, and 47% to $30.6 million
for three months ended September 30, 1997 from the corresponding period in 1996.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1997 TO THE THREE MONTHS
ENDED SEPTEMBER 30, 1996
TOTAL REVENUES increased $13.5 million or 30% to $58.0 million for the three
months ended September 30, 1997 as compared to $44.5 million for the same period
in 1996. The increase is primarily the result of the acquisitions of an
additional 70% interest in Annapolis Mall, a 68% managing interest in Wheaton
Plaza and an additional 50% interest in Meriden Square Partnership, which
contributed $5.2 million, $3.8 million and $0.3 million, respectively, or 69% of
the increase in total revenues. Excluding the total revenues generated by these
acquisitions, total revenues increased $4.2 million due to higher minimum rents,
tenant recoveries and specialty leasing income throughout the portfolio.
TOTAL EXPENSES increased $7.6 million or 29% to $33.7 million for the three
months ended September 30, 1997 as compared to $26.1 million for the same period
in 1996. The increase was
15
<PAGE>
primarily the result of the acquisitions of an additional 70% interest in
Annapolis Mall, a 68% managing interest in Wheaton Plaza and an additional 50%
interest in Meriden Square Partnership, which contributed $3.5 million, $1.7
million and $0.2 million, respectively, or 71% of the increase in total
expenses. Excluding the total expenses incurred by the acquisitions, total
expenses increased $2.2 million due to increased depreciation, totaling $1.4
million, primarily due to the Mid Rivers and Mission Valley redevelopments
placed in service in 1997 and increases in recoverable operating expenses
throughout the portfolio of $0.6 million.
INTEREST EXPENSE increased $2.4 million or 19% to $14.9 million for the
three months ended September 30, 1997 as compared to $12.5 million for the same
period in 1996 due to additional borrowings on the Company's corporate credit
facility as a result of the purchase of Annapolis Mall, Wheaton Plaza and
Meriden Square partnerships and lower interest capitalized due to the completion
of the Mid Rivers and Mission Valley redevelopments.
EQUITY IN INCOME OF UNCONSOLIDATED REAL ESTATE PARTNERSHIPS increased
approximately $0.3 million to $1.1 million for the three months ended September
30, 1997 as compared to $0.8 million for the same period in 1996 due to improved
operating results at all of the partnerships totaling $0.6 million as a result
of, increased occupancy, rental rates and specialty leasing income, and recovery
of earthquake repair costs totaling $0.6 million at Topanga Plaza Partnership,
partially offset by the consolidation of Annapolis Mall and Meriden Square
Partnerships which were acquired in June and September of 1997, respectively.
INTEREST AND OTHER INCOME increased $3.3 million to $3.6 million for the
three months ended September 30, 1997 as compared to $0.3 million for the same
period in 1996. The increase was due to interest earned of $3.3 million on the
$145 million participating loan to two wholly owned indirect subsidiaries of WHL
made in conjunction with the Offering.
NET INCOME increased $6.4 million or 96% to $13.1 million for the three
months ended September 30, 1997 as compared to $6.7 million for the same period
in 1996 for the reasons discussed above.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1997 TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996
TOTAL REVENUES increased $43.9 million or 40% to $153.1 million for the nine
months ended September 30, 1997 as compared to $109.2 million for the same
period in 1996. The increase is primarily the result of the acquisitions of the
Acquired Properties, an additional 70% interest in Annapolis Mall, a 68%
managing interest in Wheaton Plaza and a 50% interest in Meriden Square
Partnership, which contributed $25.7 million, $6.9 million, $5.0 million and
$0.3 million, respectively, or 86% of the increase in total revenues. Excluding
the total revenues generated by these acquisitions, total revenues increased
$6.0 million due to higher minimum rents, tenant recoveries and specialty
leasing income throughout the portfolio, partially offset by a reduction in
service fee income of $0.8 million due to an amendment to management agreements
in conjunction with the Company's Recapitalization in July of 1996.
