<PAGE>
[LOGO OF WESTFIELD AMERICA, INC.]
================================================================================
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, 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)
MISSOURI 43-0758627
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
11601 WILSHIRE BOULEVARD
12TH FLOOR
LOS ANGELES, CALIFORNIA 90025
(Address of principal executive offices) (Zip Code)
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 13, 1998, 73,337,691 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 Financial Statements
Consolidated Balance Sheets as of September 30, 1998 (unaudited) and December
31, 1997..................................................................... 3
Consolidated Statements of Income (unaudited) for the three months ended
September 30, 1998 and 1997 and for the nine months ended September 30, 1998
and 1997..................................................................... 4
Consolidated Statements of Cash Flows (unaudited) for the nine months ended
September 30, 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........................................................ 15
PART II - OTHER INFORMATION
Item 1: Legal Proceedings.............................................................. 29
Item 2: Changes in Securities and Use of Proceeds...................................... 29
Item 3: Defaults Upon Senior Securities................................................ 29
Item 4: Submission of Matters to a Vote of Security Holders............................ 29
Item 5: Other Information.............................................................. 29
Item 6: Exhibits and Reports on Form 8-K............................................... 30
(a) Exhibits................................................................... 30
(b) Reports on Form 8-K........................................................ 30
Signatures.............................................................................. 31
</TABLE>
2
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------ ------------
(UNAUDITED)
ASSETS
<S> <C> <C>
ASSETS:
Land...................................................................... $ 478,935 $ 302,260
Buildings, improvements and equipment..................................... 1,967,874 1,491,067
Less accumulated depreciation............................................. (292,392) (236,220)
---------- ----------
Net property and equipment........................................... 2,154,417 1,557,107
Construction in progress.................................................. 43,510 11,651
Investments in unconsolidated real estate partnerships.................... 270,560 49,391
Participating loan to an affiliate........................................ 145,000 145,000
Note receivable secured by deed of trust.................................. 48,962 ---
Direct financing leases receivable........................................ 83,762 85,352
---------- ----------
Net investment in real estate........................................ 2,746,211 1,848,501
Cash and cash equivalents................................................. 14,504 11,003
Restricted cash........................................................... 8,189 28,305
Accounts and notes receivable, net of allowance of $9,656 and $8,912 in
1998 and 1997, respectively.............................................. 34,996 27,499
Deferred expenses and other assets, net................................... 49,805 54,322
---------- ----------
Total assets......................................................... $2,853,705 $1,969,630
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Notes payable and revolving credit facility............................... $1,729,298 $1,107,425
Accounts payable and accrued expenses..................................... 66,953 38,352
Distribution payable...................................................... 31,087 28,350
Minority interest......................................................... 50,251 25,123
---------- ----------
Total liabilities.................................................... 1,877,589 1,199,250
--------- ---------
SHAREHOLDERS' EQUITY (Note 9):
Common stock.............................................................. 731 731
Preferred stock........................................................... 321,000 121,000
Additional paid-in capital................................................ 648,790 648,649
Retained earnings......................................................... 5,595 ---
---------- ----------
Total shareholders' equity........................................... 976,116 770,380
---------- ----------
Total liabilities and shareholders' equity........................... $2,853,705 $1,969,630
========== ==========
</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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Minimum rents............................................... $ 53,143 $ 39,159 $149,662 $103,227
Tenant recoveries........................................... 23,927 18,592 61,706 46,941
Percentage rents............................................ 1,591 55 5,889 2,562
-------- -------- -------- --------
Total revenues............................................ 78,661 57,806 217,257 152,730
-------- -------- -------- --------
EXPENSES:
Operating................................................... 23,302 17,570 63,066 45,006
Management fees............................................. 1,507 1,118 4,276 3,116
Advisory fee................................................ 1,333 --- 4,300 ---
General and administrative.................................. 281 41 1,181 335
Depreciation and amortization............................... 18,374 14,972 52,252 38,730
-------- -------- -------- --------
Total expenses............................................ 44,797 33,701 125,075 87,187
-------- -------- -------- --------
OPERATING INCOME............................................. 33,864 24,105 92,182 65,543
INTEREST EXPENSE, net........................................ (25,809) (14,906) (65,011) (40,988)
OTHER INCOME:
Equity in income of unconsolidated real estate partnerships. 2,184 1,235 3,092 3,549
(Loss) gain on sale of investments.......................... (11,816) --- 53,895 ---
Interest and other income................................... 5,500 3,648 12,941 5,502
-------- -------- -------- --------
INCOME BEFORE MINORITY INTEREST.............................. 3,923 14,082 97,099 33,606
Minority interest in earnings of consolidated real estate
partnerships................................................ (926) (938) (2,904) (1,690)
-------- -------- -------- --------
NET INCOME................................................... $ 2,997 $ 13,144 $ 94,195 $ 31,916
======== ======== ======== ========
Net income allocable to preferred shares..................... $ 5,052 $ 2,685 $ 10,499 $ 8,745
Net (loss) income allocable to common shares................. (2,055) 10,459 83,696 23,171
-------- -------- -------- --------
$ 2,997 $ 13,144 $ 94,195 $ 31,916
======== ======== ======== ========
(LOSS) EARNINGS PER COMMON SHARE:
Basic....................................................... $ (0.03) $ 0.14 $ 1.14 $ 0.37
======== ======== ======== ========
Diluted..................................................... $ (0.03) $ 0.14 $ 1.13 $ 0.37
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
Basic....................................................... 73,337 73,330 73,333 62,868
======== ======== ======== ========
Diluted..................................................... 74,689 73,330 83,548 62,868
======== ======== ======== ========
</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>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income........................................................................... $94,195 $31,916
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization........................................................ 52,252 38,730
Amortization of deferred loan costs.................................................. 965 227
Equity in income of unconsolidated real estate partnerships.......................... (3,092) (3,549)
Minority interest in earnings of consolidated real estate partnerships............... 2,904 1,690
Gain on sale of investments.......................................................... (53,895) ---
Issuance of common stock to independent directors.................................... 140 ---
Changes in assets and liabilities:
Accounts and notes receivable, net................................................... (5,426) (8,178)
Deferred expenses and other assets................................................... (8,361) (6,981)
Accounts payable and accrued expenses................................................ 8,413 7,248
---------- ---------
Net cash flows provided by operating activities......................................... 88,095 61,103
---------- ---------
INVESTING ACTIVITIES:
Capital expenditures and acquisitions................................................ (777,869) (257,717)
Participating loan to an affiliate................................................... --- (145,000)
Purchase investment.................................................................. --- (15,184)
Proceeds from sale of investments.................................................... 99,670 ---
Cash distributions received from unconsolidated real estate partnerships............. 5,397 8,828
Notes receivable repayments.......................................................... 396 581
Direct financing leases receivable repayments........................................ 1,590 1,982
Cash and cash equivalents of consolidated real estate partnerships................... --- 1,083
Decrease in restricted cash.......................................................... 20,116 ---
---------- ---------
Net cash flows used in investing activities.......................................... (650,700) (405,427)
---------- ---------
FINANCING ACTIVITIES:
Proceeds from issuance of common stock............................................... --- 436,500
Proceeds from issuance of preferred stock............................................ 200,000 27,000
Redemption of common stock........................................................... --- (130,500)
Redemption of preferred stock........................................................ (67) (53)
Stock issuance costs................................................................. (1,006) (31,550)
Cash distributions paid to preferred shareholders.................................... (8,130) (8,253)
Cash distributions paid to common shareholders....................................... (77,732) (75,056)
Cash distributions paid to minority interests, net................................... (3,669) (1,003)
Proceeds from notes payable and revolving credit facility............................ 1,073,087 433,243
Principal payments on notes payable and revolving credit facility.................... (616,377) (299,811)
---------- ---------
Net cash flows provided by financing activities...................................... 566,106 350,517
---------- ---------
Net increase in cash and cash equivalents............................................ 3,501 6,193
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.......................................... 11,003 6,729
---------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD................................................ $ 14,504 $ 12,922
========== =========
SUPPLEMENTAL CASH FLOW INFORMATION PROVIDED IN NOTE 10.
