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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
<TABLE>
<S> <C>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
<TABLE>
<S> <C>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 1-12923
------------------------
WESTFIELD AMERICA, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MISSOURI 43-0758627
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
11601 WILSHIRE BOULEVARD 90025
12TH FLOOR (Zip Code)
LOS ANGELES, CALIFORNIA
(Address of principal executive offices)
</TABLE>
Registrant's telephone number, including area code: (310) 478-4456
------------------------
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days.
Yes /X/ No / /
As of August 14, 2000, 73,353,441 shares of Common Stock, par value $0.01
per share, were outstanding.
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<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
PART I--FINANCIAL INFORMATION
Item 1: Condensed Consolidated Financial Statements
Consolidated Balance Sheets as of June 30, 2000 (unaudited)
and December 31, 1999...................................... 1
Consolidated Statements of Income (unaudited) for the three
months ended June 30, 2000 and 1999 and for the six months
ended June 30, 2000 and 1999............................... 2
Consolidated Statements of Cash Flows (unaudited) for the
six months ended June 30, 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.................................. 15
Item 3: Quantitative and Qualitative Disclosures about Market
Risk....................................................... 23
PART II--OTHER INFORMATION
Item 1: Legal Proceedings........................................... 25
Item 2: Changes in Securities and Use of Proceeds................... 25
Item 3: Defaults Upon Senior Securities............................. 26
Item 4: Submission of Matters to a Vote of Security Holders......... 26
Item 5: Other Information........................................... 27
Item 6: Exhibits and Reports on Form 8-K............................ 27
SIGNATURES................................................................. 29
</TABLE>
i
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Land........................................................ $ 465,164 $ 454,267
Buildings, improvements and equipment....................... 3,067,270 2,990,537
Less accumulated depreciation............................... (501,097) (444,831)
---------- ----------
Net property and equipment................................ 3,031,337 2,999,973
Construction in progress.................................... 116,384 67,115
Investments in unconsolidated real estate affiliates........ 363,577 175,123
Participating loan to affiliates............................ -- 145,000
Direct financing leases receivable.......................... 79,725 80,927
---------- ----------
Net investment in real estate............................. 3,591,023 3,468,138
Cash and cash equivalents................................... 22,248 17,094
Restricted cash............................................. 23,513 29,358
Accounts receivable, net of allowance of $7,720 and $7,366
in 2000 and 1999, respectively............................ 46,954 47,632
Deferred expenses and other assets, net..................... 42,703 41,439
---------- ----------
Total assets.............................................. $3,726,441 $3,603,661
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable............................................... $2,493,098 $2,392,137
Accounts payable and accrued expenses....................... 110,837 119,680
Distribution payable........................................ 39,117 37,824
---------- ----------
Total liabilities......................................... 2,643,052 2,549,641
---------- ----------
Minority interests.......................................... 105,441 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.................................. 495,215 538,107
---------- ----------
Total shareholders' equity................................ 616,948 659,840
---------- ----------
Total liabilities and shareholders' equity................ $3,726,441 $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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Minimum rents..................................... $ 86,122 $ 85,824 $170,812 $170,477
Tenant recoveries................................. 40,036 38,034 78,155 75,629
Percentage rents.................................. 4,710 3,364 8,639 6,465
-------- -------- -------- --------
Total revenues.................................. 130,868 127,222 257,606 252,571
-------- -------- -------- --------
EXPENSES:
Operating......................................... 39,270 37,345 78,876 76,151
Management fees................................... 2,102 2,750 4,624 5,228
Advisory fee...................................... 3,112 2,015 5,408 3,642
