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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 March 31, 1998
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 1-12923
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 May 13, 1998, 73,329,535 shares of common stock, par value $.01 per
share, were outstanding.
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<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
PART I--FINANCIAL INFORMATION
Item 1: Condensed Consolidated Financial Statements
Consolidated Balance Sheets as of March 31, 1998 (unaudited) and December 31, 1997 3
Consolidated Statements of Income (unaudited) for the three months ended March 31, 1998 and 1997 4
Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements (unaudited) 6
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 12
PART II--OTHER INFORMATION
Items 1 through 6 21
Signatures 24
</TABLE>
2
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------- -------------
<S> <C> <C>
(UNAUDITED)
ASSETS
ASSETS:
Land $ 368,177 $ 302,260
Buildings, improvements and equipment 1,533,855 1,491,067
Less accumulated depreciation (252,168) (236,220)
------------- -------------
Net property and equipment 1,649,864 1,557,107
Construction in progress 15,592 11,651
Investments in unconsolidated real estate partnerships 47,926 49,391
Participating loan to an affiliate 145,000 145,000
Direct financing leases receivable 84,831 85,352
------------- -------------
Net investment in real estate 1,943,213 1,848,501
Cash and cash equivalents 12,311 11,003
Restricted cash 23,761 28,305
Accounts and notes receivable, net of allowance of $9,539 and $6,912 in 1998 and
1997, respectively 28,932 29,499
Deferred expenses and other assets, net 32,291 31,636
------------- -------------
Total assets $ 2,040,508 $ 1,948,944
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Notes payable and revolving credit facility $ 1,220,712 $ 1,107,425
Accounts payable and accrued expenses 34,749 40,352
Distribution payable 28,755 28,350
Minority interest 24,802 25,123
------------- -------------
Total liabilities 1,309,018 1,201,250
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SHAREHOLDERS' EQUITY (Note 8):
Common stock 731 731
Preferred stock 121,000 121,000
Additional paid-in capital 609,759 625,963
------------- -------------
Total shareholders' equity 731,490 747,694
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Total liabilities and shareholders' equity $ 2,040,508 $ 1,948,944
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED AND IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
REVENUES:
Minimum rents $ 48,184 $ 30,742
Tenant recoveries 19,159 14,055
Percentage rents 2,574 1,986
---------- ----------
Total revenues 69,917 46,783
---------- ----------
EXPENSES:
Operating 19,926 14,754
Management fees 1,387 890
Advisory fee 1,483 --
General and administrative 479 236
Depreciation and amortization 16,838 11,548
---------- ----------
Total expenses 40,113 27,428
---------- ----------
OPERATING INCOME 29,804 19,355
INTEREST EXPENSE, net (20,291) (12,860)
OTHER INCOME
Equity in income of unconsolidated real estate partnerships 487 1,375
Interest and other income 3,531 312
---------- ----------
INCOME BEFORE MINORITY INTEREST 13,531 8,182
Minority interest in earnings of consolidated real estate partnerships (980) (218)
---------- ----------
NET INCOME $ 12,551 $ 7,964
---------- ----------
---------- ----------
Net income allocable to preferred shares $ 2,723 $ 1,998
Net income allocable to common shares 9,828 5,966
---------- ----------
$ 12,551 $ 7,964
---------- ----------
---------- ----------
EARNINGS PER COMMON SHARE $ 0.13 $ 0.11
---------- ----------
---------- ----------
DISTRIBUTIONS DECLARED PER COMMON SHARE $ 0.355 $ 0.008
---------- ----------
---------- ----------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 73,330 52,929
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED AND IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
------------------------
1998 1997
------------ ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 12,551 $ 7,964
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 17,085 11,622
Equity in income of unconsolidated real estate partnerships (487) (1,375)
Minority interest in earnings of consolidated real estate partnerships 980 218
Changes in assets and liabilities:
Accounts and notes receivable 539 (2,079)
Deferred expenses and other assets (1,311) (1,375)
Accounts payable and accrued expenses (5,603) (3,487)
------------ ----------
Net cash flows provided by operating activities 23,754 11,488
------------ ----------
INVESTING ACTIVITIES:
Capital expenditures (113,127) (10,266)
Cash distributions received from unconsolidated real estate partnerships 1,952 4,441
Notes receivable repayments 28 27
Direct financing leases receivable payments 521 491
Decrease in restricted cash 4,544 --
------------ ----------
Net cash flows used in investing activities (106,082) (5,307)
------------ ----------
FINANCING ACTIVITIES:
Cash distributions paid to preferred shareholders (2,685) (2,241)
Cash distributions paid to common shareholders (25,665) (20,198)
Cash distributions paid to minority interests, net (1,301) (484)
Proceeds from notes payable and revolving credit facility 134,000 22,755
Principal payments on notes payable and revolving credit facility (20,713) (10,095)
------------ ----------
Net cash flows provided by (used in) financing activities 83,636 (10,263)
------------ ----------
Net increase (decrease) in cash and cash equivalents 1,308 (4,082)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 11,003 6,729
------------ ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 12,311 $ 2,647
------------ ----------
------------ ----------
SUPPLEMENTAL CASH FLOW INFORMATION PROVIDED IN NOTE 9.
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED AND IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
1. INTERIM FINANCIAL STATEMENTS:
The accompanying Condensed Consolidated Financial Statements of Westfield
America, Inc. and Subsidiaries ("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 Condensed Consolidated Financial Statements for these
interim periods have been included. The results for the interim period ended
March 31, 1998, are not necessarily indicative of the results to be obtained for
the full fiscal year. These unaudited Condensed Consolidated Financial
Statements should be read in conjunction with the December 31, 1997 audited
Consolidated Financial Statements and notes thereto included in the WEA Form
10-K filed on March 26, 1998.
Certain amounts in the 1997 Consolidated Financial Statements have been
reclassified to conform to the 1998 presentation.
2. ORGANIZATION:
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. The Company owns interests in
25 shopping centers, 12 separate department store properties which are net
leased under financing leases to the May Department Stores Company and certain
other real estate investments located in seven states in the east coast, mid
west and west coast regions of the United States.
In May 1997, the Company completed an initial public offering (the
"Offering") whereby the Company issued 20,400,000 common shares (including
shares issued upon exercise of an over allotment option) and the sale of 270,000
preferred shares resulting in proceeds totaling $300,384, net of underwriting
discounts and expenses of the Offering.
3. BASIS OF PRESENTATION:
The Company conducts its business through its wholly-owned subsidiaries and
affiliates. The Condensed 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.