</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/UNIT 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 September 30, 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 Company's Annual Report on Form
10-K filed on March 26, 1998.
Certain amounts in the 1997 Condensed 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 33 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 eight 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 whereby the
Company issued 20,400,000 shares of common stock par value $0.01 per share
and 270,000 shares of its Series B cumulative redeemable preferred stock, par
value $1.00 per share which resulted 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. These 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 able to exercise significant control when the other partners
have important approval rights over major actions. Investments by the Company
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.
6
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED AND IN THOUSANDS EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS)
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.
In June 1998, the Company paid $33,500 to acquire The Promenade at Woodland
Hills, a regional shopping center located in Los Angeles, California. Funds
for the purchase were obtained from borrowings under the Company's unsecured
revolving credit facility.
In July 1998, the Company acquired a 50% interest in Valley Fair Mall,
located in San Jose, California and a 100% interest in University Towne
Center, located in San Diego, California for an aggregate price of $332,000,
including assumption of the consolidated debt and the Company's pro rata
share of joint venture debt totaling $121,531 from TrizecHahn, Inc.
("TrizecHahn") pursuant to the asset purchase agreement discussed in Note 12.
Also in July 1998, the Company paid $94,000, including the assumption of
the Company's pro rata share of joint venture debt totaling $18,948, to
acquire the 50% interest in Los Cerritos Center, located in Cerritos,
California, not owned by TrizecHahn. In addition, the Company purchased the
mortgage secured by Fox Hills Mall for $49,156 which was subsequently
eliminated upon the acquisition of Fox Hills Mall in October 1998. See
further discussion in Note 13.
In August 1998, the Company acquired a 60% interest in Independence Mall,
located in Wilmington, North Carolina for $37,400, including the assumption
of the Company's pro rata share of joint venture debt totaling $19,800. The
acquisition price was satisfied by $3,480 in cash and the issuance of 786,286
units in Westfield Independence Mall Limited Partnership, which may be
exchanged, on a one-for-one basis, for shares of the Company's common stock.
In September 1998, the Company acquired a 39.7% interest in Santa Anita
Fashion Park, located in Arcadia, California and 100% interests in Solano
Mall, located in Fairfield, California and Parkway Plaza, located in El
Cajon, California for an aggregate purchase price of $308,000, including the
assumption of consolidated debt and the Company's pro rata share of joint
venture debt totaling $61,949.
5. DISPOSITIONS:
In conjunction with its initial public offering, the Company acquired 49
million non-transferable options to acquire ordinary shares of Westfield
Holdings Limited ("WHL"), an affiliate of the Company, (the "WHL Options").
The Company's December 31, 1997 balance sheet has been restated to reflect
the fair value of the WHL Options, which at the time of the initial public
offering, exceeded the Company's cost basis. In April 1998, the Company
exercised the WHL Options by electing to receive the profit element of the
WHL Options. As a result of the exercise, WHL elected to pay the profit
element of the WHL Options by issuing 20,339,066 WHL ordinary shares. These
shares were then sold by the Company for $99,670.
In August 1998, the Company incurred a loss totaling $11,806, resulting
from the reversal of certain interest rate swap agreements.
7
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED AND IN THOUSANDS EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS)
6. INVESTMENTS IN UNCONSOLIDATED REAL ESTATE PARTNERSHIPS:
As of September 30, 1998, the Company's interest in each unconsolidated
partnership is as follows:
<TABLE>
<CAPTION>
OWNERSHIP
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%
Los Cerritos Center...................... Cerritos, CA 50.0%
Valley Fair Mall......................... Fairfield, CA 50.0%
Santa Anita Fashion Park................. Arcadia, CA 39.7%
</TABLE>
A summary of the condensed balance sheets and unaudited statements of income
for all unconsolidated real estate partnerships on a combined basis is as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
--------------- ---------------
(UNAUDITED)
<S> <C> <C>
CONDENSED COMBINED BALANCE SHEETS:
Investment in real estate:
Land, building and improvements, at cost...................................... $ 836,705 $ 290,092
Less accumulated depreciation and amortization................................ (149,268) (105,495)
Construction in progress...................................................... 1,628 1,322
--------- ---------
Net investment in real estate.................................................... 689,065 185,919
Other notes payable.............................................................. (350,797) (175,289)
Other assets and liabilities, net, and interest of other partners................ (67,708) 38,761
--------- ---------
Investments in unconsolidated real estate partnerships................ .......... $ 270,560 $ 49,391
========= =========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
CONDENSED COMBINED STATEMENTS OF INCOME:
Total revenues............................................... $24,308 $18,608 $53,012 $60,135
Costs and expenses:
Operating, general and administrative..................... 7,234 5,382 15,780 17,445
Interest expense, net..................................... 6,339 5,287 15,935 16,578
Depreciation and amortization............................. 5,334 3,432 11,815 14,989
------- ------- ------- -------
Net income................................................... 5,401 4,507 9,482 11,123
Other partners' share of income.............................. (3,217) (3,272) (6,390) (7,574)
------- ------- ------- -------
Equity in income of unconsolidated real estate partnerships.. $ 2,184 $ 1,235 $ 3,092 $ 3,549
======= ======= ======= =======
</TABLE>
Significant accounting policies used by unconsolidated real estate
partnerships are similar to those used by the Company.
