<PAGE>
[LOGO]
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to _______
Commission file number 1-12923
WESTFIELD AMERICA, INC.
(Exact name of registrant as specified in its charter)
MISSOURI 43-0758627
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
11601 WILSHIRE BOULEVARD
12TH FLOOR
LOS ANGELES, CALIFORNIA 90025
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 478-4456
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports); and (2) has
been subject to such filing requirements for the past 90 days.
Yes /X/ No / /
As of May 15, 2000, 73,346,541 shares of Common Stock, par value $0.01
per share, were outstanding.
===============================================================================
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1: Condensed Consolidated Financial Statements
Consolidated Balance Sheets as of March 31, 2000 (unaudited) and
December 31, 1999 .................................................................... 1
Consolidated Statements of Income (unaudited) for the three months ended
March 31, 2000 and 1999.............................................................. 2
Consolidated Statements of Cash Flows (unaudited) for the three months ended
March 31, 2000 and 1999 .............................................................. 3
Notes to Condensed Consolidated Financial Statements (unaudited) ........................ 4
Item 2: Management's Discussion and Analysis of Financial Condition and Results of
Operations ........................................................................... 13
Item 3: Quantitative and Qualitative Disclosures about Market Risk .............................. 23
Part II - Other Information
Item 1: Legal Proceedings ....................................................................... 24
Item 2: Changes in Securities and Use of Proceeds................................................ 24
Item 3: Defaults Upon Senior Securities ......................................................... 24
Item 4: Submission of Matters to a Vote of Security Holders ..................................... 24
Item 5: Other Information ....................................................................... 24
Item 6: Exhibits and Reports on Form 8-K ........................................................ 24
</TABLE>
i
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
---------------- ----------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Land...................................................................... $ 454,267 $ 454,267
Buildings, improvements and equipment .................................... 3,004,950 2,990,537
Less accumulated depreciation ............................................ (471,213) (444,831)
---------------- ----------------
Net property and equipment ............................................. 2,988,004 2,999,973
Construction in progress ................................................. 78,417 67,115
Investments in unconsolidated real estate affiliates ..................... 173,363 175,123
Participating loan to affiliates ......................................... 145,000 145,000
Direct financing leases receivable ....................................... 80,331 80,927
---------------- ----------------
Net investment in real estate .......................................... 3,465,115 3,468,138
Cash and cash equivalents ................................................ 11,004 6,444
Restricted cash .......................................................... 43,240 40,008
Accounts receivable, net of allowance of $8,802 and $7,366 in 2000
and 1999, respectively ................................................. 45,469 47,632
Deferred expenses and other assets, net .................................. 41,760 41,439
---------------- ----------------
Total assets ........................................................... $ 3,606,588 $ 3,603,661
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable............................................................. $ 2,406,784 $ 2,392,137
Accounts payable and accrued expenses .................................... 130,157 119,680
Distribution payable ..................................................... 38,448 37,824
---------------- ----------------
Total liabilities ...................................................... 2,575,389 2,549,641
---------------- ----------------
Minority interests ....................................................... 32,908 33,180
Series C, D and E preferred stock ........................................ 361,000 361,000
Common stock ............................................................. 733 733
Series A and B preferred stock ........................................... 121,000 121,000
Additional paid-in capital ............................................... 515,558 538,107
---------------- ----------------
Total shareholders' equity ............................................. 637,291 659,840
---------------- ----------------
Total liabilities and shareholders' equity ............................. $ 3,606,588 $ 3,603,661
================ ================
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements.
1
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED AND IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------------
2000 1999
--------------- ---------------
<S> <C> <C>
REVENUES:
Minimum rents ............................................................ $ 83,297 $ 84,653
Tenant recoveries ........................................................ 37,519 37,595
Percentage rents ......................................................... 3,845 3,101
--------------- ---------------
Total revenues ......................................................... 124,661 125,349
--------------- ---------------
EXPENSES:
Operating ................................................................ 38,999 38,806
Management fees .......................................................... 2,480 2,478
Advisory fee ............................................................. 2,296 1,627
General and administrative ............................................... 255 490
Depreciation and amortization ............................................ 26,730 28,741
--------------- ---------------
Total expenses ......................................................... 70,760 72,142
--------------- ---------------
OPERATING INCOME ............................................................ 53,901 53,207
INTEREST EXPENSE, net ....................................................... (44,853) (49,144)
OTHER INCOME:
Equity in income of unconsolidated real estate affiliates ................ 2,189 1,794
Interest and other income ................................................ 4,709 4,466
--------------- ---------------
INCOME BEFORE MINORITY INTEREST.............................................. 15,946 10,323
Minority interests in earnings of consolidated real estate affiliates .... (822) (1,322)
--------------- ---------------
NET INCOME .................................................................. $ 15,124 $ 9,001
=============== ===============
Net income allocable to preferred shares .................................... $ 10,510 $ 8,625
Net income allocable to common shares ....................................... 4,614 376
--------------- ---------------
$ 15,124 $ 9,001
=============== ===============
EARNINGS PER COMMON SHARE:
Basic .................................................................... $ 0.06 $ 0.00
=============== ===============
Diluted .................................................................. $ 0.06 $ 0.00
=============== ===============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
Basic .................................................................... 73,347 73,338
=============== ===============
Diluted .................................................................. 76,637 74,326
=============== ===============
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements.
2
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED AND IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------------
2000 1999
---------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................................... $ 15,124 $ 9,001
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization ...................................... 26,730 28,741
Amortization of deferred loan fees ................................. 1,280 1,599
Equity in income of unconsolidated real estate affiliates .......... (2,189) (1,794)
Minority interests in earnings of consolidated real estate
affiliates ....................................................... 822 1,322
Changes in assets and liabilities:
Accounts receivable, net ........................................... 2,187 (221)
Deferred expenses and other assets ................................. (2,165) (1,516)
Accounts payable and accrued expenses .............................. 10,976 9,625
---------------- --------------
Net cash flows provided by operating activities ....................... 52,765 46,757
---------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures and acquisitions ................................ (25,582) (46,510)
Cash distributions received from unconsolidated real estate
affiliates ......................................................... 3,616 2,143
Direct financing leases receivable repayments......................... 596 557
(Increase) decrease in restricted cash................................ (3,232) 9,402
---------------- --------------
Net cash flows used in investing activities .......................... (24,602) (34,408)
---------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions paid to preferred shareholders..................... (10,452) (7,008)
Cash distributions paid to common shareholders........................ (26,588) (26,035)
Cost of stock issuances............................................... (23) (308)
Cash distributions paid to minority interests......................... (1,187) (806)
Proceeds from notes payable........................................... 35,107 88,000
Principal payments on notes payable................................... (20,460) (63,896)
---------------- --------------
Net cash flows used in financing activities........................... (23,603) (10,053)
---------------- --------------
Net increase in cash and cash equivalents............................. 4,560 2,296
CASH AND CASH EQUIVALENTS, beginning of period........................... 6,444 25,272
---------------- --------------
CASH AND CASH EQUIVALENTS, end of period................................. $ 11,004 $ 27,568
---------------- --------------
SUPPLEMENTAL CASH FLOW INFORMATION PROVIDED IN NOTE 7.