4. ACQUISITIONS:
In January 1998, the Company paid $106,426 to acquire Crestwood Plaza, a
super-regional shopping center located in St. Louis, Missouri. Funds for the
purchase were obtained from borrowings under the Company's unsecured revolving
credit facility.
6
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WESTFIELD AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
5. INVESTMENTS IN UNCONSOLIDATED REAL ESTATE PARTNERSHIPS:
As of March 31, 1998, the Company is a general and managing partner in three
unconsolidated real estate partnerships, a limited partner in one real estate
partnership and both a general and limited partner in one real estate
partnership. The Company's interest in each unconsolidated partnership as of
March 31, 1998, 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>
MARCH 31, DECEMBER 31,
1998 1997
----------- -------------
<S> <C> <C>
CONDENSED BALANCE SHEET INFORMATION
Investment in real estate:
Land, buildings and improvements, at cost $ 289,951 $ 290,092
Less accumulated depreciation and amortization (107,913) (105,495)
Construction in progress 1,443 1,322
----------- -------------
Net investment in real estate 183,481 185,919
Other notes payable (174,935) (175,289)
Other assets and liabilities, net, and interest of other partners 39,380 38,761
----------- -------------
Investments in unconsolidated real estate partnerships $ 47,926 $ 49,391
----------- -------------
----------- -------------
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED,
------------------------
MARCH 31, MARCH 31,
1998 1997
----------- -----------
<S> <C> <C>
CONDENSED STATEMENTS OF INCOME INFORMATION
Total revenues $ 14,485 $ 22,402
Costs and expenses:
Operating, general and administrative 4,183 6,416
Interest expense, net 4,778 5,779
Depreciation and amortization 3,435 5,846
----------- -----------
Net Income 2,089 4,361
Other partners' share of income (1,602) (2,986)
----------- -----------
Equity in income of unconsolidated real estate partnerships $ 487 $ 1,375
----------- -----------
----------- -----------
</TABLE>
Significant accounting policies used by unconsolidated real estate
partnerships are similar to those used by the Company.
7
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
6. NOTES PAYABLE AND REVOLVING CREDIT FACILITY:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------- -------------
<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, bearing interest at 6.39%, principal and
interest payable quarterly, due in 2004 18,755 19,392
Senior collateralized non-recourse notes bearing interest at 7.33%, interest only
until 2004, principal and interest payable thereafter, due in 2014 55,167 55,167
Collateralized non-recourse note payable to an insurance company, interest at an
effective rate of 7.07%, $1,182 principal and interest payable monthly, due in
2000 139,790 140,866
Unsecured revolving credit facility with a group of banks with a maximum commitment
of $800,000, interest only at LIBOR + 1% (6.67% at March 31, 1998) payable
monthly, due in 2000 with options to extend 578,000 463,000
Collateralized commercial mortgage notes due in 2004, interest only payable monthly
at 6.78% 75,000 75,000
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$ 1,220,712 $ 1,107,425
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------------- -------------
</TABLE>
Interest costs capitalized for the three months ended March 31, 1998 and
1997, totaled $118 and $351, respectively.
The annual maturities of notes payable and revolving credit facility as of
March 31, 1998, are as follows:
<TABLE>
<S> <C>
1998 $ 5,309
1999 194,541
2000 712,657
2001 170,157
2002 3,364
Thereafter 134,684
----------
$1,220,712
----------
----------
</TABLE>
8
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
7. INTEREST RATE SWAP CONTRACTS:
At March 31, 1998, the Company had four interest rate swap agreements.
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.
The Company has also entered into deferred interest rate exchange agreements
to manage future interest rates. The agreements consist of swaps and involve the
future receipt, corresponding with the expiration of existing fixed rate debt,
of a floating rate based on LIBOR and the payment of a fixed rate.
During the three months ended March 31, 1998, the Company entered into one
swap contract and two deferred interest rate exchange agreements as follows:
<TABLE>
<CAPTION>
RATE
------------------------ EFFECTIVE EXPIRING
NOTIONAL AMOUNT RECEIVABLE PAYABLE DATE DATE
- -------------------------------------------------------------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Current swap contracts:
$100,000 LIBOR 5.85% 1/12/98 1/12/05
Deferred interest rate exchange agreements:
$ 60,000 LIBOR 6.02% 2/11/02 2/11/06
60,000 LIBOR 6.00% 2/11/02 2/11/07
</TABLE>
8. CAPITAL STOCK:
At March 31, 1998 and December 31, 1997, the total number of shares
authorized, issued and outstanding were as follows:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SHARES SHARES
AUTHORIZED OUTSTANDING
-------------- -------------
<S> <C> <C>
Common stock, $.01 par value 200,000,000 73,329,535
Excess stock, $.01 par value 205,000,000 --
Non-voting senior preferred stock, $1.00 par value 200 9
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
</TABLE>
A distribution was declared on March 20, 1998 to shareholders of record on
March 31, 1998 of $28,755 which represents $0.355 per common share, for the
quarter ended March 31, 1998, and equates to $1.42 per common share on an
annualized basis.
9
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
9. SUPPLEMENTAL CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Cash paid during the period for interest (net of amounts capitalized) $ 20,143 $ 11,843
--------- ---------
--------- ---------
</TABLE>
NON CASH INVESTING AND FINANCING INFORMATION:
For the three months ended March 31, 1997, construction in progress totaling
$25,792 was placed into service. No amounts were placed into service during the
three months ended March 31, 1998.
10. RELATED PARTIES:
Westfield Management Company ("WMC"), an entity wholly owned by WHL, entered
into an agreement with WEA to manage the properties in WEA's portfolio. In
consideration for providing management services, WMC is reimbursed certain
recoverable property operating costs including mall related payroll and is
entitled to receive gross fees of 5% of minimum and percentage rents received by
the Company. Property management fees totaling $1,387 and $890, net of
capitalized leasing fees of $1,009 and $510, were expensed for the three months
ended March 31, 1998 and 1997, respectively. Included in accounts payable and
accrued expenses at March 31, 1998 and December 31, 1997, are management fees
payable to WMC totaling $1,074 and $1,068, respectively.
In addition to the management fees, WMC was reimbursed for recoverable
operating costs including mall related payroll costs totaling $4,004 and $3,148,
for the three months ended March 31, 1998 and 1997, respectively.
In accordance with a Master Development Framework Agreement, Westfield
Corporation, Inc. ("WCI"), a wholly owned subsidiary of WHL, has the exclusive
right to carry out expansion, redevelopment and related works. During the three
months ended March 31, 1998 and 1997, the Company reimbursed WCI $5,358 and
$4,153, respectively, for expansion, redevelopment and related work.