TOTAL EXPENSES increased $22.5 million or 35% to $87.3 million for the nine
months ended September 30, 1997 as compared to $64.8 million for the same period
in 1996. The increase was primarily the result of the acquisitions of the
Acquired Properties, an additional 70% interest in Annapolis Mall, a 68%
managing interest in Wheaton Plaza and a 50% interest in Meriden Square
Partnership, which contributed $14.5 million, $4.6 million, $2.5 million and
$0.2 million, respectively, or 97% of the increase in total expenses. Excluding
the total expenses incurred by these acquisitions, total expenses increased $0.7
million due to increased depreciation of $3.0 million due to the Mid Rivers and
Mission Valley redevelopments placed in service in 1997 partially offset by
lower non-recoverable operating expenses totaling $2.3 million.
16
<PAGE>
INTEREST EXPENSE increased $13.3 million or 48% to $41.0 million for the
nine months ended September 30, 1997 as compared to $27.7 million for the same
period in 1996. The increase was primarily due to the acquisition of the
Acquired Properties which contributed $8.8 million of the increase in interest
expense. Excluding the Acquired Properties, interest expense increased $4.5
million due to additional borrowings on the Company's corporate credit facility
as a result of the Offering and purchase of Annapolis Mall, Wheaton Plaza and
Meriden Square Partnership and lower interest capitalized due to the completion
of the Mid Rivers and Mission Valley redevelopments.
EQUITY IN INCOME OF UNCONSOLIDATED REAL ESTATE PARTNERSHIPS increased
approximately $1.4 million to $3.2 million for the nine months ended September
30, 1997 as compared to $1.8 million for the same period in 1996 due to improved
operating results at all of the partnerships totaling $1.4 million as a result
of increased occupancy, rental rates and specialty leasing income, and recovery
of earthquake repair costs totaling $0.9 million at Topanga Plaza Partnership,
partially offset by the consolidation of Annapolis Mall and Meriden Square
Partnerships which were acquired in June and September of 1997, respectively.
INTEREST AND OTHER INCOME increased $5.0 million to $5.5 million for the
nine months ended September 30, 1997 as compared to $0.5 million for the same
period in 1996. The increase was primarily due to interest earned of $4.6
million on the $145 million participating loan to two wholly owned indirect
subsidiaries of WHL made in conjunction with the Offering. Additionally, the
increase in interest income reflects interest earned on temporary investments of
proceeds from the Offering.
NET INCOME increased $13.6 million or 74% to $31.9 million for the nine
months ended September 30, 1997 as compared to $18.3 million for the same period
in 1996 for the reasons discussed above.
EBITDA--EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION
The Company believes that there are several important factors that
contribute to the ability of the Company to increase rent and improve
profitability of its shopping centers, including aggregate tenant sales volume,
sales per square foot, occupancy levels and tenant costs. Each of these factors
has a significant effect on the Company's earnings before interest, taxes,
depreciation and amortization ("EBITDA"). The Company believes that EBITDA is an
effective measure of shopping center operating performance because EBITDA is
unaffected by the debt and equity structure of the property owner. EBITDA: (i)
does not represent cash flow from operations as defined by generally accepted
accounting principles ("GAAP"); (ii) should not be considered as an alternative
to net income (determined in accordance with GAAP) as a measure of the Company's
operating performance; (iii) is not indicative of cash flows from operating,
investing and financing activities (determined in accordance with GAAP); and
(iv) is not an alternative to cash flows (determined in accordance with GAAP) as
a measure of the Company's liquidity.
The Company's total EBITDA after minority interest plus its pro rata share
of EBITDA of unconsolidated real estate partnerships increased from $87.2
million to $127.0 million for the nine months ended September 30, 1996 and 1997,
respectively, representing an increase of 46%. The growth in EBITDA reflects the
addition of total gross leasable area ("GLA"), increased rental rates, increased
tenant sales, improved occupancy levels and lower operating expenses.
17
<PAGE>
The following is a summary of the unaudited EBITDA of the Company for the
periods presented:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------- ----------------------
1997 1996 1997 1996
--------- --------- ----------- ---------
($ IN THOUSANDS)
<S> <C> <C> <C> <C>
EBITDA of wholly-owned and consolidated real estate partnerships $ 43,405 $ 29,138 $ 111,654 $ 72,623
Pro rata share of EBITDA of unconsolidated real estate
partnerships 5,884 4,440 18,371 15,970
--------- --------- ----------- ---------
Total EBITDA $ 49,289 $ 33,578 $ 130,025 $ 88,593
--------- --------- ----------- ---------
--------- --------- ----------- ---------
EBITDA after minority interest (1) $ 47,805 $ 33,071 $ 127,009 $ 87,204
--------- --------- ----------- ---------
--------- --------- ----------- ---------
Increase in EBITDA after minority interest from prior period 45% 46%
</TABLE>
- ------------------------
(1) EBITDA after minority interest represents earnings before interest, taxes,
depreciation and amortization for all Properties excluding minority
partners' share of EBITDA in Mission Valley Partnership and Wheaton Plaza
Regional Shopping Center, LLP.