8
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED AND IN THOUSANDS EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS)
7. NOTES PAYABLE AND REVOLVING CREDIT FACILITY:
The Company's notes payable and revolving credit facility are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 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............................................................... 17,450 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 7.15%, $1,182 principal and interest payable monthly, due in 2000.................... 137,585 140,866
Unsecured revolving credit facility with a group of banks with a maximum commitment of
$800,000, interest only at LIBOR + 1.25% (6.88% at September 30, 1998) payable monthly, due
in 2000 with options to extend............................................................... 636,000 463,000
Collateralized commercial mortgage notes due in 2004, interest only payable monthly at 6.78%.. 75,000 75,000
Unsecured subordinated notes to Australian investors, interest payable monthly at 8.38%, due
in equal installments in 2001, 2002 and 2003................................................. 301,088 --
Collaterilized non-recourse note payable to an insurance company, interest at an effective
rate of 7.20%, principal and interest payable monthly, due in 2006........................... 81,418 --
Collaterilized non-recourse note payable to an insurance company, interest at an effective
rate of 7.00%, interest only payable monthly, due in 2006................................... 22,125 --
Collaterilized non-recourse note payable to an insurance company, interest at an effective
rate of 7.00%, interest only payable monthly, due in 2018.................................... 16,506 --
Collaterilized non-recourse note payable to a bank, interest at LIBOR +1% (6.37 at September
30, 1998), principal and interest payable monthly, due in 2003............................... 32,959 --
---------- ----------
$1,729,298 $1,107,425
========== ==========
</TABLE>
Interest costs capitalized for the three months ended September 30, 1998
and 1997 and the nine months ended September 30, 1998 and 1997, totaled $606,
$177, $1,267 and $1,325 respectively.
9
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED AND IN THOUSANDS EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS)
7. NOTES PAYABLE AND REVOLVING CREDIT FACILITY (CONTINUED):
The annual maturities of notes payable and revolving credit facility as
of September 30, 1998, are as follows:
<TABLE>
<S> <C>
1998...................................... $ 2,340
1999...................................... 196,612
2000...................................... 772,879
2001...................................... 272,909
2002...................................... 106,291
Thereafter................................ 378,267
----------
$1,729,298
==========
</TABLE>
8. INTEREST RATE SWAP AND EXCHANGE AGREEMENTS:
At September 30, 1998, the Company had nine current 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 agreement, 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 corresponding with the expiration
of existing fixed rate debt. The agreements consist of swaps and involve the
future receipt of a floating rate based on LIBOR and the payment of a fixed
rate.
10
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED AND IN THOUSANDS EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS)
9. CAPITAL STOCK:
At September 30, 1998 and December 31, 1997, the total number of shares
authorized, issued and outstanding were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 DECEMBER 31, 1997
----------------------------- -----------------------------
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 73,337,691 200,000,000 73,329,535
Excess stock, $.01 par value............................... 205,000,000 -- 205,000,000 --
Non-voting senior preferred stock, $1.00 par value......... 200 2 200 9
Preferred stock, $1.00 par value of which 940,000 shares
are designated Series A cumulative redeemable preferred
stock, 270,000 shares are designated Series B cumulative
redeemable preferred stock 416,667 shares are designated
Series C cumulative convertible redeemable preferred
stock and 694,445 shares are designated Series D
cumulative convertible redeemable preferred stock......... 5,000,000 2,321,112 5,000,000 1,210,000
</TABLE>
Each director who is not an officer of the Company or an employee of WHL is
entitled to annual compensation equal to $20 in cash and $20 in unregistered
common stock. The number of shares issued is based on the share price of the
Company's common stock on the anniversary of such director's appointment. In
May and September 1998, the Company issued 6,930 and 1,226 shares,
respectively, of common stock to directors.
In May 1998, the Company entered into a stock subscription agreement with
Westfield America Trust ("WAT"), a property trust listed on the Australian
Stock Exchange and a 56.1% shareholder of the Company's common stock. Subject
to shareholder approval, the Company has the right to sell, and WAT has the
obligation to purchase, up to $A465,000, (approximately $US300,000), of the
Company's 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. In lieu of issuing stock at each installment date, the Company has
the option to pay the 5% discount in cash or in common stock. The common
stock has 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.
11
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED AND IN THOUSANDS EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS)
9. CAPITAL STOCK (CONTINUED):
In August 1998, the Company issued $200,000 of its convertible Preferred
Stock in a private placement Each share of Series C and Series D Preferred
Stock is convertible into common stock at the price of $18.00 per share and
has a dividend rate equal to the greater of 8.5% or the dividend declared on
the Company's common stock. The Series C and Series D Preferred Stock
acquired by WHL and WAT is not convertible into the Company's common stock
until approval of the Company's shareholders is obtained. The Convertible
Preferred Stock and the underlying common stock have not been 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.
A quarterly distribution was declared on September 19, 1998 to shareholders
of record on September 30, 1998 of $31,087, including $0.355 per share of
common stock, which equates to $1.42 per share on an annualized basis.
10. SUPPLEMENTAL CASH FLOW INFORMATION:
For the nine months ended September 30, 1998 and 1997, the Company paid
interest totaling $58,722 and $40,729, respectively, net of capitalized
interest.
Non cash investing and financing information:
For the nine months ended September 30, 1998 and 1997, construction in
process totaling $3,690 and $83,762, respectively, were placed into service.
During the three months ended September 30, 1998, the Company recorded
increases to its notes payable and revolving credit facility totaling
$153,162 as a result of the mortgage debt assumed in conjunction with the
acquisitions of University Towne Center, Independence Mall and Solano Mall.
In addition, as part of the consolidation of Independence Mall, the Company
recorded an increase in minority interest totaling $25,947.
12
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED AND IN THOUSANDS EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS)
11. RELATED PARTIES:
On July 1, 1996, Westfield Management Company ("WMC"), an entity indirectly
owned by WHL, entered into an agreement with WEA to manage the properties in
WEA's portfolio. In consideration for providing these management services,
WMC is reimbursed certain recoverable property operating costs, including
mall related payroll, and is entitled to receive 5% of minimum and percentage
rents received by the Company. Property management fees totaling $1,507 and
$1,118, net of capitalized leasing fees of $1,164 and $662, were expensed for
the three months ended September 30, 1998 and 1997, respectively. Property
management fees totaling $4,276 and $3,116, net of capitalized leasing fees
of $3,227 and $1,689, were expensed for the nine months ended September 30,
1998 and 1997, respectively. Included in accounts payable and accrued
expenses at September 30, 1998 and December 31, 1997, are management fees
payable to WMC totaling $1,237 and $1,068, respectively.