Westfield U.S. Advisory, L.P. ("Advisor"), which is controlled by WHL,
provides a variety of asset management and investment services, subject to
supervision of the Company. The Advisor is entitled to an annual fee equal to
25% of the annual Funds from Operations ("FFO") in excess of the Advisory FFO
Amount ($114,700), but not to exceed 55 basis points of the Net Equity Value (as
defined) of the Company's assets. The Advisory FFO Amount shall be increased
whenever the Company issues additional Common Stock. The advisory fee expense
for the three months ended March 31, 1998 was $1,483. Had the amounts been
payable, the Advisory Fee would have been zero for periods through December 31,
1997.
Included in interest and other income for the three months ended March 31,
1998 is interest income earned on a participating loan to wholly-owned indirect
subsidiaries of WHL totaling $3,455.
11. COMMITMENTS AND CONTINGENCIES:
The Company is currently involved in several development projects and had
outstanding commitments with WCI totaling approximately $38,884 at March 31,
1998.
10
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
12. SUBSEQUENT EVENTS:
On April 30, 1998, the Company paid a distribution of $28,755 to its
shareholders.
On April 6, 1998 the Company signed an agreement for the acquisition of
interests in up to 13 shopping center properties (the "Hahn Portfolio") from
TrizecHahn Centers, Inc. ("Hahn") for a maximum purchase price of $1,439,000
including the assumption of debt. The final price is dependent on the interests
ultimately acquired since certain of the properties are owned by joint ventures
and are subject to partnership rights, such as rights of first refusal to
acquire the property.
The Hahn Portfolio consists of 13 centers (12 in California and 1 in
Washington State) comprising approximately 12,500 square feet of gross leasable
area. The acquisition of the Hahn Portfolio will close in stages from August
1998 to December 1998. WEA has arranged loan facilities to fund the acquisition
of the Hahn Portfolio and is currently developing a plan for obtaining long term
funding for the acquisition.
Additionally in April, the Company exercised its warrants over WHL ordinary
shares by electing to receive the profit element of the warrants. As a result of
the exercise, WHL elected to pay the profit element of the warrants by issuing
20,339,066 ordinary shares. These shares were then sold by the Company for
$99,700 resulting in a realized gain of approximately $84,500. The funds
realized from exercising the warrants will be used to finance a portion of the
acquisition of the Hahn Portfolio.
On May 3, 1998, the Company announced that it signed an agreement to issue
approximately $300,000 of unsecured subordinated notes to Australian investors,
repayable in three equal installments due in June 2001, 2002 and 2003. The
interest rate will be fixed at the time of closing in June 1998, at
approximately 225 basis points over the Australian four year interest swap rate.
The proceeds of the notes will be utilized to finance a portion of the
acquisition of the Hahn Portfolio. These notes have not been, and will not be,
registered under the Securities Act of 1933, as amended, and may not be offered
or sold in the United States absent registration or an applicable exemption from
registration requirements.
On May 3, 1998, the Company announced Westfield America Trust ("WAT"), a
property trust listed on the Australian Stock Exchange and a 50.8% shareholder
in the Company, has entered into an underwriting agreement to raise
approximately $300,000 in Australia. WAT intends to use the proceeds of its
capital raising to subscribe for WEA common stock in three equal installments at
a 5% discount to the then prevailing market price of the Company's common stock
at June 2001, 2002 and 2003. The Company intends to issue the stock to WAT
subject to the market conditions at the time.
11
<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 unaudited
Condensed Consolidated Financial Statements of the Company for the three months
ended March 31, 1998, and Notes thereto and the Consolidated Financial
Statements of the Company for the year ended December 31, 1997 and Notes
thereto, included on Form 10-K filed on March 26, 1998.
GENERAL BACKGROUND
At March 31, 1998 and for the three months then ended, the Condensed
Consolidated Financial Statements and Notes thereto reflect the consolidated
financial results of 19 centers, the equity in income of five unconsolidated
real estate partnerships, Crestwood Plaza following its acquisition in January
1998, 12 separate department store properties that are net leased to the May
Company under financing leases, certain other real estate investments, the
Offering and a $145 million participating loan made to two wholly-owned indirect
subsidiaries of WHL secured by a 50% indirect interest in Garden State Plaza.
At March 31, 1997 and for the three months then ended, the Condensed
Consolidated Financial Statements and Notes thereto reflect the consolidated
financial results of 15 centers, the equity in income of seven unconsolidated
real estate partnerships, 13 separate department store properties that were net
leased to the May Company under financing leases and certain other real estate
investments.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1998 TO THE THREE MONTHS ENDED
MARCH 31, 1997
TOTAL REVENUES increased $23.1 million or 49% to $69.9 million for the three
months ended March 31, 1998 as compared to $46.8 million for the same period in
1997. The increase is primarily the result of the acquisitions of Northwest
Plaza, Crestwood Plaza, 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 $21.0 million or 91% of the increase in
total revenues. Excluding the total revenues generated by these acquisitions,
total revenues increased $2.1 million due to higher minimum rents, generated by
redevelopments at Eastland, South Shore and Trumbull, and specialty leasing
income throughout the portfolio.
TOTAL EXPENSES increased $12.7 million or 46% to $40.1 million for the three
months ended March 31, 1998 as compared to $27.4 million for the same period in
1997. The increase was primarily the result of the acquisitions of Northwest
Plaza, Crestwood Plaza, 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 a combined $10.7 million or 84% of the
increase in total expenses. Excluding the total expenses incurred by the
acquisitions, total expenses increased $2.0 million due to the advisory fee
totaling $1.5 million which became payable in 1998 and an increase in
depreciation totaling $0.8 million, primarily due to Eastland, Enfield, Mid
Rivers, South Shore and Trumbull redevelopments placed into service in the
second half of 1997. These increases in operating expenses were partially offset
by a decrease in recoverable operating costs due primarily to a mild winter in
the east coast and mid west regions.
12
<PAGE>
INTEREST EXPENSE, net of capitalized interest, increased $7.4 million or 57%
to $20.3 million for the three months ended March 31, 1998 as compared to $12.9
million for the same period in 1997 due to increased borrowings under the
Company's revolving credit facility as a result of the acquisitions of Annapolis
Mall and Wheaton Plaza Partnerships in June 1997, Meriden Square Partnership in
September 1997, Northwest Plaza in December 1997 and Crestwood Plaza in January
1998.