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements.
3
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED AND IN THOUSANDS EXCEPT SHARE, UNIT AND PER SHARE AMOUNTS)
1. ORGANIZATION:
Westfield America, Inc., a Missouri corporation (the "Company") 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 regional
and super-regional shopping centers located in eight states in the east
coast, midwest and west coast regions of the United States.
The Company, through its controlling interest in Westfield America Limited
Partnership (the "Operating Partnership") and its other subsidiaries and
affiliates, 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
certain other real estate investments (collectively, the "Properties").
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"), an asset
management company (the "Advisor") and a development company (the "Developer")
to provide property management, asset management and development services to the
Company under agreements that are renewable annually. 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.
2. BASIS OF PRESENTATION:
The accompanying Condensed Consolidated Financial Statements of the
Company are unaudited; however, they have been prepared in accordance with
accounting principles generally accepted in the United States for interim
financial information and the rules and regulations of the Securities and
Exchange Commission. Accordingly, they do not include all of the disclosures
required by accounting principles generally accepted in the United States for
complete financial statements. In the opinion of management, all adjustments
(consisting solely of normal recurring matters) necessary for a fair
presentation of the Condensed Consolidated Financial Statements for these
interim periods have been included. The results for the interim period ended
March 31, 2000 are not necessarily indicative of the results to be obtained
for the full calendar year. These unaudited Condensed Consolidated Financial
Statements should be read in conjunction with the December 31, 1999 audited
Consolidated Financial Statements, and Notes thereto, included in the
Company's 1999 Annual Report on Form 10-K filed on March 30, 2000.
4
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND IN THOUSANDS EXCEPT SHARE, UNIT AND PER SHARE AMOUNTS)
2. BASIS OF PRESENTATION: (CONTINUED)
The Company conducts its business through its Operating Partnership,
wholly-owned subsidiaries and affiliates. The Condensed Consolidated
Financial Statements include the accounts of the Company and all subsidiaries
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 in non-controlled
real estate affiliates are accounted for using the equity method. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
3. INVESTMENTS IN UNCONSOLIDATED REAL ESTATE AFFILIATES:
As of March 31, 2000, the Company's economic interest in Properties held by
unconsolidated real estate affiliates is as follows:
<TABLE>
<CAPTION>
ECONOMIC
PROPERTY LOCATION INTEREST
----------------- --------------- --------
<S> <C> <C>
Independence Mall Wilmington, NC 85.0%
Plaza Camino Real Carlsbad, CA 40.0%
UTC La Jolla, CA 50.0%
Valley Fair San Jose, CA 50.0%
Vancouver Vancouver, WA 50.0%
West Valley Canoga Park, CA 42.5%
</TABLE>
A summary of the condensed combined balance sheets and statements of income
for unconsolidated real estate affiliates is as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
------------------ ------------------
CONDENSED COMBINED BALANCE SHEETS (UNAUDITED)
<S> <C> <C>
Investment in real estate:
Land, building and improvements, at cost .......................... $ 642,826 $ 642,914
Less accumulated depreciation and amortization .................... (50,341) (46,264)
Construction in progress .......................................... 58,666 54,589
------------------ ------------------
Net investment in real estate ........................................ 651,151 651,239
Notes payable ........................................................ (355,493) (352,250)
Other net assets and liabilities and outside interests ............... (122,295) (123,866)
------------------ ------------------
Investments in unconsolidated real estate affiliates ................. $ 173,363 $ 175,123
================== ==================
</TABLE>
5
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND IN THOUSANDS EXCEPT SHARE, UNIT AND PER SHARE AMOUNTS)
3. INVESTMENTS IN UNCONSOLIDATED REAL ESTATE AFFILIATES: (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------------
2000 1999
--------------- --------------
CONDENSED COMBINED STATEMENTS OF INCOME:
<S> <C> <C>
Total revenues ................................................................ $ 22,218 $ 15,784
Costs and expenses:
Operating, general and administrative....................................... 6,192 5,315
Interest expense, net ...................................................... 6,166 3,321
Depreciation and amortization .............................................. 4,153 3,751
--------------- --------------
Net income .................................................................... 5,707 3,397
Outside interests' share of income ............................................ (3,518) (1,603)
--------------- --------------
Equity in income of unconsolidated real estate affiliates ..................... $ 2,189 $ 1,794
=============== ==============
</TABLE>
Significant accounting policies used by the unconsolidated real estate
affiliates are similar to those used by the Company.
4. NOTES PAYABLE:
As of March 31, 2000 and December 31, 1999, the Company had consolidated
indebtedness as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
-------------- ---------------
(UNAUDITED)
<S> <C> <C>
Secured line of credit with a group of banks with a maximum commitment
of $450,000, interest only payable monthly at LIBOR +1.30% (7.39%
effective rate at March 31,
2000), due in 2002 with an option to extend....................................... $ 169,000 $ 150,766
Unsecured subordinated notes to Australian investors, interest payable semi-annually
at LIBOR + 2.32% (8.38% effective rate at March 31, 2000), due in equal
installments in 2001, 2002 and 2003............................................... 301,088 301,088
Collateralized note payable, interest only payable monthly at LIBOR + 0.53% (6.18%
effective rate at March 31, 2000) due in 2001..................................... 754,100 754,100
Senior collateralized non-recourse notes, interest at 6.39%, principal and interest
payable quarterly, due in 2004.................................................... 13,278 14,001
Senior collateralized non-recourse notes bearing interest at 7.33%, interest only
payable quarterly until 2004, principal and interest payable quarterly
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...... 130,446 131,694
Collateralized commercial mortgage notes due in 2004, interest only payable monthly
at 6.78%.......................................................................... 75,000 75,000
</TABLE>
6
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND IN THOUSANDS EXCEPT SHARE, UNIT AND PER SHARE AMOUNTS)
4. NOTES PAYABLE: (CONTINUED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
-------------- ---------------
<S> <C> <C>
Collateralized non-recourse note payable to an insurance company, effective interest
at 7.00%, principal and interest payable monthly, due in 2018..................... 18,433 18,556
Collateralized non-recourse note payable to an insurance company, effective interest
at 7.00%, principal and interest payable monthly, due in 2006..................... 22,399 22,532
Collateralized non-recourse note payable to an insurance company, effective interest
at 7.00%, principal and interest payable monthly, due in 2022..................... 72,065 72,399
Collateralized non-recourse note payable to an insurance company, effective interest
at 7.00%, principal and interest payable monthly, due in 2002..................... 58,987 59,518
Collateralized non-recourse note payable to an insurance company, effective interest
at 7.77%, principal and interest payable monthly, due in 2002..................... 43,615 43,714
Collateralized non-recourse notes payable to an insurance company, effective
interest at 7.00%, principal and interest payable monthly, due in 2004............ 61,010 61,518
Collateralized non-recourse notes payable to insurance companies, interest at
7.72%, principal and interest payable monthly, due in 2010........................ 158,428 158,773
Collateralized commercial mortgage notes due in 2009, effective interest at 8.31%.