General and administrative........................ 870 692 1,148 1,182
Depreciation and amortization..................... 27,884 29,078 54,999 57,819
-------- -------- -------- --------
Total expenses.................................. 73,238 71,880 145,055 144,022
-------- -------- -------- --------
OPERATING INCOME.................................... 57,630 55,342 112,551 108,549
INTEREST EXPENSE, net............................... (46,284) (50,041) (91,716) (99,185)
OTHER INCOME:
Equity in income of unconsolidated real estate
affiliates...................................... 1,805 1,591 3,591 3,385
Gain on sale of investments....................... -- 1,971 -- 1,971
Interest and other income......................... 3,467 4,307 8,189 8,773
-------- -------- -------- --------
INCOME BEFORE MINORITY INTEREST..................... 16,618 13,170 32,615 23,493
Minority interests in earnings of consolidated
real estate affiliates.......................... (1,202) (1,079) (2,076) (2,401)
-------- -------- -------- --------
NET INCOME.......................................... $ 15,416 $ 12,091 $ 30,539 $ 21,092
======== ======== ======== ========
Net income allocable to preferred shares.......... $ 10,510 $ 8,625 $ 21,020 $ 17,250
Net income allocable to common shares............. 4,906 3,466 9,519 3,842
-------- -------- -------- --------
$ 15,416 $ 12,091 $ 30,539 $ 21,092
======== ======== ======== ========
EARNINGS PER COMMON SHARE:
Basic............................................. $ 0.07 $ 0.05 $ 0.13 $ 0.05
======== ======== ======== ========
Diluted........................................... $ 0.07 $ 0.05 $ 0.13 $ 0.05
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
Basic............................................. 73,350 73,342 73,349 73,340
======== ======== ======== ========
Diluted........................................... 76,574 74,382 76,613 74,370
======== ======== ======== ========
</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>
SIX MONTHS ENDED
JUNE 30,
---------------------
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 30,539 $ 21,092
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 54,999 57,819
Amortization of deferred loan fees...................... 2,587 3,289
Equity in income of unconsolidated real estate
affiliates............................................ (3,591) (3,385)
Minority interests in earnings of consolidated real
estate affiliates..................................... 2,076 2,401
Gain on sale of investments............................. -- (1,971)
Issuance of common stock to independent directors....... 100 120
Changes in assets and liabilities:
Accounts receivable, net................................ 1,308 1,230
Deferred expenses and other assets...................... (4,765) (3,401)
Accounts payable and accrued expenses................... (7,547) 406
--------- ---------
Net cash flows provided by operating activities........... 75,706 77,600
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures and acquisitions..................... (74,507) (184,168)
Proceeds from sale of investments......................... -- 314,527
Investment in unconsolidated joint venture................ (2,842) --
Cash distributions received from unconsolidated real
estate affiliates....................................... 5,609 3,033
Cash and cash equivalents of consolidated partnership..... 1,270 --
Direct financing leases receivable repayments............. 1,203 1,124
Decrease in restricted cash............................... 5,845 14,006
--------- ---------
Net cash flows (used in) provided by investing
activities.............................................. (63,422) 148,522
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of warrants and options, net....... 1,763 3,494
Cash distributions paid to preferred shareholders......... (20,968) (15,710)
Cash distributions paid to common shareholders............ (54,326) (52,556)
Cash distributions paid to minority interests............. (2,236) (2,869)
Proceeds from notes payable............................... 260,509 466,289
Principal payments on notes payable....................... (191,872) (637,055)
--------- ---------
Net cash flows used in financing activities............... (7,130) (238,407)
--------- ---------
Net increase (decrease) in cash and cash equivalents...... 5,154 (12,285)
CASH AND CASH EQUIVALENTS, beginning of period.............. 17,094 25,272
--------- ---------
CASH AND CASH EQUIVALENTS, end of period.................... $ 22,248 $ 12,987
========= =========
</TABLE>
SUPPLEMENTAL CASH FLOW INFORMATION PROVIDED IN NOTE 9.
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, PER SHARE AND FLOOR AREA
AMOUNTS)
2. BASIS OF PRESENTATION: (CONTINUED)
Certain amounts in the 1999 Condensed Consolidated Financial Statements were
reclassified to conform with the 2000 presentation.