EQUITY IN INCOME OF UNCONSOLIDATED REAL ESTATE PARTNERSHIPS decreased
approximately $0.9 million to $0.5 million for the three months ended March 31,
1998 as compared to $1.4 million for the same period in 1997 primarily due to
the consolidation of Annapolis Mall and Meriden Square partnerships which were
acquired in June and September of 1997, respectively. Annapolis and Meriden
contributed $1.1 million of the decrease which was partially offset by improved
operating results at the remaining partnerships.
INTEREST AND OTHER INCOME increased $3.2 million to $3.5 million for the
three months ended March 31, 1998 as compared to $0.3 million for the same
period in 1997. The increase was due to interest earned of $3.5 million on the
$145 million participating loan made to two wholly-owned indirect subsidiaries
of WHL in conjunction with the Offering.
MINORITY INTERESTS IN EARNINGS OF CONSOLIDATED REAL ESTATE PARTNERSHIPS
increased $0.8 million to $1.0 million for the three months ended March 31, 1998
as compared to $0.2 million for the same period in 1997 due to the acquisition
of a 68% managing interest in Wheaton Plaza.
NET INCOME increased $4.6 million or 58% to $12.6 million for the three
months ended March 31, 1998 as compared to $8.0 million for the same period in
1997 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 its ability to increase rent and improve profitability of its
shopping centers, including aggregate retailer sales volume, sales per square
foot, occupancy levels and retailer 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 EBITDA after minority interest plus its pro rata share of
EBITDA of unconsolidated real estate partnerships increased from $37.8 million
to $53.7 million for the three months ended March 31, 1997 and 1998,
respectively, representing an increase of 42%. The growth in EBITDA reflects the
addition of total gross leasable area ("GLA"), increased rental rates, increased
retailer sales, improved occupancy levels and lower operating expenses.
13
<PAGE>
The following is a summary of the unaudited EBITDA of the Company for the
periods presented:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------
1998 1997
--------- ---------
($ IN THOUSANDS)
<S> <C> <C>
EBITDA of wholly-owned and consolidated real estate partnerships $ 50,810 $ 31,796
Pro rata share of EBITDA of unconsolidated real estate partnerships 4,462 6,563
--------- ---------
Total EBITDA $ 55,272 $ 38,359
--------- ---------
--------- ---------
EBITDA after minority interest (1) $ 53,703 $ 37,750
--------- ---------
--------- ---------
Increase in EBITDA after minority interest 42%
---------
---------
</TABLE>
- ------------------------
(1) EBITDA after minority interest represents earnings before interest, taxes,
depreciation and amortization for all properties after the minority share in
Mission Valley and Wheaton Plaza EBITDA.
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.
The following is a summary of the unaudited Funds from Operations of the
Company and reconciliation of net income to Funds from Operations for the
periods presented:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------
1998 1997
--------- ---------
($ IN THOUSANDS)
<S> <C> <C>
Funds from Operations $ 31,558 $ 22,459
--------- ---------
--------- ---------
Increase in Funds from Operations from prior period 41%
---------
---------
Reconciliation:
Net income $ 12,551 $ 7,964
Depreciation and amortization:
Deferred financing leases 521 499
Consolidated properties 16,838 11,548
Unconsolidated real estate partnerships 1,938 2,670
Minority interest portion (290) (222)
--------- ---------
Funds from Operations $ 31,558 $ 22,459
--------- ---------
--------- ---------
</TABLE>
14
<PAGE>
PORTFOLIO DATA
SEASONALITY
The shopping center industry is seasonal in nature, particularly in the
fourth quarter during the holiday season, when retailer occupancy and retail
sales are typically at their highest levels. In addition, shopping malls achieve
a substantial portion of their specialty (temporary retailer) 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 1997 and
the first quarter of 1998 for Centers under Westfield Holdings management:
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1998 QUARTERLY DATA
- ---------------------------------------------------
Mall store sales $ 350,456 N/A N/A N/A
Revenues $ 87,933 N/A N/A N/A
Percentage Leased 92% N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
1997 QUARTERLY DATA
- ---------------------------------------------------
<S> <C> <C> <C> <C>
Mall store sales (1) $ 289,716 $ 316,178 $ 325,834 $ 506,591
Revenues $ 69,482 $ 69,087 $ 80,209 $ 83,081
Percentage Leased (1) 91% 92% 92% 93%
</TABLE>
- ------------------------
(1) Excludes Wheaton Plaza in the first and second quarter, Northwest Plaza and
Crestwood Plaza.
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 retailers can afford to pay. Mall
store sales for Centers under Westfield Holdings management (which includes all
centers other than North County Fair) for the three months ended March 31, 1998,
increased 3.3% on a per square foot basis over the same period in 1997. The
Company believes these sales levels enhance the Company's ability to obtain
higher rents from retailers.
The table below sets forth mall store sales and per square foot percentage
increases over the same periods in 1997 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 ENDED
MARCH 31, 1998
----------------------
MALL INCREASE
STORE PER SQ.
SALES FT.
--------- -----------
($000)
<S> <C> <C>
East Coast $ 152,570 0.6%
Mid West 77,437 6.1%
West Coast 120,449 4.7%
--
---------
Total Centers $ 350,456 3.3%
--
--
---------
---------
</TABLE>
15
<PAGE>
LEASING
Mall store space was 93% leased at March 31, 1998, at centers not under
redevelopment for the relevant period ("Stabilized Centers") managed by
Westfield Holdings excluding the recently acquired Northwest Plaza and Crestwood
Plaza. Including the acquisitions, the mall store space was 92% leased at March
31, 1998. 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>
MARCH 31, MARCH 31,
1998 1997
--------------- ---------------
<S> <C> <C>
East Coast 93% 91%
Mid West 88% 92%
West Coast 94% 89%
Total Centers 92% 91%
</TABLE>
RENTAL RATES
As leases have expired, the Company has generally been able to rent the
available space, either to the existing retailer or a new retailer, 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 retailer's
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 rollover 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.
Excluding the recently acquired Northwest Plaza and Crestwood Plaza, average
base rent was $28.52 for the three months ended March 31, 1998. The following
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, 1997.
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
MARCH 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Average base rent of mall store leases,
at the end of the period $ 27.62 $ 28.01
Leases expired during the period (1) $ 24.76 $ 25.84
Leases executed during the period (1) $ 28.04 $ 30.53
</TABLE>
- ------------------------
(1) Excluding leases in excess of 20,000 square feet.
As required by GAAP, contractual rent increases are recognized as rental
income using the straight-line method over the respective lease term which may
result in the recognition of income not evidenced by cash receipts. The amount
of contractual rent increases not represented by cash receipts for the three
months ended March 31, 1998 and 1997 was $1,001 and $613, respectively.
