<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
WESTFIELD AMERICA, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
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<PAGE>
[LOGO]
April 5, 1999
Dear Shareholder:
On behalf of the Board of Directors, I cordially invite you to attend our
Annual Meeting of Shareholders to be held at 2:00 p.m. on Thursday, April 29,
1999, at the Four Seasons Hotel, 57 East 57(th) Street, New York, New York.
We have enclosed with this letter a notice of meeting, proxy statement,
proxy card and return envelope. We have also enclosed your 1998 Annual Report.
Your vote is important. Whether or not you plan to attend, please date and
sign the enclosed proxy card and return it in the envelope provided. If you plan
to attend the meeting, you may vote in person.
I look forward to your participation.
Sincerely,
/s/ Frank P. Lowy
Frank P. Lowy
CHAIRMAN OF THE BOARD
<PAGE>
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO THE SHAREHOLDERS OF
WESTFIELD AMERICA, INC.
The Annual Meeting of Shareholders of WESTFIELD AMERICA, INC. will be held
on Thursday, April 29, 1999, at the Four Seasons Hotel, 57 East 57(th)Street,
New York, New York at 2:00 p.m., to consider and take action on the following:
1. To elect three directors;
2. To approve an amendment to Westfield America's Series C Certificate
of Designation so that the holders of Westfield America's Series C,
C-1 and C-2 Preferred Shares will vote together as a single class;
3. To approve the issuance of Westfield America's common stock upon
conversion of Westfield America's Series D Preferred Shares if then
held by a substantial security holder of Westfield America or other
restricted holder under the New York Stock Exchange rules;
4. To approve the issuance of Westfield America's common stock upon
conversion of Westfield America's Series D-1 Preferred Shares if then
held by a substantial security holder of Westfield America or other
restricted holder under the New York Stock Exchange rules;
5. To approve the issuance of Westfield America's common stock to an
affiliate of Westfield America under a subscription agreement
previously entered into;
6. To ratify the appointment of Ernst & Young LLP as Westfield America's
independent auditors for the 1999 fiscal year; and
7. To transact any other business that may properly be brought before
the Annual Meeting.
Holders of record of Westfield America's common stock are entitled to vote
on all of the proposals. Holders of record of Westfield America's Series C
Preferred Shares are entitled to vote on Proposals 2, 4 and 5. Holders of record
of Westfield America's Series C-1 Preferred Shares and Series C-2 Preferred
Shares are entitled to vote on Proposal 5. Only holders of record at the close
of business on March 10, 1999, will be entitled to vote at the annual meeting or
any adjournment of the annual meeting.
Whether or not you plan to attend the annual meeting, please date, sign and
complete the enclosed proxy and return it promptly in the envelope provided. It
is important that your shares be represented at the annual meeting, and your
promptness will assist us to prepare for the annual meeting and to avoid the
cost of a follow-up mailing. If you receive more than one proxy card because you
own shares registered in different names or at different addresses, each proxy
card should be completed and returned.
By Order of the Board of Directors
/s/ Irv Hepner
Irv Hepner
SECRETARY
Dated: April 5, 1999
<PAGE>
WESTFIELD AMERICA, INC.
11601 WILSHIRE BOULEVARD
LOS ANGELES, CALIFORNIA 90025
------------------------
PROXY STATEMENT
---------------------
GENERAL INFORMATION
ANNUAL MEETING
The annual meeting will be on April 29, 1999 at 2:00 p.m. at the Four
Seasons Hotel, 57 East 57(th) Street, New York, New York.
RECORD DATE
The record date is March 10, 1999. If you were a shareholder at that time,
you may vote at the annual meeting. Holders of record of shares of Westfield
America's common stock, par value $.01 per share (the "Common Shares") are
entitled to vote on all of the proposals. Holders of record of shares of
Westfield America's Series C Cumulative Convertible Redeemable Preferred Stock
(the "Series C Preferred Shares") are entitled to vote on Proposals 2, 4 and 5.
Holders of record of shares of Westfield America's Series C-1 Cumulative
Convertible Redeemable Preferred Stock (the "Series C-1 Preferred Shares") and
Series C-2 Cumulative Convertible Redeemable Preferred Stock (the "Series C-2
Preferred Shares") are entitled to vote on Proposal 5. At the close of business
on March 10, 1999 Westfield America had:
- 73,337,691 Common Shares issued and outstanding, each entitled to one
vote;
- 416,667 Series C Preferred Shares issued and outstanding, each entitled to
one vote with respect to Proposal 2 (voting as its own class), each
entitled to ten votes with respect to Proposal 4 (voting as a single class
with the Common Shares) and each entitled to ten votes with respect to
Proposal 5 (voting as a single class with the Common Shares);
- 138,889 Series C-1 Preferred Shares, each entitled to ten votes with
respect to Proposal 5 (voting as a single class with the Common Shares);
and
- 138,889 Series C-2 Preferred Shares, each entitled to ten votes with
respect to Proposal 5 (voting as a single class with the Common Shares).
FIRST MAILING DATE
This Proxy Statement, the Notice of Annual Meeting of Shareholders and the
accompanying proxy card are being mailed to shareholders on or about April 5,
1999.
PROXY SOLICITATION
This proxy is being solicited by Westfield America's board of directors.
Westfield America pays for the cost of soliciting the proxies. In addition to
soliciting proxies by mail, directors and officers of Westfield America may
solicit proxies by telephone or otherwise. Westfield America reimburses
brokerage firms and others for their expenses in sending proxies and proxy
materials to shareholders.
1
<PAGE>
QUORUM REQUIREMENT
A quorum of shareholders is necessary to have a valid meeting. The presence,
in person or by proxy, of a majority of the shares entitled to vote at the
annual meeting will constitute a quorum for the annual meeting. Abstentions and
broker non-votes are counted as present for establishing a quorum. A broker
non-vote occurs when a broker votes on some matters on the proxy card but not on
others because the broker does not have the authority to do so.
INFORMATION ABOUT VOTING
Shareholders can vote on matters presented at the annual meeting either by
returning a completed proxy to Westfield America or by voting in person at the
annual meeting. All proxies will be voted in accordance with the instructions
specified. If you return your proxy, but do not indicate how you wish to vote
regarding a proposal, the persons named as proxies on the accompanying proxy
card will vote:
- FOR the election of the three directors;
- FOR an amendment to Westfield America's Series C Certificate of
Designation so that the holders of the Series C Preferred Shares, Series
C-1 Preferred Shares and Series C-2 Preferred Shares will vote together as
a single class;
- FOR the issuance of Common Shares upon conversion of Westfield America's
Series D Cumulative Convertible Redeemable Preferred Stock (the "Series D
Preferred Shares") if then held by a substantial security holder of
Westfield America or other restricted holder under the New York Stock
Exchange rules;
- FOR the issuance of Common Shares upon conversion of Westfield America's
Series D-1 Cumulative Convertible Redeemable Preferred Stock (the "Series
D-1 Preferred Shares") if then held by a substantial security holder of
Westfield America or other restricted holder under the New York Stock
Exchange rules;
- FOR the issuance of Common Shares to an affiliate of Westfield America
under a subscription agreement previously entered into; and
- FOR the appointment of Ernst & Young LLP as Westfield America's
independent auditors for the 1999 fiscal year.
Management does not know of any other matters to be presented for action at the
annual meeting. However, if any other matter properly comes before the annual
meeting, the proxies will vote on such matter in their discretion.
REVOKING YOUR PROXY
You can revoke your proxy before it is voted at the meeting by sending a
signed revocation letter or a new proxy, dated later than the first proxy, to
Irv Hepner, Westfield America's Secretary. You can also revoke your proxy at the
annual meeting, if you attend the annual meeting and ask that it be revoked.
INFORMATION ABOUT WESTFIELD AMERICA, INC.
The principal executive offices of Westfield America, Inc. are located at
11601 Wilshire Boulevard, Los Angeles, California 90025 (telephone--(310)
478-4456).
2
<PAGE>
ELECTION OF DIRECTORS
(PROPOSAL 1)
BOARD STRUCTURE
Westfield America currently has ten directors. The ten directors are divided
into three classes.
THE ELECTION
Three of the four directors whose regular terms of office expire at the 1999
annual meeting have been nominated for reelection to Westfield America's board
of directors to hold office until 2002. Information about these directors is
given below. If elected, each director would serve a term of three years and
until his successor is elected and qualified. George Weissman, one of the four
directors whose regular term of office expires at the 1999 annual meeting, is
not standing for reelection. Accordingly, the number of directors of Westfield
America will be reduced from ten to nine. The other directors are not up for
election this year and will continue in office for the remainder of their terms.
You may specify on your proxy card whether your shares should be voted for
all, some, or none of the nominees for director. To be elected, a nominee must
receive the affirmative vote of a majority of the Common Shares cast for the
nominee, provided that all shares cast for the nominee represent a majority of
the Common Shares entitled to vote for the nominee. Abstentions will effectively
count as a vote AGAINST the nominees listed below.
The board of directors has no reason to believe that any of the listed
nominees will not serve if elected. If, however, any nominee cannot or will not
serve as a director, the persons named on your proxy card may vote for a
substitute nominee designated by the board of directors unless you withhold
authority for them to vote for a substitute.
3
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
EACH OF THE NOMINEES LISTED BELOW
NOMINEES FOR ELECTION AS DIRECTORS TO HOLD OFFICE
UNTIL THE 2002 ANNUAL MEETING
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION AND OTHER INFORMATION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
David H. Lowy........................................ 44 David H. Lowy was appointed a director of Westfield
America in 1996. Mr. Lowy joined Westfield Holdings
Limited in 1977, has served as a Managing Director of
Westfield Holdings since 1987, and a director of
Westfield Holdings since 1982. He worked for
Westfield Holdings in the United States from 1977 to
1981. He holds a Bachelor of Commerce degree from the
University of New South Wales. He is a member of the
Business Council of Australia, a member of the Royal
Alexandra Children's Hospital Fund Executive
Committee and a Founding Governor and director of Air
Services Australia Limited and the Australian Naval
Aviation Museum. David H. Lowy is a son of Frank P.
Lowy, Chairman of Westfield America and a brother of
Peter S. Lowy, a director of Westfield America.
Herman Huizinga...................................... 65 Herman Huizinga was appointed a director of Westfield
America in May 1997. Between 1986 and 1997, Mr.
Huizinga was a member of the Executive Board of ING
Group, a major international banking and insurance
group, headquartered in the Netherlands. He is a
former executive director of Mercantile Mutual
(Group) of Australia (a subsidiary of ING). He serves
on the boards of Eye Hospital Rotterdam (chairman
1987-1997), "Mandeville" (Erasmus University Award
Committee, chairman 1996-1997), Club Rotterdam
(chairman 1995-1996), and Industrial Tunnel
Methodology in Rotterdam.
Bernard Marcus....................................... 69 Bernard Marcus was appointed a director of Westfield
America in September 1997. He is a co-founder of The
Home Depot, Inc., and is currently its Chairman of
the board of directors and has been for over 10
years. He is also a member of the board of directors
of National Services Industries, Inc., the New York
Stock Exchange and DBT Online.
</TABLE>
The names of the remaining directors of Westfield America whose terms of
office will continue after the 1999 annual meeting and certain information about
them, are set forth below.
4
<PAGE>
DIRECTORS WHOSE TERMS OF OFFICE
WILL EXPIRE AT THE 2001 ANNUAL MEETING
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION AND OTHER INFORMATION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Roy L. Furman........................................ 59 Roy L. Furman was appointed a director of Westfield
America in 1996. Mr. Furman is Chairman and Chief
Executive Officer of Livent Inc., a company that
specializes in theatrical productions which he joined
in April 1998. In 1973, Mr. Furman co-founded Furman
Selz, an investment banking firm, for which he served
at various times as Chief Executive Officer,
President and Vice Chairman until April 1998. Mr.
Furman currently serves as a Vice Chairman of Lincoln
Center for the Performing Arts, Chairman of The Film
Society of Lincoln Center, and Vice President of the
New York City Opera. Mr. Furman is a graduate of
Brooklyn College and Harvard Law School.
Frederick G. Hilmer, AO.............................. 54 Frederick G. Hilmer was appointed a director of
Westfield America in 1996. Mr. Hilmer holds a degree
in Law from the University of Sydney, a Master in Law
from the University of Pennsylvania and an MBA from
the Wharton School of Finance. In November 1998, he
was appointed Chief Executive Officer of John Fairfax
Holdings Limited. Between 1989 and prior to his
appointment in 1998, he was Professor of Management
at the University of New South Wales, Chairman of
Pacific Power, Chairman of the Advisory Board of
Fujitsu Australia Ltd. and a director of a number of
major Australian companies, including John Fairfax
Holdings Limited and Westfield Holdings. Prior to
1989 he spent 19 years with McKinsey & Company.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION AND OTHER INFORMATION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Peter S. Lowy........................................ 40 Peter S. Lowy was appointed a director of Westfield
America in 1994. Mr. Lowy was an Executive Vice
President of Westfield America from 1994 until March
1997 and is currently a Co-President of Westfield
America. He has been responsible for Westfield
Holdings' U.S. operations since 1990 after nearly a
decade with Westfield Holdings and its affiliates in
Sydney. He was appointed a director of Westfield
Holdings in 1987 and a Managing Director in 1997.
Prior to joining Westfield Holdings, he worked in
investment banking in New York and London. He holds a
Bachelor of Commerce degree from the University of
New South Wales. Peter S. Lowy is a son of Frank P.
Lowy, Chairman of Westfield America and a brother of
David H. Lowy, a director of Westfield America.
Frank P. Lowy, AO.................................... 68 Frank P. Lowy was appointed a director of Westfield
America in 1994 and has been Chairman of Westfield
America since 1994. He is Chairman of the board of
directors and co-founder of Westfield Holdings. He is
a Member of the Board of the Reserve Bank of
Australia, former President of the Board of Trustees
of the Art Gallery of New South Wales and a director
of the Daily Mail and General Trust plc (U.K.). Frank
P. Lowy is the father of David H. Lowy and Peter S.
Lowy, both directors of Westfield America.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION AND OTHER INFORMATION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Francis T. Vincent, Jr............................... 60 Francis T. Vincent, Jr. was appointed a director of
Westfield America in May 1997. Mr. Vincent served as
the eighth Commissioner of Major League Baseball from
September 13, 1989 to September 7, 1992. Since 1992,
Mr. Vincent has served on a variety of corporate
boards. Prior to 1989, Mr. Vincent was President and
Chief Executive Officer of Columbia Pictures
Industries, Inc., Chairman and Chief Executive
Officer of Coca Cola Company Entertainment Business
Sector and Executive Vice President of the Coca-Cola
Company. Mr. Vincent also served as Associate
Director of the Division of Corporation Finance of
the U.S. Securities and Exchange Commission. Mr.
Vincent received his law degree from Yale Law School
in 1963 and is a member of the Bar in New York,
Connecticut and the District of Columbia. Mr. Vincent
is a member of the boards of directors of Time
Warner, Inc., General Cigar Holdings and Oakwood
Homes Corporation.
Larry A. Silverstein................................. 67 Larry A. Silverstein was appointed a director of
Westfield America in May 1997. Since 1979, Mr.
Silverstein has been President of Silverstein
Properties, Inc., a Manhattan-based real estate
investment and development firm which owns interests
in and operates over 10 million square feet of office
space. Mr. Silverstein is a member of the New York
Bar, and Governor of the Real Estate Board of New
York, having served as its Chairman. He is a trustee
of New York University and is the founder and
Chairman Emeritus of the New York University Real
Estate Institute. He is Chairman of the Realty
Foundation, Vice Chairman of the South Street Seaport
Museum, and board member of the Museum of Jewish
Heritage.
</TABLE>
BOARD MEETINGS AND COMMITTEES
Westfield America's board of directors met five times and took action by
unanimous written consent twelve times in 1998. Except for David H. Lowy, all
directors attended 75% or more of the meetings of the board of directors and
each committee on which they served.
THE AUDIT COMMITTEE
The Audit Committee of Westfield America's board of directors makes
recommendations concerning the engagement of independent public accountants,
reviews with the independent public accountants the plans and results of the
audit engagement, approves professional services provided by the independent
public accountants, reviews the independence of the independent public
accountants, considers the range
7
<PAGE>
of audit and non-audit fees and reviews the adequacy of Westfield America's
internal accounting controls. The current members of the Audit Committee are
Messrs. Herman Huizinga, Francis T. Vincent, Jr and George Weissman. George
Weissman, one of the four directors whose regular term of office expires at the
1999 annual meeting, is not standing for reelection. The Audit Committee met
twice in 1998.
THE NOMINATING COMMITTEE
The Nominating Committee makes recommendations to Westfield America's board
of directors for the election of directors of Westfield America. The current
members of the Nominating Committee are Messrs. Frank P. Lowy, Roy L. Furman and
Larry A. Silverstein. The Nominating Committee took action by unanimous written
consent once in 1998. The Nominating Committee will consider nominees
recommended by shareholders. Recommendations should be submitted to the
Secretary of Westfield America.
THE EXECUTIVE COMMITTEE
The Executive Committee has all powers to act on behalf of Westfield
America's board of directors on all matters that may properly be considered by
the board of directors except for such matters as are required to be approved by
the independent directors or except as prohibited by Westfield America's
By-Laws. The current members of the Executive Committee are Messrs. Peter S.
Lowy, David H. Lowy and Francis T. Vincent, Jr. The Executive Committee met once
and took action by unanimous written consent twenty-two times in 1998.
NO COMPENSATION COMMITTEE
Subsidiaries of Westfield Holdings provide management, advisory and
development services to Westfield America. Westfield America has no employees.
Westfield America's board of directors, therefore, does not have a compensation
committee or other committee performing a similar function.
COMPENSATION OF DIRECTORS
Directors who are not officers of Westfield America or employees of
Westfield Holdings receive from Westfield America an annual fee of $40,000,
payable one-half in cash and one-half in Common Shares and reimbursement of
expenses incurred in attending meetings and as a result of other work performed
for Westfield America.
LEGAL PROCEEDINGS
Roy L. Furman was appointed a director of Westfield America in 1996. Mr.
Furman is currently Chairman and Chief-Executive Officer of Livent Inc., a
company that specializes in theatrical productions which he joined in April
1998. On November 18, 1998, Livent and its United States-based subsidiaries
filed voluntary petitions for relief under Chapter 11 of title 11 of the United
States Code. On November 19, 1998, Livent filed a proceeding under the
Creditor's Companies Adjustment Act of Canada. In August 1998, Livent's current
management, including Mr. Furman, discovered certain accounting irregularities
which prompted its board of directors to initiate an internal investigation. The
investigation overseen by the audit committee uncovered possible widespread
fraud perpetrated by certain former members of Livent's senior management.
8
<PAGE>
EXECUTIVE OFFICERS
Set forth below is the name and business experience of each of the executive
officers of Westfield America as of March 10, 1999, to the extent not provided
above.
<TABLE>
<CAPTION>
NAME AGE POSITION AND BACKGROUND
- --------------------------------------------- --- ------------------------------------------------------------
<S> <C> <C>
Richard E. Green............................. 56 Richard E. Green was appointed an associate director of
Westfield America in May 1997. Mr. Green was President of
Westfield America from 1994 until March 1997, and is
currently a Co-President of Westfield America. From 1980 to
1988 and from 1993 to the present he has held the position
of President of Westfield Holdings' U.S. operations. From
1993 to the present, Mr. Green has been President of
Westfield Corporation, Inc. From 1968 to 1980 he was
employed by Westfield America, which was then owned by the
May Company, and attained the title of Executive Vice
President. He is a Past Trustee of the International Council
of Shopping Centers. Mr. Green holds a Bachelor of
Accounting and Finance from San Jose State University.
Roger D. Burghdorf........................... 51 Roger D. Burghdorf was appointed a Senior Executive Vice
President of Leasing and Center Management of Westfield
America in 1996 and became an Executive Vice President of
Westfield America in 1997. From 1989 to 1994, Mr. Burghdorf
was Executive Vice-President and Director of Leasing at
Westfield America. He is responsible for all leasing and
management services for Westfield America's shopping centers
throughout the United States.
Randall J. Smith............................. 49 Randall Smith has served as an Executive Vice President of
Westfield America since 1997. With over 20 years of
experience in the field, Mr. Smith was Vice President at
Westfield America for nine years, before joining Westfield
Holdings in 1994. Mr. Smith has a Bachelor of Arts in art
and architecture and a Master in Business Administration in
Marketing from Miami University. He is a member of the
International Council of Shopping Center's Research Advisory
Task Force.
Mark A. Stefanek............................. 44 Mark Stefanek was appointed Senior Vice President and Chief
Financial Officer of Westfield America in 1995 and became
Chief Financial Officer and Treasurer in 1997. He began his
career at Arthur Andersen. He holds a Bachelor of Business
Administration-Accounting from the University of Notre Dame
and is a certified public accountant. From 1985 to 1991 he
was Chief Financial Officer of Western Development
Corporation and for three years before that he was with
Cadillac Fairview Urban Development, Inc. From 1991 to 1994
he served as Vice President, Finance and Administration for
Disney Development Company.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
NAME AGE POSITION AND BACKGROUND
- --------------------------------------------- --- ------------------------------------------------------------
<S> <C> <C>
Dimitri Vazelakis............................ 45 Dimitri Vazelakis became Senior Executive Vice President of
Westfield America in 1995. In 1997, Mr. Vazelakis was
appointed Executive Vice President of Westfield America. He
holds a Bachelor of Science in Civil Engineering and a
Masters in Business Administration and Finance from New
South Wales Institute of Technology. Mr. Vazelakis joined
Westfield Holdings in 1972, came to Westfield Holdings' U.S.
operations in 1986 and in 1989 he began heading activities
in development, design and construction activities. Between
1979 and 1986, he worked with Westfield Holdings in
Australia, attaining the position of Deputy General Manager
of Design and Construction. Mr. Vazelakis is a member of the
board of directors of Marks Vazelakis, Inc.
Irv Hepner................................... 48 Irv Hepner was appointed Secretary of Westfield America in
1997 and designated an executive officer of Westfield
America in 1998. He holds a Bachelor of Arts degree in
architecture from Yale College and a Juris Doctor from
Benjamin N. Cardozo School of Law. From 1994 until his
appointment as Secretary of Westfield America, Mr. Hepner
was a partner in the firm of Loeb & Loeb LLP in New York
City. Prior to that, from 1983 to 1993, he was first an
associate and then a partner with the firm of Mayer, Brown &
Platt in New York City, and was previously associated with
Willkie Farr & Gallagher from 1982 to 1983 and Debevoise &
Plimpton from 1979 to 1982.
</TABLE>
EXECUTIVE COMPENSATION
Westfield America has no employees and none of the executive officers named
above receives any compensation for services rendered to Westfield America.
Westfield America does not have any retirement, incentive, bonus, stock based or
other employee benefit plans. All of Westfield America's executive officers are
compensated by Westfield Holdings or its subsidiaries.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Frank P. Lowy, Chairman of Westfield America and Chairman of Westfield
Holdings serves on the Compensation Committee of Westfield Holdings.
10
<PAGE>
PERFORMANCE COMPARISON
STOCK PRICE PERFORMANCE GRAPH
The following graph shows the monthly percentage change in cumulative total
shareholder return on Westfield America's Common Shares from May 16, 1997, the
date on which the Common Shares began trading on the New York Stock Exchange
through December 31, 1998. The graph also shows the cumulative total return of
the Standard & Poor's 500 Composite Index and the NAREIT Equity Retail Return
Index during that period. The graph assumes $100 was invested on May 16, 1997 in
each of Westfield America's Common Shares and the Standard & Poor's 500
Composite Index and on May 30, 1997 in the NAREIT Equity Retail Return Index
(that Index not being available until May 30, 1997) and assumes the reinvestment
of all dividends. Westfield America has selected the NAREIT Equity Retail Return
Index because it believes that it offers shareholders the best basis for
assessing total shareholder return on the Common Shares and comparing it to the
results of comparable retail real estate investment trusts. The comparisons in
this table are required by the Securities and Exchange Commission and are not
intended to forecast or be indicative of possible future performance of
Westfield America's Common Shares.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
WESTFIELD AMERICA NARREIT EQUITY RETAIL INDEX S&P 500
<S> <C> <C> <C>
16-May-97 $100.00 $100.00
30-May-97 $101.67 $103.55 $100.84
30-Jun-97 $112.50 $107.91 $105.36
31-Jul-97 $113.99 $109.73 $113.74
29-Aug-97 $112.73 $109.08 $107.37
30-Sep-97 $114.19 $114.33 $113.25
31-Oct-97 $116.76 $112.99 $109.47
28-Nov-97 $114.62 $114.85 $114.53
31-Dec-97 $119.13 $117.63 $116.50
30-Jan-98 $124.82 $118.96 $117.79
27-Feb-98 $125.26 $118.77 $126.28
31-Mar-98 $126.00 $122.02 $132.75
30-Apr-98 $125.10 $119.63 $134.09
29-May-98 $125.10 $119.92 $131.78
30-Jun-98 $133.90 $120.10 $137.13
31-Jul-98 $128.43 $115.41 $135.67
31-Aug-98 $115.68 $106.03 $116.06
30-Sep-98 $127.38 $113.15 $123.49
31-Oct-98 $127.84 $112.74 $133.54
30-Nov-98 $130.16 $113.23 $141.63
31-Dec-98 $130.08 $111.82 $149.79
</TABLE>
11
<PAGE>
SECURITIES BENEFICIALLY OWNED BY
PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table lists the beneficial ownership of Westfield America's
Common Shares as of March 10, 1999 for Westfield America's directors, executive
officers and holders of more than 5% of Westfield America's outstanding Common
Shares. "Beneficial Ownership" includes shares a director, officer or 5%
shareholder has the power to vote or transfer and stock options and warrants
that are exercisable currently or within 60 days. Unless otherwise indicated,
the business address of each beneficial owner is c/o Westfield America, Inc.,
11601 Wilshire Boulevard, Los Angeles, California 90025.
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF OUTSTANDING
COMMON SHARES COMMON SHARES
BENEFICIALLY BENEFICIALLY
NAME AND ADDRESS OWNED OWNED
- ------------------------------------------------------------------------------------------ ------------- -------------
<S> <C> <C>
Perpetual Trustee Company Limited, as Trustee for Westfield America Trust................. 49,453,758(1) 60.6%(1)
The National Manager
Property Trusts
Perpetual Trustees of Australia Limited
Level 7
1 Castlereagh Street
Sydney, Australia
Westfield Holdings Limited; Westfield American Investments Pty Limited; Westfield America
Management Limited
c/o Westfield Holdings Limited
Level 24 Westfield Towers
100 William Street
Sydney, NSW 2011
Australia
and
Westfield Corporation, Inc................................................................ 63,519,830(2)(3) 77.8%(2)(3)
Cordera Holding Pty. Limited; Frank P. Lowy; David H. Lowy, Steven M. Lowy
c/o Westfield Holdings Limited
Level 24 Westfield Towers
100 William Street
Sydney, NSW 2011
Australia
and
Peter S. Lowy............................................................................. 64,119,830(3) 78.5%(3)
Security Capital Preferred Growth Incorporated............................................ 6,944,450(4) 8.7%
11 South LaSalle Street, 2(nd) Floor
Chicago, Illinois 60603
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF OUTSTANDING
COMMON SHARES COMMON SHARES
BENEFICIALLY BENEFICIALLY
NAME AND ADDRESS OWNED OWNED
- ------------------------------------------------------------------------------------------ ------------- -------------
<S> <C> <C>
Roy L. Furman............................................................................. 31,155 *
Frederick G. Hilmer....................................................................... 17,155 *
Bernard Marcus............................................................................ 11,226 *
Larry A. Silverstein...................................................................... 13,155(5) *
Francis T. Vincent, Jr.................................................................... 11,155 *
George Weissman........................................................................... 11,155 *
Richard E. Green.......................................................................... 201,400 *
Herman Huizinga........................................................................... 3,395 *
Randall J. Smith.......................................................................... 5,000 *
Mark A. Stefanek.......................................................................... 26,000 *
Roger D. Burghdorf........................................................................ 100 *
Dimitri Vazelakis......................................................................... 2,500 *
Irv Hepner................................................................................ 1,000 *
All directors and executive officers as a group (16 persons).............................. 64,454,226(3) 78.9%(3)
</TABLE>
- ------------------------
* Less than 1%.