FUNDS FROM OPERATIONS
The Company computes Funds from Operations in accordance with standards
established by the White Paper on Funds from Operations approved by the Board of
Governors of NAREIT in March 1995 which defines Funds from Operations as net
income (loss) (computed in accordance with GAAP), excluding gains (or losses)
from debt restructuring and sales of property, plus real estate related
depreciation and amortization and after adjustments for unconsolidated
partnerships and joint ventures. Funds from Operations should not be considered
as an alternative to net income (determined in accordance with GAAP) as a
measure of the Company's financial performance or to cash flow from operating
activities (determined in accordance with GAAP) as a measure of the Company's
liquidity, nor is it indicative of funds available to fund the Company's cash
needs, including its ability to make distributions. In addition, Funds from
Operations as computed by the Company may not be comparable to similarly titled
figures reported by other REITs.
18
<PAGE>
The following is a summary of the unaudited Funds from Operations of the
Company and a reconciliation of net income to Funds from Operations for the
periods presented:
<TABLE>
<CAPTION>
FOR THE THREE FOR THE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
($ IN THOUSANDS)
<S> <C> <C> <C> <C>
Funds from Operations $ 30,562 $ 20,730 $ 78,830 $ 54,626
--------- --------- --------- ---------
--------- --------- --------- ---------
Increase in Funds from Operations from prior
period 47% 44%
--------- ---------
--------- ---------
Reconciliation:
Net income $ 13,144 $ 6,696 $ 31,916 $ 18,303
Depreciation and amortization:
Deferred financing leases 504 483 1,511 1,422
Consolidated properties 14,972 10,926 38,730 27,185
Unconsolidated real estate partnerships 2,234 2,698 7,394 7,983
Minority interest portion (292) (73) (721) (267)
--------- --------- --------- ---------
Funds from Operations $ 30,562 $ 20,730 $ 78,830 $ 54,626
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
PORTFOLIO DATA
SEASONALITY
The shopping center industry is seasonal in nature, particularly in the fourth
quarter during the holiday season, when tenant occupancy and retail sales are
typically at their highest levels. In addition, shopping malls achieve a
substantial portion of their specialty (temporary tenant) rents during the
holiday season. As a result of the above, earnings are generally highest in the
fourth quarter of each year.
The following table summarizes certain quarterly operating data for 1996 and the
first three quarters of 1997:
<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
1996 1996 1996 1996
----------- ----------- ----------- -----------
($ IN THOUSANDS)
<S> <C> <C> <C> <C>
Mall store sales (1) $ 266,944 $ 290,183 $ 297,801 $ 454,838
Revenues $ 51,072 $ 49,964 $ 67,047 $ 70,617
Percentage Leased 88% 89% 90% 92%
</TABLE>
- ------------------------
(1) Excluding North County Fair and Wheaton Plaza.
<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER
1997 1997 1997
----------- ----------- -----------
($ IN THOUSANDS)
<S> <C> <C> <C> <C>
Mall store sales (2) $ 289,716 $ 316,178 $ 325,834
Revenues $ 69,482 $ 69,087 $ 80,209
Percentage Leased 91% 92% 92%
</TABLE>
- ------------------------
(2) Excluding North County Fair.
19
<PAGE>
REPORTED TENANT SALES VOLUME AND SALES PER SQUARE FOOT
Total sales for mall stores affect revenue and profitability levels of the
Company because they determine the amount of minimum rent the Company can
charge, the percentage rent it realizes and the recoverable expenses (common
area maintenance, real estate taxes, etc.) the tenants can afford to pay. Mall
store sales for Centers under Westfield Holdings management (which includes all
centers other than North County Fair) for the nine months ended September 30,
1997, increased 4.7% on a per square foot basis over the same period in 1996.
The Company believes these sales levels enhance the Company's ability to obtain
higher rents from tenants.