16
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
On January 15, 1998, the Company's unsecured revolving credit facility from
National Australia Bank, Australia New Zealand Banking Group, Commonwealth Bank
of Australia and Union Bank of Switzerland was increased to $800 million. The
Company had unused capacity under its unsecured revolving credit facility
totaling $222 million at March 31, 1998 which will be used to finance future
redevelopments, acquisitions and as a revolving working capital facility. The
loan matures in May 2000 and is extendable annually thereafter for an additional
year.
At March 31, 1998, the Company's balance of cash and cash equivalents was
$12.3 million not including its proportionate share of cash held by
unconsolidated real estate partnerships.
The Company's consolidated indebtedness at March 31, 1998 was $1,220.7
million, of which $1,067.7 million is fixed-rate debt and $153 million is
variable rate debt after considering interest rate protection agreements
totaling $425 million (see discussion below). The interest rate on the fixed
rate debt ranges from 6.15% to 8.09%. The Company's pro rata share of
debt-to-total market capitalization, based on the share price on March 31, 1998
was 47.4%.
At March 31, 1998, the Company had four interest rate swap agreements.
Interest rate swaps are contractual agreements between the Company and third
parties to exchange fixed and floating interest payments periodically without
the exchange of the underlying principal amounts (notional amounts). In the
unlikely event that a counterparty fails to meet the terms of an interest rate
swap contract, the Company's exposure is limited to the interest rate
differential on the notional amount. The Company does not anticipate
non-performance by any of the counter-parties.
The Company has also entered into deferred interest rate exchange agreements
to manage future interest rates. The agreements consist of swaps and involve the
future receipt, corresponding with the expiration of existing fixed rate debt,
of a floating rate based on LIBOR and the payment of a fixed rate. Since March
31, 1997, the Company has lengthened the average remaining term of its pro rata
share of total borrowings and hedges, including delayed start swaps from 4.9 to
7.0 years.
The Company has entered into fixed rate hedges in respect of its pro rata
share of notes payable and revolving credit facility, as follows:
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
1998 1997
------------- -----------
($ IN THOUSANDS)
<S> <C> <C>
Principal amount of fixed rate debt $ 701,306 $ 657,872
Principal amount of other current fixed rate payable instruments 425,000 125,000
------------- -----------
$ 1,126,306 $ 782,872
------------- -----------
------------- -----------
Fixed rate debt as a percentage of total notes payable and
revolving credit facility. 88.0% 90.4%
------------- -----------
------------- -----------
Average rate (inclusive of margins) of total borrowings and hedges 7.04% 7.20%
------------- -----------
------------- -----------
Average remaining term (in years) of total borrowings and hedges,
including delayed start swaps 7.0 4.9
------------- -----------
------------- -----------
</TABLE>
17
<PAGE>
As previously discussed, the Company has entered into an agreement to
acquire interests in up to 13 shopping center properties from TrizecHahn Center,
Inc. for a maximum purchase price of $1.439 billion including the assumption of
debt. The Company has arranged the sale of the WHL warrants for $99.7 million,
the underwriting of approximately $300 million of unsecured subordinated notes
in Australia, and loan facilities to fund the acquisition of the Hahn portfolio.
Additionally, the Company is currently developing a plan for obtaining long term
funding of the acquisition.
In this regard, the Company has announced that it will issue approximately
$300 million unsecured subordinated notes ("Capital Notes") to Australian
investors, repayable in three equal installments due in June 2001, 2002 and
2003. The interest rate on the notes will be fixed at the time of closing in
June 1998 at approximately 225 basis points over the Australian four year
interest swap rate. The proceeds of the Capital Notes will be utilized to
finance a portion of the TrizecHahn acquisition.
Additionally, the Company exercised its warrants over WHL ordinary shares by
electing to receive the profit element of the warrants. As a result of the
exercise, WHL elected to pay the profit element of the warrants by issuing
20,339,066 ordinary shares. These shares were then sold by the Company for $99.7
million which will be used to finance a portion of the TrizecHahn acquisition.
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 and capital leasing costs, excluding property
acquisitions, were $6.9 million and $10.6 million for the three months ended
March 31, 1998 and 1997, respectively. The following table shows the components
of capital expenditures:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------
1998 1997
--------- ---------
($ IN THOUSANDS)
<S> <C> <C>
Renovations and expansions $ 3,942 $ 9,256
Tenant allowances 1,625 936
Capital leasing costs 1,009 510
Other capital expenditures 317 74
--------- ---------
Total $ 6,893 $ 10,776
--------- ---------
--------- ---------
</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 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.
18
<PAGE>
Redevelopments approved by the Board of Directors are as follows:
- The Company commenced redevelopment of Mission Valley Center-West, in San
Diego, California, at the beginning of 1998. The property will be
redeveloped into a 202,000 square foot power center with value-oriented
retailers that will complement Mission Valley Center. The center is
planned to open in late Summer 1998.
- Annapolis Mall in Annapolis, Maryland, is a four anchor super-regional
shopping center with 155 Mall Stores. The addition of a fifth anchor, Lord
& Taylor, is planned to open in Fall 1998, which will further solidify
Annapolis Mall's strong market position.
- Enfield Square in Enfield, Connecticut is a three anchor regional shopping
center with 87 Mall Stores. A new 58,000 sq. ft multi-screen Hoyts Cinema
is being added, with a planned opening in late Fall 1998.
- South Shore Mall in Bayshore, New York, is a three anchor super-regional
center with 125 Mall Stores. In addition to the recently completed
expansion described above, South Shore Mall will add a new Lord & Taylor
store. Completion is planned for a Fall 1998 opening.
In addition to the approved redevelopments, the Company has identified the
following properties for redevelopment over the next five years which the
Company believes will result in future income growth and capital appreciation:
- West County Center, in Des Peres, Missouri is a two anchor regional
shopping center with 66 Mall Stores. A $200 million redevelopment for West
County Center was announced in 1997. The redeveloped Center will feature
the addition of new anchors Nordstrom and Lord & Taylor. The existing
Famous-Barr store will be replaced with a new flagship store, and JCPenney
will be remodeled. The center will double in size to 1.2 million square
feet with more than 150 Mall Stores. The project will be phased, with
Famous-Barr opening in Fall 1999, and Nordstrom scheduled for completion
in 2001.
- Meriden Square, in Meriden, Connecticut, is a three anchor regional center
with 114 Mall Stores. Meriden Square plans to add a new Lord & Taylor
anchor store and 70,000 square feet of new Mall Stores. Construction is
currently being planned with an anticipated Fall 1999 opening.