In addition to the management fees, WMC was reimbursed for recoverable
operating costs including mall related payroll costs totaling $3,712 and
$3,600 for the three months ended September 30, 1998 and 1997, respectively,
and $11,649 and $10,178 for the nine months ended September 30, 1998 and
1997, respectively.
In accordance with a Master Development Framework Agreement dated as of
July 1, 1996, Westfield Corporation, Inc. ("WCI"), a wholly owned subsidiary
of WHL, performs expansion, redevelopment and related works for the Company.
During the three months ended September 30, 1998 and 1997, the Company
reimbursed WCI $15,840 and $14,552, respectively, and for the nine months
ended September 30, 1998 and 1997, the Company reimbursed WCI $35,944 and
$38,089, respectively, for such expansion, redevelopment and related work
performed.
Westfield U.S. Advisory, L.P. ("Advisor"), an entity indirectly owned by
WHL, provides a variety of asset management and investment services for the
Company, subject to supervision of the Company. The Advisor is entitled to an
annual fee ("Advisory Fee") equal to 25% of the annual Funds of Operations
("FFO") in excess of the weighted average advisory FFO amount ($122,337), but
not to exceed 55 basis points of the Net Equity Value (as defined) of the
Company's assets ("Advisory FFO"). The Advisory FFO Amount shall be increased
whenever the Company issues additional common stock. The Advisory Fee expense
for the three and nine months ended September 30, 1998 was $1,333 and $4,300,
respectively. The Advisory Fee was not payable for periods through December
31, 1997.
Included in interest and other income for the three months ended September
30, 1998 and 1997 and the nine months ended September 30, 1998 and 1997 is
interest income earned on a participating mortgage loan to wholly-owned
indirect subsidiaries of WHL totaling $3,566, $3,300, $10,656 and $4,669,
respectively.
13
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED AND IN THOUSANDS EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS)
12. COMMITMENTS AND CONTINGENCIES:
The Company is currently involved in several development projects and had
outstanding commitments due to WCI totaling approximately $62,433 at
September 30, 1998.
The Company has signed an agreement for the acquisition of interests in up
to 12 shopping center properties (eleven in California and one in Washington)
(the "Hahn Portfolio"), comprising approximately 12.1 million square feet of
gross leasable area from TrizecHahn for a maximum purchase price of
$1,391,000, including the assumption of debt. The final price and the number
of centers ultimately acquired will depend upon the interests ultimately
conveyed at closing 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. As of November 1, 1998, the Company had
acquired 11 of the 12 centers in the Hahn Portfolio. The final acquisition is
expected to close before December 31, 1998.
13. SUBSEQUENT EVENTS:
In October 1998, the Company closed on an additional six properties from
the Hahn Portfolio. The Company acquired a 49% interest in Capital Mall,
located in Olympia, Washington, and a 100% interest in Fox Hills Mall,
located in Culver City, California and Oakridge Mall, located in San Jose,
California for an aggregate price of $184,000, including the assumption of
debt.
Also in October, the Company acquired 100% interests in Downtown Plaza,
located in Sacramento, California, Horton Plaza, located in San Diego,
California and the 55% interest in North County Fair, located in Escondido,
California that the Company did not already own for an aggregate price of
$450,000 including the assumption of debt.
In October 1998, the Company also acquired an additional 10% interest in
Independence Mall Limited Partnership for $2,871, plus the assumption of
debt.
14
<PAGE>
PART I FINANCIAL INFORMATION
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 Condensed
Consolidated Financial Statements of the Company, the Notes thereto for the
nine months ended September 30, 1998 (unaudited) and the Consolidated
Financial Statements of the Company for the year ended December 31, 1997
included in the Company's Annual Report on Form 10-K filed on March 26, 1998.
GENERAL BACKGROUND
The Company acquired Crestwood Plaza and The Promenade at Woodland Hills in
January 1998 and June 1998, respectively. The Company also acquired
University Towne Center and 50% interests in Valley Fair Mall and Los
Cerritos Center in July 1998, a 60% interest in Independence Mall in August
1998, and Solano Mall, Parkway Plaza and a 39.7% interest in Santa Anita
Fashion Park in September 1998. Additionally, the Company acquired the
remaining 70% interest in Annapolis Mall and the remaining 68% managing
interest in Wheaton Plaza in June 1997, the remaining 50% interest in Meriden
Square not owned by the Company and 100% interest in Northwest Plaza, in
September 1997 and December 1997, respectively. For purposes of discussing
the results of operations, the centers acquired during 1998 and 1997 are
hereby referred to as the "Acquisition Centers."
At September 30, 1998 and for the nine 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, The Promenade at Woodland Hills following its acquisition in
June 1998, University Towne Center and the equity in income of Valley Fair
and Los Cerritos Center following their acquisition in July 1998,
Independence Mall following its acquisition in August 1998, Solano Mall,
Parkway Plaza and the equity in income from Santa Anita Fashion Park
following their acquisition in September 1998, 12 separate department store
properties that are net leased to the May Department Stores Company under
financing leases, certain other real estate investments, a $145 million
participating mortgage loan made to two wholly-owned indirect subsidiaries of
WHL secured by a 50% indirect interest in Garden State Plaza and the sale of
investments.
At September 30, 1997 and for the nine months then ended, the Condensed
Consolidated Financial Statements and Notes thereto reflect the consolidated
financial results of 15 centers, the equity in income of five unconsolidated
real estate partnerships, Annapolis Mall and Wheaton Plaza following their
acquisition on or about June 1, 1997, Meriden Square following its
acquisition in September 1997, 13 separate department store properties that
are net leased to the May Department Stores Company under financing leases,
certain other real estate investments and a $145 million participating
mortgage loan made to two wholly-owned indirect subsidiaries of WHL secured
by a 50% indirect interest in Garden State Plaza.
15
<PAGE>
RESULTS OF OPERATIONS
Comparison of the Three Months Ended September 30, 1998 to the Three Months
Ended September 30, 1997
Total revenues increased $20.9 million or 36% to $78.7 million for the three
months ended September 30, 1998 as compared to $57.8 million for the same period
in 1997. The increase is the result of the addition of the Acquisition Centers
which contributed $18.8 million or 90% of the increase in total revenues.
Excluding the total revenues generated by the Acquisition Centers, total
revenues increased $2.1 million due to higher minimum rents throughout the
Company's portfolio and higher minimum rents generated by redevelopments.