(1) A report on Schedule 13D, dated May 30, 1997, disclosed that this figure
includes 8,335,648 shares issuable upon exercise of outstanding warrants to
purchase Common Shares. All of the Common Shares and warrants are held by
Perpetual Trustee Company Limited as Trustee of Westfield America Trust (the
"Trustee"), an Australian public property trust. Except with respect to the
election of directors, the Trustee has the power to vote 18,515,336.5
(22,683,160.5 assuming exercise of the outstanding warrants) of such Common
Shares in its absolute discretion. Westfield America Management Limited, a
subsidiary of Westfield Holdings and manager of Westfield America Trust,
directs the vote of the remaining Common Shares held by the Trustee. The
Trustee may only vote its Common Shares for the election of directors as
approved by the holders of units of Westfield America Trust. If Proposal 3
and Proposal 4 are approved, as described below, the Trustee will
beneficially own 55,009,318 Common Shares, or 63.1% of the outstanding
Common Shares. Except with respect to the election of directors, if Proposal
3 and Proposal 4 are approved, as described below, the Trustee will have the
power to direct the vote of 26,849,830.5 Common Shares if the outstanding
warrants are exercised and the Series D and D-1 Preferred Shares are
converted to Common Shares. The Trustee disclaims beneficial ownership of
such shares. References to beneficial ownership are made herein solely with
respect to U.S. securities laws and are not intended to refer or apply in
any respect to Australian legal matters.
(2) 14,066,072 of the Common Shares are held by wholly-owned subsidiaries of
Westfield Holdings. The balance represents Common Shares held in the name of
the Trustee. Solely for purposes of U.S. securities laws, Westfield Holdings
may be deemed to have beneficial ownership of the shares owned by the
Trustee because a subsidiary of Westfield Holdings manages Westfield America
Trust. The manager of Westfield America Trust has the power to direct the
vote of 22,602,773.5 of such shares (26,770,597.5 assuming exercise of the
outstanding warrants held by Westfield America Trust), other
13
<PAGE>
than for the election of directors. The manager of Westfield America Trust
has no pecuniary interest in such shares although Westfield Holdings has a
pecuniary interest in 23.8% of the shares held by Westfield America Trust
because it owns units of Westfield America Trust. The manager of Westfield
America Trust and the Trustee of Westfield America Trust share the
investment power over such shares. See footnote (1) above. If Proposal 3 and
Proposal 4 are approved, as described below, the wholly-owned subsidiaries
of Westfield Holdings will beneficially own 71,853,170 Common Shares, or
79.8% of the outstanding Common Shares and the manager of Westfield America
Trust will have the power to direct the vote of 28,159,487.5 Common Shares
held by the Trustee, other than for the election of directors, if the
outstanding warrants are exercised and the Series D and D-1 Preferred Shares
are converted to Common Shares. References to beneficial ownership are made
herein solely with respect to U.S. securities laws and are not intended to
refer or apply in any respect to Australian legal matters.
(3) Cordera Holding Pty. Limited and Messrs. Frank, David, Steven and Peter Lowy
may be deemed to beneficially own approximately 35% of the outstanding
ordinary shares of Westfield Holdings and, as such, Messrs. Frank, David,
Steven and Peter Lowy may be deemed solely for purposes of U.S. securities
laws to beneficially own the 63,519,830 Common Shares indicated as owned and
deemed beneficially owned by Westfield Holdings as set forth in footnote (2)
above. If Proposal 3 and Proposal 4 are approved, as described below,
Messrs. Frank, David, Steven and Peter Lowy may be deemed solely for
purposes of U.S. securities laws to beneficially own 72,453,170 Common
Shares and 80.5% of the outstanding Common Shares. Messrs. Frank, David,
Steven and Peter Lowy disclaim beneficial ownership of such securities.
References to beneficial ownership are made herein solely with respect to
U.S. securities laws and are not intended to refer or apply in any respect
to Australian legal matters. See "Directors."
(4) Pursuant to the Schedule 13G filed on February 12, 1999 with the Securities
and Exchange Commission, 4,166,670 shares, 1,388,890 shares and 1,388,890
shares represent Common Shares that are issuable by Westfield America upon
the conversion of 416,667 Series C Preferred Shares, 138,889 Series C-1
Preferred Shares and 138,889 Series C-2 Preferred Shares, respectively. Each
Series C Preferred Share, Series C-1 Preferred Share and Series C-2
Preferred Share is currently convertible into 10 Common Shares.
(5) 12,000 of the Common Shares are owned by Mr. Silverstein's wife. Mr.
Silverstein disclaims beneficial ownership of such Common Shares.
Except as set forth above, no director or executive officer of Westfield
America owns Common Shares.
14
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH WESTFIELD HOLDINGS LIMITED
ADVISORY, MANAGEMENT AND DEVELOPMENT SERVICES TO WESTFIELD AMERICA, INC.
Westfield America has no employees and relies on subsidiaries of Westfield
Holdings for the management of Westfield America and its properties. These
services are provided under a series of agreements between Westfield America and
subsidiaries of Westfield Holdings.
Westfield America's board of directors monitors the performance under the
advisory, management and development agreements with Westfield Holdings. These
financial arrangements and any other transactions in which Westfield Holdings
has a material interest must be approved by the independent directors and, in
certain instances, the Trustee. Independent directors are those members of
Westfield America's board of directors who:
- are not, and have not for the last 12 months been, directors, officers or
employees of Westfield Holdings or Westfield America Trust;
- are not affiliates of Westfield Holdings or Westfield America Trust or
officers or employees of such affiliates;
- are not members of the immediate family of any natural person described in
the two clauses immediately above; and
- are free from any relationship that would interfere with the exercise of
independent judgment as a director.
The independent directors may seek the advice of independent experts in carrying
out their duties. The agreements were negotiated by Westfield America and
Westfield Holdings. Westfield America believes that, although these agreements
were negotiated between associated parties, they reflect market terms.
WESTFIELD U.S. ADVISORY, L.P. AND THE ADVISORY AGREEMENT
SERVICES PROVIDED
Westfield U.S. Advisory, L.P., a Delaware limited partnership wholly owned
by Westfield Corporation, Inc., a wholly owned subsidiary of Westfield Holdings,
provides a variety of asset management and investment services for Westfield
America.
THE ADVISORY FEE
Under an advisory agreement, dated as of July 1, 1996, as amended in May
1997 at the time of Westfield America's initial public offering, Westfield U.S.
Advisory, L.P. receives an annual fee equal to the lesser of 25% of Funds from
Operation in excess of the Advisory F.F.O. Amount and 0.55% of the "Net Equity
Value" of Westfield America's assets.
As of today, the "Advisory F.F.O. Amount" is $142.2 million. The "Advisory
F.F.O. Amount" will be increased whenever Westfield America issues additional
Common Shares by adding the "F.F.O. Adjustment Factor" to the then applicable
Advisory F.F.O. Amount. The "F.F.O. Adjustment Factor" is 103% (or 100% in the
case of Common Shares issued under any dividend reinvestment plan) multiplied
by:
- a fraction the numerator of which is the aggregate "Funds From Operations
Available for Common Shares" of Westfield America for each of the four
full calendar quarters immediately preceding the date of the issuance and
the denominator of which is the aggregate number of Common Shares (on a
fully diluted basis as required by Generally Accepted Accounting
Principles ("GAAP")) of Westfield America then outstanding immediately
prior to the date of the issuance, multiplied by
- the number of additional Common Shares issued (on a fully diluted basis as
required by GAAP).
15
<PAGE>
"Funds From Operations Available for Common Shares" means Funds From Operations
less dividends paid or accrued on the preferred shares during the applicable
four full calendar quarter period. "Funds From Operations" means 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.
The advisory fee is payable quarterly on the last business day of each
calendar quarter based on the annual budget for Funds From Operations for
Westfield America and is subject to year end adjustment based on actual Funds
From Operations for the year. "Net Equity Value" will be based on shareholders'
equity as reflected in Westfield America's most recent quarterly financial
statements, as adjusted to reflect the most recent appraised value of Westfield
America's properties (which appraisals are performed on a rolling three-year
basis).
Westfield America paid an advisory fee of $6,140,000 for the fiscal year
ended December 31, 1998.
TERM AND TERMINATION
The advisory agreement has an initial term of three years ending May 21,
2000 followed by automatic one-year renewals. After the initial three-year term,
the performance of Westfield U.S. Advisory, L.P. will be reviewed annually. The
advisory agreement may be terminated annually if the Trustee (so long as
Westfield America Trust owns at least 10% of the outstanding capital stock of
Westfield America) and at least 75% of the independent directors agree that the
performance of Westfield U.S. Advisory, L.P. is unsatisfactory and materially
detrimental to Westfield America or that the compensation payable to Westfield
U.S. Advisory, L.P. is not fair. Westfield U.S. Advisory, L.P., however, can
prevent a compensation termination by accepting a mutually acceptable reduction
of its fees. In addition, the advisory agreement may be terminated at any time,
for cause, which is defined as fraud, misappropriation of funds or willful
violation of the advisory agreement or if an event of default has occurred and
is continuing under the Garden State Plaza loan (as described below).
Westfield U.S. Advisory, L.P. can terminate the advisory agreement, if
Westfield U.S. Advisory, L.P. notifies Westfield America that advisory services
shall cease to be one of the major business undertakings of Westfield Holdings
in the United States, except that the advisory agreement will continue for a
period of 180 days thereafter so long as Westfield America is reasonably
satisfied with Westfield U.S. Advisory, L.P.'s ability to provide the required
services during such period.
OFFICERS
The principal executive officers of the general partner of Westfield U.S.
Advisory, L.P. are Richard E. Green and Peter S. Lowy, the Co-Presidents of
Westfield America.
WESTFIELD MANAGEMENT COMPANY AND THE MANAGEMENT AGREEMENTS
SERVICES PROVIDED
Westfield Management Company, a Delaware partnership wholly owned by
Westfield Holdings, manages all of Westfield America's shopping centers.
MANAGEMENT FEES
For each of the wholly owned shopping centers, Westfield Management Company
receives a property management fee from Westfield America equal to 5% of all
minimum, fixed and percentage rents received by Westfield America with respect
to the wholly owned shopping centers, a lease preparation fee of $750 per
executed lease, and a tenant plan review fee of $1,000 per executed lease. For
the properties not wholly owned by Westfield America, the fees payable to
Westfield Management Company are based on the terms of joint venture agreements
between Westfield America and its joint venture partners, but Westfield
16
<PAGE>
America's share thereof is subject to adjustment so that the aggregate fees
payable by Westfield America with respect to such properties are the same as
payable with respect to the wholly owned shopping centers. Fees incurred for the
year ended December 31, 1998 to Westfield Management Company under these
agreements totaled 10.9 million. In addition to the management fees, Westfield
Management Company was reimbursed for recoverable operating costs, including
mall related payroll costs totaling $17.5 million for the year ended December
31, 1998.
TERM AND TERMINATION
Each management agreement has an initial three-year term, ending May 21,
2000, followed by automatic one-year renewals. After the initial three-year
term, Westfield Management Company's performance will be reviewed annually. The
management agreements may be terminated annually, if the Trustee (so long as
Westfield America Trust owns at least 10% of the outstanding capital stock of
Westfield America) and at least 75% of the independent directors agree that
Westfield Management Company's performance is unsatisfactory and materially
detrimental to Westfield America or that the compensation paid to Westfield
Management Company is not fair. Westfield Management Company, however, can
prevent a compensation termination by accepting a mutually acceptable reduction
of its fees. In addition, each of the management agreements may be terminated at
any time for cause, which is defined as fraud, misappropriation of funds or
willful violation of the respective management agreements or if an event of
default has occurred and is continuing under the Garden State Plaza loan (as
described below).
In a separate letter agreement, Westfield America and Westfield Management
Company also agreed that so long as Westfield Management Company is managing the
centers under the management agreements, Westfield Management Company will
manage all wholly-owned properties acquired by Westfield America in the future
and that Westfield America will use its reasonable efforts to have Westfield
Management Company appointed as the manager with respect to any future joint
venture properties controlled by Westfield America.
Westfield Management Company can terminate the management agreements if
Westfield Management Company notifies Westfield America that management of
regional shopping centers shall cease to be one of the principal business
undertakings of Westfield Holdings in the United States, except that the
management agreements will continue for a period of 180 days thereafter so long
as Westfield America is reasonably satisfied with Westfield Management Company's
ability to provide the required services during such period.
OFFICERS
The principal executive officers of the general partner of Westfield
Management Company are Richard E. Green and Peter S. Lowy, the Co-Presidents of
Westfield America.
WESTFIELD CORPORATION, INC. AND THE DEVELOPMENT AGREEMENT
SERVICES PROVIDED
Westfield Corporation, Inc., a Delaware corporation wholly-owned by
Westfield Holdings, has entered into a master development framework agreement
with Westfield America under which Westfield America granted Westfield
Corporation, Inc. the exclusive right to carry out expansion, redevelopment and
related work on Westfield America's wholly owned shopping centers and agreed to
attempt to have Westfield Corporation, Inc. to be hired to carry out similar
activities for the jointly owned shopping centers.
DEVELOPMENT FEES
Under the master development framework agreement, dated July 1, 1996,
Westfield Corporation, Inc. is reimbursed for pre-development costs, subject to
the work being performed in accordance with an
17
<PAGE>
annual plan or redevelopment budget previously approved by Westfield America's
board of directors. If Westfield America in its sole discretion (based on
feasibility and other appropriate studies) decides to proceed with a particular
development, Westfield Corporation, Inc. provides the necessary development
services pursuant to a separate development agreement to be entered into by the
parties. Westfield Corporation, Inc. provides:
- such development services for a fixed fee equal to 5% of the final gross
project price;
- architectural, design and engineering services for a fixed fee equal to
10% of the construction costs; and
- other related services in consideration of agreed fees.
The construction portion of the development project is performed on a fixed
price basis. The master development framework agreement provides that Westfield
America may engage an independent representative to advise Westfield America
with respect to the proposed fixed price and the construction schedule. If
Westfield America desires to engage such an independent representative,
Westfield America shall consult with Westfield Holdings in good faith as to the
selection of the independent representative. If Westfield America and Westfield
Corporation, Inc. cannot agree as to the fixed price or the construction
schedule for the project, and the parties' respective independent
representatives cannot negotiate a resolution, an independent expert will
determine the appropriate price and construction schedule. Westfield
Corporation, Inc. may then either accept the independent expert's proposal or
agree to perform the work on a "cost plus" basis in which case Westfield
Corporation, Inc. will:
- be paid for the actual cost of performing the services plus a percentage
of those costs as agreed between Westfield America and Westfield
Corporation, Inc.; and
- Westfield America may designate the schedule, but Westfield Corporation,
Inc. will not be liable if the construction schedule is not achieved.
Westfield America has no obligation to proceed with any development project.
The decisions to proceed with a development project and the fixed price and
construction schedule with respect to such a project requires the approval of at
least 75% of the independent directors. Reimbursements and fees incurred for the
year ended December 31, 1998 to Westfield Corporation, Inc. under these
agreements totaled $51.2 million.
TERM AND TERMINATION
The master development framework agreement may be terminated by Westfield
America by agreement of at least 75% of the independent directors and the
Trustee (so long as Westfield America Trust owns at least 10% of the outstanding
capital stock of Westfield America) if the advisory agreement and the management
agreements have been terminated in accordance with their terms. In such event,
Westfield Corporation, Inc. and Westfield America will remain bound by the
master development framework agreement for the remaining term with respect to
any development projects for which Westfield Corporation, Inc. has commenced to
provide substantial predevelopment services to Westfield America. In addition,
the master development framework agreement or any individual development
agreement may be terminated at any time for cause, which is defined as fraud,
misappropriation of funds or willful violation of the master development
framework agreement or the individual development agreement or if an event of
default has occurred and is continuing under the Garden State Plaza loan (as
described below).
Westfield Corporation, Inc. can terminate the master development framework
agreement if Westfield Corporation, Inc. notifies Westfield America that
property development services shall cease to be one of the principal business
undertakings of Westfield Holdings in the United States, except that the master
development framework agreement will continue for a period of 180 days
thereafter so long as Westfield America is reasonably satisfied with Westfield
Corporation, Inc.'s ability to provide the required services
18
<PAGE>
during such period and except that any such termination shall not affect any
individual development agreement previously entered into by Westfield
Corporation, Inc. and Westfield America.
OFFICERS
The principal executive officers of Westfield Corporation, Inc. are Richard
E. Green and Peter S. Lowy, the Co-Presidents of Westfield America.
MANAGEMENT OF WESTFIELD AMERICA, INC.
All of the officers of Westfield America are employed by Westfield Holdings
and receive compensation and fringe benefits from Westfield Holdings and not
from Westfield America. Several of the officers serve as directors of Westfield
Holdings and certain of such officers and associates beneficially own shares of
Westfield Holdings and units of Westfield America Trust. See "Securities
Beneficially Owned by Principal Shareholders and Management." As a result of
such employment and interests, the officers of Westfield America receive an
indirect benefit from the advisory, management and development arrangements
described above.
GARDEN STATE PLAZA OPTION
In July 1996, Westfield America acquired from Westfield Holdings an option
to acquire at fair market value the stock of Westland Realty, Inc., the holder
of an indirect 50% interest in Garden State Plaza located in Paramus, New
Jersey.
The Garden State Plaza option is exercisable following the completion of an
independent valuation of the property to determine its fair market value. The
valuation procedure may be commenced by Westfield America upon the earliest to
occur of:
- any time after completion and stabilization of the recent expansion of the
property, defined to mean the leasing of 95% of the mall gross leasable
area for the expansion; and
- any time after the date which is 18 months after completion of the recent
expansion of the property.
In any event, the valuation procedure described above must commence by
January 3, 2000.
The valuation is to be performed by an independent appraiser approved by
Westfield America and Westfield Holdings within 30 days after Westfield America
elects to commence the valuation procedure. The purchase price under the Garden
State Plaza option is equal to 50% of such fair market valuation, subject to
adjustment for the mortgage debt of Garden State Plaza, the Garden State Plaza
loan (as described below) and the amount by which current assets exceed current
liabilities. The Garden State Plaza option must be exercised within 120 days
after delivery of the determination of the fair market value of the property.
Westfield America believes that the conditions to the exercise of the Garden
State Plaza option will first be satisfied in the summer of 1999 based on the
right to exercise 18 months after substantial completion; however, the option
may first be exercised at an earlier date if the property is 95% leased.
Westfield America's board of directors (including at least 75% of the
independent directors) will determine whether the exercise of the Garden State
Plaza option is in the best interests of Westfield America. If the purchase
price exceeds $55 million (net of the $145 million Garden State Plaza loan
described below), the exercise of the Garden State Plaza option will be subject
to an affirmative vote of a majority of the holders of Common Shares voting at a
meeting on such issue other than Westfield Holdings and its affiliates
(including Westfield America Trust) and interests associated with the Lowy
family. The purchase price shall be payable by the delivery of Common Shares,
valued at the average of the closing sale price for the Common Shares on the 20
trading days prior to the date the option is exercised.
19
<PAGE>
THE GARDEN STATE PLAZA LOAN
In May 1997, Westfield America acquired a substantial economic interest in
the revenues to be received from Garden State Plaza by making a $145 million
participating secured loan to the subsidiaries of Westfield Holdings which own
the indirect 50% interest in Garden State Plaza. This non-recourse loan bears
interest at a fixed annual rate of 8.5% per annum, and is secured by a pledge of
Westfield Holdings' 50% partnership interest in the limited partnership which
owns Garden State Plaza. Westfield America also receives participating interest
based on 80% of the borrowers' share of the adjusted cash flow (after payment of
the fixed interest and after calculating Westfield Holdings' share of cash flow
from Garden State Plaza as if the mortgage loan encumbering such property had a
fixed interest rate of 7.25% per annum) from Garden State Plaza subject to an
aggregate limit for fixed interest and participating interest in an amount equal
to 11% per annum. The loan will mature on May 21, 2007, may be prepaid with a
yield maintenance premium (based on the payment of the maximum amount of
participating interest) after the expiration of the Garden State Plaza option in
connection with the sale of Garden State Plaza (or Westfield Holdings' interest
therein) to an unaffiliated third party and may not otherwise be prepaid for
five years. If an event of default shall occur under the Garden State Plaza
loan, Westfield America will be entitled to a yield maintenance premium (based
on the payment of the maximum amount of participating interest) and will have
the right to terminate the management agreements, the advisory agreement and the
master development framework agreement. In May 1997, the board of directors of
Westfield Holdings represented that it will not prepay the Garden State Plaza
loan for seven years except under the circumstances described above and with the
required yield maintenance premium. Westfield America received $14.7 million in
interest from the Garden State Plaza loan for the year ended December 31, 1998.
The other 50% interest in Garden State Plaza is owned by affiliates of
Rodamco North America B.V., a Netherlands corporation unaffiliated with
Westfield America.
WESTFIELD HOLDINGS WARRANTS
In May 1997, Westfield America purchased from Westfield Holdings for $15.3
million, non-transferable warrants to acquire 49 million ordinary shares of
Westfield Holdings. In April 1998, with the consent of Westfield Holdings,
Westfield America exercised the warrants prior to their stated exercise date of
May 21, 2000, by electing to receive the profit element of the warrants.
Westfield Holdings elected to pay the profit element of the warrants by issuing
to Westfield America 20,339,066 ordinary shares of Westfield Holdings. These
shares were then sold by Westfield America to unaffiliated purchasers for
$99,670,000.
The terms of the warrants were negotiated between associated parties and
there can be no assurance that either the price or the terms of the warrants
were fair.
REGISTRATION RIGHTS AGREEMENT
Pursuant to a registration rights agreement, after May 21, 2000, Westfield
Holdings and its subsidiaries will have demand registration rights that would
require Westfield America to promptly effect the registration of their shares
held prior to Westfield America's initial public offering. Westfield Holdings
currently has demand registration rights for its other Common Shares. In
addition, Westfield America has agreed that, upon the request of Westfield
Holdings, it will use its reasonable efforts to have a shelf registration
statement filed after May 21, 2000 (after May 21, 1998 for any shares not held
prior to consummation of Westfield America's initial public offering) and
declared and kept continuously effective, pursuant to which Westfield Holdings
and its subsidiaries will be able to sell Common Shares in ordinary course
brokerage or dealer transactions. However, these rights allow Westfield America
to postpone the filing of a demand registration statement (and an amendment or
supplement to a shelf registration statement or to suspend the use of any
previously filed registration statement for a reasonable period of time (not to
exceed 60 days) if the board of directors determines in good faith that it would
be significantly
20
<PAGE>
disadvantageous to Westfield America and its shareholders for such a
registration statement (or amendment or supplement) to be filed on or before the
date filing otherwise would be required. In addition, if Westfield America
proposes to register any of its Common Shares, either for its own account or for
the account of other shareholders, Westfield America is required, with certain
exceptions, to provide the parties to the registration rights agreement with
notice of the registration and to include in such registration all of the Common
Shares requested to be included by such persons.
TRANSACTIONS WITH WESTFIELD AMERICA TRUST
Westfield America Trust is an Australian public property trust which was
established pursuant to a Trust Deed, dated March 28, 1996, as amended, to
acquire a majority interest in Westfield America. Westfield America Trust is
managed by Westfield America Management Limited, a wholly-owned subsidiary of
Westfield Holdings. Units of Westfield America Trust are traded on the
Australian Stock Exchange.
The trustee of Westfield America Trust is Perpetual Trustee Company Limited
which is Australia's largest independent trustee organization and has extensive
experience in acting as trustee of unit trusts, including listed property
trusts. Although under the Trust Deed, the Trustee and Westfield Holdings of
Westfield America Trust have the power to make other investments, Westfield
America Trust has informed Westfield America that it presently intends only to
invest in Westfield America.
The Trustee generally votes the Common Shares held by Westfield America
Trust, as directed by the manager of Westfield America Trust, with certain
exceptions. As long as Westfield Holdings owns Common Shares and Westfield
America Trust and Westfield Holdings together hold more than 50% of the
outstanding Common Shares of Westfield America, the Trustee has the power to
vote in its absolute discretion the number of Common Shares held by Westfield
America Trust equal to the difference between the number of Common Shares held
by Westfield America Trust and Westfield Holdings and 50% of the outstanding
Common Shares. Any additional shares held by Westfield America Trust will be
voted by the Trustee as directed by the manager of Westfield America Trust.