principal and interest payable monthly............................................ 376,350 377,000
Collateralized term loan, interest only payable monthly at LIBOR + 1.50% (7.82%
effective rate at March 31, 2000), due in 2001.................................... 64,000 64,000
Collateralized construction loan with a maximum commitment of $37,500, interest
only payable monthly at LIBOR +1.75% (8.13% effective rate at March 31, 2000),
due in 2001....................................................................... 33,418 32,311
------------ ------------
$ 2,406,784 $ 2,392,137
============ ============
</TABLE>
Interest costs capitalized for the three months ended March 31, 2000 and
1999 were $709 and $243, respectively.
In June 1998, the Company issued $301,088 of unsecured notes ("Capital
Notes") to Australian investors. 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
a foreign currency hedge agreement effectively fixing the principal and
interest payments due to the holders of the Capital Notes in U.S. dollars and
fixing the interest rate at 8.38%. The unrealized loss on the foreign
currency hedge agreement was approximately $27,283 and $6,037 at March 31,
2000 and 1999, respectively.
7
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND IN THOUSANDS EXCEPT SHARE, UNIT AND PER SHARE AMOUNTS)
4. NOTES PAYABLE: (CONTINUED)
Certain mortgage debt requires the Company to pay contingent interest
equal to 30% of the excess of rental receipts (as defined) over a
stipulated minimum. During the three months ended March 31, 2000 and 1999,
contingent interest totaled $323 and $155, respectively.
The annual maturities of notes payable and secured line of credit as of
March 31, 2000, are as follows:
<TABLE>
<S> <C>
2000 ........................ $ 141,224
2001 ........................ 967,009
2002 ........................ 380,497
2003 ........................ 114,625
2004 ........................ 139,703
Thereafter .................. 663,726
----------------
$ 2,406,784
================
</TABLE>
5. INTEREST RATE SWAP CONTRACTS:
It is the Company's policy to enter into interest rate swap contracts only
to the extent necessary to reduce exposure to fluctuations in interest rates.
The Company does not enter into interest rate swap contracts for speculative
purposes. 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 FIXED MATURITY
NOTIONAL AMOUNT RATES DATES
------------------- ------------------- --------------
<S> <C> <C> <C>
Current swaps where the Company is a receiver of
LIBOR .............................................. $1,287,000 5.84% to 7.09% 6/30/01 to
12/11/08
Deferred swaps where the Company is a receiver of
LIBOR .............................................. $610,000 5.99% to 6.26% 4/01/02 to
4/01/08
</TABLE>
The net unrealized gain on interest rate swap contracts was approximately
$59,285 at March 31, 2000 as compared to an unrealized loss of $21,420 at
March 31, 1999.
8
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND IN THOUSANDS EXCEPT SHARE, UNIT AND PER SHARE AMOUNTS)
6. CAPITAL 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 March 22, 2000 to
shareholders of record on March 31, 2000 of $37,648, including $0.37 per common
share, for the quarter ended March 31, 2000, and was paid on April 28, 2000.
This distribution is equal to $1.48 per common share on an annualized basis.
In May 1998, the Company entered into a stock subscription agreement ("1998
Subscription Agreement") with Westfield America Trust ("WAT"). Under the 1998
Subscription Agreement, the Company has the obligation to sell, and WAT has the
obligation to purchase, up to A$465,000 (approximately US$282,301 at March 31,
2000) 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.
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 from the Operating Partnership, when declared,
distributions per Investor Unit Right equal to the distribution per share paid
to holders of the Company's common stock. At March 31, 2000 and December 31,
1999 there were 2,164,235 Investor Unit Rights outstanding.
In 1998 and 1999, the Company acquired partnership interests in
Independence Mall. The acquisition price consisted of cash and partnership units
in affiliated partnerships. Under certain circumstances, the holders of these
partnership units may exchange their units for cash or, at the discretion of the
Company, Investor Unit Rights. At March 31, 2000 and December 31, 1999, there
were 911,185 of these partnership units outstanding.
As of March 31, 2000, there were 73,346,541 shares of common stock, par
value $0.01 per share, outstanding.
9
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND IN THOUSANDS EXCEPT SHARE, UNIT AND PER SHARE AMOUNTS)
6. CAPITAL STOCK: (CONTINUED)
The following is a summary of the elements used in calculating basic and
diluted earnings per share ("EPS"):
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
2000 1999
--------------- ---------------
<S> <C> <C>
Net income for basic EPS.......................................................... $ 15,124 $ 9,001
Add: net income allocable to Investor Unit Rights................................. 65 --
Less: preferred stock dividends................................................... (10,510) (8,625)
--------------- ---------------
Net income for diluted EPS........................................................ $ 4,679 $ 376
=============== ===============
Weighted average common shares outstanding (denominator for basic EPS) 73,346,541 73,337,691
Diluted equivalent common shares:
1996 and 1997 Warrants......................................................... -- 54,814
1998 Subscription Agreement.................................................... 1,126,457 933,807
Investor Unit Rights........................................................... 2,164,235 --
--------------- ---------------
Weighted average common shares and common share
equivalents outstanding (denominator for diluted EPS).......................... 76,637,233 74,326,312
=============== ===============
EPS:
Basic.......................................................................... $ 0.06 $ 0.00
=============== ===============
Diluted........................................................................ $ 0.06 $ 0.00
=============== ===============
</TABLE>
The Company's convertible preferred shares were not included in the
earnings per share calculation as their effect is antidilutive.
7. SUPPLEMENTAL CASH FLOW INFORMATION:
For the three months ended March 31, 2000 and 1999, the Company paid
interest totaling $38,573 and $42,225, respectively, net of capitalized
interest.
During the three months ended March 31, 1999, the Company acquired the
remaining 32% of Wheaton Plaza that it did not previously own for
consideration valued at approximately $38,400 consisting of 1,129,412
Investor Unit Rights and a cash distribution of $19,200 and as a result
recorded a decrease in minority interest. Additionally, during the quarter
ended March 31, 1999, the Company acquired an additional 15% interest in
Independence Mall for consideration valued at approximately $4,400 consisting
of $2,200 in cash and 122,857 partnership units which can be converted into
an equivalent number of Investor Unit Rights.