Capital expenditures were financed by external funding and recovery of costs
from retailers where applicable. The Company is currently involved in several
development projects and had outstanding commitments with contractors totaling
approximately $38.9 million as of March 31, 1998, which will be funded through
restricted cash and the unsecured revolving credit facility.
The Company anticipates that its Funds from Operations will provide the
necessary funds on a short term and long term basis for its operating expenses,
interest expense on outstanding indebtedness and all distributions to the
shareholders in accordance with 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.
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 March 20, 1998 to shareholders of record on
March 31, 1998, of $28.8 million which represents $0.355 per common share for
the quarter ended March 31, 1998, and equates to $1.42 per common share on an
annualized basis. The Company intends to continue to pay regular quarterly
distributions to the holders of its common stock.
19
<PAGE>
IMPACT OF YEAR 2000
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
WMC (the "Manager") is currently in the process of converting to a new
computer system which is anticipated to be completed by August 1998. In
conjunction with the conversion, the software and hardware will be replaced or
modified so that the computer system will function properly with respect to
dates in the Year 2000 and thereafter. The Company believes that with the
Manager's conversion of its computer system, the Year 2000 Issue will not pose
significant operational problems for the Company. The costs of the computer
conversion will be incurred by the Manager.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This report includes statements (other than the financial statements and
other statements of historical fact) that are subject to risks and
uncertainties. Forward-looking statements include the information concerning
possible future results of operations, earnings, expenses, cash flows, funds
from operations and other capital resources of the Company (including with
respect to increased revenues and rental rates, cost savings and operating
efficiencies) and market trends set forth under (a) "Management's Discussion and
Analysis of Financial Condition and Results of Operations-- Results of
Operations," "Portfolio Data," "Liquidity and Capital Resources,"
"Distributions," and "Impact of Year 2000," (b) "Legal Proceedings," (c) "Item
5--Other Information," and (d) statements preceded by, followed by or that
include the words "believes," "expects," "anticipates," "intends," "plans,"
"estimates" or similar expressions.
Forward-looking statements are made based on management's current
expectations and belief concerning future developments and their potential
effects on the Company. There can be no assurance that future developments will
be in accordance with management's expectations or that the effect of future
developments on the Company will be those anticipated by management. Many of the
factors that will determine these results are beyond the Company's ability to
control or predict.
The important factors described in the Company's Annual Report on form 10-K
for the year ended December 31, 1997, under "Management Discussion and Analysis
of Financial Condition and Results of Operations--Cautionary Statements
Concerning Forward-Looking Statements," and those important factors described
elsewhere in this report (including "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Legal Proceedings"), or in
other Securities and Exchange Commission filings, could affect (and in some
cases have affected) the Company's actual results and could cause such results
to differ materially from estimates or expectations reflected in such
forward-looking statements.
While the Company periodically reassesses material trends and uncertainties
affecting the operations and financial condition in connection with its
preparation of Management's Discussion and Analysis of Results of Operations and
Financial Condition contained in its quarterly and annual reports, the Company
does not intend to review or revise any particular forward-looking statement
referenced in this report in light of future events, even if new information,
future events or other circumstances have made them incorrect or misleading.
The information referred to above should be considered by investors when
reviewing any forward-looking statements contained in this report, in any
documents incorporated herein by reference, in any of the Company's public
filings or press releases or in any oral statements made by the Company or any
of its officers or any other persons acting on its behalf. For those statements,
the Company intends to avail itself of the protection of the safe harbor
liability with respect to forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995.
20
<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
At the annual meeting of Shareholders held on April 30, 1998 in Los Angeles,
California, the common shareholders took the following actions:
1. Re-elected three directors, Roy L. Furman, Frederick G. Hilmer, AO, and
Peter S. Lowy as directors of the Company whose regular term of office expired
on the date of the annual meeting, for a new term extending until 2001. The
number of votes cast for, against and withheld, and the number of broker
non-votes for each such director were as follows:
<TABLE>
<CAPTION>
AGAINST
AND ABSTENTIONS AND
FOR WITHHELD NON-VOTES
------------- --------- ----------------
<S> <C> <C> <C>
Roy L. Furman 66,699,216 69,553 6,560,766
Frederick G. Hilmer, AO 66,699,216 69,553 6,560,766
Peter S. Lowy 66,699,216 69,553 6,560,766
</TABLE>
The following additional directors continued in office: Frank P. Lowy,
Herman Huizinga, David H. Lowy, Bernard Marcus, Larry A. Silverstein, Francis T.
Vincent, Jr. and George Weissman.
2. The appointment of Ernst & Young LLP as the Company's independent
auditors for the 1998 fiscal year. The number of shares voted for, against and
withheld, and the number of broker non-votes on such proposal were 66,695,133,
73,906, and 6,560,496, respectively.
21
<PAGE>
ITEM 5: OTHER INFORMATION
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDTED BALANCE SHEET
MARCH 31, 1998
(UNAUDITED AND IN THOUSANDS)
The unaudited Pro Forma Condensed Consolidated Balance Sheet, below, is
presented as if the Company acquired on March 31, 1998 interests in 13 shopping
centers ("Hahn Portfolio") from TrizecHahn Centers, Inc. for $1,439,000. In this
regard it is further assumed that on March 31, 1998 the Company issued unsecured
subordinated notes ("Capital Notes") totaling $300,000 and sold WHL ordinary
shares for $99,700.
The unaudited Pro Forma Condensed Consolidated Balance Sheet should be read
in conjunction with the Condensed Consolidated Financial Statements of Westfield
America, Inc. and Subsidiaries and Notes thereto included elsewhere herein. In
the Company's opinion, all adjustments necessary to reflect the effects of
issuing Capital Notes, obtaining loan facilities, purchase and subsequent sale
of the warrants and use of proceeds to acquire the Hahn Portfolio have been
made.
The unaudited Pro Forma Condensed Consolidated Balance Sheet is not
necessarily indicative of what the actual position of the Company would have
been at March 31, 1998, nor does it purport to present the future financial
position of the Company.