Under current Australian law, the Trustee must solicit approval of Westfield
America Trust unitholders before voting in the election of directors with
respect to shares of other corporations held by Westfield America Trust. For
this purpose, a general meeting of Westfield America Trust unitholders must be
convened with each Westfield America Trust unitholder having one vote for each
unit held. The Trustee votes all Common Shares as a block in the manner approved
by a majority of the units voting on the matter at such meeting of unitholders.
The Trustee has called a meeting of Westfield America Trust unitholders to
obtain approval for voting for the election of Westfield America's directors.
In May 1998, Westfield America entered into a stock subscription agreement
with Westfield America Trust. Subject to the shareholder approval that is being
requested pursuant to this Proxy Statement, Westfield America has the right to
sell, and Westfield America Trust has the obligation to purchase, $A465 million
(approximately $US296 million as of March 12, 1999) of Westfield America's
Common Shares in three equal installments at a 5% discount to the then
prevailing market price of Westfield America's Common Shares at June 2001, 2002
and 2003.
On August 12, 1998, Westfield America issued in a private placement 416,667
Series D Preferred Shares to Westfield America Trust, and 277,778 Series D
Preferred Shares to Westfield American Investments Pty Limited, a subsidiary of
Westfield Holdings in exchange for gross proceeds of $75,000,060 and
$50,000,040, respectively. On December 22, 1998, Westfield America issued
138,889 Series D-1 Preferred Shares to Westfield America Trust in exchange for
gross proceeds of $25,000,020. Each of the Series D Certificate of Designation
and the Series D-1 Certificate of Designation allows conversion by Westfield
America Trust or Westfield American Investments Pty Limited, at any time
(subject to the shareholder approval that is being requested pursuant to this
Proxy Statement), of each Series D Preferred Share and each Series D-1 Preferred
Share into 10 Common Shares, subject to adjustment as described in EXHIBIT B to
this Proxy Statement.
21
<PAGE>
At March 10, 1999, Westfield Holdings owns an approximately 23.8% equity
interest in Westfield America Trust on a fully diluted basis.
APPROVAL OF AMENDMENT TO WESTFIELD AMERICA'S
SERIES C CERTIFICATE OF DESIGNATION SO THAT
THE HOLDERS OF WESTFIELD AMERICA'S SERIES C,
C-1 AND C-2 PREFERRED SHARES WILL VOTE TOGETHER
AS A SINGLE CLASS
(PROPOSAL 2)
On August 12, 1998, Westfield America issued to Security Capital Preferred
Growth Incorporated in a private placement, 416,667 Series C Preferred Shares,
par value $1.00 per share and liquidation value $180 per share, in exchange for
gross proceeds of $75,000,060. On December 24, 1998, Westfield America issued to
Security Capital in a private placement, 138,889 Series C-1 Preferred Shares,
par value $1.00 per share and liquidation value $180 per share, in exchange for
gross proceeds of $25,000,020. On December 29, 1998, Westfield America issued to
Security Capital in a private placement, 138,889 shares of Series C-2 Preferred
Shares, par value $1.00 per share and liquidation value $180 per share, in
exchange for gross proceeds of $25,000,020. Each Series C Preferred Share,
Series C-1 Preferred Share and Series C-2 Preferred Share is currently
convertible into 10 Common Shares, subject to adjustment.
In January 1999, the board of directors of Westfield America approved and
adopted a resolution approving an amendment to Section 11(a) to Westfield
America's Certificate of Designation setting forth "Resolution of the Board of
Directors of Westfield America, Inc. Designating Series C Preferred Shares and
Fixing Preferences and Rights thereof" (the "Series C Certificate of
Designation") so that the holders of Westfield America's Series C Preferred
Shares, Series C-1 Preferred Shares and Series C-2 Preferred Shares will vote
together as a single class. The proposed amendment provides that:
- if Westfield America does not pay a full distribution to the holders of
Series C Preferred Shares, the holders of Series C-1 Preferred Shares or
the holders of Series C-2 Preferred Shares for two consecutive quarterly
distribution periods, then there shall be two additional members on
Westfield America's board of directors, and the holders of the Series C
Preferred Shares, the holders of the Series C-1 Preferred Shares and the
holders of the Series C-2 Preferred Shares, voting together as a single
class, shall have the exclusive right to elect those two additional
directors; and
- if Westfield America does not pay a distribution of at least $0.32 per
share, adjusted for stock splits or similar matters that affect conversion
rates, to holders of Westfield America's Common Shares for two consecutive
quarterly distribution periods, then there shall be one additional member
on Westfield America's board of directors, and the holders of the Series C
Preferred Shares, the holders of the Series C-1 Preferred Shares and the
holders of the Series C-2 Preferred Shares, voting together as a single
class, shall have the exclusive right to elect that additional director.
For a description of events that affect conversion rates, see EXHIBIT B to
this Proxy Statement.
Once all distributions in arrears are made current and paid in full, and once
Westfield America has paid distributions on its Common Shares of at least $0.32
per share, then the directors elected by the holders of the Series C Preferred
Shares, the holders of the Series C-1 Preferred Shares and the holders of the
Series C-2 Preferred Shares shall cease to be directors and the number of
directors shall be reduced accordingly. A copy of the proposed amendment to
Section 11(a) of the Series C Certificate of Designation, marked to show the
changes covered by this Proposal 2, is attached to this Proxy Statement as
EXHIBIT A.
The affirmative vote of a majority of the Common Shares cast, provided that
all shares cast represent a majority of the Common Shares entitled to vote on
Proposal 2, and the affirmative vote of a majority of
22
<PAGE>
the Series C Preferred Shares, is required for approval of this Proposal.
Abstentions and broker non-votes will effectively count as a vote AGAINST this
Proposal.
The purpose of the proposed amendment to the Series C Certificate of
Designation is to allow the holders of the Series C Preferred Shares, the
holders of the Series C-1 Preferred Shares and the holders of the Series C-2
Preferred Shares, in the situations described above, to vote together as a
single class.
The effect of the proposed amendment is to decrease the number of directors
that the holders of the Series C Preferred Shares, the holders of the Series C-1
Preferred Shares and the holders of the Series C-2 Preferred Shares, in the
aggregate, in the situations described above, may elect. In the absence of
adopting the proposed amendment, the holders of the Series C Preferred Shares
will vote separately from the holders of the Series C-1 Preferred Shares and
Series C-2 Preferred Shares for the election of directors if the situations
described above occur, and consequently, holders of the Series C, C-1 and C-2
Preferred Shares would be entitled to elect more directors in the aggregate than
they would be entitled to elect if the proposed amendment were adopted.
As of March 10, 1999, there were 416,667 Series C Preferred Shares
outstanding, all of which are currently held by Security Capital.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE APPROVAL AND RATIFICATION OF THE AMENDMENT
TO THE SERIES C CERTIFICATE OF DESIGNATION
APPROVAL OF THE ISSUANCE OF COMMON SHARES UPON
CONVERSION OF WESTFIELD AMERICA'S SERIES D PREFERRED SHARES
IF THEN HELD BY A SUBSTANTIAL SECURITY HOLDER OF
WESTFIELD AMERICA OR OTHER RESTRICTED HOLDER UNDER
THE NEW YORK STOCK EXCHANGE RULES
(PROPOSAL 3)
On August 12, 1998, Westfield America issued, pursuant to a private
placement, 416,667 shares of Series D Preferred Shares, par value $1.00 per
share and liquidation value $180 per share, to Westfield America Trust,
Westfield America's largest shareholder and an affiliate of Westfield America
and 277,778 shares of Series D Preferred Shares to Westfield American
Investments, a subsidiary of Westfield Holdings, in exchange for gross proceeds
of $75,000,060 and $50,000,040, respectively. The proceeds of such sales were
used in part to fund the acquisition of a portfolio of properties from
TrizecHahn Centers, Inc.
A description of the Series D Preferred Shares is attached to this Proxy
Statement as EXHIBIT B.
Westfield America's Certificate of Designation setting forth "Resolution of
the Board of Directors of Westfield America, Inc. Designating Series D Preferred
Shares and Fixing Preferences and Rights Thereof" (the "Series D Certificate of
Designation") provides that, in the event that the holders of Common Shares as a
whole reject this proposal, then from and after August 12, 2000, the Series D
Preferred Shares are redeemable, at the option of the holder, for cash at a
price equal to 18 times the current market price of the Common Shares, plus all
accumulated, accrued and unpaid dividends, whether or not declared, if any, to
the date of repurchase or the date payment is made available. In addition, the
Series D Certificate of Designation provides that the Series D Preferred Shares
will be convertible into Common Shares upon the transfer of the Series D
Preferred Shares to a person to whom Westfield America is permitted to issue
Common Shares without shareholder approval, in accordance with the rules of the
New York Stock Exchange.
Pursuant to Rule 312 of the New York Stock Exchange, shareholder approval is
required before the Series D Preferred Shares are convertible by Westfield
America Trust or Westfield American Investments
23
<PAGE>
Pty Limited into Common Shares because each of Westfield America Trust and
Westfield American Investments Pty Limited could be considered a "substantial
security holder" of Westfield America. Rule 312 of the New York Stock Exchange
also requires shareholder approval prior to the Series D Preferred Shares being
convertible into Common Shares when Series D Preferred Shares are held by a
director, officer or substantial security holder of Westfield America (a
"Related Party"), a subsidiary, affiliate or other closely-related person of a
Related Party or any company or entity in which a Related Party has a
substantial direct or indirect interest. A person owning an interest consisting
of less than either 5% of the number of shares of common stock or 5% of the
voting power outstanding of a company or entity is not considered a "substantial
security holder".
If Proposal 3 is approved by the shareholders, the convertibility of the
Series D Preferred Shares would no longer be subject to shareholder approval
under Rule 312 of the New York Stock Exchange rules. The affirmative vote of a
majority of the Common Shares cast is required for approval of this Proposal,
provided that all shares cast represent a majority of the Common Shares entitled
to vote on Proposal 3. Abstentions and broker non-votes will effectively count
as a vote AGAINST this Proposal.
The purpose of Proposal 3 is to facilitate the listing of the Common Shares,
into which the Series D Preferred Shares are convertible, on the New York Stock
Exchange and to prevent the redemption of the Series D Preferred Shares, at the
option of the holder, from occurring (as described above). If Proposal 3 is
approved, the Series D Preferred Shares would be convertible into Common Shares,
and upon conversion would permit the holders thereof to vote on all matters on
which the holders of Common Shares are entitled to vote. Consequently, upon the
occurrence of the conversion, the voting rights of the current holders of Common
Shares would be diluted.
As of March 10, 1999, there were 694,445 Series D Preferred Shares
outstanding.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR THE ISSUANCE OF COMMON SHARES UPON
THE CONVERSION OF SERIES D PREFERRED SHARES
IF THEN HELD BY A SUBSTANTIAL SECURITY HOLDER OF
WESTFIELD AMERICA OR OTHER RESTRICTED HOLDER UNDER
THE NEW YORK STOCK EXCHANGE RULES
APPROVAL OF THE ISSUANCE OF COMMON SHARES UPON CONVERSION
OF WESTFIELD AMERICA'S SERIES D-1 PREFERRED SHARES IF
THEN HELD BY A SUBSTANTIAL SECURITY HOLDER OF
WESTFIELD AMERICA OR OTHER RESTRICTED HOLDER
UNDER THE NEW YORK STOCK EXCHANGE RULES
(PROPOSAL 4)
On December 22, 1998, Westfield America issued, pursuant to a private
placement, 138,889 Series D-1 Preferred Shares, par value $1.00 per share and
liquidation value $180 per share, to Westfield America Trust in exchange for
gross proceeds of $25,000,020. The proceeds of such sale were used in part to
acquire assets and in part to pay down indebtedness of Westfield America.
A description of the Series D-1 Preferred Shares is attached to this Proxy
Statement as EXHIBIT B.
Westfield America's Certificate of Designation setting forth "Resolution of
the Board of Directors of Westfield America, Inc. Designating Series D-1
Preferred Shares and Fixing Preferences and Rights Thereof" (the "Series D-1
Certificate of Designation") provides that, in the event that the holders of
Common Shares as a whole reject this proposal, then from and after December 24,
2000, the Series D-1 Preferred Shares are redeemable, at the option of the
holder, for cash at a price equal to 18 times the current market price of the
Common Shares, plus all accumulated, accrued and unpaid dividends, whether
24
<PAGE>
or not declared, if any, to the date of repurchase or the date payment is made
available. In addition, the Series D-1 Certificate of Designation also provides
that the Series D-1 Preferred Shares will be convertible into Common Shares upon
the transfer of the Series D-1 Preferred Shares to a person to whom Westfield
America is permitted to issue Common Shares without shareholder approval, in
accordance with the rules of the New York Stock Exchange.
Pursuant to Rule 312 of the New York Stock Exchange, shareholder approval is
required before the Series D-1 Preferred Shares are convertible by Westfield
America Trust into Common Shares because Westfield America Trust could be
considered a "substantial security holder" of Westfield America. Rule 312 of the
New York Stock Exchange also requires shareholder approval prior to the Series
D-1 Preferred Shares being convertible into Common Shares when Series D-1
Preferred Shares are held by a director, officer or substantial security holder
of Westfield America (a "Related Party"), a subsidiary, affiliate or other
closely-related person of a Related Party or any company or entity in which a
Related Party has a substantial direct or indirect interest. A person owning an
interest consisting of less than either 5% of the number of shares of common
stock or 5% of the voting power outstanding of a company or entity is not
considered a "substantial security holder".
If Proposal 4 is approved by the shareholders, the convertibility of the
Series D-1 Preferred Shares would no longer be subject to shareholder approval
under Rule 312 of the New York Stock Exchange rules. The affirmative vote of a
majority of the Common Shares and Series C Preferred Shares cast is required for
approval of this Proposal, provided that all shares cast represent a majority of
the Common Shares and Series C Preferred Shares entitled to vote on Proposal 4.
Abstentions and broker non-votes will effectively count as a vote AGAINST this
Proposal.
For purposes of voting with respect to this Proposal, each Series C
Preferred Share will equal ten Common Shares (the number of Common Shares that
each Series C Preferred Share is convertible into). Security Capital, as holder
of all of the issued and outstanding Series C Preferred Shares, has agreed to
vote all of its Series C Preferred Shares in favor of this Proposal.
The purpose of Proposal 4 is to facilitate the listing of the Common Shares,
into which the Series D-1 Preferred Shares are convertible, on the New York
Stock Exchange and to prevent the redemption of the Series D-1 Preferred Shares,
at the option of the holder, from occurring (as described above). If Proposal 4
is approved, the Series D-1 Preferred Shares would be convertible into Common
Shares, and upon conversion would permit the holders thereof to vote on all
matters on which the holders of Common Shares are entitled to vote.
Consequently, upon the occurrence of the conversion, the voting rights of the
current holders of Common Shares would be diluted.
As of March 10, 1999, there were 138,889 Series D-1 Preferred Shares
outstanding.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE ISSUANCE OF COMMON SHARES UPON THE CONVERSION
OF SERIES D-1 PREFERRED SHARES IF THEN HELD BY
A SUBSTANTIAL SECURITY HOLDER OF WESTFIELD AMERICA OR
OTHER RESTRICTED HOLDER UNDER THE NEW YORK
STOCK EXCHANGE RULES
25
<PAGE>
APPROVAL OF THE ISSUANCE OF COMMON SHARES TO AN AFFILIATE OF
WESTFIELD AMERICA UNDER A SUBSCRIPTION AGREEMENT PREVIOUSLY ENTERED INTO
(PROPOSAL 5)
On May 29, 1998, Westfield America entered into a stock subscription
agreement with Westfield America Trust. Subject to shareholder approval (as
described below), Westfield America has the right to sell, and Westfield America
Trust has the obligation to purchase, $A465 million (approximately $US296
million as of March 12, 1999) of Common Shares in three equal installments at a
5% discount to the then prevailing market price of the Common Shares at June
2001, 2002 and 2003. In lieu of issuing Common Shares at each installment date,
Westfield America has the option to pay the 5% discount in cash or in Common
Shares. The proceeds of said agreement, should Westfield America elect to sell
the Common Shares, would be used for general business purposes including,
without limitation, funding future acquisitions of property.
In January 1999, the board of directors of Westfield America approved and
adopted a resolution approving the form, terms and provisions of the stock
subscription agreement.
The affirmative vote of a majority of:
- the Common Shares and Series C Preferred Shares cast, provided that all
shares cast represent a majority of the Common Shares and Series C
Preferred Shares entitled to vote on Proposal 5;
- the Common Shares and Series C-1 Preferred Shares cast, provided that all
shares cast represent a majority of the Common Shares and Series C-1
Preferred Shares entitled to vote on Proposal 5; and
- the Common Shares and Series C-2 Preferred Shares cast, provided that all
shares cast represent a majority of the Common Shares and Series C-2
Preferred Shares entitled to vote on Proposal 5,
is required for approval of this Proposal. Abstentions and broker non-votes
will effectively count as a vote AGAINST this proposal.
For purposes of voting with respect to this Proposal, each Series C
Preferred Share, Series C-1 Preferred Share and Series C-2 Preferred Share will
equal ten Common Shares (the number of shares that each share of Series C
Preferred Share, Series C-1 Preferred Share and Series C-2 Preferred Share is
convertible into).
The purpose of Proposal 5 is to facilitate the sale of $A465 million
(approximately $US296 million as of March 12, 1999) of Common Shares which
Westfield America may use for general corporate purposes including possible
future acquisitions of property. The effect of shareholder approval of Proposal
5 would be that Westfield America would have the ability to raise $A465 million
(approximately $US296 million as of March 12, 1999) in additional capital and
additional Common Shares will be issued and would permit the holders thereof to
vote on all matters on which the current holders of Common Shares are entitled
to vote. Consequently, the voting rights of the current holders of Common Shares
would be diluted. In addition, the economic rights of the current holders of
Common Shares would be diluted as a result of the 5% discount at which the
Common Shares can be purchased.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE ISSUANCE OF COMMON SHARES TO AN AFFILIATE OF WESTFIELD AMERICA
UNDER A SUBSCRIPTION AGREEMENT PREVIOUSLY ENTERED INTO
26
<PAGE>
APPROVAL AND RATIFICATION OF INDEPENDENT AUDITORS
(PROPOSAL 6)
The board of directors of Westfield America has selected Ernst & Young LLP
as Westfield America's independent auditors for the fiscal year ending December
31, 1999. Ernst & Young LLP have audited Westfield America's financial
statements since 1996. Representatives of Ernst & Young LLP are expected to be
present at the meeting and will be afforded the opportunity to make a statement
if they desire to do so, and such representatives are expected to be available
to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE APPROVAL AND RATIFICATION OF THE APPOINTMENT
OF ERNST & YOUNG LLP AS WESTFIELD AMERICA'S INDEPENDENT
AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 1999.
OTHER BUSINESS
As of the date of this Proxy Statement, Westfield America knows of no
business that will be presented for consideration at the annual meeting other
than that which has been referred to above. As to other business, if any, that
may come before the annual meeting, it is intended that proxies in the enclosed
form will be voted in accordance with the judgment of the proxy holder.
SHAREHOLDER PROPOSALS
Any proposal of a shareholder intended to be presented at Westfield
America's 2000 Annual Meeting of Shareholders must be received by the Secretary
of Westfield America by November 30, 1999 for inclusion in the notice of meeting
and proxy statement relating to Westfield America's 2000 Annual Meeting of
Shareholders. The proposal must comply in all respects with the rules and
regulations of the Securities and Exchange Commission and the By-Laws of
Westfield America.
Pursuant to Westfield America's By-Laws, as amended, shareholder proposals
submitted to Westfield America for consideration at Westfield America's 2000
Annual Meeting of Shareholders outside the processes of Rule 14a-8 (i.e., the
procedures for placing a shareholder's proposal in Westfield America's proxy
materials) will be considered untimely if received by Westfield America before
December 31, 1999 or after January 30, 2000. Accordingly, the proxy with respect
to Westfield America's 2000 Annual Meeting of Shareholders will confer
discretionary authority to vote on any shareholder proposals received by
Westfield America after January 30, 2000.
ANNUAL REPORT
A copy of Westfield America's Annual Report for the fiscal year ended
December 31, 1998, including financial statements audited by Ernst & Young LLP,
independent accountants, and their report thereon dated January 25, 1998,
accompanies this Proxy Statement. IN ADDITION, A COPY OF WESTFIELD AMERICA'S
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998, WILL BE SENT TO
ANY SHAREHOLDER, WITHOUT CHARGE, UPON WRITTEN REQUEST TO IRV HEPNER, SECRETARY,
WESTFIELD AMERICA, INC., 11601 WILSHIRE BOULEVARD, LOS ANGELES, CALIFORNIA
90025.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based on a review of reports filed by Westfield America's directors,
executive officers and beneficial holders of 10% or more of Westfield America's
outstanding shares, Westfield America Trust and Westfield American Investments,
and certain groups controlling these entities, have not reported on Form 4 on a
timely basis, Westfield America Trust's and Westfield American Investments'
purchases of Series D
27
<PAGE>
Preferred Shares and Westfield America Trust's purchase of Series D-1 Preferred
Shares. Westfield American Investments, and certain groups controlling this
entity, have not reported on a timely basis some of Westfield American
Investments' purchases of Common Shares.
YEAR 2000 READINESS
The Year 2000 Problem is the result of computer hardware and software
systems 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
Westfield America's computer hardware and software systems may misinterpret a
date using "00" as the year 1900 rather than the year 2000. This could result in
errors causing such computer hardware and software systems to become unreliable
or to fail.
On behalf of Westfield America, Westfield Holdings began a company-wide
assessment in 1997 to identify Westfield America's reliance on computer hardware
and software systems using a two digit date code as well as Westfield America's
exposure to third party customers and suppliers critical to Westfield America.
This project includes an assessment of Westfield America's dependence upon such
computer hardware and software systems and third parties as well as establishing
priorities for addressing any computer hardware and software systems or third
party customers and suppliers which are assessed as potential year 2000
compliance risks.
Westfield America's initial assessment identified four areas of concern:
- internal computer hardware and software systems which Westfield America
uses for information processing, data storage and communication;
- fire, life and safety systems installed at Westfield America's properties
which are used for measurement and control of mechanical devices essential
to the properties' use and operations;
- economic dependence upon significant customers which are critical to
Westfield America's operations; and
- relationships with third-party suppliers upon which Westfield America's
business is substantially dependent.
INTERNAL COMPUTER HARDWARE AND SOFTWARE SYSTEMS
In 1997, Westfield Holdings completed a comprehensive assessment of all
communication, hardware and software systems believed to be critical to
Westfield America's operations. As a result of that assessment, Westfield
Holdings began a program of replacing and upgrading all computer hardware and
software 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. Westfield Holdings
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 computer hardware and
software 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 computer hardware and software
system's Year 2000 compliance will be incurred by Westfield Holdings and are not
reimbursable by Westfield America.
FIRE, LIFE AND SAFETY SYSTEMS
Management's initial assessment of the fire, life and safety computer
hardware and software systems and the heating, ventilating and air conditioning
computer hardware and software systems at its properties
28
<PAGE>
indicates that manual overrides on most computer hardware and software systems
are available as an alternative to existing automated controls for monitoring
and controlling existing computer hardware and software systems. Westfield
Holdings has completed an assessment of all electronic and mechanical control
systems at its properties and is currently in the process of upgrading or
replacing any computer hardware and software systems which are not Year 2000
compliant prior to September 30, 1999. Any cost incurred to replace or upgrade
such computer hardware and software systems are a cost of maintaining the
centers 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 computer
hardware and software system changes or business interruptions caused by fire,
life and safety computer hardware and software systems and heating, ventilating
and air conditioning computer hardware and software systems which are not Year
2000 compliant to be small.
SIGNIFICANT CUSTOMERS
Westfield America is also reliant on its customers to make the necessary
preparations for the Year 2000 so that their business operations will not be
interrupted, thus threatening their ability to honor their financial
commitments. As of December 31, 1998, all retailers and full-line department
stores had been notified of their responsibilities under their leases and
reciprocal easement agreements notwithstanding interruptions to their business
resulting from Year 2000 problems. Westfield Holdings is communicating with each
of the retailers about their plans and progress in addressing their respective
Year 2000 problems. An initial risk assessment is expected to be substantially
completed by March 31, 1999. Although Westfield Holdings' inquiries indicate
that most of these companies are working on becoming Year 2000 compliant, there
can be no assurance that failure to make necessary modifications would not have
a material adverse affect on Westfield America. The cost of communicating with
Westfield America's tenants will be incurred by Westfield Holdings and is not
reimbursable by Westfield America.
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 the 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
Westfield America. Westfield America'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 Westfield America's
third-party suppliers will be incurred by Westfield Holdings and is not
reimbursable by Westfield America.
WORST CASE SCENARIO
The worst case scenario could be an extended loss of utility service
resulting from interruptions at the point of power generation or line
transmission or local distribution to Westfield America's properties. Such an
interruption could result in an inability to provide tenants with access to
their spaces thereby affecting Westfield America's ability to collect rent and
pay its obligations which could result in a material adverse effect on Westfield
America. The effect could be as insignificant as a minor interruption in
services provided to tenants at the centers resulting from unanticipated
problems encountered by Westfield America or any of the significant third
parties with whom Westfield America does business. The pervasiveness of the Year
2000 issue makes it likely that previously unidentified issues will require
remediation during the normal course of business. In such a case, Westfield
America anticipates that automated procedures could be replaced by manual
procedures while computer hardware and software
29
<PAGE>
systems are repaired and that such interruptions would have a minor effect on
Westfield America's operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
In the normal course of business Westfield America enters into interest rate
swap contracts to reduce its exposure to fluctuations in interest rates. Net
interest differentials to be paid or received related to these contracts are
accrued as incurred or earned. Any gain or loss from terminating current swap
contracts is recognized in the period the swap contract is terminated or
reversed. Westfield America's policy is to maintain fixed rate borrowing
(including fixed rate mortgages and interest rate swaps) for 75% of forecast
debt for a term of not more than ten years. Additional hedging may be entered
into for up to 100% of forecast debt if interest rates are considered by
management to be favorable.
It is Westfield America's policy to enter into interest rate swap contracts
to hedge fluctuations in interest rates only to the extent necessary to meet its
objectives as stated above. Westfield America does not enter into interest rate
swap contracts for speculative purposes.