Total expenses increased $11.1 million or 33% to $44.8 million for the three
months ended September 30, 1998 as compared to $33.7 million for the same period
in 1997. The increase was primarily the result of the addition of the
Acquisition Centers, which contributed a combined $9.4 million or 85% of the
increase in total expenses. Excluding the total expenses incurred by the
Acquisition Centers, total expenses increased $1.7 million due primarily to the
advisory fee totaling $1.3 million which became payable in 1998.
Interest expense, net of capitalized interest, increased $10.9 million or 73%
to $25.8 million for the three months ended September 30, 1998 as compared to
$14.9 million for the same period in 1997 due primarily to increased borrowings
under the Company's unsecured revolving credit facility as a result of the
additions of the Acquisition Centers.
Equity in income of unconsolidated real estate partnerships increased
approximately $1.0 million to $2.2 million for the three months ended September
30, 1998 as compared to $1.2 million for the same period in 1997 due primarily
to the acquisition of joint venture interests in Valley Fair Mall, Los Cerritos
Center and Santa Anita Fashion Park which were acquired during the quarter ended
September 30, 1998.
Interest and other income increased $1.9 million to $5.5 million for the
three months ended September 30, 1998 as compared to $3.6 million for the same
period in 1997. The increase was due to interest earned on the $145 million
participating loan made to two wholly-owned indirect subsidiaries of WHL in
conjunction with the Company's initial public offering and interest earned on
the note receivable secured by the Fox Hills Mall which was purchased in July
1998.
Net income decreased $10.1 million to $3.0 million for the three months ended
September 30, 1998 primarily due to a loss of $11.8 million in the third quarter
resulting from the reversal of certain interest rate swap agreements. Excluding
this loss, net income increased $1.7 million or 13% to $14.8 million for the
three months ended September 30, 1998 as compared to $13.1 million for the same
period in 1997 for the reasons discussed above.
16
<PAGE>
Comparison of the Nine Months Ended September 30, 1998 to the Nine Months Ended
September 30, 1997.
Total revenues increased $64.5 million or 42% to $217.3 million for the nine
months ended September 30, 1998 as compared to $152.8 million for the same
period in 1997. The increase is primarily the result of the addition of the
Acquisition Centers, which contributed $58.7 million or 91% of the increase in
total revenues. Excluding the total revenues generated by the Acquisition
Centers, total revenues increased $5.8 million due to higher minimum rents
throughout the portfolio and higher minimum rents generated by redevelopments.
Total expenses increased $37.9 million or 43% to $125.1 million for the nine
months ended September 30, 1998 as compared to $87.2 million for the same period
in 1997. The increase was primarily the result of the addition of the
Acquisition Centers which contributed $29.4 million or 78% of the increase in
total expenses. Excluding the total expenses incurred by the Acquisition
Centers, total expenses increased $8.5 million due to the advisory fee totaling
$4.3 million which became payable in 1998, and depreciation expense related to
redevelopments placed into service in the second half of 1997.
Interest expense, net of capitalized interest, increased $24.0 million or 59%
to $65.0 million for the nine months ended September 30, 1998 as compared to
$41.0 million for the same period in 1997. The increase was due primarily to
increased borrowings under the Company's unsecured revolving credit facility as
a result of the addition of the Acquisition Centers.
Equity in income of unconsolidated real estate partnerships decreased
approximately $0.4 million to $3.1 million for the nine months ended September
30, 1998 as compared to $3.5 million for the same period in 1997. The decrease
was due primarily to the consolidation of Annapolis Mall and Meriden Square due
to the Company's acquisition of the remaining partnership interests in June and
September of 1997, respectively, which was partially offset by the acquisition
of the joint venture interests in Valley Fair Mall, Los Cerritos Center and
Santa Anita Fashion Park during the quarter ended September 30, 1998.
Interest and other income increased $7.4 million to $12.9 million for the
nine months ended September 30, 1998 as compared to $5.5 million for the same
period in 1997. The increase was primarily due to interest earned on the $145
million participating loan to an affiliate made in conjunction with the
Company's initial public offering and interest earned on the note receivable
secured by the Fox Hills Mall which was purchased in July 1998.
Minority interest in earnings of consolidated real estate partnerships
increased $1.2 million to $2.9 million for the nine months ended September 30,
1998 as compared to $1.7 million for the same period in 1997 due primarily to
the acquisition of a 68% managing interest in Wheaton Plaza.
Net income increased $62.3 million to $94.2 million for the nine months ended
September 30, 1998 primarily due to a net gain of $53.9 million on the sale of
investments. Excluding this net gain, net income increased $8.4 million or 26%
to $40.3 million for the nine months ended September 30, 1998 as compared to
$31.9 million for the same period in 1997 for the reasons discussed above.
17
<PAGE>
EBITDA EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION
The Company believes that there are several important factors which
contribute to the Company's ability to increase rent and improve the
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 does not represent cash flow from operations as defined by
generally accepted accounting principles ("GAAP") and should not be considered
as an alternative to net income (determined in accordance with GAAP) as a
measure of the Company's operating performance. EBITDA is not indicative of cash
flows from operating, investing and financing activities (determined in
accordance with GAAP), should not be used as an alternative to cash flows
(determined in accordance with GAAP) as a measure of the Company's liquidity and
is not indicative of funds available to fund the company's cash needs, including
its ability to make distributions.
The Company's EBITDA after minority interest plus its pro rata share of
EBITDA of unconsolidated real estate partnerships increased from $127.0 million
to $171.0 million for the nine months ended September 30, 1997 and 1998,
respectively, representing an increase of 35%. The growth in EBITDA reflects the
addition of total gross leasable area, increased rental rates, increased tenant
sales and improved occupancy levels.
The following is a summary of the unaudited EBITDA of the Company (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
1998 1997 1998 1997
---------- -------- -------- ----------
<S> <C> <C> <C> <C>
EBITDA of wholly-owned and consolidated real estate partnerships..... $58,034 $43,405 $158,895 $111,654
Pro rata share of EBITDA of unconsolidated real estate partnerships.. 7,907 5,884 16,822 18,371
------- ------- -------- --------
Total EBITDA......................................................... $65,941 $49,289 $175,717 $130,025
======= ======= ======== ========
EBITDA after minority interest (1)................................... $64,320 $47,805 $171,036 $127,009
======= ======= ======== ========
Increase in EBITDA after minority interest........................... 35% 35%
======= ========
</TABLE>
(1) EBITDA after minority interest represents earnings before interest, taxes,
depreciation and amortization and gain or loss on sale of investments for
all the Company's properties excluding the minority partners' share of
EBITDA in Mission Valley Partnership, Wheaton Plaza Regional Shopping
Center, LLP and Independence Mall Associates Limited Partnership.