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------------------
CONSOLIDATED PRO FORMA
HISTORICAL PRO FORMA AS
(A) ADJUSTMENTS ADJUSTED
---------- ---------- ----------
<S> <C> <C> <C>
ASSETS:
Net investment in real estate $1,943,213 $1,360,000(b) $3,303,213
Cash and cash equivalents 12,311 -- 12,311
Restricted cash 23,761 -- 23,761
Accounts and notes receivable 28,932 -- 28,932
Deferred expenses and other
assets, net 32,291 (15,200 (c) 17,091
---------- ---------- ----------
Total assets $2,040,508 $1,344,800 $3,385,308
---------- ---------- ----------
---------- ---------- ----------
LIABILITIES:
Notes payable and revolving credit
facility $1,220,712 $1,260,300(d) $2,481,012
Accounts payable and accrued
expenses 34,749 -- 34,749
Distribution payable 28,755 -- 28,755
Minority interest 24,802 -- 24,802
---------- ---------- ----------
Total liabilities 1,309,018 1,260,300 2,569,318
---------- ---------- ----------
SHAREHOLDERS' EQUITY:
Common stock 731 -- $ 731
Preferred stock 121,000 -- 121,000
Paid-in-capital 609,759 -- 609,759
Retained earnings -- 84,500(c) 84,500
---------- ---------- ----------
Total equity 731,490 84,500 815,990
---------- ---------- ----------
Total liabilities and
shareholders' equity $2,040,508 $1,344,800 $3,385,308
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
22
<PAGE>
ITEM 5: OTHER INFORMATION (CONTINUED)
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (IN THOUSANDS)
(a) Reflects Westfield America, Inc. and Subsidiaries Consolidated Historical
Balance Sheet at March 31, 1998.
(b) Reflects Hahn Portfolio acquisition totaling $1,439,000 plus estimated
transaction costs less joint venture debt assumed.
(c) Reflects the sale in April 1998 of WHL shares acquired upon exercise of the
WHL warrants.
(d) Reflects total additional borrowings to acquire the Hahn Portfolio.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- -------------------------------------------------------------------------------------
<C> <S>
10.1 Amendment to Credit Agreement
27.1 Financial data schedule
</TABLE>
(b) Reports on Form 8-K:
The Company filed the following reports on Form 8-K during the three months
ended March 31, 1998:
<TABLE>
<CAPTION>
DATE OF FILING ITEMS REPORTED FINANCIAL STATEMENT
- --------------- ------------------- -----------------------
<S> <C> <C>
May 4, 1998 5, 7 No
May 5, 1998 5, 7 No
</TABLE>
Form 8-K was filed on May 4, 1998. Under Item 5--Other Events, the Company
announced that it signed an underwriting agreement to issue approximately $300
million of unsecured subordinated notes to Australian investors, repayable in
three equal installments due in June 2001, 2002 and 2003. The interest rate will
be fixed at the time of closing in June 1998, at approximately 225 basis points
over the Australian four year interest swap rate. The proceeds of the notes will
be utilized to finance a portion of the TrizecHahn acquisition. These notes have
not been, and will not be, registered under the Securities Act of 1933, as
amended, and may not be offered or sold in the United States absent registration
or an applicable exemption from registration requirements.
Form 8-K was filed on May 5, 1998. Under Item 5--Other Events, the Company
reported that it had entered into an agreement for the acquisition of interests
in up to 13 shopping center properties from TrizecHahn Centers, Inc. for a
maximum purchase price of 1.439 billion. The total acquisition costs, after
allowing for legal and professional fees, and various transaction costs, is
expected to be approximately $1.5 billion. The final price is dependent on the
interests ultimately acquired since certain of the properties are owned by joint
ventures and are subject to partnership rights, such as rights of first refusal.
Settlement of the purchase is scheduled to occur in stages between August and
December of 1998. WEA has arranged loan facilities to fund the acquisition and
is currently developing a plan to obtain long term funding.
23
<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: May 13, 1998 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>
24
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CREDIT AGREEMENT AMENDMENT
dated as of
January 15, 1998
among
WESTFIELD AMERICA INC.,
as Borrower
and
COMMONWEALTH BANK OF AUSTRALIA
AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED,
as Co-Agents
and
UNION BANK OF SWITZERLAND,
NEW YORK BRANCH,
as Documentary Agent
and
NATIONAL AUSTRALIA BANK LIMITED,
NEW YORK BRANCH,
as Administrative Agent
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
CREDIT AGREEMENT AMENDMENT, dated as of January 15, 1998, among
WESTFIELD AMERICA INC., a Missouri corporation (the "Borrower"), NATIONAL
AUSTRALIA BANK LIMITED, COMMONWEALTH BANK OF AUSTRALIA, AUSTRALIA AND NEW
ZEALAND BANKING GROUP LIMITED and UNION BANK OF SWITZERLAND (collectively,
the "Lenders"), COMMONWEALTH BANK OF AUSTRALIA and AUSTRALIA AND NEW ZEALAND
BANKING GROUP LIMITED, as Co-Agents (the "Co-Agents"), UNION BANK OF
SWITZERLAND, as Documentary Agent (the "Documentary Agent") and NATIONAL
AUSTRALIA BANK LIMITED, NEW YORK BRANCH, as Administrative Agent for the
Lenders (the "Administrative Agent").
W I T N E S S E T H:
WHEREAS, the Borrower, the Lenders, the Co-Agents, the Documentary Agent
and the Administrative Agent are parties to a Credit Agreement dated as of
May 30, 1997 (the "Credit Agreement") pursuant to which the Lenders have
severally committed to make Loans to the Borrower on a revolving basis and to
participate in Letters of Credit issued for the account of the Borrower, up
to an aggregate limit of $600,000,000 (the "Total Commitment"); and
WHEREAS, the Borrower has requested the Lenders to increase the Total
Commitment under the Credit Agreement to $800,000,000 as hereinafter
provided; and
WHEREAS, the Lenders are willing so to increase the Total Commitment and
their respective Commitments, on the terms and conditions provided herein; and
WHEREAS, capitalized terms used herein which are defined in the Credit
Agreement have the meanings herein ascribed to them in the Credit Agreement.
NOW, THEREFORE, the parties agree as follows:
1. The term "Commitment" as defined in Section 1.01 (c) of the Credit
Agreement is hereby amended to mean with respect to each Lender the amount
set forth opposite such Lender's name under the heading "Commitment" on
Schedule 1 to this Credit Agreement Amendment, or in the relevant Assignment
and Acceptance, as such amount may be reduced from time to time pursuant to
Section 2.03 of the Credit Agreement.
2. The Borrower represents and warrants to the Lenders (a) that the
representations and warranties of the Borrower set forth in Article V of the
Credit Agreement (except to the extent that any representation or warranty
speaks as of a date certain) are true and correct in all material respects on
the date of this Credit Agreement Amendment with the same effect as though
such representatives and warranties were made on such date and (b) that no
Default or Event of Default has occurred and is continuing as of the date of
this Credit Agreement Amendment.