3. ACQUISITIONS:
In 1996, the Company obtained an option to acquire a 50% interest in
Westfield Shoppingtown Garden State Plaza ("GSP"), a super-regional mall with
1,978,000 square feet of gross leasable area, held by affiliates of WHL ("WHL
Group"). Additionally, at the time of the Company's initial public offering in
May 1997, the Company made a $145,000 secured participating loan to the WHL
Group. In June 2000, the Operating Partnership acquired the 50% interest in GSP
for $52,483 after taking into account the mortgage debt on the property, capital
obligations and the assumption of the $145,000 secured participating loan. The
consideration paid consisted of issuing 52,483 Series F Preferred Partnership
Units in the Operating Partnership ("Series F Preferred Partnership Units") to
the WHL Group.
In June 1999, the Company acquired the 50% interest in Valley Fair, a
super-regional shopping center located in San Jose, California, it did not
previously own from The Rouse Company, for approximately $107,000 plus the
assumption of debt. Funds for the purchase of Valley Fair were obtained from the
proceeds from the sale of Los Cerritos discussed below and borrowings under the
Company's unsecured revolving credit facility.
4. DISPOSITIONS:
In June 1999, the Company sold Los Cerritos, a super-regional shopping
center located in Cerritos, California to The Macerich Company for approximately
$93,000, net of related debt.
On June 23, 1999, the Company completed a joint venture transaction (the
"Joint Venture") with J.P. Morgan Investment Management, Inc., acting for a
group of pension trusts ("J.P. Morgan"), which effectively transferred a 50%
interest in University Towne Center ("UTC") and Valley Fair to J.P. Morgan for
approximately $246,000 including the assumption of debt totaling approximately
$120,000. Concurrently, the Company sold an option (the "Liquidity Option") to
J.P. Morgan for $4,000. The Liquidity Option gives J.P. Morgan the right, under
certain circumstances, to exchange its interest in the Joint Venture, or its
interest in either Center, for shares of the Company's common stock. Upon
exercise of the Liquidity Option, J.P. Morgan will receive shares of the
Company's common stock equal to J.P. Morgan's share of funds from operations
("FFO" as defined) in the Joint Venture, or a Center (as applicable), for the
preceding four calendar quarters divided by the Company's FFO per share for the
same period. The Company accounted for the sale of its interests in Valley Fair
and UTC as a financing transaction.
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)
6. NOTES PAYABLE: (CONTINUED)
Interest costs capitalized for the three months ended June 30, 2000 and 1999
and six months ended June 30, 2000 and 1999, totaled $830, $601, $1,539 and
$844, 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 interest rate
swaps and foreign currency hedge agreements which effectively fixed the interest
and principal payments due to the 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 $16,972 at
June 30, 2000 as compared to an unrealized gain of $5,403 at December 31, 1999.
Certain mortgage debt requires the Company to pay contingent interest equal
to 30% of the excess of each year's rental receipts (as defined) over a
stipulated minimum. During the three months ended June 30, 2000 and 1999, and
six months ended June 30, 2000 and 1999, contingent interest totaled $278, $362,
$598, and $576, respectively.
The annual maturities of the notes payable as of June 30, 2000, are as
follows:
<TABLE>
<S> <C>
2000............................................ $ 7,124
2001............................................ 968,694
2002............................................ 561,498
2003............................................ 152,125
2004............................................ 139,703
Thereafter...................................... 663,954
----------
$2,493,098
==========
</TABLE>
7. 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.
8
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND IN THOUSANDS EXCEPT SHARE, UNIT AND PER SHARE AMOUNTS)
7. INTEREST RATE SWAP CONTRACTS: (CONTINUED)
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>
NOTIONAL RANGE OF RANGE OF
AMOUNT FIXED RATES MATURITY DATES
---------- -------------- -------------------
<S> <C> <C> <C>
Current swaps where the Company is a receiver
of LIBOR................................... $1,417,000 5.84% to 7.09% 6/30/01 to 12/11/08
Deferred swaps where the Company is a
receiver of LIBOR.......................... $ 480,000 5.99% to 6.26% 2/11/06 to 4/01/08
</TABLE>
The net unrealized gain on interest rate swap contracts was approximately
$53,797 at June 30, 2000 as compared to an unrealized gain of $48,744 at
December 31, 1999.