18
<PAGE>
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 companies.
The following is a summary of the unaudited Funds from Operations of the
Company and reconciliation of net income to Funds from Operations (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Funds from Operations................................................ $36,148 $30,562 $99,860 $78,830
======= ======= ======= =======
Increase in Funds from Operations from prior period.................. 18% 27%
======= =======
Reconciliation:
Net income........................................................ $ 2,997 $13,144 $94,195 $31,916
Loss (Gain) on sale of investments................................ 11,816 - (53,895) -
Depreciation and amortization:
Deferred financing leases......................................... 539 504 1,590 1,511
Consolidated properties........................................... 18,374 14,972 52,252 38,730
Unconsolidated real estate partnerships........................... 2,868 2,234 6,744 7,394
Minority interest portion......................................... (446) (292) (1,026) (721)
------- ------- ------- -------
Funds from Operations............................................. $36,148 $30,562 $99,860 $78,830
======= ======= ======= =======
</TABLE>
19
<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 the first
three quarters of 1998 and for the Company's centers, excluding North County
Fair:
<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1998 QUARTERLY DATA
Mall store sales /(2)/...................................... $513,984 $557,790 $567,857 N/A
Revenues.................................................... $ 87,933 $ 86,807 $108,469 N/A
Percentage leased /(2)/..................................... 92% 93% 94%/(1)/ N/A
1997 QUARTERLY DATA
Mall store sales /(2)/...................................... $289,716 $316,178 $325,834 $506,591
Revenues.................................................... $ 69,482 $ 69,087 $ 80,209 $ 83,031
Percentage leased /(2)/..................................... 91% 92% 92% 93%
</TABLE>
(1) Excludes the Hahn Portfolio which was 88% leased as of September 30,
1998.
(2) Excludes centers under redevelopment during the period.
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 the Company's centers, excluding North County Fair, for the nine
months ended September 30, 1998, increased 3.6% 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.
20
<PAGE>
The table below sets forth mall store sales and per square foot percentage
increases over the same periods in 1997 for the Company's centers, excluding
North County Fair, in the east coast, the mid west and the west coast regions of
the United States.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1998
-------------------------- --------------------------
MALL STORE INCREASE PER MALL STORE INCREASE PER
SALES SQ. FT. SALES SQ. FT.
---------- ------------ ---------- ------------
($000) ($000)
<S> <C> <C> <C> <C>
East coast................................................. $189,503 2.6% $ 547,392 2.6%
Mid west................................................... 73,212 3.3% 213,128 3.1%
West coast................................................. 305,142 4.4% 879,113 4.2%
-------- --- ---------- ---
Total Centers.............................................. $567,857 3.8% $1,639,633 3.6%
======== === ========== ===
</TABLE>
LEASING
Mall store space was 94% leased at September 30, 1998, excluding North County
Fair, the recently acquired Hahn Portfolio centers and centers under
redevelopment. 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 Company's centers (excluding
the newly acquired Hahn properties located on the West Coast which were 88%
leased as of September 30, 1998) in the east coast, the mid west and the west
coast regions of the United States.
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1998 1997
---- ----
<S> <C> <C>
East coast......................... 94% 93%
Mid west........................... 93% 91%
West coast......................... 95% 92%
Total Centers...................... 94% 92%
</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. 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.
Average base rent was $28.07 at September 30, 1998. The following table
contains certain information regarding base rent per square foot of the mall
stores excluding North County Fair and leases in excess of 20,000 square feet
that have been executed since January 1, 1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Average base rent of mall store leases, at the end of the
period........................................................ $28.07 $27.48 $28.07 $27.48
Leases expired during the period............................... 24.28 28.16 24.96 27.48
Leases executed during the period.............................. 32.65 30.72 30.26 29.45
</TABLE>
21
<PAGE>
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 was $1,115 and
$693 for the three months ended September 30, 1998 and 1997, respectively, and
$3,127 and $1,956 for the nine months ended September 30, 1998 and 1997,
respectively (in thousands).
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the Company had unused capacity under its unsecured
revolving credit facility totaling $164 million 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.
In April 1998, the Company exercised the WHL Options by electing to receive
the profit element of the WHL Options. As a result of the exercise, WHL elected
to pay the profit element of the WHL Options by issuing 20,339,066 WHL ordinary
shares. These shares were then sold by the Company for $99.7 million.
In June 1998, the Company issued $301.1 million of unsecured subordinated
notes ("Capital Notes") to Australian investors, repayable in three equal
installments due in June 2001, 2002 and 2003 and bearing interest at 8.38% per
annum. In June 1998, the Company also entered into a stock subscription
agreement with WAT. Subject to shareholder approval, the Company has the right
to sell, and WAT has the obligation to purchase, up to $A465 million,
(approximately $US300 million), of the Company's 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.
In August 1998, the Company issued $200 million of Series C and D convertible
preferred stock. Each share of Series C and Series D Preferred Stock is
convertible into ten shares of the Company's common stock at the price of $18.00
per share and has a dividend rate equal to the greater of 8.5% or the dividend
declared on the Company's common stock. The Series D convertible Preferred Stock
acquired by WAT and WHL is not convertible into the Company's common sock until
approval of the Company's shareholders is obtained.
Additionally, in August 1998, the Company issued 786,286 units in Westfield
Independence Mall Limited Partnership in conjunction with the purchase of
Independence Mall. Each unit of Westfield Independence Mall Limited Partnership
is convertible, on a one-for-one basis, into shares of the Company's common
stock
At September 30, 1998, the Company's had cash and cash equivalents totaling
$14.5 million excluding its proportionate share of cash held by unconsolidated
real estate partnerships.
The Company's consolidated indebtedness at September 30, 1998 was $1,729.3
million, of which $1,360.3 million is fixed-rate debt and $369.0 million is
variable rate debt after considering interest rate protection agreements
totaling $300 million (see discussion below). The interest rate on the fixed
rate debt ranges from 6.15% to 8.38%. The Company's pro rata share of debt-to-
total market capitalization, based on the share price on September 30, 1998, was
54.1%. If the Capital Notes were treated as equity, the debt-to-total market
capitalization ratio would have been 45.1% at September 30,1998.
The Company has entered into interest rate exchange agreements to manage
current and future interest rates. The agreements consist of swaps and involve
the future receipt, corresponding with the expiration of existing fixed rate
debt, of a floating rate based on LIBOR and the payment of a fixed rate. Since
September 30, 1997, the Company has lengthened the average remaining term of its
pro rata share of total borrowings and hedges, including delayed start swaps
from 6.2 to 8.8 years.