10
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND IN THOUSANDS EXCEPT SHARE, UNIT AND PER SHARE AMOUNTS)
8. RELATED PARTIES:
The Manager entered into an agreement with the Company 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 $2,480 and $2,478, net of
capitalized leasing fees of $1,981 and $1,779 were expensed by the Company for
the three months ended March 31, 2000 and 1999, respectively. Included in
accounts payable and accrued expenses at March 31, 2000 and December 31, 1999
are management fees payable to the Manager totaling $1,518 and $1,461,
respectively.
In addition to the management fees, the Manager was reimbursed for
recoverable operating costs, including mall related payroll costs, totaling
$6,033 and $5,919 for the three months ended March 31, 2000 and 1999,
respectively.
The Company entered into a Master Development Framework Agreement with the
Developer under which the Company granted the Developer the exclusive right to
carry out expansion, redevelopment and related works on the Company's
wholly-owned shopping centers and to endeavor to have the Developer be appointed
by the relevant partner to carry out similar activities for jointly owned real
estate affiliates. During the three months ended March 31, 2000 and 1999, the
Company reimbursed the Developer $9,905 and $14,800, 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") in excess of the Advisory FFO Amount ($152,811 at March 31,
2000), but not to exceed 55 basis points of the Net Equity Value (as defined) of
the Company's assets. The Advisory FFO amount increases whenever the Company
issues additional equity. The advisory fee was $2,296 and $1,627 for the three
months ended March 31, 2000 and 1999, respectively.
Included in interest and other income for the three months ended March 31,
2000 and 1999 is interest income earned on the Garden State Plaza Loan totaling
$3,988, and $3,915, respectively.
9. COMMITMENTS AND CONTINGENCIES:
The Company is currently involved in several development projects and had
outstanding commitments totaling approximately $105,806 at March 31, 2000.
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, competition for retailers,
changes in tax laws, interest rate levels, the availability of financing, and
potential liability under environmental and other laws.
11
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND IN THOUSANDS EXCEPT SHARE, UNIT AND PER SHARE AMOUNTS)
9. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
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 condensed consolidated financial statements.
The Company currently is neither subject to any other material litigation
nor, to management's knowledge, is any material litigation currently threatened
against the Company other than routine litigation and administrative proceedings
arising in the ordinary course of business.
10. NEW ACCOUNTING PRONOUNCEMENT
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101") which addressed certain revenue recognition policies, including
the accounting for percentage rent by a landlord. SAB 101 requires percentage
rent to be recognized as revenue only when each tenant's sales exceeds their
sales threshold. The Company had previously accrued interim percentage rents
as income upon the tenant's sales meeting the threshold or when achievement
of the threshold was probable based upon reported and estimated sales. The
Company adopted SAB 101 effective January 1, 2000. The impact in the first
quarter of 2000 earnings from adopting SAB 101 was immaterial and is not
expected to have a material impact on the total percentage rent recognized in
each full year.
12
<PAGE>
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
Westfield America, Inc., a Missouri corporation (the "Company"), is a
publicly traded real estate investment trust ("REIT") specializing in
enclosed shopping centers. At March 31, 2000, the Company had interests in 38
major shopping centers branded as "Westfield Shoppingtowns". The Company's
portfolio of Westfield Shoppingtowns includes clusters of shopping centers in
major markets in the east coast, midwest and west coast regions in the United
States.
The Company has been engaged for over 40 years in the business of
owning, operating, leasing, developing, redeveloping and acquiring regional
and super-regional shopping centers. As of March 31, 2000, the Company's
portfolio of 38 shopping centers (the "Centers") consisted of 23
super-regional shopping centers with approximately 25.3 million square feet
of space, 12 regional shopping centers with approximately 8.3 million square
feet of space, three power centers with approximately 1.4 million square feet
of space and seven office buildings adjacent to its Centers with
approximately 600,000 square feet of space, representing approximately 71.0%,
23.3%, 4.0%, and 1.7%, respectively, of the Company's 35.6 million square
feet of retail and office space generally referred to as gross leasable area
("Total GLA").
The following discussion should be read in conjunction with the unaudited
Condensed Consolidated Financial Statements of the Company and the Notes thereto
for the three months ended March 31, 2000 and the Consolidated Financial
Statements of the Company for the year ended December 31, 1999 included in the
Company's 1999 Annual Report on Form 10-K filed on March 30, 2000.
GENERAL BACKGROUND
Fluctuations in the Company's results of operations from period to
period were primarily affected by the sale of Westfield Shoppingtown Los
Cerritos and conveyance of a joint venture interest in Westfield Shoppingtown
UTC, both in June of 1999, in addition to the acquisition of Westfield
Shoppingtown Palm Desert in August 1999. These transactions are referred to
as the "1999 Property Transactions".
The proceeds obtained from the sale of Los Cerritos and the conveyance
of a joint venture interest in UTC were used to paydown the Company's
unsecured corporate credit facility in 1999 and to provide liquidity for
future redevelopments and strategic acquisitions. Palm Desert was acquired
with proceeds obtained from the issuance of Series E Preferred Stock.
At March 31, 2000 and for the three months then ended, the Condensed
Consolidated Financial Statements and Notes thereto reflect the consolidated
financial results of 32 centers, including Palm Desert, which was acquired in
August 1999, the equity in income in six Properties held by unconsolidated
real estate affiliates including UTC which became a deconsolidated entity in
June 1999, 12 separate department store properties that are net leased to The
May Department Stores Company (the "May Company") under finance leases and a
$145 million participating loan made to two wholly-owned affiliates of WHL in
May of 1997 (the "Garden State Plaza Loan").
13
<PAGE>
At March 31, 1999 and for the three months then ended, the Condensed
Consolidated Financial Statements and Notes thereto reflect the consolidated
financial results of 33 centers including Los Cerritos which was sold in June
1999 and UTC which was deconsolidated in June 1999, the equity in income of five
Properties held by unconsolidated real estate affiliates, 12 separate department
store properties that are net leased to the May Company under finance leases and
the Garden State Plaza Loan.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2000 TO THE THREE MONTHS ENDED
MARCH 31, 1999
TOTAL REVENUES decreased $0.7 million to $124.7 million for the three
months ended March 31, 2000 as compared to $125.4 million for the same period
in 1999. The decrease was due to the sale of Los Cerritos and the conveyance
of a joint venture interest in UTC in June 1999, partially offset by the
acquisition of Westfield Shoppingtown Palm Desert in August 1999. Excluding
the 1999 Property Transactions, total revenues increased $6.1 million or 5.3%
due to increased occupancy at Westfield Shoppingtowns Fox Hills, Parkway and
Wheaton, higher minimum rents generated by recently completed redevelopments,
higher percentage rents throughout the portfolio due primarily to actual 1999
sales in excess of year end estimates and higher recovery revenues due to
higher operating expenses.