8. CAPITAL STOCK:
In June 2000, the Company issued a warrant ("2000 Warrant") to Westfield
America Trust ("WAT"), an Australian public company and an affiliate of the
Company, to purchase the Company's common stock. The 2000 Warrant, which expires
in June 2025, entitles WAT to purchase up to 2,840,000 shares of the Company's
common stock at an exercise price of $19.42 per share. WAT can, with the
Company's consent at such time, surrender any Series F Preferred Stock owned by
WAT as consideration for the exercise of the 2000 Warrants.
As consideration for the 50% partnership interest in GSP, the Operating
Partnership issued 52,483 Series F Preferred Partnership Units. Under certain
circumstances, the holders of Series F Preferred Partnership Units may exchange
their units for cash, or, at the discretion of the Company, an equivalent number
of shares of Series F Preferred Stock. Each Series F Preferred Partnership Unit
has a liquidation preference of $1,000, plus all accrued and unpaid
distributions, and the holder of a Series F Preferred Partnership Unit is
entitled to receive from the Operating Partnership annual distributions equal to
the greater of $85.00 per unit or 51.4933 multiplied by the dividend per share
declared per common share. The Operating Partnership has the option to redeem
the Series F Preferred Partnership Units any time after June 2020 at a
redemption price of $1,000 per unit, which is equal to the liquidation
preference.
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 June 20, 2000 to
shareholders of record on June 30, 2000 of $37,650, including $0.37 per common
share, for the quarter ended June 30, 2000, and was paid on July 31, 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 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$279,233 at June 30, 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.
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)
8. CAPITAL STOCK: (CONTINUED)
Each director who is not an officer of the Company or an employee of WHL or
its affiliates is entitled to annual compensation equal to $20 in cash and $20
in common stock. The number of shares issued is based on the share price of the
Company's common stock on the anniversary of the director's appointment. In
May 2000, the Company issued a total of 6,900 shares of common stock to five
directors.
Under certain circumstances, investors in the Operating Partnership may
exchange their investor unit rights ("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 June 30, 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 (1) an equivalent number of
Investor Unit Rights, (2) cash, or, (3) at the discretion of the Company, an
equivalent number of shares of the Company's common stock. At June 30, 2000 and
December 31, 1999, there were 911,185 of these partnership units outstanding.
As of June 30, 2000, there were 73,353,441 shares of common stock, par value
$0.01 per share, outstanding.
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. 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 FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- -------------------------
2000 1999 2000 1999
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net income................................ $ 15,416 $ 12,091 $ 30,539 $ 21,092
Less: preferred stock dividends........... (10,510) (8,625) (21,020) (17,250)
----------- ----------- ----------- -----------
Net income for basic EPS.................. 4,906 3,466 9,519 3,842
Add: net income allocable to Investor Unit
Rights.................................. 101 -- 166 --
----------- ----------- ----------- -----------
Net income for diluted EPS................ $ 5,007 $ 3,466 $ 9,685 $ 3,842
=========== =========== =========== ===========
Weighted average common shares outstanding
(denominator for basic EPS)............. 73,350,029 73,341,619 73,348,285 73,339,666
Diluted equivalent common shares:
1996, 1997 and 2000 Warrants............ -- 14,487 -- 18,097
1998 Subscription Agreement............. 1,059,585 1,025,756 1,100,033 1,012,293
Investor Unit Rights.................... 2,164,235 -- 2,164,235 --
----------- ----------- ----------- -----------
Weighted average common shares and common
share equivalents outstanding
(denominator for diluted EPS)........... 76,573,849 74,381,862 76,612,553 74,370,056
=========== =========== =========== ===========
EPS:
Basic................................... $ 0.07 $ 0.05 $ 0.13 $ 0.05
=========== =========== =========== ===========
Diluted................................. $ 0.07 $ 0.05 $ 0.13 $ 0.05
=========== =========== =========== ===========
</TABLE>
The Company's convertible preferred shares were not included in the earnings
per share calculation as their effect is antidilutive.
9. SUPPLEMENTAL CASH FLOW INFORMATION:
For the six months ended June 30, 2000 and 1999, the Company paid interest
totaling $92,571 and $104,112, respectively, net of capitalized interest.