The table below sets forth mall store sales and per square foot percentage
increases over the same period in 1996 for Centers under Westfield Holdings
management in the East Coast, the Mid West and the West Coast regions of the
United States.
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS ENDED
ENDED SEPTEMBER SEPTEMBER 30,
30, 1997 1997
----------------- -----------------
MALL INCREASE MALL INCREASE
STORE PER SQ. STORE PER SQ.
SALES FT. SALES FT.
-------- ------- -------- -------
($000'S) ($000'S)
<S> <C> <C> <C> <C>
East Coast $162,362 3.2% $466,878 3.9%
Mid West 41,005 6.0% 116,468 4.4%
West Coast 122,467 5.8% 348,382 6.6%
-- --
-------- --------
Total Centers $325,834 4.4% $931,728 4.7%
-- --
-- --
-------- --------
-------- --------
</TABLE>
LEASING
The amount of leased mall store space at centers not under redevelopment for
the relevant period ("Stabilized Centers") managed by Westfield Holdings
increased from 90% at September 30, 1996 to 92% at September 30, 1997, excluding
temporary leases with durations of less than one year. The Company excludes
temporary leasing from the calculation of leased mall store space since such
leases are on a short-term basis (30 days to 11 months) and are subject to
termination by the Company on 30 days notice. The following table sets forth
leased status for the Stabilized Centers managed by Westfield Holdings in the
East Coast, the Mid West and the West Coast regions of the United States.
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
<S> <C> <C>
East Coast 93% 93%
Mid West 91% 91%
West Coast 92% 89%
Total Centers 92% 90%
</TABLE>
RENTAL RATES
As leases have expired, the Company has generally been able to rent the
available space, either to the existing tenant or a new tenant, at rental rates
that are higher than those of the expired leases. In a period of increasing
sales, rents on new leases will tend to rise as tenants' expectations of future
growth become more optimistic. In periods of slower growth or declining sales,
rents on new leases will grow more slowly or will decline for the opposite
reason. However, revenues nevertheless increase as older leases roll over or are
terminated early and replaced with new leases negotiated at current rental rates
that are usually higher than the average rates for existing leases. The
following
20
<PAGE>
table contains certain information regarding base rent per square foot of the
mall stores under Westfield Holdings management that have been executed since
January 1, 1996.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Average base rent of mall store leases, at the end
of the period $ 27.48 $ 26.86 $ 27.48 $ 26.86
Leases expired during the period (1) 28.16 23.27 27.48 22.51
Leases executed during the period (1) 30.72 27.46 29.45 27.36
</TABLE>
- ------------------------
(1) Excluding leases in excess of 20,000 square feet.
LIQUIDITY AND CAPITAL RESOURCES
On June 2, 1997, the Company obtained a $600 million unsecured revolving
credit facility from National Australia Bank, Australia and New Zealand Banking
Group, Commonwealth Bank of Australia and Union Bank of Switzerland. A portion
of the proceeds of the facility totaling $214.4 million was used to repay
existing mortgage loans. The unused portion of the loan will be utilized by the
Company to fund its acquisition and redevelopment activities and as a revolving
working capital facility. Borrowings under the loan facility are limited to 60%
of the value of the negative pledged properties. The loan matures in May 2000
with options to extend.
At September 30, 1997, the Company's balance of cash and cash equivalents
was $12.9 million not including its proportionate share of cash held by
unconsolidated real estate partnerships. In addition to its cash reserves, the
Company had unused capacity under its unsecured revolving credit facility
totaling $261 million.
The Company's consolidated indebtedness at September 30, 1997 was $954.1
million, of which $796.1 million is fixed-rate debt and $158.0 million is
variable rate debt after considering interest rate protection agreements
totaling $225 million (see discussion below). The interest rate on the fixed-
rate debt ranges from 6.15% to 8.09%. The Company's pro-rata share of
debt-to-total market capitalization, based on the share price on September 30,
1997 was 43.1%.