TOTAL EXPENSES decreased $1.4 million to $70.8 million for the three months
ended March 31, 2000 as compared to $72.2 million for the same period in 1999.
The decrease is due primarily to the 1999 Property Transactions previously
mentioned. Excluding the 1999 Property Transactions, total expenses increased
$2.7 million or 2.5% due to an increase in operating expenses primarily due to
property tax reassessments and an increase in the advisory fee.
INTEREST EXPENSE net of capitalized interest of $0.7 million, decreased
$4.3 million to $44.9 million for the three months ended March 31, 2000 as
compared to $49.2 million for the same period in 1999, due primarily to the
deconsolidation of UTC, the sale of Los Cerritos, and a reduction in debt as
a result of proceeds obtained from the sale of Los Cerritos and the
conveyance of a joint venture interest in UTC.
EQUITY IN INCOME OF UNCONSOLIDATED REAL ESTATE AFFILIATES increased $0.4
million to $2.2 million for the three months ended March 31, 2000 due primarily
to the deconsolidation of UTC in June 1999.
NET INCOME increased $6.1 million or 68% to $15.1 million for the three
months ended March 31, 2000 as compared to $9.0 million for the same period in
1999 for the reasons discussed above.
14
<PAGE>
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
accounting principles generally accepted in the United States ("GAAP")),
excluding gains (or losses) from debt restructuring and sales of property,
plus real estate related depreciation and amortization and after adjustments
for unconsolidated real estate affiliates. 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.
The following is a summary of the Company's FFO and a reconciliation of net
income to FFO for the periods presented (amounts in thousands, except
percentages):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------
2000 1999
-------------- ------------
<S> <C> <C>
Funds from Operations ........................................................ $ 45,313 $ 41,170
============== ============
Increase in Funds from Operations from prior period .......................... 10.1%
==============
Reconciliation:
Net income ................................................................. $ 15,124 $ 9,001
Income allocable to Investor Unit Rights.................................... 402 939
Depreciation and amortization:
Deferred financing leases ................................................ 596 557
Consolidated properties .................................................. 26,730 28,741
Unconsolidated real estate affiliates..................................... 2,741 2,202
Minority interest portion ................................................ (280) (270)
-------------- ------------
Funds from Operations ........................................................ $ 45,313 $ 41,170
============== ============
</TABLE>
15
<PAGE>
EBITDA EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION
The Company believes that there are several important factors that
contribute to the ability of the Company to increase rent and improve
profitability of its shopping centers, including aggregate 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 affiliates increased from $91.6 million
for the three months ended March 31, 1999 to $93.0 million for the same
period in 2000. The growth in EBITDA reflects increased rental rates,
increased retailer sales, improved occupancy levels and effective control of
operating costs.
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 (amounts in thousands, except percentages):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------
2000 1999
------------- -------------
<S> <C> <C>
EBITDA ....................................................................... $ 93,039 $ 91,560
============= =============
Increase in EBITDA from prior period ......................................... 1.6%
=============
Reconciliation:
Funds from Operations ...................................................... $ 45,313 $ 41,170
Interest expense:
Consolidated properties ................................................. 44,853 49,144
Unconsolidated real estate affiliates ................................... 3,315 1,700
Minority interest portion ............................................... (442) (454)
------------- -------------
EBITDA ....................................................................... $ 93,039 $ 91,560
============= =============
</TABLE>
PORTFOLIO DATA
SEASONALITY
The shopping center industry is seasonal in nature, particularly in the
fourth quarter during the holiday season when retailer occupancy and retail
sales are typically at their highest levels. In addition, shopping 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.
16
<PAGE>
The following table summarizes certain quarterly data for 1999 and the
first quarter of 2000 for the Company's Centers (amounts in thousands, except
percentages):
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
2000 QUARTERLY DATA:
Mall Shop sales................................ $ 700,778 N/A N/A N/A
Revenues....................................... $ 151,588 N/A N/A N/A
Percentage leased.............................. 92% N/A N/A N/A
1999 QUARTERLY DATA:
Mall Shop sales................................ $ 659,438 $ 729,237 $ 733,418 $ 1,118,513
Revenues....................................... $ 145,599 $ 145,197 $ 146,498 $ 159,872
Percentage leased ............................. 92% 92% 93% 94%
</TABLE>
REPORTED TENANT SALES VOLUME
Total sales for Mall Shops (retail stores with less than 20,000 square
feet of GLA) affect revenue and profitability levels of the Company because
they determine the amount of minimum rent the Company can charge, the
percentage rent it realizes and the recoverable expenses (common area
maintenance, real estate taxes, etc.) the retailers can afford to pay. Mall
Shop sales for the Company's Centers for the three months ended March 31,
2000 increased 7.1% on a per square foot basis over the same period in 1999.
The Company believes that these sales trends enhance the Company's ability to
obtain higher rents from retailers.
The table below sets forth Mall Shop sales and per square foot percentage
increases of those sales over the same period in 1999 for the Company's Centers,
in the east coast, the midwest and the west coast regions of the United States
(amounts in thousands, except percentages):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 2000
--------------------------------
MALL SHOP INCREASE PER
SALES SQ. FT.
--------------- ---------------
<S> <C> <C>
East coast ................................... $ 190,937 3.6%
Midwest ...................................... 83,704 3.0%
West coast ................................... 426,137 9.6%
--------------- --------------
Total Centers ................................ $ 700,778 7.1%
=============== ==============
</TABLE>
17
<PAGE>
LEASING
Mall Shop space was 92% leased at March 31, 2000. Leasing percentages are
calculated on the basis of signed leases and exclude temporary leasing because
such leases are on a short term basis (less than one year) and are subject to
termination by the Company upon providing the retailer thirty days notice. The
following table sets forth leased status for the Company's Centers in the east
coast, the midwest and the west coast regions of the United States.
<TABLE>
<CAPTION>
MARCH 31,
-------------------------
2000 1999
----------- -----------
<S> <C> <C>
East coast........................................ 95% 94%
Midwest........................................... 92% 91%
West coast........................................ 91% 93%
Total centers................................... 92% 92%
</TABLE>
MALL SHOP RENTAL RATES
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. In a period of
increasing sales, rents on new leases will tend to rise as retailers'
expectations of future growth become more optimistic. In periods of slower
growth or declining sales, rents on new leases will grow more slowly or will
decline for the opposite reason.