22
<PAGE>
The following is a summary of the Company's fixed rate debt, average interest
rate and average remaining term to maturity for the Company's pro rata share of
notes payable and revolving credit facility:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
---- ----
($ IN THOUSANDS)
<S> <C> <C>
Principal amount of fixed rate debt.................................... $1,159,774 $703,175
Principal amount of other current fixed rate payable instruments....... 300,000 225,000
---------- --------
$1,459,774 $928,175
========== ========
Fixed rate debt as a percentage of total notes payable and revolving
credit facility....................................................... 78.6% 79.6%
========== ========
Average rate (inclusive of margins) of total borrowings and
hedges................................................................ 7.30% 7.04%
========== ========
Average remaining term (in years) of total borrowings and
hedges, including delayed start swaps................................. 8.8 6.2
========== ========
</TABLE>
As previously discussed, the Company has entered into an agreement to acquire
interests in up to 12 shopping center properties from TrizecHahn Centers, Inc.
for a maximum purchase price of $1.391 billion including the assumption of debt.
In this regard, the Company has utilized existing debt facilities, has issued
additional debt and equity as noted above and has arranged additional loan
facilities to fund the Hahn Portfolio 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 expansion projects and potential
acquisitions will be funded by external financing sources.
Capital expenditures and capital leasing costs, excluding property
acquisitions, were $46.1 million and $51.1 million for the nine months ended
September 30, 1998 and 1997, respectively. The following table shows the
components of capital expenditures:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1998 1997
---- ----
($ IN THOUSANDS)
<S> <C> <C>
Renovations and expansions................................................... $35,549 $44,321
Tenant allowances............................................................ 6,694 4,752
Capital leasing costs........................................................ 3,227 1,689
Other capital expenditures................................................... 612 321
------- -------
Total..................................................................... $46,082 $51,083
======= =======
</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.
23
<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 an approximate 210,000 square foot power center with
value-oriented retailers that will complement Mission Valley Center. The
first phase was completed in September with the openings of Border Books,
Marshalls, Gateway Computer and Old Navy. Completion of the second phase
is planned for a Spring 1999 opening.
. 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, opened in October, 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 December 1998.
. South Shore Mall in Bayshore, New York, is a three anchor super-regional
center with 125 mall stores. South Shore Mall is adding a new Lord &
Taylor store with a planned November 1998 opening.
. Meriden Square in Meriden, Connecticut is a three anchor regional mall
with 114 mall stores. The addition of a fourth anchor, Lord & Taylor and
70,000 square feet of new mall stores is planned to open in the Fall of
1999 which will differentiate Meriden Square from its competition and
solidify its market position.
. Crestwood Plaza in St. Louis, Missouri, is a three anchor super-regional
shopping center with 144 Mall Stores. Crestwood Plaza will add 27,000
square feet of new Mall Stores. Construction will begin in January 1999
with a fall 1999 anticipated completion.
In addition to the approved redevelopments, the Company has announced the
following redevelopment which management 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 completed
in phases with Famous-Barr opening in Fall 1999, and Nordstrom scheduled
for completion in 2001.
. Connecticut Post in Milford, Connecticut, is a three anchor regional
shopping center with 137 specialty stores. A two-level 193,000 square
foot Sears expansion is scheduled to open in Spring 2000. With the new
Sears, approximately 30,000 square feet of additional retail stores will
also be added to the center.
Capital expenditures were financed by external funding and recovery of costs
from retailers where applicable. The Company had outstanding commitments with
contractors totaling approximately $62.4 million as of September 30, 1998, which
will be funded through restricted cash and the unsecured revolving credit
facility.
24
<PAGE>
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 September 19, 1998 to shareholders of record
on September 30, 1998, of which $31.1 million which represents $0.355 per common
share for the quarter ended September 30, 1998, and equates to $1.42 per common
share on an annualized basis.
YEAR 2000 READINESS
The Year 2000 Problem is the result of computer hardware and software systems
(collectively referred to as "Systems" and individually as a "System") having
been designed to use a two digit code rather than a four digit code to define
the applicable year, as in "98" to represent "1998". Any of the Company's
Systems may misinterpret a date using "00" as the year 1900 rather than the year
2000. This could result in errors causing such Systems to become unreliable or
could cause such System to fail.
On behalf of the Company, the Company's manager, WMC, began a company-wide
assessment in 1997 (the "Project") to identify the Company's reliance on Systems
using a two digit date code as well as the Company's exposure to third party
customers and suppliers critical to the Company's operations. The Project
includes an assessment of the Company's dependence upon such Systems and third
parties as well as establishing priorities for addressing any Systems or third
party customers and suppliers which are assessed as a potential year 2000
compliance risk.
The Company's initial assessment identified four areas of concern: (i)
internal Systems which the Company uses for information processing, data storage
and communication, (ii) fire, life and safety systems installed at the Company's
properties which are used for measurement and control of mechanical devices
essential to the properties' use and operations, (iii) economic dependence upon
significant customers which are critical to the Company's operations, and (iv)
relationships with third party suppliers upon which the Company's business is
substantially dependent.
25
<PAGE>
Internal Systems
In 1997, WMC completed a comprehensive assessment of all communication,
hardware and software Systems believed to be critical to the Company's
operations. As a result of that assessment, WMC began a program of replacing and
upgrading all Systems which were identified as not being Year 2000 compliant.
Requirements for replacing all hardware and software Systems included receipt of
written confirmation that the new Systems were Year 2000 compliant. The
conversion was substantially completed on October 31, 1998. WMC is now in the
final stage of the conversion which consists of testing the computer system for
Year 2000 compliance. Based upon the assessments and testing to date, no
contingency plans are expected to be needed. Management considers its efforts to
ensure Year 2000 compliance of its internal Systems to be adequate; however,
assurances obtained from hardware and software vendors have not been
independently verified and there can be no assurance that testing yet to be
performed will be adequate, in all instances, to ensure that all software and
hardware systems are compatible and able to function reliably in the year 2000
and thereafter. The cost of the computer conversion as well as the costs to test
the System's Year 2000 compliance will be incurred by WMC. Such expenses are not
reimbursable by the Company.
Fire, Life and Safety Systems
Management's initial assessment of the fire, life and safety Systems and the
heating, ventilating and air conditioning ("HVAC") Systems at its properties
indicates that manual overrides on most Systems are available as an alternative
to existing automated controls for monitoring and controlling existing Systems.