Interest rate exchange agreements are contractual agreements between
Westfield America and third parties to exchange fixed and floating interest
payments periodically without the exchange of the underlying principal amounts
(notional amounts). The agreements consist of swaps and involve the future
receipt, of a floating rate based on the London Interbank Offered Rate (LIBOR)
and the payment of a fixed rate. Since December 31, 1997, Westfield America has
lengthened the average remaining term of its pro rata share of fixed rate
borrowings and hedges, including delayed start swaps from 7.8 years to 9.1
years. In the unlikely event that a counterparty fails to meet the terms of an
interest rate swap contract, Westfield America's exposure is limited to the
interest rate differential between the contract rate and the market rate on the
notional amount. Westfield America does not anticipate non-performance by any of
the counterparties.
The following is a summary of fixed rate debt, average fixed interest rate
and average remaining term to maturity for Westfield America's pro rata share of
fixed rate debt and variable rate debt which has been fixed through the use of
interest rate swap contracts:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
--------- ---------
($ IN THOUSANDS)
<S> <C> <C>
Principal amount of fixed rate debt................... $ 777,911 $ 703,175
Principal (notional) amount of other current fixed
rate payable instruments............................ 1,700,000 225,000
--------- ---------
$2,477,911 $ 928,175
--------- ---------
--------- ---------
Fixed rate debt as a percentage of total notes payable
and revolving credit facility....................... 91.4% 79.6%
--------- ---------
--------- ---------
Average effective fixed rate (inclusive of margins) of
total fixed rate debt and hedges, including delayed
start swaps......................................... 7.09% 7.10%
--------- ---------
--------- ---------
Average remaining term (in years) of total fixed rate
borrowings and hedges, including delayed start
swaps............................................... 9.1 7.8
--------- ---------
--------- ---------
</TABLE>
Westfield America has entered into one foreign currency exchange agreement
related to the issuance of notes to Australian investors totaling $301.1 million
in order to eliminate its exposure to fluctuations in exchange rates.
The estimated fair value of Westfield America's financial instruments have
been determined by Westfield America, using available market information and
appropriate valuation methodologies. However, considerable judgment is
necessarily required in interpreting market data to develop the estimates of
30
<PAGE>
fair value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that Westfield America could realize in a current
market transaction. The use of different market assumptions or estimation
methodologies may have a material effect on the estimated fair value amounts.
For purposes of the Securities and Exchange Commission's market risk
disclosure requirements, Westfield America has estimated the fair value of its
financial instruments at December 31, 1998. The fair value estimates presented
herein are based on pertinent information available to management as of December
31, 1998. Although management is not aware of any factors that would
significantly affect the estimated fair value amounts as of December 31, 1998,
future estimates of fair value and the amounts which may be paid or realized in
the future may differ significantly from the amounts presented below.
INTEREST RATE SENSITIVITY
PRINCIPAL (NOTIONAL) AMOUNT BY CONTRACT MATURITY DATE
<TABLE>
<CAPTION>
ESTIMATED
FAIR
VALUE
1999 2000 2001 2002 2003 THEREAFTER TOTAL 12/31/98
--------- --------- --------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(AMOUNTS IN THOUSANDS EXCEPT INTEREST RATES)
ASSETS:
Participating loan to
an affiliate........ -- -- -- -- -- $ 145,000 $ 145,000 $ 145,000
Average rate.......... -- -- -- -- -- 8.5%
Direct financing
leases receivable... $ 2,290 $ 2,447 $ 2,617 $ 2,799 $ 2,944 $ 70,117 $ 83,214 $ 85,571
LIABILITIES:
Notes Payable--fixed
rate................ $ 14,958 $ 142,572 $ 178,648 $ 65,005 $ 10,653 $ 360,516 $ 772,352 $ 781,713
Average rate.......... 7.1% 7.1% 6.6% 8.1% 6.8% 7.0%
Notes
Payable--variable
rate................ $ 331,475 $ 490,000 $ 846,462 100,363 100,363 -- $1,868,663 $1,868,663
Average rate.......... L+1.7 (1) L+1.5 (1) L+.70 (1) L+2.32 (1) L+2.32 (1) --
INTEREST RATE SWAP
CONTRACTS:
Current swaps where
the Company receives
L(1)................ $ 100,000 -- $ 100,000 $ 100,000 $ 100,000 $1,300,000 $1,700,000 $ (60,002)
Average rate.......... 5.99% -- 5.95% 5.95% 5.95% 5.85%
Deferred swaps where
the Company receives
L(1)................ -- -- -- $ 317,000 100,000 600,000 $1,017,000 $ (28,673)
Average rate.......... 6.21% 6.15% 6.11%
</TABLE>
- ------------------------------
(1) L refers to the London Interbank Offered Rate (or "LIBOR").
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Westfield America's Annual Report for the fiscal year ended December 31,
1998 is being mailed to shareholders concurrently with this Proxy Statement. The
following portions of Westfield America's Annual Report for the fiscal year
ended December 31, 1998, are incorporated in this Proxy Statement by reference:
- Report of Independent Auditors
- Consolidated Balance Sheets
- Consolidated Statements of Income
- Consolidated Statements of Changes in Shareholder's Equity
- Consolidated Statements of Cash Flows
31
<PAGE>
- Notes to Consolidated Financial Statements
- Management's Discussion and Analysis of Financial Condition and Results of
Operation
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Proxy Statement includes statements (other than the consolidated
financial statements incorporated herein by reference and other statements of
historical fact) that are subject to risks and uncertainties. Forward-looking
statements include the information set forth above under "Year 2000,"
"Quantitative and Qualitative Disclosure About Market Risk" and in the Annual
Report in "Management's Discussion and Analysis of Financial Condition and
Results of Operation," which is incorporated herein by reference, and statements
preceded by, followed by or that include the words "believes," "expects," "may,"
"will," "anticipates," "intends," "plans," "estimates," "proposes," "scheduled,"
or other similar expressions.
Forward-looking statements are made based on management's current
expectations and belief concerning future developments and their potential
effects on Westfield America. There can be no assurance that future developments
will be in accordance with management's expectations or that the effect of
future developments on Westfield America will be those anticipated by
management. Many of the factors that will determine these results are beyond
Westfield America's ability to control or predict.
While Westfield America 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, Westfield America does not intend to review or revise any particular
forward-looking statement referenced in this Proxy Statement 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 Proxy Statement, in
any materials incorporated herein by reference, in any of Westfield America's
public filings or press releases or in any oral statements made by Westfield
America or any of its officers or any other persons acting on its behalf. For
those statements, Westfield America intends to avail itself of the protection of
the safe harbor from liability with respect to forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995.
By Order of the Board of Directors
/s/ Irv Hepner
Irv Hepner
SECRETARY
Dated: April 5, 1999
Los Angeles, California
32
<PAGE>
EXHIBIT A
PROPOSED AMENDMENT TO
SERIES C CERTIFICATE OF DESIGNATION
Section 11. Voting. (a) Except as expressly provided in this Certificate of
Designation, the holders of Series C Equity Shares shall have no voting rights.
If and whenever (i) for two consecutive quarterly Dividend Periods the
Corporation fails to pay dividends on the Series C Equity Shares, the Series C-l
Equity Shares (as defined in the Corporation's Certificate of Designation
authorizing the Series C-1 Equity Shares) or the Series C-2 Equity Shares (as
defined in the Corporation's Certificate of Designation authorizing the Series
C-2 Equity Shares) (which shall, with respect to any such quarterly dividend,
mean that any such dividend has not been paid in full), then the number of
directors then constituting the Board of Directors shall be increased by two and
the holders of Series C Equity Shares, the Series C-1 Equity Shares and the
Series C-2 Equity Shares, voting together as a single class, shall be entitled
to elect the two additional directors to serve on the Board of Directors or (ii)
for two consecutive quarterly Dividend Periods the Corporation fails to pay
dividends on the Common Shares in an amount per share at least equal to $0.32
(subject to adjustment consistent with any adjustment of the Conversion Price
pursuant to Section 6(a) of this Article), then the number of directors then
constituting the Board of Directors shall be increased by one and the holders of
Series C Equity Shares, the Series C-1 Equity Shares and the Series C-2 Equity
Shares, voting together as a single class, shall be entitled to elect the one
additional director to serve on the Board of Directors, in either case, at any
annual meeting of shareholders or special meeting held in place thereof, or at a
special meeting of the holders of the Series C Equity Shares, the Series C-1
Equity Shares and the Series C-2 Equity Shares called as hereinafter provided;
provided, however, that except as set forth below, the holders of the Series C
Equity Shares, the Series C-1 Equity Shares and the Series C-2 Equity Shares
shall not have the right to elect more than two directors. If, other than
through the operation of this Section 11(a) or pursuant to the provisions of the
Articles of Incorporation relating to the Corporation's Series A and B Preferred
Shares (but only with respect to one director elected by the holders of the
Series A and B Preferred Shares), the Board of Directors shall be increased at
any time to more than ten directors, then, upon the occurrence or continuance of
any of the events described in this Section 11(a), the Board of Directors shall
be increased by such number of additional directors, and the holders of the
Series C Equity Shares, the Series C-l Equity Shares and the Series C-2 Equity
Shares, voting together as a single class, shall be entitled to elect such
number of additional directors, as shall be necessary to maintain the ratio of
directors elected by the holders of the Series C Equity Shares, the Series C-1
Equity Shares and the Series C-2 Equity Shares to the directors otherwise
elected, as nearly as possible (rounding to the next larger whole number), equal
to the ratio that would have existed if the holders of the Series C Equity
Shares, the Series C-l Equity Shares and the Series C-2 Equity Shares were able
to elect the full number of directors then permitted to be elected by them under
this Section 11(a) and the directors otherwise elected numbered only ten.
Whenever, as the case may be, (i) all dividends in arrears on the Series C
Equity Shares, the Series C-1 Equity Shares and the Series C-2 Equity Shares
then outstanding shall have been paid and the Corporation has paid dividends
thereon for two consecutive quarters and (ii) the Corporation has paid dividends
on the Common Shares in an amount per share at least equal to $0.32 (subject to
adjustment consistent with any adjustment of the Conversion Price pursuant to
Section 6(a) of this Article) for two consecutive quarters, then the right of
the holders of the Series C Equity Shares, the Series C-1 Equity Shares and the
Series C-2 Equity Shares to elect such additional directors shall cease (but
subject always to the same provision for the vesting of such voting rights in
the case of any similar future arrearage in quarterly dividends), and the terms
of office of all persons elected as Directors by the holders of the Series C
Equity Shares, the Series C-1 Equity Shares and the Series C-2 Equity Shares
shall forthwith terminate and the number of the Board of Directors shall be
reduced accordingly. At any time after such voting power shall have been so
vested in the holders of Series C Equity Shares, the Series C-1 Equity Shares
and the Series C-2 Equity Shares, the Secretary of the
33
<PAGE>
Corporation may, and upon the written request of any holders of 5% of the
outstanding Series C Equity Shares, the Series C-1 Equity Shares and the Series
C-2 Equity Shares (addressed to the Secretary at the principal office of the
Corporation) shall, call a special meeting of the holders of the Series C Equity
Shares, the Series C-1 Equity Shares and the Series C-2 Equity Shares for the
election of the Directors to be elected by them as herein provided, such call to
be made by notice similar to that provided in the By-Laws of the Corporation for
a special meeting of the shareholders or as required by law. If any such special
meeting required to be called as above provided shall not be called by the
Secretary within 20 days after receipt of any such request, then any holder of
Series C Equity Shares, Series C-1 Equity Shares or the Series C-2 Equity Shares
may call such meeting, upon the notice above provided, and for that purpose
shall have access to the records of the Corporation. The directors elected at
any such special meeting shall hold office until the next annual meeting of the
shareholders or special meeting held in lieu thereof if such office shall not
have previously terminated as above provided. If any vacancy shall occur among
the Directors elected by the holders of the Series C Equity Shares, the Series
C-1 Equity Shares and the Series C-2 Equity Shares a successor shall be elected
by the Board of Directors, upon the nomination of the then-remaining Director
elected by the holders of the Series C Equity Shares, the Series C-1 Equity
Shares and the Series C-2 Equity Shares or the successor of such remaining
Director (or, if there are then no such Directors or Director elected by the
holders of Series C Equity Shares, the Series C-1 Equity Shares and the Series
C-2 Equity Shares, such Director shall be elected by the holders of the Series C
Equity Shares, the Series C-1 Equity Shares and the Series C-2 Equity Shares as
described above), to serve until the next annual meeting of the shareholders or
special meeting held in place thereof if the term of such director shall not
have previously terminated as provided above.
34
<PAGE>
EXHIBIT B
DESCRIPTION OF SERIES D PREFERRED SHARES
AND SERIES D-1 PREFERRED SHARES
The holders of Series D Preferred Shares and the holders of Series D-1
Preferred Shares each are entitled to receive, when and as declared by Westfield
America's board of directors, cumulative dividends per share equal to the
greater of:
- $15.30 per year; and
- an amount currently equal to 10.0 times the dividend declared on Common
Shares for such period, adjusted for events that affect the conversion
rate as described below, if such funds are legally available.
In addition, if Westfield America does not have earnings at least 40%
greater than its consolidated fixed charges, Westfield America must pay a
dividend 20% greater than that Westfield America would normally be required to
pay. Holders of Series D Preferred Shares and holders of Series D-1 Preferred
Shares are entitled to dividends before Westfield America can distribute
dividends to holders of Common Shares.
Upon Westfield America's liquidation, dissolution or winding up, the holders
of Series D Preferred Shares and the holders of Series D-1 Preferred Shares are
entitled to be paid in full an amount equal to the sum of $180.00 per share and
all accrued and unpaid dividends through the date of liquidation.
After August 12, 2008 Westfield America may, at the option of its board of
directors, with the approval by a majority of independent directors, redeem, in
whole, or in part, the outstanding Series D Preferred Shares and outstanding
Series D-1 Preferred Shares at a redemption price equal to the sum of $180.00
per share and all accrued and unpaid dividends through the call date specified
in the notice to holders regarding the redemption.
If there is a change in control of Westfield America, the holders of the
Series D Preferred Shares and Series D-1 Preferred Shares can require Westfield
America, if Westfield America has funds legally available to do so, to redeem
their Series D Preferred Shares or Series D-1 Preferred Shares at a cost of
$189.00, plus accrued and unpaid dividends, if any, to the date that Westfield
America repurchases the shares. For purposes of the Series D Preferred Shares
and Series D-1 Preferred Shares, a change in control of Westfield America may
occur in several circumstances, including upon the first acquisition, directly
or indirectly, by any individual or entity or group (as such term is used in
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") of beneficial ownership (as defined in Rule 13d-3 under the
Exchange Act, except that such individual or entity shall be deemed to have
beneficial ownership of all shares that any such individual or entity has the
right to acquire, whether such right is exercisable immediately or only after
passage of time) of more than 25% of Westfield America's or Westfield America
Trust's outstanding equity securities with voting power, under ordinary
circumstances, to elect directors of Westfield America.
Also, Westfield America has agreed that so long as Westfield American
Investments Pty Limited or Westfield America Trust holds any of the Series D
Preferred Shares or Series D-1 Preferred Shares, if Westfield America fails to
continue to be taxed as a REIT, Westfield American Investments Pty Limited or
Westfield America Trust will have the right to require Westfield America, if
Westfield America has funds legally available to do so, to repurchase any or all
of the Series D Preferred Shares or Series D-1 Preferred Shares held by
Westfield American Investments Pty Limited or Westfield America Trust at a
repurchase price of $207.00 per share, payable in cash plus accrued and unpaid
dividends whether or not declared, if any, to the date of repurchase or the date
payment is made available.
35
<PAGE>
In addition, after August 12, 2008, the holders of the Series D Preferred
Shares and the holders of Series D-1 Preferred Shares have the right to require
Westfield America to redeem their Series D Preferred Shares or Series D-1
Preferred Shares either for cash or for Common Shares, at the option of
Westfield America, as long as the current market price of the Common Shares is
less than $18.00, adjusted for events that affect the conversion rate as
described below.
The holders of Series D Preferred Shares and Series D-1 Preferred Shares do
not have any voting rights, other than as required by law, except:
- a majority of the holders of the Series D Preferred Shares, voting
together as a class, and a majority of the holders of the Series D-1
Preferred Shares, voting together as a class, must approve any amendment,
alteration or repeal of the Articles of Incorporation, or the Series D
Certificate of Designation or Series D-1 Certificate of Designation, as
applicable, that materially and adversely affects their voting powers,
rights or preferences, with the exception that the holders of the Series D
Preferred Shares and Series D-1 Preferred Shares will not be entitled to
vote on such a matter if Westfield America redeems the Series D Preferred
Shares or Series D-1 Preferred Shares, as applicable, before any
amendment, alteration or repeal is to take effect; and
- a majority of the holders of the Series D Preferred Shares, voting
together as a class, and a majority of the holders of the Series D-1
Preferred shares, voting together as a single class, must approve any
merger or consolidation if Westfield America does not survive such merger
or consolidation and the holders of the Series D Preferred Shares and the
holders of Series D-1 Preferred Shares do not receive shares of the
surviving corporation with substantially similar rights, preferences and
powers in the surviving corporation as their Series D Preferred Shares and
Series D-1 Preferred Shares, as applicable, with the exception that the
holders of Series D Preferred Shares and the holders of Series D-1
Preferred Shares will not be entitled to vote on such a matter if
Westfield America redeems the Series D Preferred Shares and Series D-1
Preferred Shares, as applicable, prior to such a merger or consolidation.
The Series D Certificate of Designation and the Series D-1 Certificate of
Designation allow conversion by Westfield America Trust and Westfield American
Investments Pty., Limited at any time (subject to shareholder approval as
described below), of each Series D Preferred Share and each Series D-1 Preferred
Share into 10 Common Shares, as applicable, subject to adjustment in certain
events, generally including:
- the issuance of Common Shares as a dividend or a distribution on the
Common Shares;
- certain subdivisions and combinations of Westfield America's Common
Shares;
- the issuance of any shares of stock by reclassification of Westfield
America's Common Shares;
- the issuance to all holders of Westfield America's Common Shares of
certain rights, options or warrants entitling them to subscribe for or
purchase Common Shares at a price per share less than 95% (100% if a
stand-by underwriter is used and charges Westfield America a commission)
of the fair market value per Common Share on the record date for
determination of shareholders entitled to receive such rights, options or
warrants;
- the distribution to all holders of Westfield America's Common Shares of
any of Westfield America's securities (other than Common Shares) or
evidence of Westfield America's indebtedness or assets (excluding
cumulative cash dividends or distributions paid on the Common Shares after
December 31, 1997 which are not in excess of a certain amount); and
- payment to holders of Common Shares in connection with a tender or
exchange offer by us or any of Westfield America's subsidiaries or
controlled affiliates (which does not include open market repurchases by
Westfield America) for all or any portion of the Common Shares for the
amount that the value of any consideration per Common Share has a fair
market value (as determined in good faith by Westfield America's board of
directors) that exceeds the current market price per
36
<PAGE>
Common Share on the trading day next succeeding the last date on which
tenders or exchanges may be made in accordance with such tender or
exchange offer.
If any transaction shall occur, generally including:
- any merger or consolidation;
- statutory share exchange;
- self tender offer for 40% or more of Westfield America's Common Shares;
- sale of all or substantially all of Westfield America's assets; or
- recapitalization of Westfield America's Common Shares (other than the
issuance of Common Shares as a dividend or a distribution on the Common
Shares, certain subdivisions and combinations of Westfield America's
Common Shares or the issuance of any shares of stock by reclassification
of Westfield America's Common Shares)) in which substantially all of the
Common Shares are converted into the right to receive different
securities, cash or other property,
then each Series D Preferred Share and each Series D-1 Preferred Share that is
not redeemed or converted into the right to receive different securities, cash
or other property prior to such transaction shall be convertible into the kind
and amount of the different securities, cash or other property that would have
been receivable upon the consummation of such transaction by a holder of that
number of Common Shares issuable upon conversion of such Series D Preferred
Share or Series D-1 Preferred Share immediately prior to such transaction.
37
<PAGE>
APPENDIX A
WESTFIELD AMERICA, INC.
Proxy For Annual Meeting Of Shareholders April 29, 1999
The undersigned hereby appoints Peter S. Lowy, Richard E. Green, Mark A.
Stefanek and Irv Hepner as Proxies, each with the power to appoint his
substitute, and hereby authorizes them, to represent and vote, as designated on
the reverse, all shares of common stock, par value $.01 per share, of Westfield
America held of record by the undersigned on March 10, 1999, at the Annual
Meeting of Shareholders to be held on April 29, 1999 or any adjournment thereof.
(To be Signed on Reverse Side.)
A-1
<PAGE>
Please date, sign and mail your
proxy card back as soon as possible!
Annual meeting of shareholders
WESTFIELD AMERICA, INC.
April 29, 1999
Please Detach and Mail in the Envelope Provided
A-2
<PAGE>
/X/ Please mark your
votes as in this example.
<TABLE>
<S> <C> <C> <C> <C>
WITHHOLD AUTHORITY
to vote for all
FOR nominees listed at right Nominees:
1. ELECTION / / / / David H. Lowy
OF Herman Huizinga
DIRECTORS Bernard Marcus
</TABLE>
FOR all nominees listed (except as marked to the contrary below)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
2. Proposal to amend Westfield America's Series C Certificate of Designation so
that the holders of the Series C, C-1 and C-2 Preferred Shares will vote
together as a single class.
/ / FOR / / AGAINST / / ABSTAIN
3. Proposal to approve the issuance of Westfield America's common stock upon
conversion of Westfield America's Series D Preferred Shares if then held by
a substantial security holder of Westfield America or other restricted
security holder under the New York Stock Exchange Rules.
/ / FOR / / AGAINST / / ABSTAIN
4. Proposal to approve the issuance of Westfield America's common stock upon
conversion of Westfield America's Series D-1 Preferred Shares if then held
by a substantial security holder of Westfield America or other restricted
security holder under the New York Stock Exchange Rules.
/ / FOR / / AGAINST / / ABSTAIN
5. Proposal to approve the issuance of Westfield America's common stock to an
affiliate of Westfield America under a subscription agreement previously
entered into.
/ / FOR / / AGAINST / / ABSTAIN
6. Proposal to ratify the selection of Ernst & Young LLP to serve as Westfield
America's independent accountants for fiscal 1999.
/ / FOR / / AGAINST / / ABSTAIN
7. In their discretion upon such other business as may properly come before the
Annual Meeting or any postponement or adjournment thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. THIS PROXY WILL BE
VOTED AS DIRECTED. IN THE ABSENCE OF DIRECTION, THIS PROXY WILL BE VOTED FOR THE
THREE NOMINEES FOR ELECTION, AND FOR PROPOSALS 2, 3, 4, 5, 6 AND 7.
Sign, Date and Return the Proxy Card Promptly Using the Enclosed Envelope.
Signatures _____________________________________________________________________
_______________________________________________________________ Date ___________
NOTE: Please sign exactly as names appear on stock certificate (as indicated
hereon).
A-3
<PAGE>
WESTFIELD AMERICA, INC.
Proxy For Annual Meeting Of Shareholders April 29, 1999
The undersigned hereby appoints Peter S. Lowy, Richard E. Green, Mark A.
Stefanek and Irv Hepner as Proxies, each with the power to appoint his
substitute, and hereby authorizes them, to represent and vote, as designated on
the reverse, all shares of Series C Cumulative Convertible Redeemable Preferred
Stock of Westfield America held of record by the undersigned on March 10, 1999,
at the Annual Meeting of Shareholders to be held on April 29, 1999 or any
adjournment thereof.
(To be Signed on Reverse Side.)
A-4
<PAGE>
Please date, sign and mail your
proxy card back as soon as possible!
Annual meeting of shareholders
WESTFIELD AMERICA, INC.
April 29, 1999
Please Detach and Mail in the Envelope Provided
A-5
<PAGE>
/X/ Please mark your
votes as in this example.
2. Proposal to amend Westfield America's Series C Certificate of Designation so
that the holders of Westfield America's Series C, C-1 and C-2 Preferred
Shares will vote together as a single class.
/ / FOR / / AGAINST / / ABSTAIN
4. Proposal to approve the issuance of Westfield America's common stock upon
conversion of Westfield America's Series D-1 Preferred Shares if then held
by a substantial security holder of Westfield America or other restricted
security holder under the New York Stock Exchange rules.
/ / FOR / / AGAINST / / ABSTAIN
5. Proposal to approve the issuance of Westfield America's common stock to an
affiliate of Westfield America under a subscription agreement previously
entered into.
/ / FOR / / AGAINST / / ABSTAIN
7. In their discretion upon such other business as may properly come before the
Annual Meeting or any postponement or adjournment thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. THIS PROXY WILL
BE VOTED AS DIRECTED. IN THE ABSENCE OF DIRECTION, THIS PROXY WILL BE VOTED FOR
PROPOSALS 2, 4, 5 AND 7.
Sign, Date and Return the Proxy Card Promptly Using the Enclosed Envelope.
Signatures _____________________________________________________________________
_______________________________________________________________ Date ___________
NOTE: Please sign exactly as names appear on stock certificate (as indicated
hereon).
A-6
<PAGE>
WESTFIELD AMERICA, INC.
Proxy For Annual Meeting Of Shareholders April 29, 1999
The undersigned hereby appoints Peter S. Lowy, Richard E. Green, Mark A.
Stefanek and Irv Hepner as Proxies, each with the power to appoint his
substitute, and hereby authorizes them, to represent and vote, as designated on
the reverse, all shares of Series C-1 Cumulative Convertible Redeemable
Preferred Stock of Westfield America held of record by the undersigned on March
10, 1999, at the Annual Meeting of Shareholders to be held on April 29, 1999 or
any adjournment thereof.
(To be Signed on Reverse Side.)
A-7
<PAGE>
Please date, sign and mail your
proxy card back as soon as possible!
Annual meeting of shareholders
WESTFIELD AMERICA, INC.
April 29, 1999
Please Detach and Mail in the Envelope Provided
A-8
<PAGE>
/X/ Please mark your
votes as in this example.
5. Proposal to approve the issuance of Westfield America's common stock to an
affiliate of Westfield America under a subscription agreement previously
entered into.
/ / FOR / / AGAINST / / ABSTAIN
7. In their discretion upon such other business as may properly come before the
Annual Meeting or any postponement or adjournment thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. THIS PROXY WILL
BE VOTED AS DIRECTED. IN THE ABSENCE OF DIRECTION, THIS PROXY WILL BE VOTED FOR
PROPOSALS 5 AND 7.
Sign, Date and Return the Proxy Card Promptly Using the Enclosed Envelope.