21
<PAGE>
At September 30, 1997, the Company had three swap agreements with respect to
interest currently payable by the Company. Interest rate swaps are contractual
agreements between the Company and third parties to exchange fixed and floating
interest payments periodically without the exchange of the underlying principal
amounts (notional amounts). In the unlikely event that a counterparty fails to
meet the terms of an interest rate swap contract, the Company's exposure is
limited to the interest rate differential on the notional amount. The Company
does not anticipate non-performance by any of the counterparties. Under one of
the swap agreements, which has a notional amount of $125.0 million and expires
in August 2000, the Company is credited interest at LIBOR and incurs interest at
a fixed rate of 5.75%. Under the second swap agreement, which has a notional
amount of $100 million and expires in January 1999, the Company is credited
interest at LIBOR and incurs interest at a fixed rate of 5.99% per annum. Under
the third swap agreement, which has a notional amount of $9.0 million and
expires in April 2000, the Company incurs interest at LIBOR and is credited
interest at a fixed rate of 6.23%.
The Company has also entered into interest rate exchange agreements to
manage future interest rates. These agreements consist of swaps and involve the
future receipt, corresponding with the expiration of existing fixed rate
mortgage debt, of a floating rate based on LIBOR and the payment of a fixed
rate. At September 30, 1997, the Company had interest rate exchange agreements
beginning February 11, 1999 and expiring after three years with notional
principal amounts totaling $90.0 million which provide that the Company will pay
6.125% per annum, interest rate exchange agreements beginning in February 1999
and April 2000 and expiring at various dates in 2002 with notional principal
amounts totaling $227.0 million which provide that the Company will pay 6.25%
per annum and interest rate exchange agreements beginning in January 1999 and
expiring in January 2003 with notional amounts totaling $100.0 million which
provide that the Company will pay 6.165% per annum. These exchange rate
agreements ensure that, upon the expiration of certain of the Company's mortgage
debt, if the Company refinances such debt with new LIBOR based loans, the
interest rate on such loans will be no more than 6.125%, 6.25% or 6.165%,
respectively, plus the applicable spread of the loan at such time.
The average remaining term of total debt (including interest rate swap) is
5.2 years.
The historical sources of capital used to fund the Company's operating
expenses, interest expense, recurring capital expenditures and non-recurring
capital expenditures (such as major building renovations and expansions) have
been: (i) Funds from Operations, (ii) property financing and (iii) capital
contributions. The Company anticipates that all development projects, expansion
projects and potential acquisitions will be funded by external financing
sources.
Capital expenditures, excluding property acquisitions, were $51.1 million
and $29.7 million for the nine months ended September 30, 1997 and 1996,
respectively. The following table shows the components of capital expenditures:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
--------------------
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Renovations and expansions $ 44,321 $ 25,111
Tenant allowances 4,752 3,361
Capital leasing costs 1,689 1,165
Other capital expenditures 321 109
--------- ---------
Total $ 51,083 $ 29,746
--------- ---------
--------- ---------
</TABLE>
The Company believes that redevelopment, repositioning and expansion are key
to maximizing the use and performance of its assets and increasing its income
growth and capital appreciation. The
22
<PAGE>
Company is continually evaluating the redevelopment potential of its properties
and anticipates that it will pursue opportunities for substantial redevelopment
and repositioning at the properties. The Company believes that these projects
will enable the existing Centers both to compete better within their existing
markets and to attract new customers and therefore attain a stronger market
position and an expanded customer base. The Company believes that most of its
Centers, even those which have undergone redevelopment in the past five years,
have continuing redevelopment potential.
Redevelopment has recently been completed or substantially completed at the
following Centers:
- Eastland Center in West Covina, California, which opened in 1955 and was
formerly anchored by an empty department store that had been occupied by
the May Company, has been substantially converted from an out-dated
enclosed mall into a power center through the renovation of the existing
Mervyn's and the addition of a new Target discount store and additional
Big Box Retailers and Category Killer retailers, including Old Navy,
Burlington Coat Factory, Loehmann's, Chick's Sporting Goods, Club Disney
and Babies R' Us in order to reposition the Center within its trade area
and to complement the Plaza at West Covina, a super regional shopping
center owned by the Company. The May Company store that occupied the space
was relocated to The Plaza at West Covina.
- Enfield Square in Enfield, Connecticut, which opened in 1971, was
redeveloped with the addition of a Sears store that opened in Spring 1997.
The Sears store replaces a small Steiger's store which the Company
purchased as an opportunity to upgrade and expand the Center. Enfield
Square will now have three Anchors: Filene's, JCPenney and Sears.