Average Mall Shop base rent was $30.61 per square foot at March 31,
2000. The following table contains certain information regarding base rent
per square foot of Mall Shop leases that have been executed or expired since
January 1, 2000.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
2000 1999
------------ -----------
<S> <C> <C>
Average base rent of Mall Shop leases, at the end of the period......... $ 30.61 $ 29.08
Leases expired during the period........................................ 28.22 25.52
Leases executed during the period....................................... 31.02 36.83
</TABLE>
As required by GAAP, contractual rent increases are recognized as rental
income using the straight-line method over the respective lease terms, which
may result in the recognition of income not currently billable under the
terms of the lease. The amounts of contractual rent recognized for GAAP
purposes in excess of rent billed for the three months ended March 31, 2000
and 1999 were $0.8 million and $1.2 million, respectively.
18
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, the Company had $281.0 million undrawn under the secured
line of credit which will be used to fund acquisition and redevelopment
activities as a revolving working capital facility. Through its hedging
activities, the Company has fixed borrowings under the secured line of credit at
average rates ranging from 7.26% to 7.59%.
At March 31, 2000, the Company's balance of cash and cash equivalents was
$11.0 million, not including its proportionate share of cash held by
unconsolidated real estate affiliates.
The Company's consolidated indebtedness at March 31, 2000 was $2,406.8
million, of which $2,256.2 million is fixed rate debt and $150.6 million is
variable rate debt after considering interest rate protection agreements
totaling $1.3 billion. The interest rate on the fixed rate debt ranges from
6.39% to 8.38%. The Company's pro-rata share of debt-to-total market
capitalization, based on the common stock share price at March 31, 2000, was
56.7%, excluding the Capital Notes from the numerator. The maturity dates of
consolidated indebtedness range from 2000 to 2022. Scheduled principal
amortization and balloon payments in connection with maturing mortgage
indebtedness are included in Note 4 of the Condensed Consolidated Financial
Statements included in this quarterly report on Form 10-Q.
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 that 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 $26.4 million
and $20.8 million, for the three months ended March 31, 2000 and 1999,
respectively. The following table shows the components of capital
expenditures and capitalized leasing costs:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
2000 1999
------------ -----------
($ IN MILLIONS)
<S> <C> <C>
Renovations and expansions.............................................. $ 18.5 $ 15.2
Tenant allowances....................................................... 4.7 3.0
Capitalized leasing costs............................................... 2.0 1.8
Other capital expenditures.............................................. 1.2 0.8
------------ -----------
Total................................................................... $ 26.4 $ 20.8
============ ===========
</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 totaling
approximately $105.8 million as of March 31, 2000, which will be funded through
existing mortgage debt, new mortgage debt and the secured line of credit.
19
<PAGE>
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) FFO, (ii) the issuance of secured and unsecured debt and (iii)
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 FFO 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 March 22, 2000 to shareholders of record on
March 31, 2000 of $37.6 million including $0.37 per common share for the quarter
ended March 31, 2000, which is equal to $1.48 per common share on an annualized
basis. The Company intends to pay regular quarterly distributions to holders of
its preferred and common stock.
20
<PAGE>
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This report includes, and future public filings and oral and written
statements by the Company and its management may include, statements (other
than the consolidated financial statements and other statements of historical
fact) that are subject to risks and uncertainties. Forward-looking statements
include the information concerning possible future results of operations,
earnings, expenses, cash flows, funds from operations and other capital
resources of the Company (including with respect to increased revenues and
rental rates, cost savings and operating efficiencies) and market trends set
forth under (a) "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "-Portfolio Data," "-Liquidity and Capital
Resources," and "-Distributions," (b) "Quantitative and Qualitative
Disclosure about Market Risk," (c) "Legal Proceedings" and (d) 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 beliefs concerning future developments and their potential
effects on the Company. There can be no assurance that future developments will
be in accordance with management's expectations or that the effect of future
developments on the Company will be those anticipated by management. Many of the
factors that will determine these results are beyond the Company's ability to
control or predict.
The following important factors, and those important factors described
elsewhere in this report (including without limitation those discussed in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Quantitative and Qualitative Disclosures about Market Risk" and
"Legal Proceedings"), or in other Securities and Exchange Commission filings,
could affect (and in some cases have affected) the Company's actual results and
could cause such results to differ materially from estimates or expectations
reflected in such forward-looking statements: (a) risks generally inherent in
real estate investment, such as: changes in the national economic climate, the
regional economic climate (including the impact of local employers or industry
concentrations on the economic climate) or local real estate conditions;
perceptions by retailers or shoppers of the safety, convenience and
attractiveness of a shopping center; trends in the retail industry; competition
for retailers; changes in market rental rates and vacancy rates; the ability to
collect rent from retailers; the need to periodically renovate, repair and relet
space and the costs thereof; the ability of an owner to provide adequate
management and maintenance and insurance; increased operating costs; changes in
governmental regulations, zoning or tax laws; environmental or other legal
liabilities; and changes in interests rate levels; (b) the ability of the
Company to successfully redevelop properties (including the ability to complete
the redevelopment, to complete construction within the estimated time frame and
budget or to realize anticipated occupancy and rental rates from completed
projects), or to achieve anticipated operating results from acquired properties;
(c) competition from other shopping centers and other forms of retailing,
including electronic commerce; (d) the impact of the financial condition of
anchors and major tenants on the Centers' operations, including the bankruptcy
or insolvency of anchors or retailers or the decision of any anchor or major
tenant to not renew its lease when it expires; (e) possible conflicts of
interest with unrelated third parties in jointly owned properties, as well as
the impact of the financial condition of unaffiliated partners; (f) the
Company's ability to make scheduled payments of principal or interest on, or to
refinance its obligations with respect to its indebtedness and to comply with
the covenants and restrictions contained in the instruments governing such
indebtedness, which will depend on its future operating performance and cash
flow, which are subject to prevailing economic conditions, prevailing interest
rate levels, and financial,
21
<PAGE>
competitive, business and other factors beyond its control, including changes
in consumer buying patterns, regulatory developments and increased operating
costs; (g) the Company's ability to continue to qualify as a REIT for federal
income tax purposes and the taxation of the Company as a regular corporation
if it were to lose that status; the 100% tax on net income from transactions
that constitute prohibited transactions pursuant to the rules relating to
REIT's under the Code; possible taxation of the Company with respect to
built-in gain on disposition of certain property if such property were
disposed of during a ten-year period; and the possibility of a dramatic
decrease in cash available for distributions if such taxes become payable;
and (h) possible conflicts of interest due to the controlling ownership
interest of affiliates.
While the Company periodically reassesses material trends and uncertainties
affecting the operations and financial condition in connection with the
preparation of its quarterly and annual reports, the Company does not intend to
review or revise any particular forward-looking statement referenced in this
report in light of future events, even if new information, future events or
other circumstances have made them incorrect or misleading.