Signatures _____________________________________________________________________
_______________________________________________________________ Date ___________
NOTE: Please sign exactly as names appear on stock certificate (as indicated
hereon).
A-9
<PAGE>
WESTFIELD AMERICA, INC.
Proxy For Annual Meeting Of Shareholders April 29, 1999
The undersigned hereby appoints Peter S. Lowy, Richard E. Green, Mark A.
Stefanek and Irv Hepner as Proxies, each with the power to appoint his
substitute, and hereby authorizes them, to represent and vote, as designated on
the reverse, all shares of Series C-2 Cumulative Convertible Redeemable
Preferred Stock of Westfield America held of record by the undersigned on March
10, 1999, at the Annual Meeting of Shareholders to be held on April 29, 1999 or
any adjournment thereof.
(To be Signed on Reverse Side.)
A-10
<PAGE>
Please date, sign and mail your
proxy card back as soon as possible!
Annual meeting of shareholders
WESTFIELD AMERICA, INC.
April 29, 1999
Please Detach and Mail in the Envelope Provided
A-11
<PAGE>
/X/ Please mark your
votes as in this example.
5. Proposal to approve the issuance of Westfield America's common stock to an
affiliate of Westfield America under a subscription agreement previously
entered into.
/ / FOR / / AGAINST / / ABSTAIN
7. In their discretion upon such other business as may properly come before the
Annual Meeting or any postponement or adjournment thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. THIS PROXY WILL
BE VOTED AS DIRECTED. IN THE ABSENCE OF DIRECTION, THIS PROXY WILL BE VOTED FOR
PROPOSALS 5 AND 7.
Sign, Date and Return the Proxy Card Promptly Using the Enclosed Envelope.
Signatures _____________________________________________________________________
_______________________________________________________________ Date ___________
NOTE: Please sign exactly as names appear on stock certificate (as indicated
hereon).
A-12
<PAGE>
APPENDIX B
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
Westfield America Inc.:
We have audited the accompanying consolidated balance sheets of Westfield
America, Inc. and Subsidiaries (the "Company") as of December 31, 1998 and 1997
and the related consolidated statements of income, shareholders' equity and cash
flows for each of the years in the three year period ended December 31, 1998.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Westfield America, Inc. and Subsidiaries as of December 31, 1998 and 1997 and
the consolidated results of operations and cash flows for each of the years in
the three year period ended December 31, 1998 in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Los Angeles, California
January 25, 1999
B-1
<PAGE>
APPENDIX C
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
Westfield America Inc.:
We have audited the accompanying consolidated balance sheets of Westfield
America, Inc. and Subsidiaries (the "Company") as of December 31, 1998 and 1997
and the related consolidated statements of income, shareholders' equity and cash
flows for each of the years in the three year period ended December 31, 1998.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Westfield America, Inc. and Subsidiaries as of December 31, 1998 and 1997 and
the consolidated results of operations and cash flows for each of the years in
the three year period ended December 31, 1998 in conformity with generally
accepted accounting principles.
[LOGO]
Los Angeles, California
January 25, 1999
C-1
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
<S> <C> <C>
1998 1997
------------ ------------
ASSETS
Land.................................................................................. $ 457,801 $ 302,260
Buildings, improvements and equipment................................................. 3,185,969 1,491,067
Less accumulated depreciation......................................................... (340,727) (236,220)
------------ ------------
Net property and equipment.......................................................... 3,303,043 1,557,107
Construction in progress.............................................................. 20,254 11,651
Investments in unconsolidated real estate partnerships................................ 138,747 49,391
Participating loan to affiliates...................................................... 145,000 145,000
Direct financing leases receivable.................................................... 83,214 85,352
------------ ------------
Net investment in real estate....................................................... 3,690,258 1,848,501
Cash and cash equivalents............................................................. 25,272 11,003
Restricted cash....................................................................... 25,820 28,305
Accounts receivable, net of allowance of $8,400 and $8,912 in 1998
and 1997, respectively.............................................................. 45,325 27,499
Deferred expenses and other assets, net............................................... 33,964 54,322
------------ ------------
Total assets........................................................................ $ 3,820,639 $ 1,969,630
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable and revolving credit facility........................................... $ 2,641,015 $ 1,107,425
Accounts payable and accrued expenses................................................. 82,658 38,352
Distribution payable.................................................................. 33,242 28,350
------------ ------------
Total liabilities................................................................... 2,756,915 1,174,127
------------ ------------
Minority interests.................................................................... 42,605 25,123
Series C and D preferred stock........................................................ 275,000 --
Common stock.......................................................................... 731 731
Series A and B preferred stock........................................................ 121,000 121,000
Additional paid-in capital............................................................ 624,388 648,649
------------ ------------
Total shareholders' equity.......................................................... 746,119 770,380
------------ ------------
Total liabilities and shareholders' equity.......................................... $ 3,820,639 $ 1,969,630
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
C-2
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
<S> <C> <C> <C>
1998 1997 1996
----------- ---------- ----------
REVENUES:
Minimum rents............................................................. $ 226,089 $ 147,971 $ 105,295
Tenant recoveries......................................................... 91,909 64,662 44,423
Percentage rents.......................................................... 10,467 4,175 3,991
----------- ---------- ----------
Total revenues.......................................................... 328,465 216,808 153,709
----------- ---------- ----------
EXPENSES:
Operating................................................................. 97,359 64,156 47,339
Management fees........................................................... 6,264 4,074 3,191
Advisory fee.............................................................. 6,140 -- 2,600
General and administrative................................................ 1,519 949 808
Depreciation and amortization............................................. 76,926 53,913 38,596
----------- ---------- ----------
Total expenses.......................................................... 188,208 123,092 92,534
----------- ---------- ----------
OPERATING INCOME............................................................ 140,257 93,716 61,175
INTEREST EXPENSE, net....................................................... (106,852) (57,472) (40,233)
OTHER INCOME:
Equity in income of unconsolidated real estate partnerships............... 5,949 3,887 3,707
Gain on sale of investments, net.......................................... 53,895 -- --
Interest and other income................................................. 17,196 9,212 1,110
----------- ---------- ----------
INCOME BEFORE MINORITY INTEREST............................................. 110,445 49,343 25,759
Minority interest in earnings of consolidated real
estate partnerships....................................................... (4,257) (2,478) (1,063)
----------- ---------- ----------
NET INCOME.................................................................. $ 106,188 $ 46,865 $ 24,696
----------- ---------- ----------
----------- ---------- ----------
Net income allocable to preferred shares.................................... $ 17,619 $ 11,428 $ 4,264
Net income allocable to common shares....................................... 88,569 35,437 20,432
----------- ---------- ----------
$ 106,188 $ 46,865 $ 24,696
----------- ---------- ----------
----------- ---------- ----------
EARNINGS PER COMMON SHARE:
Basic..................................................................... $ 1.21 $ 0.54 $ 0.42
----------- ---------- ----------
----------- ---------- ----------
Diluted................................................................... $ 1.20 $ 0.54 $ 0.42
----------- ---------- ----------
----------- ---------- ----------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
Basic..................................................................... 73,334 65,505 49,063
----------- ---------- ----------
----------- ---------- ----------
Diluted................................................................... 73,901 65,548 49,063
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
C-3
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PREFERRED PAID-IN RETAINED SHAREHOLDERS'
STOCK STOCK CAPITAL EARNINGS EQUITY
----------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
BALANCES, JANUARY 1, 1996.......................... $ 451 $ -- $ 379,968 $ -- $ 380,419
Net income for the year ended
December 31, 1996................................ -- -- -- 24,696 24,696
Issuance of common stock........................... 212 -- 342,109 -- 342,321
Issuance of preferred stock........................ -- 94,000 -- -- 94,000
Cost of stock issuances............................ -- -- (29,000) -- (29,000)
Redemption of common stock......................... (136) -- (217,864) -- (218,000)
Advisory fee (not payable)......................... -- -- 2,600 -- 2,600
Distributions on preferred stock................... -- -- -- (4,264) (4,264)
Distributions on common stock...................... -- -- (53,810) (20,432) (74,242)
----- ---------- ----------- ---------- -------------
BALANCES, DECEMBER 31, 1996........................ 527 94,000 424,003 -- 518,530
Net income for the year ended
December 31, 1997................................ -- -- -- 46,865 46,865
Issuance of common stock........................... 204 -- 305,796 -- 306,000
Issuance of preferred stock........................ -- 27,000 -- -- 27,000
Cost of stock issuances............................ -- -- (32,616) -- (32,616)
Redemption of senior preferred stock............... -- -- (57) -- (57)
Distributions on preferred stock................... -- -- -- (11,428) (11,428)
Distributions on common stock...................... -- -- (71,163) (35,437) (106,600)
----- ---------- ----------- ---------- -------------
BALANCES, DECEMBER 31, 1997, as previously
reported......................................... 731 121,000 625,963 -- 747,694
Adjustment to investment cost basis
(Note 4)......................................... -- -- 22,686 -- 22,686
----- ---------- ----------- ---------- -------------
BALANCES, DECEMBER 31, 1997, as restated........... 731 121,000 648,649 -- 770,380
Net income for the year ended
December 31, 1998................................ -- -- -- 106,188 106,188
Issuance of common stock........................... -- -- 140 -- 140
Cost of stock issuances............................ -- -- (8,834) -- (8,834)
Distributions on preferred stock................... -- -- -- (17,619) (17,619)
Distributions on common stock...................... -- -- (15,567) (88,569) (104,136)
----- ---------- ----------- ---------- -------------
BALANCES, DECEMBER 31, 1998........................ $ 731 $ 121,000 $ 624,388 $ -- $ 746,119
----- ---------- ----------- ---------- -------------
----- ---------- ----------- ---------- -------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
C-4
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
------------- ----------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................................. $ 106,188 $ 46,865 $ 24,696
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization......................................... 79,394 54,332 38,596
Equity in income of unconsolidated real estate partnerships........... (5,949) (3,887) (3,707)
Minority interests in earnings of consolidated real estate
partnerships........................................................ 4,257 2,478 1,063
Advisory fee (not payable in 1996).................................... -- -- 2,600
Gain on sale of investments, net...................................... (53,895) -- --
Issuance of common stock to independent directors..................... 140 -- --
Changes in assets and liabilities:
Accounts receivable, net.............................................. (11,545) (10,824) (5,510)
Deferred expenses and other assets.................................... (14,093) (6,760) (580)
Accounts payable and accrued expenses................................. (6,638) 8,976 (1,914)
------------- ----------- ----------
Net cash flows provided by operating activities......................... 97,859 91,180 55,244
------------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures and acquisitions................................... (1,475,338) (386,238) (106,878)
Participating loan to affiliates........................................ -- (145,000) --
Purchase of WHL Warrants................................................ -- (15,184) --
Proceeds from sale of WHL Stock......................................... 99,670 -- --
Cash distributions received from unconsolidated real estate
partnerships.......................................................... 9,812 10,013 11,430
Cash and cash equivalents of consolidated real estate partnerships...... 10,042 1,083 2,389
Direct financing leases receivable repayments........................... 2,138 2,044 1,883
Notes receivable repayments............................................. 2,720 622 107
Decrease (increase) in restricted cash.................................. 4,422 (28,305) 100
------------- ----------- ----------
Net cash flows used in investing activities............................. $ (1,346,534) $ (560,965) $ (90,969)
------------- ----------- ----------
</TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS CONTINUES ON THE FOLLOWING PAGE.
The accompanying notes are an integral part of the consolidated financial
statements.
C-5
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
------------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock................................. $ -- $ 436,500 $ 340,405
Proceeds from issuance of preferred stock.............................. 275,000 27,000 94,000
Redemption of common stock............................................. -- (130,500) (218,000)
Redemption of preferred stock.......................................... -- (57) --
Cost of stock issuances................................................ (8,834) (32,616) (29,000)
Cash distributions paid to preferred shareholders...................... (13,184) (10,938) (2,070)
Cash distributions paid to common shareholders......................... (103,766) (100,721) (69,568)
Shareholders' recontribution of distributions.......................... -- -- 3,426
Cash distributions paid to minority interests, net..................... (3,914) (1,409) (316)
Proceeds from notes payable and revolving credit facility.............. 1,313,188 653,456 114,172
Principal payments on notes payable and revolving
credit facility...................................................... (195,546) (366,656) (190,595)
------------- ----------- -----------
Net cash flows provided by financing activities........................ 1,262,944 474,059 42,454
------------- ----------- -----------
Net increase in cash and cash equivalents.............................. 14,269 4,274 6,729
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD........................... 11,003 6,729 --
------------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD................................. $ 25,272 $ 11,003 $ 6,729
------------- ----------- -----------
------------- ----------- -----------
SUPPLEMENTAL CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR:
Interest (net of amounts capitalized).................................. $ 105,307 $ 58,514 $ 42,378
------------- ----------- -----------
------------- ----------- -----------
Income taxes........................................................... $ 218 $ 51 $ 60
------------- ----------- -----------
------------- ----------- -----------
</TABLE>
NONCASH INVESTING AND FINANCING INFORMATION PROVIDED IN NOTES 8 AND 11.
The accompanying notes are an integral part of the consolidated financial
statements.
C-6
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE, UNIT AND PER SHARE AMOUNTS)
1. ORGANIZATION:
Westfield America, Inc. (the "Company"), a Missouri corporation, 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 is a publicly
traded real estate investment trust ("REIT"), with interests in 38 major
shopping centers branded nationwide as "Westfield Shoppingtowns". The Company's
portfolio, of Westfield Shoppingtowns includes clusters of multi-center regional
and super-regional shopping centers in eight states in the east coast, midwest
and west coast.
The Company, through its controlling interest in Westfield America Limited
Partnership (the "Operating Partnership") and its other subsidiaries, owns
interests in a portfolio, of 23 super-regional shopping centers, 12 regional
shopping centers, three power centers (individually a "Center" and collectively
the "Centers"), 12 separate department store properties which are net leased
under financing leases to The May Department Stores Company and are not located
at the Centers, and certain other real estate investments (collectively
including the Centers, the "Properties"). The Centers are located in eight
states in the east coast, midwest and west coast regions of the United States.
The Company is externally managed and advised by Westfield Holdings Limited
("WHL"), an affiliate of the Company and an Australian public company. The
Company has engaged a property management company (the "Manager), asset
management company (the "Advisor") and development company (the "Developer") to
provide property management, asset management and development services to the
Company under agreements that had initial terms of three years and are renewable
annually thereafter. Each of the Manager, Advisor and Developer is a
wholly-owned subsidiary of WHL, giving the Company access to WHL's worldwide
management expertise and resources. In 1997, the Company changed its name from
CenterMark Properties, Inc. to Westfield America, Inc., in conjunction with its
initial public offering (the "Offering").
The Company is organized and operated as a REIT under the Internal Revenue
Code of 1986, as amended (the "Code"). In order to be treated as a REIT for
income tax purposes, the Company must meet the minimum distribution requirements
as well as certain asset, income and other tests specified by the Code. The
Company intends to conduct its business so as to continue to satisfy the REIT
provisions under the Code, including making distributions to its shareholders
sufficient to meet the minimum distribution requirements.
In 1998, the Company completed the exchange of its interests in most of the
Centers and other assets for partnership interests ("Partnership Units") in the
Operating Partnership. Also in 1998, the Operating Partnership issued units in
the Operating Partnership to unrelated third parties ("Investor Unit Rights") in
exchange for certain interests acquired. The Investor Unit Rights are held by
various unrelated third parties who may under certain circumstances exchange
their Investor Unit Rights for cash or, at the discretion of the Company, shares
of the Company's common stock.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION:
The Company conducts its business through its Operating Partnership, wholly
owned subsidiaries and affiliates. The consolidated financial statements include
the accounts of the Company and all subsidiaries
C-7
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE, UNIT AND PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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 general and limited partners
in non-controlled partnerships are accounted for using the equity method. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
INVESTMENT IN REAL ESTATE:
Buildings, improvements and equipment are stated at cost. Costs related to
the acquisition, development, construction and improvement of properties are
capitalized. Interest costs, real estate taxes, insurance and other development
related costs incurred during construction periods are capitalized and
depreciated on the same basis as the related assets. Expenditures for repairs
and maintenance are charged to expense when incurred. Certain repair and
maintenance costs are chargeable to the retailers as provided in their leases.
Such reimbursements are included in tenant recoveries in the Consolidated
Statements of Income. Depreciation is computed using the straight-line method
over the estimated useful life of each property, which generally ranges from 3
to 50 years.
When indicators of impairment are present, the Company reviews expected cash
flows to be generated by the Properties to determine whether the value of any of
the Properties have been impaired. An asset is considered to be impaired when
the undiscounted cash flows estimated to be generated by those assets are less
than the assets' carrying amount. As of December 31, 1998, there were no
impairment indicators present.
CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid investments with an original
maturity of three months or less at date of purchase to be cash equivalents.
RESTRICTED CASH:
Restricted cash represents funds totaling $19,092 set aside to pay operating
and capital expenditures on properties which are collateral for secured loan
facilities and funds totaling $6,728 to be utilized in the redevelopment of
Mission Valley West (see Note 8).
REVENUE RECOGNITION:
Shopping center space is generally leased to specialty retailers under
leases which are accounted for as operating leases. Minimum rent revenues are
recognized on a straight-line basis over the respective lease term. Percentage
rents are recognized on an accrual basis as earned. Recoveries from retailers
are recognized as income in the period during which the applicable costs are
incurred.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES:
The Company enters into interest rate swap contracts to reduce its exposure
to fluctuations in interest rates. Net interest differentials to be paid or
received related to these swap contracts are accrued as incurred or earned. Any
gain or loss from terminating current swap contracts is recognized in the period
the swap contract is terminated or reversed. Unamortized gains or losses are
recognized in income when
C-8
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE, UNIT AND PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
the related debt matures or is extinguished. At December 31, 1998, the Company
also holds a foreign exchange hedge agreement.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133 "Accounting for Derivative Instruments and Hedging Activities," which is
required to be adopted in years beginning after June 15, 1999. The Statement
permits early adoption as of the beginning of any fiscal quarter after its
issuance. The Company expects to adopt the new Statement effective January 1,
2000. The Statement will require the Company to recognize all derivatives on the
balance sheet at fair value. Derivatives that are not hedges must be adjusted to
fair value through income. If the derivative is a hedge, depending on the nature
of the hedge, changes in the fair value of derivatives will either be offset
against the change in fair value of the hedged assets, liabilities, or firm
commitments through earnings or recognized in other comprehensive income until
the hedged item is recognized in earnings.
ACCOUNTS RECEIVABLE:
Accounts receivable include amounts billed to retailers, deferred rent
receivables arising from straight-lining of rents and accrued recoveries from
retailers. Management periodically evaluates the collectibility of these
receivables and adjusts the allowance for doubtful accounts to reflect the
amounts estimated to be uncollectible.
DEFERRED EXPENSES AND OTHER ASSETS:
Deferred expenses and other assets include costs associated with notes
payable, retailer leases and prepaid expenses. Costs associated with obtaining
notes payable are amortized based on the effective interest rate method. Costs
related to leasing activities are capitalized and amortized over the initial
term of the related lease.
EARNINGS PER SHARE:
Basic earnings per share is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding during
the period. Diluted earnings per share reflects the assumed conversion of all
dilutive securities using the treasury stock method.
INCOME TAXES:
The Company has elected to be treated as a REIT for income tax purposes. As
a REIT, the Company is required to meet the minimum distribution requirements as
well certain asset, income and other tests as specified by the Code. No
provision for income taxes has been included in the Company's financial
statements since, the Company will generally not be liable for federal income
taxes, provided it continues to distribute substantially all of its REIT taxable
income. State income and franchise taxes are minimal and included in general and
administrative expense.
SEGMENT REPORTING:
Effective January 1, 1998, the Company adopted the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 131
"Disclosures about Segments of an Enterprise and
C-9
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE, UNIT AND PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Related Information." Statement No. 131 establishes standards for the way public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. Statement No.
131 also establishes standards for related disclosures about products and
services, geographic areas, and major customers. As management views the Company
as operating in a single business segment as described in Note 1, the adoption
of Statement No. 131 did not result in additional disclosure of segment
information as management does not operate its Properties based upon segments.
USE OF ESTIMATES:
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
RECLASSIFICATION:
Certain amounts in the 1997 and 1996 consolidated financial statements have
been reclassified to conform with the 1998 presentation.
3. ACQUISITIONS:
During 1998, the Company invested approximately $1.8 billion to acquire
interests in 16 shopping centers, including interests in 12 shopping centers
from TrizecHahn Centers, Inc. ("TrizechHahn").
C-10
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE, UNIT AND PER SHARE AMOUNTS)
3. ACQUISITIONS: (CONTINUED)
Interests in the Centers acquired from TrizecHahn (the "Hahn Centers") and other
independent third-parties are as follows:
<TABLE>
<CAPTION>
PROPERTY LOCATION INTEREST ACQUIRED
- ----------------------- ----------------------- ----------------------------------------------------------------
<S> <C> <C>
HAHN CENTERS:
Capital Mall........... Olympia, WA 49% managing, non-controlling interest acquired in October 1998
and the remaining 51% acquired in December 1998.
Cerritos............... Cerritos, CA 50% managing, non-controlling interest acquired in July 1998 and
the remaining 50% acquired in November 1998.
Downtown Plaza......... Sacramento, CA 100% interest acquired in October 1998.
Fox Hills(1)........... Culver City, CA 100% interest acquired in October 1998.
Horton Plaza........... San Diego, CA 100% interest acquired in October 1998.
North County Fair...... Escondido CA The remaining 55% interest not previously owned by the Company
acquired in October 1998.
Oakridge............... San Jose, CA 100% interest acquired in October 1998.
Parkway Plaza.......... El Cajon, CA 100% interest acquired in September 1998.
Santa Anita(2)......... Arcadia, CA 39.7% managing, non-controlling interest acquired in September
1998, an additional 50% interest acquired in December 1998
which provided the Company with a controlling interest in the
property.
Solano................. Fairfield, CA 100% interest acquired in September 1998.
University Towne....... San Diego, CA 100% interest acquired in July 1998.
Valley Fair............ San Jose, CA 50% managing, non-controlling interest acquired in July 1998.
OTHER ACQUISITIONS:
Crestwood.............. St. Louis, MO 100% interest acquired in January 1998
Independence Mall...... Wilmington, NC 60% interest acquired in August 1998 and an additional 10%
interest acquired in October 1998.
Promenade.............. Woodland Hills, CA 100% interest acquired in June 1998.
Topanga................ Canoga Park, CA The remaining 58% interest not previously owned by the Company
acquired in November 1998.
</TABLE>
- ------------------------
(1) In July 1998, the Company acquired a note receivable secured by Fox Hills,
which was retired when the Company acquired the property in October 1998,
(2) In December 1998, in conjunction with the acquisition of the additional 50%
interest in Santa Anita, the Company acquired the land and related ground
lease under the Center.
C-11
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE, UNIT AND PER SHARE AMOUNTS)
3. ACQUISITIONS: (CONTINUED)
In conjunction with the above acquisitions, the Company assumed mortgage
debt as described in Note 8.
During 1997, the Company invested approximately $349,000 to acquire the
following properties:
<TABLE>
<CAPTION>
PROPERTY LOCATION INTEREST ACQUIRED
- ----------------------- ----------------------- ----------------------------------------------------------------
<S> <C> <C>
Wheaton................ Wheaton, MD 68% managing, non controlling interest acquired in June 1997.
Annapolis.............. Annapolis, MD The remaining 70% interest not previously owned by the Company
plus an additional 13.2 acre parcel of land adjacent to the
Center acquired in June 1997.
Meriden................ Meriden, CT The remaining 50% interest not previously owned by the Company
acquired in September 1997.
Northwest Plaza........ St. Ann, MO 100% interest acquired in December 1997.
</TABLE>
Additionally, in May 1997, the Company made a participating loan totaling
$145,000 (the "Garden State Plaza Loan") to two wholly-owned, indirect
subsidiaries of WHL which have a combined 50% partnership interest in Westland
Garden State Plaza Limited Partnership, the owner of Garden State Plaza, a
super-regional shopping center located in Paramus, New Jersey. The non-recourse
loan provides for interest only at a fixed annual rate of 8.5% and is secured by
the borrowers' 50% indirect interest in Garden State Plaza. The Company is
entitled to receive participating interest payments based on 80% of the
borrowers' share of the adjusted cashflow (as defined) from Garden State Plaza
subject to an annual aggregate limit of fixed and participating interest in an
amount equal to 11%. The loan matures in May 2007. During each of the years
ended December 31, 1998, and 1997, the Company earned participating interest of
$2,420 and $728, respectively.
4. DISPOSITIONS:
In conjunction with the Offering, the Company acquired 49 million
non-transferable warrants (the "WHL Warrants") to acquire ordinary shares of
WHL. The Company's December 31, 1997 balance sheet has been restated to reflect
the fair value of the WHL Warrants, which at the time of the Offering exceeded
the Company's cost basis. In April 1998, with the consent of WHL, the Company
exercised the WHL Warrants by electing to receive the profit element of the WHL
Warrants. As a result of the exercise, the Company received 20,339,066 WHL
ordinary shares which the Company sold for proceeds totaling $99,670.
In August 1998, the Company recognized a loss totaling $11,806, resulting
from the reversal of certain deferred interest rate swap agreements. This loss
was netted against the gain from the sale of investments for purposes of
financial statement presentation.