3. The increase in the Commitments provided for herein shall be
effective upon the satisfaction of the following conditions:
<PAGE>
(a) The Administrative Agent shall have received counterparts of this
Credit Agreement Amendment duly executed and delivered by each of the
Lenders and the Borrower.
(b) The Administrative Agent shall have received letters from each of
the Guarantors substantially in the form of Exhibit A hereto (the
"Guarantee Confirmations") duly executed by each of the Guarantors.
(c) The Administrative Agent shall have received from counsel to the
Borrower and each of the Guarantors opinions in form satisfactory to the
Administrative Agent as to the authorization, execution and delivery of
this Credit Agreement Amendment and the Guarantee Confirmations and the
enforceability of the Credit Agreement and the Guarantees, as amended
hereby and by the Guarantee Confirmations.
(d) The Administrative Agent shall have received copies of resolutions
of the Borrower and each of the Guarantors authorizing the execution,
delivery and performance of this Credit Agreement Amendment and the
Guarantee Confirmations.
(e) The Administrative Agent shall have received Notes duly executed by
the Borrower in favor of each of the Lenders in the principal amounts of
their respective Commitments, as increased hereby.
(f) The Administrative Agent shall have notified the Borrower and each
of the Lenders that the conditions described in clauses (a) through (e)
above have been satisfied.
4. Except as amended hereby, the Credit Agreement shall remain in
full force and effect and is hereby ratified and confirmed.
5. THIS CREDIT AGREEMENT AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE.
6. This Credit Agreement Amendment may be executed in any number of
counterparts and by the different parties hereto on separate counterparts,
each of which when so executed and delivered shall be an original, but all
of which shall together constitute one and the same instrument.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Credit Agreement
Amendment to be duly executed as of the date first above written.
WESTFIELD AMERICA INC.
By: /s/ MARK A. STEFANEK
---------------------------------
Name: Mark A. Stefanek
Title: Chief Financial Officer and
Treasurer
NATIONAL AUSTRALIA BANK LIMITED,
NEW YORK BRANCH (ACN 0014 044 937),
as Administrative Agent and Lender
By: /s/ Scott Tuhy
---------------------------------
Name: Scott Tuhy
Title: Vice President
COMMONWEALTH BANK OF AUSTRALIA,
as Co-Agent and a Lender
By: /s/ S. Hussain
---------------------------------
Name: Shakil Hussain
Title: Vice President
AUSTRALIA AND NEW ZEALAND
BANKING GROUP LIMITED,
as Co-Agent and a Lender
By: /s/ Robert Sloan
---------------------------------
Name: Robert Sloan
Title: First Vice President
UNION BANK OF SWITZERLAND,
NEW YORK BRANCH, as
Documentary Agent and a Lender
By:
---------------------------------
Name:
Title:
By:
---------------------------------
Name:
Title:
-3-
<PAGE>
Schedule 1
----------
Lenders and Commitments
-----------------------
<TABLE>
<CAPTION>
Lender Commitment Address for Notices
------ ---------- -------------------
<S> <C> <C>
National Australia Bank Limited $333,333,333 200 Park Avenue
New York, NY 10166
Telecopy: (212) 983-1969
Attn: Jeff White
Commonwealth Bank of Australia $200,000,000 599 Lexington Avenue
New York, NY 10022-6072
Telecopy: (212) 336-7722
Attn: Christine A. Renard
Australia and New Zealand Banking $200,000,000 1177 Avenue of the Americas
Group Limited New York, NY 10036-2798
Telecopy: (212) 801-9131
Attn: Stephen Christenson
Union Bank of Switzerland $ 66,666,667 299 Park Avenue
New York, NY 10171
Telecopy: (212) 821-4138
Attn: Department Head,
Commercial Real Estate
Finance
</TABLE>
<PAGE>
Exhibit A
[Date]
To: National Australia Bank Limited,
Commonwealth Bank of Australia,
Australia and New Zealand Banking Group Limited
Union Bank of Switzerland
c/o National Australia Bank Limited, as Agent
200 Park Avenue
New York, New York 10166
Re: CREDIT AGREEMENT, dated as of May 30, 1997 (the "Credit
Agreement"), among WESTFIELD AMERICA INC., a Missouri
corporation (the "Borrower"), NATIONAL AUSTRALIA BANK LIMITED,
COMMONWEALTH BANK OF AUSTRALIA, AUSTRALIA AND NEW ZEALAND
BANKING GROUP LIMITED and UNION BANK OF SWITZERLAND
(collectively, the "Lenders"), COMMONWEALTH BANK OF AUSTRALIA
AND AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED, as
Co-Agents, UNION BANK OF SWITZERLAND, as Documentary Agent,
and NATIONAL AUSTRALIA BANK LIMITED, NEW YORK BRANCH, as
Administrative Agent for the Lenders (the "Agent").
---------------------------------------------------------------
Gentlemen:
The undersigned (the "Guarantor"), as a Guarantor under and as
defined in the Credit Agreement referred to above, has delivered to the Agent
its Guarantee dated as of ___________, 1997 (the "Guarantee" and referred to
in the Credit Agreement as a "Cross Guarantee") in favor of the Agent and the
Lenders as to the obligations of the Borrower in respect of the Loans, the
L/C obligations and the other obligations of the Borrower under the Credit
Agreement. The Guarantor understands and acknowledges that the Total
Commitment under the Credit Agreement has been increased from $600,000,000 to
$800,000,000 pursuant to a Credit Agreement Amendment dated as of January 15,
1998 (the "Amendment"). The Guarantor hereby confirms to the Agent and the
Lenders that the Guarantee remains in effect in accordance with its terms and
that term "Guaranteed Obligations" in the Guarantee refers to the obligations
of the Borrower in respect of the Loans, the L/C Obligations and other
obligations of the Borrower under the Credit Agreement, as modified by the
Amendment.
Very truly yours,
[name of Guarantor]
By:
---------------------------
Name:
Title:
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 12,311
<SECURITIES> 0
<RECEIVABLES> 38,471
<ALLOWANCES> (9,539)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,902,032
<DEPRECIATION> (252,168)
<TOTAL-ASSETS> 2,040,508
<CURRENT-LIABILITIES> 0
<BONDS> 1,220,712
121,000
0
<COMMON> 731
<OTHER-SE> 609,759
<TOTAL-LIABILITY-AND-EQUITY> 731,490
<SALES> 0
<TOTAL-REVENUES> 69,917
<CGS> 0
<TOTAL-COSTS> 40,113
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 20,291
<INCOME-PRETAX> 13,531
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<INCOME-CONTINUING> 13,531
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,551
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.13
</TABLE>