The information referred to above should be considered by investors when
reviewing any forward-looking statements contained in this report, in any
documents incorporated herein by reference, in any of the Company's public
filings or press releases or in any oral statements made by the Company or any
of its officers or any other persons acting on its behalf. For those statements,
the Company intends to avail itself of the protection of the safe harbor from
liability with respect to forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995.
22
<PAGE>
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
In the normal course of business 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 contracts are accrued as
incurred or earned. Any gain or loss from terminating swap contracts is
recognized in the period the swap contract or related debt is terminated or
reversed. Unamortized gains or losses are recognized in income when the related
debt matures or is extinguished. The Company's policy is to maintain fixed rate
borrowing (including fixed rate mortgages and interest rate swaps) for
approximately 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 the Company'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. The Company does not enter into interest rate swap
contracts for speculative purposes.
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. 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 that has been fixed through the use of interest
rate swap contracts:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
---------------- --------------
($ IN THOUSANDS)
<S> <C> <C>
Principal amount of fixed rate debt.................................... $ 1,130,136 $ 1,135,067
Principal amount of other current fixed rate payable instruments....... 1,287,000 1,287,000
---------------- --------------
$ 2,417,136 $ 2,422,067
================ ==============
Fixed rate debt as a percentage of total notes payable................. 94.1% 94.9%
================ ==============
Average effective fixed rate (inclusive of margins) of total
borrowings and hedges, including delayed start swaps................... 7.42% 7.39%
================ ==============
Average remaining term (in years) of total fixed rate borrowings and
hedges, including delayed start swaps.................................. 7.8 8.0
================ ==============
Interest coverage ratio for the quarter ended.......................... 1.9 2.2
================ ==============
</TABLE>
The Company has entered into one foreign currency exchange agreement
related to the Capital Notes in order to eliminate its exposure to fluctuations
in exchange rates.
23
<PAGE>
As of March 31, 2000, there have been no material changes in the market
risks reported in the Company's 1999 Annual Report on Form 10-K other than those
disclosures in notes 4 and 5 of the Condensed Consolidated Financial Statements
for the quarter ended March 31, 2000 included in this quarterly report on Form
10Q.
PART II-OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
The Company currently is neither subject to any material litigation nor, to
management's knowledge, is any material litigation currently threatened against
the Company other than routine litigation and administrative proceedings arising
in the ordinary course of business. Based on consultation with counsel,
management believes that these items will not have a material adverse impact on
the Company's consolidated financial position or results of operations.
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5: OTHER INFORMATION
None
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
No. Description
--- -----------
<S> <C>
3.1 Restated Articles of Incorporation of the Company (Exhibit 3.1(1)).
3.2 Second Amended and Restated By-Laws of the Company (Exhibit 3.2(2)).
3.3 Amendment No. 1 to the Second Amended and Restated By-Laws for the Company (Exhibit 3.3(2)).
3.4 Amendment No. 2 to the Second Amended and Restated By-Laws of the Company (Exhibit 3.4(2)).
3.5 Amendment No. 3 to the Second Amended and Restated By-Laws of the Company (Exhibit 3.5(2)).
3.6 Amendment No. 4 to the Second Amended and Restated By-Laws of the Company (Exhibit 3.6)
11.1 Statement regarding Computation of Per Share Earnings for the three months ended March 31,
2000.
11.2 Statement regarding Computation of Per Share Earnings for the three months ended March 31,
1999.
12 Statement regarding Computation of Ratios.
27 Financial Data Schedule.
99 Agreement regarding Disclosure of Long-Term Debt Instruments.
- -----------------------------------
</TABLE>
(1) Incorporated by reference to the designated exhibit to the Company's
quarterly report on Form 10-Q filed on August 16, 1999.
(2) Incorporated by reference to designated exhibit to the Company's
quarterly report on Form 10-Q filed on May 17, 1999.
(b) Reports on Form 8-K:
None
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
WESTFIELD AMERICA, INC.
Date: May 15, 2000 By:
/s/ Peter S. Lowy
------------------------------------------
Peter S. Lowy
CO-PRESIDENT
/s/ Richard E. Green
------------------------------------------
Richard E. Green
CO-PRESIDENT
/s/ Mark A. Stefanek
------------------------------------------
Mark A. Stefanek
CHIEF FINANCIAL OFFICER AND TREASURER
25
<PAGE>
EXHIBIT 3.6
AMENDMENT NO. 4 TO
SECOND AMENDED AND RESTATED
BY-LAWS
OF WESTFIELD AMERICA, INC.
This Amendment No. 4 to the Second Amended and Restated By-Laws of
Westfield America, Inc. (the "CORPORATION"), amends the Second and Amended
Restate By-Laws (the "BY-LAWS") of the Corporation, effective as of January
26, 2000, as follows:
The second sentence of Section 1.10 of the By-Laws is amended and
restated in its entirety to read as follows:
Such list shall be kept on file at the registered office of the
Corporation and shall be subject to the inspection of any shareholder at
any time during usual business hours, for a period of at least ten days
prior to the meeting.
Except to the extent specifically set forth herein, the By-Laws shall
remain in full force and effect, unmodified in any respect.
<PAGE>
EXHIBIT 11.1
WESTFIELD AMERICA, INC.
COMPUTATION OF PER SHARE EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
DAYS SHARES
OUTSTANDING OUTSTANDING
-------------- ---------------
<S> <C> <C> <C> <C>
Average share price for three months ended
March 31, 2000 (1) $13.19
BASIC
COMMON SHARES OUTSTANDING:
- --------------------------
As of January 1, 2000 73,347 91 73,347
Net income $15,124
Less dividends on preferred shares:
Series A $2,172
Series B 666
Series C 1,594
Series C-1 531
Series C-2 531
Series D 2,656
Series D-1 531
Series E 1,829 (10,510)
--------------- ---------------
Net income allocable to common shares $4,614
===============
Basic earnings per share amount $0.06
===============
DILUTED
Common shares outstanding: 73,347
1996 Warrants:
As of January 1, 2000 6,246
Series A Preferred Shares (5,871)
---------------
Excess 1996 Warrants (a) 375
---------------
Per Share Price
Average Market Price (b) $13.19
Exercise Price (c) $16.01
Common equivalent shares ((b-c)/a)*b 91 0
1997 Warrants:
As of January 1, 2000 2,090
Series B Preferred Shares (1,800)
---------------
Excess 1997 Warrants (d) 290
---------------
Per Share Price
Average Market Price (b) $13.19
Exercise Price (e) $15.00
Common equivalent shares ((b-e)/d)*b 91 0
</TABLE>
<PAGE>
EXHIBIT 11.1 (CONTINUED)
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
DAYS SHARES
OUTSTANDING OUTSTANDING
-------------- ---------------
<S> <C> <C> <C> <C>
1998 SUBSCRIPTION AGREEMENT:
Subscription agreement amount A$465,000
Exchange Rate $ 0.6071 $282,301(g)
Per Share Price
Average Market Price (b) $ 13.19
Common equivalent shares (g*.05)/(b*.95) 1,126 91 1,126
INVESTOR UNIT RIGHTS:
Units Issued 12/9/98 978 91 978
Units Issued 1/1/99 1,186 91 1,186
---------------
Common equivalent shares 2,164
---------------
Weighted average common and common equivalent shares 76,637
===============
Net income $15,124
Add net income allocable to investor unit rights 65
Less net income allocable to preferred shares (10,510)
---------------
Net income allocable to common shares $4,679
===============
Diluted earnings per share amount $0.06
===============
</TABLE>
Note - The Company's preferred shares were not included in the earnings per
share calculation as their effect is anitdilutive.