Additionally, the Company is in the process of compiling a detailed set of
procedures to identify all electronic and mechanical control Systems at its
malls and to test these procedures at two mall locations to determine the
appropriate action to take with respect to all other properties. The Company
anticipates that procedures and testing at the two mall locations will be
completed by December 31, 1998. Based upon the results of the work at the two
mall locations, the Company will develop an overall plan to assess and upgrade
or replace any Systems which are not Year 2000 compliant during 1999. Any cost
incurred to replace or upgrade such Systems are a cost of maintaining the
properties and are therefore considered to be recoverable from the tenants under
the terms of existing leases. Although there can be no assurance, management
considers the financial impact and risk of significant loss because of System
changes or business interruptions caused by fire, life and safety Systems and
HVAC Systems which are not Year 2000 compliant to be minimal.
Significant Customers
The Company is also reliant on its customers to make the necessary
preparations for year 2000 so that their business operations will not be
interrupted, thus threatening their ability to honor their financial
commitments. As of September 30, 1998, all tenants had been notified of their
responsibilities under their lease notwithstanding interruptions to their
business resulting from Year 2000 problems and all anchor stores
had been identified as having lease payments sufficiently large to warrant
inquiry as to their Year 2000 preparation. We are communicating with each of
them about their plans and progress in addressing their respective Year 2000
problems. An initial risk assessment is expected to be substantially completed
by December 31, 1998. Although we are aware that most of these companies are
working on becoming Year 2000 compliant, there can be no guarantee that failure
to make necessary modifications would not have a material adverse affect on the
Company. The cost of communicating with the Company's tenants is anticipated to
be minimal, will be incurred by WMC and is not reimbursable by the Company.
26
<PAGE>
Third Party Suppliers
Exposure to third party suppliers is considered to pose a significant risk.
Information requests have been distributed to key third party suppliers and
replies are being evaluated. Where our risk assessment indicates significant
exposure, follow-up questionnaires and direct contact in the form of
teleconferences and site visits will be performed to assess accuracy of
information received and to determine and minimize, to the extent possible,
potential loss exposure. This assessment is anticipated to be completed by the
end of the second quarter of 1999. Although management believes that its efforts
with respect to such risks are appropriate, there can be no assurance that such
efforts will be adequate to determine the readiness of any of its key third
party suppliers in sufficient time to prevent a material adverse effect on the
Company. The Company's contingency planning for non-compliant third party
suppliers is to identify by the third quarter of 1999, to the extent possible,
alternative suppliers who are Year 2000 compliant as a replacement source for
goods or services. The cost of communicating with the Company's third party
suppliers is anticipated to be minimal, will be incurred by WMC and is not
reimbursable by the Company.
The potential unavailability of utility services is also considered to be a
significant risk. Management has determined that redundant systems adequate to
provide an alternate source of utilities to a broad spectrum of the Company's
properties in the event of a provider's inability to supply utility service is
not economically viable. Consequently, if such utility services were to
experience Year 2000 failures, this could disrupt the Company's ability to
conduct ongoing operations at the affected locations.
Readers are cautioned that forward-looking statements contained in this "Year
2000 Readiness Disclosure" should be read in conjunction with the Company's
disclosure below under the heading "Cautionary Statement Concerning Forward-
Looking Statements" of this Quarterly Report on Form 10-Q.
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 "Year
2000 Readiness," (b) "Legal Proceedings" and (c) 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's 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.
27
<PAGE>
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 Financial Condition and
Results of Operations 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.
28
<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
The Securities and Exchange Commission (the "Commission") recently amended
certain rules under the Securities Exchange Act of 1934 regarding the use of a
company's discretionary proxy voting authority with respect to shareholder
proposals submitted to the Company for consideration at the Company's next
annual meeting.
Pursuant to the Company's by-laws, as amended shareholder proposals submitted
to the Company outside the processes of Rule 14a-8 (i.e., the procedures for
placing a shareholder's proposal in the Company's proxy materials) with respect
to the Company's 1999 annual meeting of shareholders will be considered untimely
if received by the Company before December 31, 1998 or after January 31, 1999.
Accordingly, the proxy with respect to the Company's 1999 annual meeting of
shareholders will confer discretionary authority to vote on any shareholder
proposals received by the Company after January 26, 1999.
29
<PAGE>
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<C> <S>
3.1 Third Restated Articles of Incorporation of the Company (Exhibit 3.1(1))
3.2 Certificate of Designation for Series B Preferred Shares (Exhibit 3.2(1))
3.3 Certificate of Designation for Series C Preferred Shares (Exhibit 3.1(2))
3.4 Certificate of Designation for Series D Preferred Shares (Exhibit 3.2(2))
3.5 Second Amended and Restated By-Laws of the Company (Exhibit 3.3(1))
27.1 Financial Data Schedule
(1) Incorporated by reference to designated exhibit to the Company's Form 10-Q for the quarterly
period ended June 30, 1997, File No. 333-22731.
(2) Incorporated by reference to designated exhibit to the Company's Form 10-Q for the quarterly
period ended June 30, 1998, File No. 333-22731.
</TABLE>
(b) Reports on Form 8-K:
The Company filed the following reports on Form 8-K during the three months
ended September 30, 1998:
<TABLE>
<CAPTION>
DATE OF FILING ITEMS REPORTED FINANCIAL STATEMENT
- -------------- -------------- -------------------
<S> <C> <C>
August 17, 1998......................................... 2, 7 No
</TABLE>
Form 8-K was filed on August 17, 1998. Under Item 2 Acquisition or
disposition of Assets acquired a 50% interest in Valley Fair Mall located
in Fairfield, California and a 100% interest in University Towne Centre
located in San Diego, California.
30
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Westfield America, Inc.
Date: November 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
31
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q,
FOR QUARTERLY PERIOD ENDED SEPT 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> JUL-01-1998 JAN-01-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<CASH> 14,504 14,504
<SECURITIES> 0 0
<RECEIVABLES> 34,996 34,996
<ALLOWANCES> 9,656 9,656
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 2,746,211 2,746,211
<DEPRECIATION> (292,392) (292,392)
<TOTAL-ASSETS> 2,853,705 2,853,705
<CURRENT-LIABILITIES> 0 0
<BONDS> 1,729,298 1,729,298
0 0
321,000 321,000
<COMMON> 731 731
<OTHER-SE> 654,385 654,385
<TOTAL-LIABILITY-AND-EQUITY> 2,853,705 2,853,705
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<TOTAL-REVENUES> 78,661 217,257
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<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (25,809) (65,011)
<INCOME-PRETAX> 3,923 97,099
<INCOME-TAX> 0 0
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<EXTRAORDINARY> (11,816) 53,895
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