C-12
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE, UNIT AND PER SHARE AMOUNTS)
5. INVESTMENTS IN UNCONSOLIDATED REAL ESTATE PARTNERSHIPS:
As of December 31, 1998, the Company holds unconsolidated interests as a
general and managing partner in four real estate partnerships and both a general
and limited partner in one real estate partnership. In October 1998, the Company
acquired the 55% interest in North County Fair that it did not already own and
in November 1998, the Company acquired the 58% interest in Topanga that it did
not already own. In June 1997, the Company acquired the 70% interest in
Annapolis that it did not already own and in September 1997, the Company
acquired the 50% interest in Meriden that it did not already own. The Company's
interest in each unconsolidated partnership as of December 31, 1998 is as
follows:
<TABLE>
<CAPTION>
PERCENT
PROPERTY LOCATION INTEREST
- ---------------------- -------------------- -----------
<S> <C> <C>
Valley Fair San Jose, CA 50.0%
Vancouver Vancouver, WA 50.0%
West Valley Canoga Park, CA 42.5%
Plaza Camino Real Carlsbad, CA 40.0%
Independence Mall Wilmington, NC 70.0%
</TABLE>
A summary of the condensed combined balance sheet information for all
unconsolidated real estate partnerships is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
CONDENSED COMBINED BALANCE SHEET INFORMATION 1998 1997
- ------------------------------------------------------ --------- ---------
<S> <C> <C>
Investment in real estate:
Land, buildings and improvements, at cost........... $ 490,214 $ 290,092
Less accumulated depreciation and amortization...... (46,908) (105,495)
Construction in progress............................ 5,081 1,322
--------- ---------
Net investment in real estate......................... 448,387 185,919
Other notes payable................................... (185,674) (175,289)
Other assets and liabilities, net, and interest of
other partners...................................... (123,966) 38,761
--------- ---------
Investments in unconsolidated real estate
partnerships........................................ $ 138,747 $ 49,391
--------- ---------
--------- ---------
</TABLE>
A summary of the condensed combined statements of income for all
unconsolidated real estate partnerships which include the five real estate
partnerships noted above including Valley Fair following its acquisition in July
1998, Independence Mall following its acquisition in August 1998, Cerritos for
the period from July 1998 through November 1998, Santa Anita for the period from
September 1998 to December 1998, Capital Mall for the period from October 1998
to December 1998, North County Fair
C-13
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE, UNIT AND PER SHARE AMOUNTS)
5. INVESTMENTS IN UNCONSOLIDATED REAL ESTATE PARTNERSHIPS: (CONTINUED)
through October 1998, Topanga through November 1998, Annapolis through June 1997
and Meriden through September 1997 is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER
31,
-------------------------------
CONDENSED COMBINED STATEMENTS OF INCOME
INFORMATION 1998 1997 1996
- ------------------------------------------------ --------- --------- ---------
<S> <C> <C> <C>
Total revenues:................................. $ 82,620 $ 75,789 $ 85,767
Costs and expenses:
Operating, general and administrative
expenses.................................... 25,231 22,568 27,331
Interest expense, net......................... 24,025 21,982 22,342
Depreciation and amortization................. 16,867 18,314 25,338
--------- --------- ---------
Net income...................................... 16,497 12,925 10,756
Other partners' share of income................. (10,548) (9,038) (7,049)
--------- --------- ---------
Equity in income of unconsolidated real estate
partnerships.................................. $ 5,949 $ 3,887 $ 3,707
--------- --------- ---------
--------- --------- ---------
</TABLE>
Significant accounting policies used by the unconsolidated real estate
partnerships are similar to those used by the Company.
6. LEASES:
DIRECT FINANCING LEASES RECEIVABLE:
The Company owns certain properties that are leased to The May Department
Stores Company under direct financing leases. The leases' initial terms expire
in September 2017, and may be renewed for up to 14 additional five-year terms.
The May Department Stores Company has the option to purchase the property under
these leases at fair market value during the last 16 months of the initial term
or any of the renewal option terms.
The direct financing leases receivable are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Minimum lease payments receivable....................... $ 147,750 $ 155,630
Less unearned income (at 7%)............................ (64,536) (70,278)
--------- ---------
Direct financing leases receivable.................... $ 83,214 $ 85,352
--------- ---------
--------- ---------
</TABLE>
C-14
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE, UNIT AND PER SHARE AMOUNTS)
6. LEASES: (CONTINUED)
Excluding options to extend, future minimum rentals to be received by the
Company on the direct financing leases as of December 31, 1998, are as follows:
<TABLE>
<S> <C>
1999.............................................................. $ 7,880
2000.............................................................. 7,880
2001.............................................................. 7,880
2002.............................................................. 7,880
2003.............................................................. 7,880
Thereafter........................................................ 108,350
---------
$ 147,750
---------
---------
</TABLE>
PROPERTY RENTAL:
Substantially all of the property owned by the Company is leased to
third-party retailers under operating leases as of December 31, 1998. Lease
terms vary between retailers and some leases include percentage rental payments
based on sales volume.
Future minimum rental revenues under noncancelable operating leases as of
December 31, 1998, are as follows:
<TABLE>
<S> <C>
1999............................................................ $ 279,120
2000............................................................ 264,309
2001............................................................ 246,877
2002............................................................ 225,433
2003............................................................ 194,190
Thereafter...................................................... 705,536
---------
$1,915,465
---------
---------
</TABLE>
These amounts do not include percentage rentals which may become receivable
under certain leases on the basis of retailer sales in excess of stipulated
minimums.
GROUND LEASES:
The Company leases the land underlying portions of several of its Centers.
Future minimum annual ground lease payments for ground leases in effect as of
December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999............................................................... $ 1,437
2000............................................................... 1,435
2001............................................................... 1,438
2002............................................................... 1,449
2003............................................................... 1,449
Thereafter......................................................... 43,983
---------
$ 51,191
---------
---------
</TABLE>
C-15
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE, UNIT AND PER SHARE AMOUNTS)
6. LEASES: (CONTINUED)
These amounts do not include participation rentals which may become payable
under certain ground leases on the basis of gross rental receipts in excess of a
stipulated minimum.
7. DEFERRED EXPENSES AND OTHER ASSETS:
Deferred expenses and other assets are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Investment in WHL Warrants (see Note 4)................... $ -- $ 37,870
Lease costs, net of accumulated amortization of $10,867
and $4,767 in 1998 and 1997, respectively............... 16,178 10,241
Loan costs, net of accumulated amortization of $4,070 and
$1,876 in 1998 and 1997, respectively................... 11,286 2,935
Prepaid and other assets.................................. 6,500 3,276
--------- ---------
$ 33,964 $ 54,322
--------- ---------
--------- ---------
</TABLE>
8. NOTES PAYABLE AND REVOLVING CREDIT FACILITY:
A summary of notes payable and revolving credit facility are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Collateralized non-recourse notes to an insurance company, interest
only payable monthly at 6.51%, due in 2001......................... $ 167,000 $ 167,000
Collateralized non-recourse notes to an insurance company, interest
only payable monthly at 6.15%, due in 1999. These notes were repaid
and retired in December 1998....................................... -- 172,000
Collateralized recourse note to an insurance company, interest only
payable monthly at 8.09%, due in 1999. This note was repaid and
retired in December 1998........................................... -- 15,000
Senior collateralized non-recourse notes, interest at 6.39%,
principal and interest payable quarterly, due in 2004.............. 16,782 19,392
Senior collateralized non-recourse notes bearing interest at 7.33%,
interest only payable 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%, principal and interest
payable monthly, due in 2000....................................... 136,456 140,866
Unsecured revolving credit facility with a group of banks with a
maximum commitment of $600,000, interest only at LIBOR + 1.50%
(7.21% effective rate at December 31, 1998) payable monthly, due in
2000 with options to extend........................................ 490,000 463,000
</TABLE>
C-16
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE, UNIT AND PER SHARE AMOUNTS)
8. NOTES PAYABLE AND REVOLVING CREDIT FACILITY: (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Unsecured bridge facility with a group of banks, interest only at
LIBOR + 1.5% (7.63% effective rate at December 31, 1998) payable
monthly, due in 1999............................................... $ 100,000 $ --
Collateralized commercial mortgage notes due in 2004, interest only
payable monthly at 6.78%........................................... 75,000 75,000
Secured bridge facility with a group of banks, interest only at LIBOR
+ 1.5% (7.39% effective rate at December 31, 1998) payable monthly,
due in 1999........................................................ 44,000 --
Secured bridge facility with a group of banks, interest only at LIBOR
+ 1.75% (7.54% effective rate at December 31, 1998) payable
monthly, due in 1999. This note was repaid and retired in January
1999............................................................... 95,000 --
Collateralized non-recourse note payable to an insurance company,
interest at 7.20%, principal and interest payable monthly, due in
2006............................................................... 81,041 --
Collateralized non-recourse note payable to an insurance company,
effective interest at 7.00%, principal and interest payable
monthly, due in 2018............................................... 19,026 --
Collateralized non-recourse note payable to an insurance company,
effective interest at 7.00%, principal and interest payable
monthly, due in 2006............................................... 23,043 --
Collateralized non-recourse note payable to a bank, interest at LIBOR
+ 1.5% (6.53% effective rate at December 31, 1998), interest only
payable monthly, due in 1999....................................... 92,476 --
Collateralized non-recourse note payable to an insurance company,
effective interest at 7.00%, principal and interest payable
monthly, due in 2022............................................... 73,745 --
Collateralized non-recourse note payable to an insurance company,
effective interest at 7.00%, principal and interest payable
monthly, due in 2002............................................... 61,603 --
Collateralized non-recourse notes payable to an insurance company,
effective interest at 7.00%, principal and interest payable
monthly, due in 2004............................................... 63,488 --
Collateralized note payable, interest only payable monthly at LIBOR +
0.53% (6.38% effective rate at December 31, 1998) due in 2001...... 746,100 --
Unsecured subordinated notes to Australian investors, interest
payable semi-annually at LIBOR + 2.32% (8.38% effective rate at
December 31, 1998), due in equal installments in 2001, 2002 and
2003............................................................... 301,088 --
--------- ---------
$2,641,015 $1,107,425
--------- ---------
--------- ---------
</TABLE>
In June, 1998 the Company issued $301,088 of unsecured subordinated notes
("Capital Notes") to Australian investors, repayable in three equal installments
due in June 2001, 2002 and 2003. The Capital Notes, which are listed on the
Australian Stock Exchange, are denominated in Australian dollars. In conjunction
with the issuance of the Capital Notes, the Company entered into interest rate
swap and foreign currency hedge agreements which effectively fixed the interest
and principal payments due to holders of the Capital Notes in U.S. dollars and
fixed the interest rate at 8.38%. The unrealized loss on the interest rate swap
and foreign currency hedge agreements was approximately $12,551 at December 31,
1998. The Capital Notes have not been, and will not be, registered under the
Securities Act of 1933, as
C-17
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE, UNIT AND PER SHARE AMOUNTS)
8. NOTES PAYABLE AND REVOLVING CREDIT FACILITY: (CONTINUED)
amended, and may not be offered or sold in the United States absent registration
or an applicable exemption from registration requirements.
At December 31, 1998, notes payable and revolving credit facility include
mortgages assumed in conjunction with the acquisition of the Hahn Centers
totaling $352,819. The fixed rate mortgages assumed were recorded at their
estimated fair value at the time of their assumption. The mortgage debt secured
by North County Fair also requires the Company to pay contingent interest equal
to 30% of the excess of gross rental receipts over a stipulated minimum. During
each of the years ended December 31, 1998, 1997 and 1996, contingent interest
totaled $668, $587 and $563, respectively.
Also in conjunction with the Centers acquired in 1998, the Company obtained
borrowings totaling $239,000 through secured and unsecured loan facilities.
In October and December 1998, the Company obtained borrowings totaling
$746,100 under a secured loan facility to finance a portion of the Hahn Centers
acquisition and to refinance an existing non-recourse note payable to an
insurance company and the unsecured revolving credit facility. The loan bears
interest at LIBOR + 0.53% and is collateralized by certain properties owned by
the Company with a maturity date of December 2001. In connection with the
borrowings made under this loan, the Company entered into an interest rate swap
agreement which effectively fixed the variable rate of the loan at 6.38%.
In conjunction with the acquisition of Topanga, the Company assumed a
mortgage balance with a fair value of $61,603 at December 31, 1998. The assumed
mortgage was recorded at its estimated fair value at the time of its assumption.
Senior collaterized non-recourse notes totaling $71,949 and $74,559 at
December 31, 1998 and 1997, respectively, are collateralized by the related
direct financing leases receivable.
Interest costs capitalized for the years ended December 31, 1998, 1997 and
1996, were $1,558, $1,404 and $1,503, respectively.
On December 31, 1997, the Company issued collateralized commercial notes
("Notes") totaling $75,000 to refinance existing debt collateralized by Mission
Valley and to provide construction financing for the redevelopment of Mission
Valley-West. Notes totaling $40,000 bear interest at 6.78% and Notes totaling
$35,000 bear interest at LIBOR + 0.70%. In conjunction with the issuance of the
Notes, the Company entered into an interest rate cap agreement and interest rate
floor agreement which effectively fix the floating rate Notes at 6.78%.
Certain notes payable and revolving credit facility agreements provide for
restrictive covenants relating to the maintenance of specified financial
performance ratios such as minimum net worth, debt service coverage ratio, loan
to value, ownership percentages and restrictions on future distribution
payments. As of December 31, 1998, the Company was in compliance with these
covenants.
C-18
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE, UNIT AND PER SHARE AMOUNTS)
8. NOTES PAYABLE AND REVOLVING CREDIT FACILITY: (CONTINUED)
The annual maturities of notes payable and the revolving credit facility as
of December 31, 1998, are as follows:
<TABLE>
<S> <C>
1999............................................................ $ 346,433
2000............................................................ 632,572
2001............................................................ 1,025,110
2002............................................................ 165,368
2003............................................................ 111,016
Thereafter...................................................... 360,516
---------
$2,641,015
---------
---------
</TABLE>
9. INTEREST RATE SWAP CONTRACTS:
It is the Company's policy to enter into interest rate swap contracts only
to the extent necessary to reduce its exposure to fluctuations in interest
rates. The Company does not enter into interest rate swap contracts for
speculative purposes. At December 31, 1998, the Company had 31 interest 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.
<TABLE>
<CAPTION>
RANGE OF RANGE OF
NOTIONAL AMOUNT FIXED RATES MATURITY DATES
---------------- ------------------ ---------------------
<S> <C> <C> <C>
Current Swaps where the Company
is a receiver of LIBOR......... $ 1,700,000 5.85% to 6.03% 1/30/99 to 12/11/08
Deferred swaps where the Company
is a receiver of LIBOR......... 1,017,000 5.99% to 6.26% 2/11/02 to 04/01/08
</TABLE>
The net unrealized loss on the interest rate swap contracts was
approximately $88,675 at December 31, 1998.
As of March 12, 1999, the net unrealized loss on the interest rate swap
contracts was approximately $17,234 (unaudited).
C-19
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE, UNIT AND PER SHARE AMOUNTS)
10. CAPITAL STOCK:
At December 31, 1998 and 1997, the total number of shares authorized, issued
and outstanding were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
NUMBER OF NUMBER NUMBER OF NUMBER
SHARES OF SHARES SHARES OF SHARES
AUTHORIZED OUTSTANDING AUTHORIZED OUTSTANDING
------------- ------------ ------------- ------------
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 2
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, 138,889 shares are
designated Series C-1 cumulative convertible
redeemable preferred stock, 138,889 shares are
designated Series C-2 cumulative convertible
redeemable preferred stock, 694,445 shares are
designated Series D cumulative convertible redeemable
preferred stock and 138,889 shares are designated
Series D-1 cumulative convertible redeemable
preferred stock...................................... 5,000,000 2,737,779 5,000,000 1,210,000
</TABLE>
SENIOR PREFERRED STOCK:
Prior to redemption, holders of the Company's non-voting senior preferred
stock were entitled to receive, when declared, cash dividends at an annual rate
of $35 per share, payable quarterly. In February, 1999, the Company redeemed the
senior preferred stock at $550 per share, plus unpaid accrued dividends totaling
approximately $5 per share.
SERIES A AND B PREFERRED STOCK:
The holder of the Company's Series A and B preferred stock is entitled to
receive, when declared, cumulative cash dividends equal to the greater of $8.50
per annum per share or an amount currently equal to 6.2461, for Series A
preferred stock, or 6.6667 for Series B preferred stock, times the dollar amount
of dividends declared on the Company's common stock. The Company has an option
to redeem the Series A and Series B preferred stock anytime after July 2003 and
May 2004, respectively, at a redemption price of $100 per share, which is equal
to the liquidation preference.
Concurrent with the issuance of the Series A preferred stock in 1996 and the
Series B preferred stock in 1997, the Company issued warrants (the "1996
Warrants" and "1997 Warrants") to Westfield America
C-20
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE, UNIT AND PER SHARE AMOUNTS)
10. CAPITAL STOCK: (CONTINUED)
Trust, an Australian public company and an affiliate of the Company, ("WAT") to
purchase the Company's common stock. The 1996 Warrants, which expire in July
2016, entitle WAT to purchase 6,246,096 shares of the Company's common stock at
an exercise price of $16.01 per share. The 1997 Warrants, which expire in May
2017, entitle WAT to purchase 2,089,550 shares of the Company's common stock at
an exercise price of $15.00 per share. The holder of the Series A and B
preferred stock also holds WAT Series A and B special options which entitle such
holder to exchange each share of Series A and B preferred stock for WAT
ownership units. Upon receipt of the Series A and B preferred stock, WAT can,
with the Company's consent at such time, surrender the Series A and B preferred
stock as consideration for the exercise of the 1996 and 1997 Warrants.
SERIES C AND D PREFERRED STOCK:
The Series C, C-1, C-2, D and D-1 cumulative convertible redeemable
preferred stock (collectively the "Series C and D Preferred Stock") are separate
designations of preferred stock with similar terms. Holders of the Series C and
D Preferred Stock are entitled to receive, when declared, cumulative cash
dividends equal to the greater of $15.30 per annum per share or an amount equal
to 10.0 times the dollar amount declared on the Company's common stock during
the period. At any time, holders of the Company's Series C and D Preferred Stock
have the right to convert all, or any portion, of their shares into 10 shares of
common stock for each share of Series C and D Preferred Stock. Conversion of the
Series D and D-1 preferred stock is subject to approval of the Company's
stockholders. The Company has the option to redeem the Series C and D Preferred
Stock anytime on or after August 2008 at a redemption price of $180 per share,
which is equal to the liquidation preference. The original holders of the
Company's Series C and D Preferred Stock have the right to require the Company
to redeem the Series C and D Preferred Stock if the Company ceases to qualify as
a REIT for federal tax purposes. Additionally, if there is a change in control,
as defined, or, if after August 2008, the market price of the Company's common
stock is less than $18.00 per share, holders of the Company's Series C and D
Preferred Stock have the right to require the Company to redeem the Series C and
D Preferred Stock.
Holders of the Company's preferred stock are entitled to dividends before
dividends are distributed to common stockholders. In general, preferred
stockholders have no voting rights unless dividends are reduced or not declared
on the preferred stock or common stock at which time the holders have certain
rights to elect additional directors to the board of directors. Once all
distributions in arrears are restored and paid in full, the directors elected by
the preferred shareholders will cease to be directors and the number of
directors on the board will be reduced accordingly.
COMMON STOCK:
The holders of the Company's common stock vote together as a class on all
matters and are entitled to receive distributions declared after payment of
dividends on preferred stock. A distribution was declared on December 18, 1998
to stockholders of record on December 31, 1998 of $33,043 or $0.355 per common
share, for the quarter ended December 31, 1998. This distribution was paid on
January 29, 1999. The Company declared distributions of $1.42 per common share
for the year ended December 31, 1998.
In May 1998, the Company entered into a stock subscription agreement ("1998
Subscription Agreement") with WAT. Subject to shareholder approval, the Company
has the right to sell, and WAT has the
C-21
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE, UNIT AND PER SHARE AMOUNTS)
10. CAPITAL STOCK: (CONTINUED)
obligation to purchase, up to AUS $465,000 (approximately US $285,000 at
December 31, 1998 foreign currency exchange rates) 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
common stock at each installment date, the Company has the option to pay the 5%
discount in cash or common stock.
Based upon the foreign currency exchange rate on March 12, 1999, the Company
will receive approximately US $296,000 (unaudited).
OPERATING PARTNERSHIP UNITS:
Under certain circumstances investors in the Operating Partnership may
exchange their Investor Unit Rights for cash or, at the discretion of the
Company, shares of the Company's common stock. Holders of Investor Unit Rights
are entitled to receive, when declared, distributions from the Operating
Partnership in proportion to the dividends paid to holders of the Company's
common stock.
EARNINGS PER SHARE
The following is a summary of the elements used in basic and diluted
earnings per share ("EPS") calculations:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net income............................................ $ 106,188 $ 46,865 $ 24,696
Less: preferred stock dividends....................... (17,619) (11,428) (4,264)
---------- ---------- ----------
Income available to common shareholders (numerator)... $ 88,569 $ 35,437 $ 20,432
---------- ---------- ----------
---------- ---------- ----------
Weighted average common shares outstanding
(denominator for basic EPS)......................... 73,334,315 65,504,877 49,062,952
Dilutive equivalent common shares:
1996 and 1997 Warrants.............................. 71,240 42,824 --
1998 Subscription Agreement......................... 495,024 N/A N/A
---------- ---------- ----------
Weighted average common shares and common share
equivalents outstanding (denominator for diluted
EPS)................................................ 73,900,579 65,547,701 49,062,952
---------- ---------- ----------
---------- ---------- ----------
EPS:
Basic............................................... $ 1.21 $ 0.54 $ 0.42
---------- ---------- ----------
---------- ---------- ----------
Diluted............................................. $ 1.20 $ 0.54 $ 0.42
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The Company's convertible preferred shares were not included in the earnings
per share calculation as their effect is antidilutive.
C-22
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE, UNIT AND PER SHARE AMOUNTS)
11. NON CASH INVESTING AND FINANCING INFORMATION:
North County Fair ("NCF") was accounted for under the equity method until
October 1998, when the Company acquired the remaining 55% interest that it did
not already own. NCF is now consolidated with the Company. The Company's 45%
interest in the condensed assets and liabilities of NCF in October 1998, were as
follows:
<TABLE>
<S> <C>
Net investment in real estate..................................... $ 25,261
Cash and cash equivalents......................................... 1,007
Accounts receivable............................................... 1,167
Deferred expense and other assets, net............................ 582
Note payable...................................................... (22,191)
Accounts payable and accrued liabilities.......................... (939)
---------
WEA's investment in NCF........................................... $ 4,887
---------
---------
</TABLE>
Topanga was accounted for under the equity method until November 1998, when
the Company acquired the remaining 58% interest that it did not already own.
Topanga is now consolidated with the Company. The Company's 42% interest in the
condensed assets and liabilities of Topanga in November 1998, were as follows:
<TABLE>
<S> <C>
Net investment in real estate..................................... $ 37,944
Cash and cash equivalents......................................... 913
Accounts receivable............................................... 583
Deferred expense and other assets, net............................ 995
Note payable...................................................... (23,842)
Accounts payable and accrued liabilities.......................... (723)
---------
WEA's investment in Topanga....................................... $ 15,870
---------
---------
</TABLE>
Annapolis was accounted for under the equity method until June 1997, when
the Company acquired the remaining 70% partnership interest that it did not
already own. Annapolis is now consolidated with the Company. The Company's 30%
interest in the condensed assets and liabilities of Annapolis in June 1997, were
as follows:
<TABLE>
<S> <C>
Net investment in real estate...................................... $ 38,676
Cash and cash equivalents.......................................... 184
Accounts receivable................................................ 323
Deferred expenses and other assets, net............................ 322
Accounts payable................................................... (91)
---------
WEA's investment in Annapolis...................................... $ 39,414
---------
---------
</TABLE>
Meriden was accounted for under the equity method until September 1997 when
the Company acquired the remaining 50% interest that it did not already own.
Meriden is now consolidated with the
C-23
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE, UNIT AND PER SHARE AMOUNTS)
11. NON CASH INVESTING AND FINANCING INFORMATION: (CONTINUED)
Company. The Company's 50% interest in the condensed assets and liabilities of
Meriden in September 1997, were as follows:
<TABLE>
<S> <C>
Net investment in real estate..................................... $ 35,373
Cash and cash equivalents......................................... 235
Accounts and notes receivable..................................... 381
Deferred expenses and other assets, net........................... 527
Accounts payable.................................................. (291)
Note payable...................................................... (25,000)
---------
WEA's investment in Meriden....................................... $ 11,225
---------
---------
</TABLE>
The Company's purchase of a 68% managing interest in June 1997, in Wheaton,
resulted in an increase in minority interest totaling $24,000.
During 1998 and 1997, construction in process totaling $36,570 and $94,473,
respectively, was placed into service.
12. INCOME TAXES: (UNAUDITED)
Effective February 12, 1994, the Company elected to be treated as a REIT for
income tax purposes. As a REIT, the Company will not incur significant Federal
income taxes provided it continues to satisfy the various REIT Code
requirements, does not dispose of certain properties and continues to distribute
all of its REIT taxable income. On a per share basis, taxable cash distributions
representing ordinary income to shareholders for the years ending December 31,
1998, 1997 and 1996 were $1.64, $0.65 and $0.88, respectively. The excess of
distributions paid (for tax purposes) over the taxable portion of the
distribution, if any, represents a non-taxable return of capital to the
Company's shareholders.
13. RELATED PARTIES:
The Manager entered into an agreement with WEA to manage and lease the
properties in the Company's portfolio, beginning January 1, 1995. In
consideration for providing these management services, the Manager 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 $6,264, $4,074 and $3,191, net
of capitalized leasing fees of $4,605, $2,988 and $1,667 were expensed by WEA
for the years ended December 31, 1998, 1997 and 1996, respectively. Included in
accounts payable and accrued expenses at December 31, 1998 and 1997, are
management fees payable to the Manager totaling $1,299 and $1,068, respectively.
In addition to the management fees, the Manager was reimbursed for
recoverable operating costs including mall related payroll costs totaling
$17,543, $14,431 and $8,409 for the years ended December 31, 1998, 1997 and
1996, respectively.
The Company entered into a Master Development Framework Agreement with the
Developer whereby the Company granted the Developer the exclusive right to carry
out expansion, redevelopment and related works on WEA's wholly owned shopping
centers and to endeavor to have the Developer be
C-24
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE, UNIT AND PER SHARE AMOUNTS)
13. RELATED PARTIES: (CONTINUED)
appointed by the relevant partner to carry out similar activities for jointly
owned real estate partnerships. During 1998, 1997 and 1996, the Company
reimbursed the Developer $51,224, $46,859 and $21,535, respectively, for
expansion, redevelopment and related work.
In July 1996, the Company engaged the Advisor to provide 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"), as defined, in excess of the Advisory FFO Amount ($142,183
at December 31, 1998), but not to exceed 55 basis points of the Net Equity Value
(as defined) of the Company's assets. The Advisory FFO amount is increased
whenever the Company issues additional Common Stock. The Advisory Fee, which
first became payable in 1998, was $6,140 for the year ended December 31, 1998.
Included in interest and other income for the year ended December 31, 1998
and 1997, is interest income earned on the Garden State Plaza Loan totaling
$14,745 and $8,326, respectively.