(1) The share price used for the EPS calculation is based on the average daily
closing market price of the Company's common stock as reported by the New
York Stock Exchange.
<PAGE>
EXHIBIT 11.2
WESTFIELD AMERICA, INC.
COMPUTATION OF PER SHARE EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
DAYS SHARES
OUTSTANDING OUTSTANDING
-------------- ---------------
<S> <C> <C> <C> <C>
Average share price for three months ended
March 31, 1999 (1) $16.97
BASIC
COMMON SHARES OUTSTANDING:
As of January 1, 1999 73,338 90 73,338
Net income $9,001
Less dividends on preferred shares:
Series A $2,128
Series B 653
Series C 1,594
Series C-1 531
Series C-2 531
Series D 2,657
Series D-1 531
---------------
(8,625)
---------------
Net income allocable to common shares $376
===============
Basic earnings per share amount $0.00
===============
DILUTED
Common shares outstanding: 73,338
1996 Warrants:
As of January 1, 1999 6,246
Series A Preferred Shares (5,871)
---------------
Excess 1996 Warrants (a) 375
---------------
Per Share Price
Average Market Price (b) $16.97
Exercise Price (c) $16.01
Common equivalent shares ((b-c)/a)*b 90 21
1997 Warrants:
As of January 1, 1999 2,090
Series B Preferred Shares (1,800)
---------------
Excess 1997 Warrants (d) 290
---------------
Per Share Price
Average Market Price (b) $16.97
Exercise Price (e) $15.00
Common equivalent shares ((b-e)/d)*b 90 33
</TABLE>
<PAGE>
EXHIBIT 11.2 (CONTINUED)
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
DAYS SHARES
OUTSTANDING OUTSTANDING
-------------- ---------------
<S> <C> <C> <C> <C>
1998 SUBSCRIPTION AGREEMENT:
Subscription agreement amount A$465,000
Exchange Rate $ 0.6475 $301,088(g)
Per Share Price
Average Market Price (b) $ 16.97
Common equivalent shares (g*.05)/(b*.95) 934 90 934
---------------
Weighted average common and common equivalent shares 74,326
===============
Net income $9,001
Less net income allocable to preferred shares (8,625)
---------------
Net income allocable to common shares $376
===============
Diluted earnings per share amount $0.00
===============
</TABLE>
Note - The Company's preferred shares were not included in the earnings per
share calculation as their effect is antidilutive.
(1) The share price used for the EPS calculation is based on the average daily
closing market price of the Company's common stock as reported by the New
York Stock Exchange.
<PAGE>
EXHIBIT 12
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
(AMOUNTS IN THOUSANDS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------
2000 1999
------------- --------------
<S> <C> <C>
Income before income taxes $ 15,124 $ 9,001
Add: Minority interest in consolidated real estate affiliates 822 1,322
Equity in income of unconsolidated real estate affiliates (2,189) (1,794)
Distributions from unconsolidated real estate affiliates 3,616 2,143
Interest expense 44,853 49,144
------------- --------------
Total earnings available to cover fixed charges $ 62,226 $ 59,816
============= ==============
Total fixed charges-interest expensed and capitalized $ 45,562 $ 49,387
Total preferred stock dividends 10,510 8,625
------------- --------------
Total combined fixed charges and preferred stock dividends $ 56,072 $ 58,012
============= ==============
Ratio of earnings to fixed charges 1.37x 1.21x
============= ==============
Ratio of earnings to fixed charges and preferred stock dividends 1.11x 1.03x
============= ==============
Supplemental Disclosure of Ratio of Funds from Operations
to Fixed Charges:
Funds From Operations ("FFO") $ 45,313 $ 41,170
Interest expense 44,853 49,144
------------- --------------
Adjusted FFO available to cover fixed charges $ 90,166 $ 90,314
============= ==============
Total fixed charges - interest expensed and capitalized $ 45,562 $ 49,387
Total preferred stock dividends 10,510 8,625
------------- --------------
Total combined fixed charges and preferred stock dividends $ 56,072 $ 58,012
============= ==============
Ratio of FFO to fixed charges 1.98x 1.83x
============= ==============
Ratio of FFO to fixed charges and preferred stock dividends 1.61x 1.56x
============= ==============
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q,
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 54,244
<SECURITIES> 0
<RECEIVABLES> 54,271
<ALLOWANCES> (8,802)
<INVENTORY> 0
<CURRENT-ASSETS> 41,760
<PP&E> 3,936,328
<DEPRECIATION> (471,213)
<TOTAL-ASSETS> 3,606,588
<CURRENT-LIABILITIES> 201,513
<BONDS> 2,406,784
0
482,000
<COMMON> 733
<OTHER-SE> 515,558
<TOTAL-LIABILITY-AND-EQUITY> 3,606,588
<SALES> 0
<TOTAL-REVENUES> 124,661
<CGS> 0
<TOTAL-COSTS> (70,760)
<OTHER-EXPENSES> 6,076
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (44,853)
<INCOME-PRETAX> 15,124
<INCOME-TAX> 0
<INCOME-CONTINUING> 15,124
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,124
<EPS-BASIC> 0.06
<EPS-DILUTED> 0.06
</TABLE>
<PAGE>
EXHIBIT 99
AGREEMENT REGARDING DISCLOSURE OF LONG-TERM DEBT INSTRUMENTS
In reliance upon Item 601(b)(4)(iii)(A), of Regulation S-K, Westfield
America, Inc., a Missouri corporation (the "Company"), has not filed as an
exhibit to its Quarterly Report on Form 10-Q for the quarter ended March 31,
2000, any instrument with respect to long-term debt not being registered
where the total amount of securities authorized thereunder does not exceed 10
percent of the total assets of the Company and its subsidiaries on a
consolidated basis. Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the
Company hereby agrees to furnish a copy of any such agreement to the
Securities and Exchange Commission upon request.
WESTFIELD AMERICA, INC.
By: /s/ Peter S. Lowy
-------------------------------------
Peter S. Lowy
CO-PRESIDENT