- Mid Rivers Mall in St. Peters, Missouri, which opened in 1987, had three
Anchors before the recent redevelopment: Famous Barr, Dillard's and Sears.
In Fall 1996, a fourth Anchor, a 125,000 square-foot JCPenney store and an
additional 40,000 square feet of Mall GLA were added.
- Mission Valley Center in San Diego, California, which opened in 1961, was
redeveloped in 1996 with the addition of Bed Bath & Beyond, Nordstrom
Rack, Michael's and Loehmann's. In addition, a 75,000 square foot, 4,500
seat, 20 screen AMC Theater and theme restaurants were added. The
redevelopment and renovation is substantially complete.
The Company is currently redeveloping South Shore Mall in Bay Shore, New
York. The redevelopment involves the addition of a Sears store and 40,000 square
feet of Mall GLA. The addition of a Sears store will provide the Center with
three Anchors and expands the Center from a regional shopping center to a super
regional shopping center. The project will be completed in the fourth quarter
1997.
Capital expenditures were financed by external funding and recovery of costs
from tenants where applicable. The Company is currently involved in several
development projects and had outstanding commitments with WCI totaling
approximately $22.4 million as of September 30, 1997, which will be funded
through existing mortgage debt and the unsecured revolving credit facility.
The Company anticipates that its Funds from Operations will provide the
necessary funds on a short and long term basis for its operating expenses,
interest expense on outstanding indebtedness and all distributions to the
shareholders in accordance with the REIT requirements. Sources of recurring and
non-recurring capital expenditures on a short term and long term basis, such as
major building renovations and expansion, as well as for scheduled principal
payments, including balloon payments on outstanding indebtedness are expected to
be obtained from: (i) additional debt financing, (ii) additional equity and
(iii) working capital reserves.
23
<PAGE>
Although no assurance can be given, the Company believes that it will have
access to capital resources sufficient to satisfy the Company's cash
requirements and to expand and develop its business in accordance with its
strategy for growth.
DISTRIBUTIONS
A distribution was declared on September 19, 1997 to shareholders of record
on September 30, 1997, of $28.4 million or $0.35 per share for the quarter ended
September 30, 1997 which equates to $1.40 per share on an annualized basis. The
Company intends to continue to pay regular quarterly distributions to the
holders of its Common Stock based on a distribution policy that provides for
annual distributions equal to approximately 90% of Funds from Operations through
December 1998.
24
<PAGE>
PART II--OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
The Company currently is neither subject to any material litigation nor, to
management's knowledge, is any material litigation currently threatened against
the Company other than routine litigation and administrative proceedings arising
in the ordinary course of business. Based on consultation with counsel,
management believes that these items will not have a material adverse impact on
the Company's consolidated financial position or results of operations.
ITEM 2: CHANGES IN SECURITIES
None
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5: OTHER INFORMATION
None
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
27.1 Financial data schedule
</TABLE>
25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C> <C> <C>
WESTFIELD AMERICA, INC.
Date: November 14, 1997 By: /s/ PETER S. LOWY
-------------------- -----------------------------------
Peter S. Lowy
CO-PRESIDENT
/s/ RICHARD E. GREEN
-----------------------------------
Richard E. Green
CO-PRESIDENT
/s/ MARK A. STEFANEK
-----------------------------------
Mark A. Stefanek
CHIEF FINANCIAL OFFICER AND
TREASURER
</TABLE>
26
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM WESTFIELD
AMERICA, INC. FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 12,922
<SECURITIES> 0
<RECEIVABLES> 32,723
<ALLOWANCES> (3,517)
<INVENTORY> 0
<CURRENT-ASSETS> 42,074
<PP&E> 1,671,356
<DEPRECIATION> (221,578)
<TOTAL-ASSETS> 1,810,202
<CURRENT-LIABILITIES> 70,199
<BONDS> 0
0
121,000
<COMMON> 733
<OTHER-SE> 639,472
<TOTAL-LIABILITY-AND-EQUITY> 1,810,202
<SALES> 0
<TOTAL-REVENUES> 161,888
<CGS> 0
<TOTAL-COSTS> 48,608
<OTHER-EXPENSES> 38,686
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40,988
<INCOME-PRETAX> 31,916
<INCOME-TAX> 0
<INCOME-CONTINUING> 31,916
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,916
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0.37
</TABLE>