14. FINANCIAL INSTRUMENTS:
The estimated fair value of the Company's financial instruments have been
determined by the Company, using available market information and appropriate
valuation methodologies. However, considerable judgment is necessarily required
in interpreting market data to develop the estimates of fair value. Accordingly,
the estimates presented herein are not necessarily indicative of the amounts
that the Company could realize in a current market exchange. The use of
different market assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.
The fair value estimates presented herein are based on pertinent information
available to management as of December 31, 1998 and 1997. Although management is
not aware of any factors that would significantly affect the estimated fair
value amounts as of December 31, 1998, future estimates of fair value and the
amounts which may be paid or realized in the future may differ significantly
from the amounts presented herein.
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
-------------------- --------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Assets:
Participating loan to an affiliate.............. $ 145,000 $ 145,000 $ 145,000 $ 145,000
Direct financing leases receivable.............. 83,214 85,571 85,352 83,000
Cash............................................ 25,272 25,272 11,003 11,003
Restricted Cash................................. 25,820 25,820 28,305 28,305
Accounts receivable............................. 45,325 45,325 27,499 27,499
WHL Warrants.................................... -- -- 37,870 62,136
Liabilities:
Notes payable................................... 2,641,015 2,650,376 1,107,425 1,089,935
Accounts payable and accrued expenses........... 82,658 82,658 38,352 38,352
</TABLE>
C-25
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE, UNIT AND PER SHARE AMOUNTS)
14. FINANCIAL INSTRUMENTS: (CONTINUED)
PARTICIPATING LOAN TO AN AFFILIATE, CASH, RESTRICTED CASH, ACCOUNTS RECEIVABLE,
AND ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
The carrying amounts of these items are a reasonable estimate of their fair
value.
WHL WARRANTS
The fair value of WHL Warrants was based on the Black Scholes Model with a
volatility of 33%, a risk free interest rate of 5.17% and a dividend yield of
1.51% and the Australian currency exchange rate on December 31, 1997.
NOTES PAYABLE AND DIRECT FINANCING LEASES RECEIVABLE:
The fair value of notes payable and direct financing leases receivable are
based upon current market rates for financial instruments with similar terms.
15. COMMITMENTS AND CONTINGENCIES:
The Company is currently involved in several development projects and had
outstanding commitments with contractors totaling approximately $54,290 at
December 31, 1998.
The Redevelopment Agency of the City of West Covina (the "West Covina
Agency") issued $45,000 of special tax assessment municipal bonds ("Original
Bonds") on March 1, 1990 to finance land acquisition for expansion of the
shopping center and additional site improvements. During 1996, the West Covina
Agency refinanced the Original Bonds by issuing certain serial and term bonds
with a total face amount of $51,220 ("New Bonds"), proceeds of which were
partially used to redeem the Original Bonds. Special taxes levied against the
property, together with incremental property tax, incremental sales tax, and
park and ride revenues will be used to pay the principal and interest on the New
Bonds and the administrative expense of the West Covina Agency. Principal and
interest payments began in 1996 and continue to 2022 in graduating amounts
ranging from $2,030 to $5,289. WEA has the contingent obligation to satisfy any
shortfall in annual debt service requirements after tenant recoveries.
Pursuant to a Development and Disposition Agreement ("DDA Agreement") with
the Redevelopment Agency of the City of San Diego (the "San Diego Agency"), the
San Diego Agency conveyed certain parcels of land for the development of Horton
Plaza. In connection with the DDA Agreement, the Company pays an Agency fee
equal to 10% of the gross rental income, as defined, in excess of $8,750.
The Company is subject to the risks inherent in the ownership and operation
of commercial real estate. These include, among others, the risks normally
associated with changes in the general economic climate, trends in the retail
industry, including creditworthiness of retailers and competition for retailers,
changes in tax laws, interest rate levels, the availability of financing, and
potential liability under environmental and other laws.
Substantially all of the properties have been subjected to Phase I
environmental reviews. Such reviews have not revealed, nor is management aware
of, any probable or reasonably possible environmental costs that management
believes would be material to the consolidated financial statements.
C-26
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE, UNIT AND PER SHARE AMOUNTS)
15. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
WEA currently is neither subject to any other material litigation nor, to
management's knowledge, is any material litigation currently threatened against
WEA 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.
16. QUARTERLY FINANCIAL DATA (UNAUDITED):
Summarized quarterly data for 1998 and 1997 is as follows (in thousands):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
--------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1998
Total Revenues.......................................... $ 69,917 $ 68,679 $ 78,661 $ 111,208 $ 328,465
Net Income.............................................. $ 12,551 $ 78,647 $ 2,997 $ 11,993 $ 106,188
Net Income (Loss) Applicable to Common Shares........... $ 9,828 $ 75,924 $ (2,055) $ 4,872 $ 88,569
Earnings (Loss) per Common Shares:
Basic................................................. $ 0.13 $ 1.04 $ (0.03) $ 0.07 $ 1.21
Dilutive.............................................. $ 0.13 $ 0.97 $ (0.03) $ 0.07 $ 1.20(1)
Weighted Average Shares Outstanding
Basic................................................. 73,330 73,333 73,337 73,338 73,334
Dilutive.............................................. 73,397 81,192 74,689 74,324 73,901
1997
Total Revenues.......................................... $ 46,925 $ 47,999 $ 57,806 $ 64,078 $ 216,808
Net Income.............................................. $ 7,964 $ 10,808 $ 13,144 $ 14,949 $ 46,865
Net Income Applicable to Common Shares.................. $ 5,966 $ 6,746 $ 10,459 $ 12,266 $ 35,437
Earnings per Common Share:
Basic................................................. $ 0.11 $ 0.11 $ 0.14 $ 0.17 $ 0.54(1)
Dilutive.............................................. $ 0.11 $ 0.11 $ 0.14 $ 0.17 $ 0.54(1)
Weighted Average Shares Outstanding
Basic................................................. 52,929 62,121 73,330 73,330 65,505
Dilutive.............................................. 52,929 62,121 73,330 73,370 65,548
</TABLE>
- ------------------------
(1) Total earnings per share are calculated based on annual results, which may
differ from the summation of quarterly earnings per share.
C-27
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE, UNIT AND PER SHARE AMOUNTS)
17. SCHEDULE OF REAL ESTATE INVESTMENT AND ACCUMULATED DEPRECIATION AS OF
DECEMBER 31, 1998:
<TABLE>
<CAPTION>
ACQUISITION
DATE/
BUILDINGS & ACCUMULATED REDEVELOPMENT DEPRECIABLE
WESTFIELD SHOPPING TOWN LAND IMPROVEMENTS TOTAL DEPRECIATION ENCUMBRANCES DATE LIFE
- ------------------------ --------- ------------- --------- ------------ ------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Annapolis............... $ 48,359 $ 182,548 $ 230,907 $ (68,986) $ -- 1997/1998 (1) 3-20 yrs.
Capital Mall............ -- 55,057 55,057 (286) 27,802 1998 39 yrs.
Cerritos................ 15,753 175,682 191,435 (442) 95,000 1998 39 yrs.
Connecticut Post........ 6,356 131,991 138,347 (8,304) -- 1994 3-40 yrs.
Crestwood............... 65,640 41,096 106,736 (995) 74,699 1998 39 yrs.
Downtown Plaza.......... -- 150,581 150,581 (660) 92,476 1998 39 yrs.
Eagle Rock.............. 3,624 13,600 17,224 (4,370) -- 1994 5-31.5 yrs.
Eastland................ 16,609 33,376 49,985 (2,446) -- 1994/1997 5-30 yrs.
Enfield................. 8,468 32,976 41,444 (6,635) 36,706 1994 3-31.5 yrs.
Fox Hills............... 10,224 70,239 80,463 (418) 46,699 1998 39 yrs.
Horton Plaza............ 838 209,405 210,243 (922) 111,900 1998 39 yrs.
Meriden................. 11,375 95,605 106,980 (24,060) -- 1997(1) 5-30 yrs.
Mid Rivers.............. 10,816 62,191 73,007 (15,322) 53,229 1994/1996 3-35 yrs.
Mission Valley.......... 747 85,386 86,133 (30,702) 75,000 1994/1997 3-50 yrs.
Mission Valley West..... 537 23,629 24,166 (117) -- 1994/1998
Montgomery Mall......... 32,420 163,997 196,417 (41,412) 121,515 1994 5-20 yrs.
North County Fair....... -- 154,668 154,668 (15,551) 73,745 1998(2) 40 yrs.
Northwest Plaza......... 28,400 84,197 112,597 (2,107 ) 79,052 1997 40 yrs.
Oakridge................ -- 79,469 79,469 (470 ) 37,004 1998 39 yrs.
Parkway Plaza........... 17,225 148,178 165,403 (1,010 ) 82,417 1998 39 yrs.
Plaza Bonita............ 22,994 80,287 103,281 (23,888 ) 76,678 1994 3-39 yrs.
Promenade............... 4,583 30,124 34,707 (630 ) -- 1998 39 yrs.
Santa Anita............. 11,500 130,939 142,439 (1,005 ) 63,488 1998 39 yrs.
Solano.................. 8,998 82,236 91,234 (564 ) 42,069 1998 39 yrs.
South County............ 13,259 35,600 48,859 (11,314 ) 28,735 1994 5-40 yrs.
South Shore............. 29,071 150,713 179,784 (8,189 ) -- 1994/1997 3-40 yrs.
Topanga................. 13,521 130,897 144,418 (15,293 ) 105,603 1998(2) 3-50 yrs.
Trumbull................ 16,405 167,175 183,580 (11,016 ) 136,456 1994 3-40 yrs.
UTC..................... 9,540 177,925 187,465 (1,899 ) 81,041 1998 39 yrs.
West County............. 6,506 22,642 29,148 (7,467 ) 16,750 1994 3-20 yrs.
West Covina............. 18,922 84,821 103,743 (19,920 ) 89,837 1994 3-20 yrs.
Westland................ 5,162 13,212 18,374 (3,899 ) -- 1994/1994 3-50 yrs.
West Park............... 2,633 25,022 27,655 (7,878 ) 30,077 1994 3-15 yrs.
Wheaton................. 17,316 60,505 77,821 (2,550 ) -- 1997 3-39 yrs.
--------- ------------- --------- ------------ -------------
$ 457,801 $ 3,185,969 $3,643,770(3) $ (340,727 ) $ 1,677,978
--------- ------------- --------- ------------ -------------
--------- ------------- --------- ------------ -------------
</TABLE>
- ------------------------------
(1) A partnership interest was purchased in 1994 and the remaining partnership
interest was purchased in 1997.
(2) A partnership interest was purchased in 1994 and the remaining partnership
interest was purchased in 1998.
C-28
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE, UNIT AND PER SHARE AMOUNTS)
17. SCHEDULE OF REAL ESTATE INVESTMENT AND ACCUMULATED DEPRECIATION AS OF
DECEMBER 31, 1998: (CONTINUED)
(3) The following is a reconciliation of the real estate investment and related
accumulated depreciation from January 1, 1998 to December 31, 1998:
<TABLE>
<S> <C>
Real Estate:
Balance at January 1, 1998.................................................. $1,793,327
Cash additions.............................................................. 1,318,104
Other additions, net (4).................................................... 469,637
Improvements................................................................ 62,702
---------
Balance at December 31, 1998................................................ $3,643,770
---------
---------
Accumulated Depreciation:
Balance at January 1, 1998.................................................. $(236,220)
Additions charged to expenses............................................... (74,593)
Other additions, net (5).................................................... (29,914)
---------
Balance at December 31, 1998.................................................. $(340,727)
---------
---------
</TABLE>
(4) Amount represents non cash additions related to mortgage debt assumed in
conjunction with the acquisitions of the Hahn Centers, consolidation of
investments in North County Fair and Topanga previously accounted for under
the equity method and the acquisition of a 50% interest in Capital Mall in
exchange for Investor Unit Rights.
(5) Amount represents additions in conjunction with the acquisition of Topanga
and North County Fair previously accounted for under the equity method.
C-29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the "Selected
Financial Data" and the Company's Consolidated Financial Statements and Notes
thereto. Historical results set forth in "Selected Financial Data" and the
Company's Consolidated Financial Statements are not necessarily indicative of
the future financial position and results of operations of the Company.
GENERAL BACKGROUND
The Company's results of operations from year to year were primarily
affected by acquisitions in 1998, 1997 and 1996 which are summarized as follows:
1998 ACQUISITIONS:
In 1998, the Company invested approximately $1.8 billion to acquire
interests in 16 Centers, including a portfolio of 12 shopping centers from
TrizecHahn for approximately $1.4 billion. The Properties acquired in 1998 were
as follows:
<TABLE>
<S> <C>
HAHN CENTERS:
UTC -- 100% interest acquired in July 1998.
Valley Fair -- 50% managing, non-controlling interest acquired in July
1998.
Solano -- 100% interest acquired in September 1998.
Parkway Plaza -- 100% interest acquired in September 1998.
Fox Hills -- 100% interest acquired in October 1998.
Oakridge -- 100% interest acquired in October 1998.
Downtown Plaza -- 100% interest acquired in October 1998.
Horton Plaza -- 100% interest acquired in October 1998.
Capital Mall -- 49% managing, non-controlling interest acquired in
October 1998 and the remaining 51% acquired in December
1998.
North County Fair -- the remaining 55% interest not previously owned by the
Company acquired in October 1998.
Cerritos -- 50% managing, non-controlling interest acquired in July
1998 and the remaining 50% acquired in November 1998.
Santa Anita -- 39.7% managing, non-controlling interest acquired in
September 1998 and an additional 50% interest acquired in
December 1998, which provided the Company with a
controlling interest in the property.
OTHER ACQUISITIONS:
Crestwood -- 100% interest acquired in January 1998.
Promenade -- 100% interest acquired in June 1998.
Independence Mall -- 60% interest acquired in August 1998 and an additional
10% interest acquired in October 1998.
Topanga -- the remaining 58% interest not previously owned by the
Company acquired in November 1998.
</TABLE>
The Centers acquired in 1998 (referred to as the "1998 Acquisition Centers")
were acquired with proceeds obtained from the Company's unsecured revolving
credit facility, the issuance of shares of the Company's Series C, C-1, C-2, D
and D-1 convertible preferred stock totaling $275 million, the issuance of
C-30
<PAGE>
new secured and unsecured debt, the issuance of notes to Australian investors
(the "Capital Notes") totaling $301.1 million, the assumption of debt, the
exercise of warrants in WHL (the "WHL Warrants") and subsequent sale of WHL
shares for $99.7 million and the issuance of partnership interests and units in
the Company's Operating Partnership ("Investor Unit Rights") valued at $32.3
million.
At December 31, 1998 and for the year then ended, the Consolidated Financial
Statements and Notes thereto reflect the consolidated financial results of 29
Centers, the equity in income of five unconsolidated real estate partnerships,
the equity in income of North County Fair, Topanga, Cerritos, Santa Anita and
Capital Mall until these Centers became consolidated, 12 separate department
store properties net leased to the May Company under financing leases, certain
other real estate investments, the Garden State Plaza Loan (discussed below) and
the exercise of the WHL Warrants.
1997 ACQUISITIONS:
<TABLE>
<S> <C>
Garden State Plaza Loan -- In May 1997, the Company made a participating loan
totaling $145 million to two wholly-owned affiliates of WHL.
The loan is secured by the affiliates' 50% partnership
interest in Garden State Plaza, a super-regional shopping
center located in Paramus, New Jersey
WHL Warrants -- In May 1997, the Company acquired 49 million
non-transferable WHL Warrants which entitled the Company to
acquire WHL ordinary shares at a price equal to AUS $4.67
per share.
Wheaton -- 68% managing, controlling interest acquired in June 1997
Annapolis -- adjacent land and the remaining 70% interest not
previously owned by the Company acquired in June 1997
Meriden -- the remaining 50% interest not previously owned by the
Company acquired in September 1997
Northwest Plaza -- 100% interest acquired in December 1997
</TABLE>
The Centers acquired in 1997 (referred to as the "1997 Acquisition Centers")
were funded from proceeds obtained from the Company's initial public offering in
May 1997 (the "Offering"), the Company's unsecured corporate credit facility and
the Company's interest in a department store property net leased to the May
Company.
At December 31, 1997 and for the year then ended, the Consolidated Financial
Statements and Notes thereto reflect the consolidated financial results of 17
Centers, the equity in income of five unconsolidated real estate partnerships,
the equity in income of Annapolis, and Meriden until these Centers became
consolidated, 12 separate department store properties net leased to the May
Company under financing leases, certain other real estate investments, and the
Garden State Plaza Loan.
For the year ended December 31, 1996, the Company's statements of income and
cash flows reflect the consolidated financial results of 12 Centers, the equity
in income of seven unconsolidated real estate partnerships, 13 separate
department store properties net leased to the May Company under financing
leases, certain other real estate investments and the Company's acquisition of
Connecticut Post, South Shore and Trumbull (the "1996 Acquisition Centers") in
July 1996.
C-31
<PAGE>
RESULTS OF OPERATIONS
COMPARISONS OF YEAR ENDED DECEMBER 31, 1998 TO YEAR ENDED DECEMBER 31, 1997
TOTAL REVENUES increased $111.7 million or 52% to $328.5 million for the
year ended December 31, 1998 as compared to $216.8 million for the same period
in 1997. The increase is the result of the addition of the 1997 and 1998
Acquisition Centers which contributed $104.6 million or 94% of the increase in
total revenues. Excluding the total revenues generated by the 1997 and 1998
Acquisition Centers, total revenues increased $7.1 million due to completed
redevelopments, increased occupancy, higher base rents and higher percentage
rents due to higher sales throughout the portfolio.
TOTAL EXPENSES increased $65.1 million or 53% to $188.2 million for the year
ended December 31, 1998 as compared to $123.1 million for the same period in
1997. The increase was due primarily to the addition of the 1997 and 1998
Acquisition Centers, which contributed a combined $53.1 million or 82% of the
increase in total expenses. Excluding the total expenses incurred as a result of
the 1997 and 1998 Acquisition Centers, total expenses increased $12.0 million
due primarily to the advisory fee totaling $6.1 million, which first became
payable by the Company to the Advisor in 1998, and an increase in depreciation
primarily due to redevelopments placed into service in 1998 and 1997.
INTEREST EXPENSE, net of capitalized interest, increased $49.4 million or
86% to $106.9 million for the year ended December 31, 1998 as compared to $57.5
million for the same period in 1997, due primarily to increased borrowings under
the Company's secured and unsecured loan facilities, the Capital Notes and debt
assumed and issued in conjunction with the acquisition of the 1998 and 1997
Acquisition Centers.
EQUITY IN NET INCOME OF UNCONSOLIDATED REAL ESTATE PARTNERSHIPS increased
approximately $2.0 million to $5.9 million for the year ended December 31, 1998
as compared to $3.9 million for the same period in 1997 due primarily to the
acquisition of joint venture interests in Valley Fair, Independence Mall,
Capital Mall, Cerritos and Santa Anita, which were partially offset by the
acquisition of the remaining 55% interest in North County Fair in October 1998
and 58% interest in Topanga in November 1998.
INTEREST AND OTHER INCOME increased $8.0 million to $17.2 million for the
year ended December 31, 1998 as compared to $9.2 million for the same period in
1997. The increase was due to a full year of interest earned on the Garden State
Plaza Loan and interest earned on temporary investments.
NET INCOME increased $59.3 million to $106.2 million for the year ended
December 31, 1998 primarily due to a net gain of $53.9 million that resulted
from the sale of investments in April 1998, net of a loss from the reversal of
certain interest rate swap agreements in August 1998. Excluding this net gain,
net income increased $5.4 million or 12% to $52.3 million for the year ended
December 31, 1998 as compared to $46.9 million for the same period in 1997 for
the reasons discussed above.
COMPARISONS OF YEAR ENDED DECEMBER 31, 1997 TO YEAR ENDED DECEMBER 31, 1996
TOTAL REVENUES increased $63.1 million or 41% to $216.8 million for the year
ended December 31, 1997 as compared to $153.7 million for the same period in
1996. The increase was primarily the result of a full year of operations of the
1996 Acquisition Centers and the addition of the 1997 Acquisition Centers, which
contributed a combined $51.7 million or 82% of the increase in total revenues.
Excluding the total revenues generated by the 1996 and 1997 Acquisition Centers,
total revenues increased $11.4 million due to higher minimum rent resulting from
Eastland, Mid Rivers and Mission Valley redevelopments, higher occupancy and
higher specialty leasing throughout the portfolio.
TOTAL EXPENSES increased $30.6 million or 33% to $123.1 million for the year
ended December 31, 1997 as compared to $92.5 million for the same period in
1996. The increase was primarily the result of a full year of operations of the
1996 Acquisition Centers and the addition of the 1997 Acquisition Centers, which
contributed a combined $30.1 million or 98% of the increase in total expenses.
Excluding the total expenses incurred by the acquisitions and an advisory fee,
not payable in 1996 of $2.6 million, total
C-32
<PAGE>
expenses increased $3.1 million due primarily to an increase in depreciation
from the Mid Rivers, Eastland and Mission Valley redevelopments placed into
service in 1997.
INTEREST EXPENSE, net of capitalized interest, increased $17.3 million or
43% to $57.5 million for the year ended December 31, 1997 as compared to $40.2
million for the same period in 1996. The increase was due to the acquisition of
the 1996 Acquisition Centers which contributed $8.8 million of the increase in
interest expense. Excluding the 1996 Acquisition Centers, interest expense
increased $8.5 million due to additional borrowings on the Company's revolving
credit facility as a result of the acquisition of the 1997 Acquisition Centers,
and lower interest capitalized due to the completion of redevelopments.
EQUITY IN INCOME OF UNCONSOLIDATED REAL ESTATE PARTNERSHIPS increased by
$0.2 million to $3.9 million for the year ended December 31, 1997 as compared to
$3.7 million for the same period in 1996 due to improved operating results
totaling $1.7 million as a result of increased occupancy, rental rates and
specialty leasing income at all the partnerships and recovery of earthquake
repair costs of $0.4 million at Topanga, partially offset by the consolidation
of Annapolis and Meriden.
INTEREST AND OTHER INCOME increased $8.1 million to $9.2 million for the
year ended December 31, 1997 as compared to $1.1 million for the same period in
1996. The increase was primarily due to interest earned of $8.3 million on the
Garden State Plaza Loan.
MINORITY INTERESTS IN EARNINGS OF CONSOLIDATED REAL ESTATE PARTNERSHIPS
increased $1.4 million to $2.5 million for the year ended December 31, 1997 as
compared to $1.1 million for the same period in 1996 due to the acquisition of a
68% managing interest in Wheaton.
NET INCOME increased $22.2 million or 90% to $46.9 million from $24.7
million for the same period in 1996 for the reasons discussed above.
CASH FLOWS
YEAR ENDED DECEMBER 31, 1998
Cash and cash equivalents increased $14.3 million for the year ended
December 31, 1998 due to excess cash generated by operating activities and
financing activities over cash used in investing activities. Net cash provided
by operating activities totaled $97.9 million which represents the cash flow
generated by the 1998 Acquisition Centers, a full year of operations of the 1997
Acquisition Centers, a full year of interest income earned on the Garden State
Plaza Loan and the operations of the Company's existing portfolio. The net cash
used in investing activities during the year ended December 31, 1998 totaled
$1,346.5 million due primarily to the addition of the 1998 Acquisition Centers
and cash used to fund renovations, expansions, tenant allowances and other
capital expenditures totaling $1,475.3 million which was partially offset by
investment proceeds obtained from the sale of WHL Stock totaling $99.7 million,
cash distributions received from unconsolidated partnerships totaling $9.8
million, notes receivable and deferred financing leases receivable repayments
totaling $4.9 million, restricted cash used in the redevelopment of Mission
Valley West totaling $4.4 million and an increase in the cash balance of
consolidated real estate partnerships that were previously accounted for as
unconsolidated real estate partnerships totaling $10.0 million. The net cash
flow provided by financing activities totaled $1,262.9 million primarily as a
result of net borrowings totaling $1,117.6 million obtained to fund the purchase
of the 1998 Acquisition Centers and proceeds generated from the issuance of
convertible preferred stock totaling $275.0 million which was partially offset
by cash distributions paid to preferred and common shareholders totaling $117.0
million, stock issuance costs totaling $8.8 million and cash distributions
totaling $3.9 million paid to minority interests in consolidated real estate
partnerships.
YEAR ENDED DECEMBER 31, 1997
Cash and cash equivalents increased $4.3 million for the year ended December
31, 1997 due to excess cash generated by operating activities and financing
activities over cash used for investing activities. Net
C-33
<PAGE>
cash provided by operating activities totaled $91.2 million which represent the
cash flow generated by the 1997 Acquisition Centers, a full year of operations
for the 1996 Acquisition Centers, interest income earned on the Garden State
Plaza Loan and the operations of the Company's existing portfolio. The net cash
used in investing activities totaled $561.0 million due primarily to the
acquisition of the 1997 Acquisition Centers, cash used to fund renovations,
expansions, tenant allowances and other capital expenditures totaling $386.2
million, cash used to fund the Garden State Plaza Loan totaling $145.0 million,
the purchase of WHL Warrants totaling $15.2 million and increase in restricted
cash totaling $28.3 million due to the funding of the Mission Valley West
construction loan. The cash used in investing activities was partially offset by
investment proceeds obtained from cash distributions received from
unconsolidated partnerships totaling $10.0 million, notes receivable and
deferred financing lease receivable repayments totaling $2.6 million, and an
increase in the cash balances of consolidated real estate partnerships that were
previously accounted for as unconsolidated real estate partnerships totaling
$1.1 million. The net cash flow provided by financing activities totaled $474.1
million primarily as a result of net borrowings totaling $286.8 million obtained
to fund the purchase of the 1997 Acquisition Centers and the $300.4 million in
net proceeds generated from the issuance of common and preferred stock in
conjunction with the Company's Offering which was partially offset by cash
distributions paid to preferred and common shareholders totaling $111.7 million
and cash distributions totaling $1.4 million paid to minority interests in
consolidated real estate partnerships.
YEAR ENDED DECEMBER 31, 1996
Cash and cash equivalents increased $6.7 million for the year ended December
31, 1996 due to excess cash generated by operating activities and financing
activities over cash used for investing activities. Net cash provided by
operating activities totaled $55.2 million which represents the cash flow
generated by the 1996 Acquisition Centers and the operations of the Company's
existing portfolio. The net cash used in investing activities totaled $91.0
million primarily due to the purchase of the 1996 Acquisition Centers and cash
used to fund renovations, expansions, tenant allowances and other capital
expenditures totaling $106.9 million which was partially offset by investment
proceeds obtained from cash distributions received from unconsolidated
partnerships totaling $11.4 million, notes receivable and deferred financing
lease receivable repayments totaling $2.0 million and an increase in cash
balances of consolidated real estate partnerships that were previously accounted
for as unconsolidated real estate partnerships totaling $2.4 million. The net
cash flow provided by financing activities totaled $42.5 million primarily due
to net proceeds generated from the issuance of common and preferred stock net of
issuance costs totaling $405.4 million, used to redeem common stock of $218.0
million, partially offset by net distributions paid to preferred and common
shareholders totaling $68.2 million, net repayments of debt totaling $76.4
million and cash distributions totaling $0.3 million paid to minority interests
in consolidated real estate partnerships.
FFO--FUNDS FROM OPERATIONS
The Company computes FFO in accordance with standards established by the
White Paper on FFO approved by the Board of Governors of NAREIT in March 1995
which defines FFO as net income (loss) (computed in accordance with GAAP),
excluding gains (or losses) from debt restructuring and sales of property, plus
real estate related depreciation and amortization and after adjustments for
unconsolidated partnerships and joint ventures. FFO should not be considered as
an alternative to net income (determined in accordance with GAAP) as a measure
of the Company's financial performance or to cash flow from operating activities
(determined in accordance with GAAP) as a measure of the Company's liquidity,
nor is it indicative of funds available to fund the Company's cash needs,
including its ability to make distributions. In addition, FFO as computed by the
Company may not be comparable to similarly titled figures reported by other
REITs. The Company believes that FFO is an effective measure of the Company's
operating performance because analysts and investors usually use FFO in
analyzing the operating results of real estate companies rather than using
earnings per share.
C-34
<PAGE>
The following is a summary of the Company's FFO and a reconciliation of net
income to FFO for the periods presented:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
---------- ---------- ---------
($ IN THOUSANDS)
<S> <C> <C> <C>
Funds from Operations...................................... $ 140,839 $ 111,271 $ 75,842
---------- ---------- ---------
---------- ---------- ---------
Increase in Funds from Operations from prior period........ 26.6% 46.7% 15.3%
Reconciliation:
Net income............................................... $ 106,188 $ 46,865 $ 24,696
Gain on sale of investments.............................. (53,895) -- --
Depreciation and amortization:
Deferred financing leases.............................. 2,138 2,044 1,883
Consolidated properties................................ 76,926 53,913 38,596
Unconsolidated real estate partnerships................ 10,753 9,456 11,100
Minority interest portion of consolidated properties... (1,271) (1,007) (433)
---------- ---------- ---------
Funds from Operations...................................... $ 140,839 $ 111,271 $ 75,842
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
EBITDA--EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION
The Company believes that there are several important factors that
contribute to the ability of the Company to increase rent and improve
profitability of its Centers, including aggregate retailer sales volume, sales
per square foot, occupancy levels and retailer costs. Each of these factors has
a significant effect on EBITDA. The Company believes that EBITDA is an effective
measure of 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 GAAP; (ii) should not be considered as an
alternative to net income (determined in accordance with GAAP) as a measure of
the Company's overall 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 $124.4 million
in 1996 to $256.9 million in 1998. The growth in EBITDA reflects the addition of
Total GLA, increased rental rates, increased retailer sales, improved occupancy
levels and effective control of operating costs.
C-35
<PAGE>
The following is a summary of the Company's EBITDA and a reconciliation of
EBITDA to FFO (which has been reconciled to the Company's net income above) for
the periods presented:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
---------- ---------- ----------
($ IN THOUSANDS)
<S> <C> <C> <C>
EBITDA................................................... $ 256,931 $ 177,858 $ 124,352
---------- ---------- ----------
---------- ---------- ----------
Increase in EBITDA from prior period..................... 44.5% 43.0% 21.7%
Reconciliation:
Funds from Operations.................................. $ 140,839 $ 111,271 $ 75,842
Interest expense:
Consolidated properties.............................. 106,852 57,472 40,233
Unconsolidated real estate partnership............... 10,193 9,858 8,748
Minority interest portion of consolidated
properties......................................... (953) (743) (471)
---------- ---------- ----------
EBITDA................................................... $ 256,931 $ 177,858 $ 124,352
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
THE SHOPPING CENTER BUSINESS
There are several types of retail shopping centers, varying primarily by
size and marketing strategy. Centers with greater than 800,000 square feet of
Total GLA built around three or more Anchors are referred to as super-regional
shopping centers. Centers with Total GLA ranging from 400,000 to 800,000 square
feet built around one to three Anchors are referred to as regional shopping
centers. Centers with Total GLA ranging from 200,000 to 600,000 square feet
built around retailers consisting of Category Killers (large discount retailers
in a specific product niche such as Toys R' Us) and Big Box Retailers (similar
to Category Killers but a wider product offering such as Loehman's) are referred
to as power centers. In enclosed super-regional and regional shopping centers,
Anchors are usually located at the ends of enclosed common area corridors. This
layout is intended to maximize pedestrian traffic for Mall Stores.
Most regional and super-regional shopping centers compete for consumer
retail dollars by offering fashion merchandise, hard goods and services,
generally in an enclosed, climate-controlled environment with convenient
parking. Regional and super-regional shopping centers have differing strategies
for price levels depending upon the market demographics, competition and the
merchants and merchandise offered, from very high-end presentations, at one end,
to a strategy of leasing exclusively to promotional, single category outlet
stores, at the other. Super-regional shopping centers generally have more
variety and assortment than regional shopping centers. Westfield Shoppingtowns
seek to optimize Mall Store mix consistent with market demographics and customer
preferences.
C-36
<PAGE>
The following table sets forth the number of Centers in each state and Total
GLA at December 31, 1998:
<TABLE>
<CAPTION>
TOTAL GLA
NO. OF -----------
SHOPPING PERCENT OF
SHOPPING CENTER LOCATIONS BY STATE CENTERS (000'S) TOTAL GLA
- ----------------------------------------------------------- ------------- ----------- -------------
<S> <C> <C> <C>
California................................................. 20 19,364 53.9%
Colorado................................................... 1 471 1.3%
Connecticut................................................ 4 3,418 9.5%
Maryland................................................... 3 3,763 10.5%
Missouri................................................... 6 5,574 15.5%
New York................................................... 1 1,167 3.3%
North Carolina............................................. 1 690 1.9%
Washington................................................. 2 1,471 4.1%
--
----------- ---
38 35,918 100%
--
--
----------- ---
----------- ---
</TABLE>
From 1994 to 1998, the Manager managed all the Centers in which the Company
had an interest except North County Fair which was managed by TrizecHahn. On
August 1, 1998, the Manager commenced management responsibilities for the Hahn
Centers acquired from TrizecHahn. The Centers managed by the Manager are
referred to as "Managed Centers".
SALES
From 1996 to 1998, reported sales for Mall Shops increased from $1.5 billion
to $3.1 billion. Total sales for Mall Shops 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.
The table below sets forth Mall Shop sales for Managed Centers in the east
coast, the midwest and west coast regions of the United States.
<TABLE>
<CAPTION>
EAST COAST CENTERS MIDWEST CENTERS WEST COAST CENTERS TOTAL CENTERS
-------------------------- -------------------------- ------------------------ --------------------------
SALES(1) PERCENTAGE SALES(1) PERCENTAGE SALES(1) PERCENTAGE SALES(1) PERCENTAGE
YEAR (MILLIONS) INCREASE (MILLIONS) INCREASE (MILLIONS) INCREASE (MILLIONS) INCREASE
- ------------------- ----------- ------------- ----------- ------------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998............... $ 867 2.7% $ 366 80.3% $ 1,828 137.7% $ 3,061 68.6%
1997............... 844 20.5 203 14.7 769 25.9 1,816 22.0
1996............... 700 -- 177 1.7 611 8.7 1,488 3.7
</TABLE>
- ------------------------
(1) Sales are based on Mall Shop retailers for Managed Centers reporting sales,
excluding Centers under redevelopment in 1996.
Reported sales per square foot for Mall Shops located at the Managed Centers
for the years ended December 31, 1998, 1997 and 1996, excluding Centers under
redevelopment in 1996, were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Reported sales per square foot........................................ $ 330 $ 310 $ 297
Increase from prior year.............................................. 6.5% 4.4% 6.5%
Increase from prior year on a comparable Mall Shop basis.............. 4.2% 4.4% 6.5%
</TABLE>
The Company believes these sales levels enhance its ability to obtain higher
rents from retailers.
C-37
<PAGE>
LEASES
Generally, Mall Store leases are for ten-year terms and provide for
retailers to pay rent comprised of fixed and variable components. The fixed
component, referred to as "base" or "minimum" rent, is often subject to steps,
or contractual increases according to a negotiated schedule. The variable rent
component is based upon a percentage of a retailer's gross sales in excess of a
minimum annual amount. In some cases, retailers only pay base rent and, in a few
cases, retailers only pay percentage rent.
Virtually all of the leases for Mall Stores contain provisions that allow
the Centers to recover certain operating costs and expenses (including certain
capital expenditures) with respect to the common areas (including parking
facilities), all buildings, roofs and facilities within the Centers, as well as
insurance and property taxes. During 1998, the Centers recovered approximately
98% of these costs and expenditures in the form of expense recoveries from
retailers.
LEASING
Leasing percentages are calculated on the basis of signed leases excluding
temporary leases, which consist of leases having a term of less than one year.
The following table sets forth leased status for the Managed Centers in the east
coast, the midwest and the west coast regions of the United States (excluding
certain Centers under redevelopment in 1996).
<TABLE>
<CAPTION>
EAST COAST MIDWEST WEST COAST TOTAL
DECEMBER 31 CENTERS CENTERS CENTERS CENTERS
- ----------------------------------------------------- --------------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
1998................................................. 95% 93% 92% 93%(1)
1997................................................. 94% 91% 94% 93%
1996................................................. 92% 93% 92% 92%
</TABLE>
- ------------------------
(1) Excluding the Hahn Centers, Mall Stores were 95% leased. As of December 31,
1998, the Hahn Centers were 89% leased compared to 87% in July 1998 when the
Manager began managing the Hahn Centers.
COSTS OF OCCUPANCY
Management believes that in order to continue to increase per share Funds
from Operations, Mall Store retailers must be able to operate profitably. A
factor contributing to retailer profitability is cost of occupancy, which
consists of base rents and expense recoveries; therefore, as sales levels
increase, the retailer can afford to pay a higher rent. From 1996 to 1998
recoverable expenses remained relatively constant while sales per square foot
continued to increase, thereby giving the Company an opportunity to increase
effective rents without raising a retailer's total occupancy cost beyond its
ability to pay.
The following table sets forth certain information relating to occupancy
costs as a percentage of sales for reporting Mall Store retailers at the Managed
Centers.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER
31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Occupancy Costs as a Percentage of Sales:
Base Rents.................................................. 7.8% 8.4% 8.5%
Expense Recoveries.......................................... 4.2 4.6 4.7
--- --- ---
Total....................................................... 12.0% 13.0% 13.2%
--- --- ---
--- --- ---
</TABLE>
LEASE EXPIRATIONS
The expiration of leases present shopping center owners with the opportunity
to increase base and percentage rents, modify lease terms, improve retailer mix,
relocate existing retailers, reconfigure or
C-38
<PAGE>
expand retailer spaces and introduce new retailers and retail concepts to the
shopping center. The Company endeavors to increase base rent levels in the
Centers in part through negotiating terminations of leases of underperforming
retailers and renegotiating expired leases.
The following table shows scheduled lease expirations over the next ten
years based upon Mall Store leases in place at December 31, 1998.
<TABLE>
<CAPTION>
ANNUALIZED BASE
APPROXIMATE MALL PERCENTAGE OF AVERAGE RENT OF PERCENTAGE OF BASE
NUMBER OF GLA OF MALL GLA BASE RENT (PSF) EXPIRING LEASES RENT REPRESENTED
YEAR ENDING LEASES EXPIRING LEASES REPRESENTED BY OF EXPIRING --------------- BY EXPIRING
DECEMBER 31, EXPIRING (SQ. FT.) EXPIRING LEASES LEASES LEASES
- --------------- ------------- ---------------- ------------------- --------------- (THOUSANDS) ---------------------
<S> <C> <C> <C> <C> <C> <C>
1999........ 301 967,568 6.7% $ 13.93 $ 13,475 4.6%
2000........ 434 1,185,124 8.2 18.54 21,975 7.5
2001........ 418 985,140 6.8 23.45 23,102 7.9
2002........ 452 987,341 6.8 26.81 26,468 9.1
2003........ 489 1,298,905 8.9 23.53 30,561 10.5
2004........ 520 1,388,026 9.6 26.77 37,160 12.8
2005........ 379 1,211,629 8.3 32.52 39,401 13.5
2006........ 331 1,125,305 7.8 25.86 29,101 10.0
2007........ 341 1,152,899 7.9 26.70 30,784 10.6
2008........ 326 1,094,557 7.5 26.63 29,144 10.0
</TABLE>
MALL SHOP RENTAL RATES
The following table contains certain information regarding per square foot
average base and effective rent (base rent plus percentage rent) of the Mall
Shops at Managed Centers.
<TABLE>
<CAPTION>
EXISTING MALL SHOP
LEASES
------------------------
EFFECTIVE
AS OF DECEMBER 31, BASE RENT RENT
- -------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
1998................................................................ $ 28.72 $ 29.22
1997................................................................ 28.11 28.70
1996................................................................ 27.07 27.62
</TABLE>
As leases have expired, the Company has generally sought to rent the
available space, either to the existing retailer or a new retailer, at rental
rates that are higher than those of the expiring leases, since the average rent
for leases in place is generally less than the market rate for such space.
The following table illustrates increases in Mall Shop rental rates for the
Managed Centers.
<TABLE>
<CAPTION>
LEASES EXPIRING LEASE EXECUTED
DURING THE DURING THE
YEAR PERIOD(1) PERIOD(2) PERCENT INCREASE
- ---------------------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C>
1998.............................. $ 25.19 $ 32.81 30.3%
1997.............................. 27.20 29.22 7.4%
1996.............................. 21.48 28.16 31.1%
</TABLE>
- ------------------------
(1) Includes scheduled expirations, early terminations, abandonments and
negotiated buyouts. Represents average base rent for the final year of
occupancy.
(2) Represents average base rent for the initial year of occupancy including
renewals.
Minimum rents at Mall Stores are expected to grow as a result of contractual
rent increases in existing leases. Although there can be no assurances that such
contractual increases will be realized, or that such
C-39
<PAGE>
contractual increases are indicative of possible future increases, base rent at
the Centers is expected to increase by approximately $23.9 million over the next
five years through these contractual increases.
<TABLE>
<CAPTION>
CUMULATIVE
EXISTING EXISTING
CONTRACTUAL CONTRACTUAL
YEAR RENT INCREASES RENT INCREASES
- ----------------------------------------------------- ------------------- ------------------
<S> <C> <C>
1999................................................. $ 7,571,912 $ 7,571,912
2000................................................. 5,983,670 13,555,582
2001................................................. 3,791,738 17,347,320
2002................................................. 3,595,682 20,943,002
2003................................................. 2,930,408 23,873,410
</TABLE>
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 currently billable under the terms of
the lease. The amount of contractual rent recognized in excess of rent billed
for the years ending December 31, 1998, 1997 and 1996 was $4.2 million, $3.1
million and $2.3 million, respectively.
SEASONALITY
The shopping center industry is seasonal in nature, particularly in the
fourth quarter during the holiday season, when retailer occupancy and retail
sales are typically at their highest levels. In addition, shopping centers
achieve a substantial portion of their specialty (temporary retailer) rents
during the holiday season. As a result of the above, earnings are generally
highest in the fourth quarter of each year.
The following table summarizes certain 1998 and 1997 quarterly data for the
Managed Centers:
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- ------------
($ IN THOUSANDS)
<S> <C> <C> <C> <C>
1998 QUARTERLY DATA:
Mall Shop sales............................ $ 615,302 $ 685,548 $ 688,089 $ 1,071,951
Revenues................................... $ 87,933 $ 86,807 $ 108,469 $ 145,072
Percentage Leased.......................... 92% 93% 93% 93%(1)
1997 QUARTERLY DATA:
Mall Shop sales............................ $ 298,716 $ 316,178 $ 325,834 $ 506,591
Revenues................................... $ 69,482 $ 69,087 $ 80,209 $ 83,031
Percentage Leased.......................... 91% 92% 92% 93%
</TABLE>
- ------------------------
(1) The portfolio was 95% leased, excluding the Hahn Centers which were 89%
leased.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, the Company had unused capacity under its unsecured
revolving credit facility totaling $108.8 million which will be utilized to fund
acquisition and redevelopment activities and as a working capital facility.
Through its hedging activities, the Company has fixed the interest rates
applicable to the outstanding balance under this facility at rates ranging from
7.08% to 7.26%.
As of December 31, 1998, the Company's balance of cash and cash equivalents
was $25.3 million, not including its proportionate share of cash held by
unconsolidated real estate partnerships.
During 1998, the Company acquired the 1998 Acquisition Centers for
approximately $1.8 billion including the assumption of debt. The funds for these
acquisitions were obtained from the utilization of its existing credit facility,
new secured and unsecured loan facilities, sale of assets and issuance of debt
and equity securities as further described below.
C-40
<PAGE>
In December 1998, the Company issued $75 million of Series C-1, C-2 and D-1
preferred stock. Security Capital Preferred Growth Incorporated ("SCPG")
purchased $50 million of the Series C-1, and C-2 preferred stock and Westfield
American Trust, an Australian public company and an affiliate of the Company
("WAT") purchased $25 million of the Series D-1 preferred stock. Each share of
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-1
preferred stock acquired by WAT is not convertible into the Company's common
stock until approval is obtained from the Company's shareholders which the
Company will seek to obtain at its next annual meeting.
In December 1998, the Company issued a collateralized non-recourse note
payable totaling $746.1 million. The proceeds were used to finance a portion of
the property portfolio purchased from TrizecHahn and to refinance an existing
collateralized non-recourse note and a portion of the unsecured revolving credit
facility. The note is due in December 2001 and interest is provided at LIBOR
plus 0.53%. The Company has fixed the rate on this note at 6.38% through
interest rate swap contracts.
During the year ended December 31, 1998, the Company obtained secured and
unsecured loan facilities totaling $239.0 million in connection with the
purchase of the 1998 Acquisition Centers. These secured and unsecured loan
facilities are due at various dates in 1999 and bear interest at either LIBOR +
1.5% or LIBOR + 1.75%.
During the year ended December 31, 1998, the Company assumed mortgage debt
totaling approximately $478.2 million on a pro rata basis in connection with its
acquisition of interests in Cerritos, UTC, Valley Fair, Independence Mall,
Solano, Topanga, Downtown Plaza, North County Fair and Santa Anita.
In December 1998, the Company acquired a 1% interest in Capital Mall for
cash and issued 978,378 Investor Unit Rights in exchange for the remaining 50%
interest in Capital Mall not already owned by the Company.
In August 1998, the Company issued $200 million of Series C and D 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.
Additionally, in August 1998, the Company issued 786,286 units in Westfield
Independence Mall Limited Partnership in conjunction with the acquisition of an
interest in Independence Mall. Under certain circumstances, each unit of
Westfield Independence Mall Limited Partnership is exchangeable for cash or, at
the option of the Company, into shares of the Company's common stock.
In June 1998, the Company issued Capital Notes totaling $301.1 million,
repayable in three equal installments due in June 2001, 2002 and 2003 and
bearing interest at 8.38% per annum.
In May 1998, the Company 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 AUS $465 million (approximately US $285
million at December 31, 1998 foreign currency exchange rates) 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. Based
upon the foreign currency exchange rate on March 12, 1999, the Company would
receive approximately US $296 million.
In April 1998, the Company exercised the WHL Warrants. As a result of the
exercise, WHL elected to pay the profit element of the WHL Warrants by issuing
20,339,066 WHL ordinary shares. These shares were then sold by the Company for
$99.7 million.
The Company's consolidated indebtedness at December 31, 1998 was $2,641.0
million, of which $2,472.3 million is fixed-rate debt and $168.7 million is
variable rate debt after considering interest rate protection agreements
totaling $1.7 billion. The interest rate on the fixed rate debt ranges from
6.38% to
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<PAGE>
8.38%. The Company's pro-rata share of debt-to-total market capitalization,
based on the share price at December 31, 1998 was 54.6%, excluding the Capital
Notes from the numerator. The maturity dates of consolidated indebtedness range
from 1999 to 2018. Scheduled principal amortization and balloon payments in
connection with maturing consolidated indebtedness over the next five years and
thereafter are set forth in the table below:
<TABLE>
<CAPTION>
YEAR AMOUNT
- -------------------------------------------------------------- -----------
(IN
THOUSANDS)
<S> <C>
1999.......................................................... $ 346,433
2000.......................................................... 632,572
2001.......................................................... 1,025,110
2002.......................................................... 165,368
2003.......................................................... 111,016
Thereafter.................................................... 360,516
</TABLE>
The Company has entered into interest rate exchange agreements to manage
current and future interest rates. Interest rate exchange agreements 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). The agreements consist of swaps
and involve the future receipt, of a floating rate based on LIBOR and the
payment of a fixed rate. Since December 31, 1997, the Company has lengthened the
average remaining term of its pro rata share of fixed rate borrowings and
hedges, including delayed start swaps from 7.8 years to 9.1 years. 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 between the contract rate and the market rate on the notional
amount. The Company does not anticipate non-performance by any of the
counterparties.
The following is a summary of fixed rate debt, average fixed interest rate
and average remaining term to maturity for the Company's pro rata share of fixed
rate debt and variable rate debt which has been fixed through the use of
interest rate swap contracts:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
--------- ---------
($ IN THOUSANDS)
<S> <C> <C>
Principal amount of fixed rate debt................... $ 777,911 $ 703,175
Principal (notional) amount of other current fixed
rate payable instruments............................ 1,700,000 225,000
--------- ---------
$2,477,911 $ 928,175
--------- ---------
--------- ---------
Fixed rate debt as a percentage of total notes payable
and revolving credit facility....................... 91.4% 79.6%
--------- ---------
--------- ---------
Average effective fixed rate (inclusive of margins) of
total fixed rate debt and hedges, including delayed
start swaps......................................... 7.09% 7.10%
--------- ---------
--------- ---------
Average remaining term (in years) of total fixed rate
borrowings and hedges, including delayed start
swaps............................................... 9.1 7.8
--------- ---------
--------- ---------
</TABLE>
For a more detailed discussion of the Company's investment in interest rate
and foreign currency exchange agreements, please refer to the "Quantitative and
Qualitative Disclosure about Market Risks" in the Company's Definitive Proxy
Statement which is incorporated herein by reference or the Company's Annual
Report on Form 10-K, which may be obtained from the Securities and Exchange
Commission, the Company's web-site at www.westfieldamerica.com or by writing to
the Company at its corporate offices.
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<PAGE>
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 continually evaluates the
redevelopment potential of its Properties including Properties which have
undergone redevelopment in the past five years. Due to the financial and
regulatory burdens presented by the development of new regional shopping
centers, the Company believes that an on-going redevelopment program provides a
cost efficient means of ensuring that the Company's existing Centers compete
effectively within their existing markets and are able to attract new customers.
Capital expenditures and capitalized leasing costs totaled $60.9 million,
$70.0 million, and $45.8 million for the years ended December 31, 1998, 1997 and
1996, respectively. The following table shows the components of capital
expenditures and capitalized leasing costs.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER
31,
-------------------------------
1998 1997 1996
--------- --------- ---------
($ IN MILLIONS)
<S> <C> <C> <C>
Renovations and expansions............................. $ 46.5 $ 61.2 $ 39.0
Tenant allowances...................................... 8.9 5.5 5.0
Capitalized leasing costs.............................. 4.6 2.9 1.7
Other capital expenditures............................. 0.9 0.4 0.1
--------- --------- ---------
Total................................................ $ 60.9 $ 70.0 $ 45.8
--------- --------- ---------
--------- --------- ---------
</TABLE>
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 $54.3 million as of December 31, 1998, which will be funded
through existing mortgage debt, new mortgage debt and the unsecured revolving
credit facility.
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) the issuance of secured and unsecured debt
and (iii) the issuance of equity. The Company anticipates that development
projects, expansion projects and potential acquisitions will be funded by
external financing sources.
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 expansions, 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 expand and develop its business in accordance with its strategy
for growth.
DISTRIBUTIONS
A distribution was declared on December 18, 1998 to shareholders of record
on December 31, 1998 of $33.0 million or $0.355 per common share for the quarter
ended December 31, 1998, which is equal to $1.42 per common share on an
annualized basis. The Company intends to pay regular quarterly distributions to
holders of its common stock.
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<PAGE>
YEAR 2000 READINESS
The Year 2000 Problem is a 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
to fail. Disruptions from such System failures could be as far reaching as an
extended loss of utilities and other vital services at the Centers, or as
insignificant as a minor interruption in services to tenants at the Centers.
On behalf of the Company, the Company's Manager 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 potential Year 2000
compliance risks.
The Manager has completed the required upgrade of its mission critical
communications, hardware and software Systems which were identified as not Year
2000 compliant. The Manager is communicating with significant customers and
third-party suppliers to ensure that their products and business systems will be
Year 2000 compliant. The cost of any required upgrades or changes are not
anticipated to be significant and the Company is not aware of any significant
Year 2000 issues involving its customers, suppliers or service providers.
For a more detailed discussion of the Company's Year 2000 Readiness, please
refer to the "Year 2000 Readiness" disclosure included in the Company's
Definitive Proxy Statement which is incorporated herein by reference or the
Company's Annual Report on Form 10-K, which may be obtained from the Securities
and Exchange Commission, the Company's web-site at www.westfieldamerica.com or
by writing to the Company at its corporate offices.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report contains forward-looking statements, within the meaning
of Section 27A of the Securities Act and Section 21E of the Exchange Act, which
reflect our views at the time we made the statements with respect to future
events and financial performance. These forward-looking statements are subject
to certain risks and uncertainties, described in the documents incorporated by
reference into this Annual Report. These risks and uncertainties could cause
actual results to differ materially from historical results or those
anticipated. The words "believes," "expects," "anticipates," "intends, "
"plans," "estimates" and similar expressions identify forward-looking
statements, which speak only as of the dates on which we made them. We undertake
no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events, or otherwise. Readers are
cautioned not to place undue reliance on these forward-looking statements.
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