NON CASH INVESTING AND FINANCING INFORMATION:
The Company's purchase of a 50% managing interest in GSP in June 2000
included the assumption of the GSP participating loan of $145,000 and the
issuance of the Series F Preferred Partnership Units valued at $52,483 as
consideration, which resulted in a non-cash addition to investments in
unconsolidated real estate affiliates of $197,483.
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. SUPPLEMENTAL CASH FLOW INFORMATION: (CONTINUED)
Independence Mall was accounted for under the equity method during 1999 and
has been consolidated beginning in 2000. The Company's 85% interest in the
condensed assets and liabilities of Independence at January 1, 2000 was as
follows:
<TABLE>
<S> <C>
Net investment in real estate..................... $ 61,326
Cash and cash equivalents......................... 1,270
Accounts receivable............................... 630
Deferred expenses and other assets, net........... 231
Notes payable..................................... (32,322)
Accounts payable and accrued liabilities.......... (855)
Minority/other partners' interest................. (20,497)
--------
The Company's investment in Independence Mall..... $ 9,783
========
</TABLE>
During the six months ended June 30, 1999, the Company recorded a decrease
in minority interest totaling $5,213 as a result of the acquisition of a 16%
interest in Wheaton Plaza for Investor Unit Rights in January 1999.
Prior to formation of the Joint Venture with J.P. Morgan in June 1999, UTC
was included in the Company's consolidated accounts. After the Company
effectively transferred a 50% interest to J.P. Morgan in conjunction with the
Joint Venture transaction, the Company began accounting for UTC under the equity
method. The Company's 50% interest in the fixed assets and liabilities
transferred to the Joint Venture was as follows:
<TABLE>
<S> <C>
Land.............................................. $ 9,540
Building and improvements......................... 177,925
Less accumulated depreciation..................... (4,180)
--------
Net investment in real estate................... 183,285
Note payable...................................... (80,269)
--------
Net investment in UTC............................. 103,016
Cash proceeds from J.P. Morgan.................... (50,865)
--------
Non-cash addition to investments in unconsolidated
real estate affiliates.......................... $ 52,151
========
</TABLE>
10. 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 $2,102 and $2,750, net of
capitalized leasing fees of $2,685 and $1,851 were expensed by the Company for
the three months ended June 30, 2000 and 1999, respectively. Property management
fees totaling $4,624 and $5,228, net of capitalized leasing fees of $4,694 and
$3,556 were
12
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND IN THOUSANDS EXCEPT SHARE, UNIT AND PER SHARE AMOUNTS)
10. RELATED PARTIES: (CONTINUED)
expensed by the Company for the six months ended June 30, 2000 and 1999,
respectively. Included in accounts payable and accrued expenses at June 30, 2000
and December 31, 1999 are management fees payable to the Manager totaling $1,566
and $1,461, respectively.
In addition to the management fees, the Manager was reimbursed for
recoverable operating costs, including mall related payroll costs, totaling
$5,749 and $4,788 for the three months ended June 30, 2000 and 1999,
respectively, and $11,782 and $10,707 for the six months ended June 30, 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 June 30, 2000 and 1999, the
Company reimbursed the Developer $20,355 and $20,387, respectively, and $31,653
and $35,187 for the six months ended June 30, 2000 and 1999, 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 ($157,689 at June 30,
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 $3,112 and $2,015 for the three
months ended June 30, 2000 and 1999, respectively and $5,408 and $3,642 for the
six months ended June 30, 2000 and 1999, respectively.
Included in interest and other income for the three and six months ended
June 30, 2000 and 1999 is interest income earned on the Garden State Plaza Loan
totaling $2,658, $3,747, $6,646, and $7,663, respectively.
11. COMMITMENTS AND CONTINGENCIES:
The Company is currently involved in several development projects and had
outstanding commitments totaling approximately $404,900 at June 30, 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.
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 not subject to any litigation that management
believes would have a material adverse effect on the Company's consolidated
financial position or results of operations. 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.
13
<PAGE>
WESTFIELD AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND IN THOUSANDS EXCEPT SHARE, UNIT AND PER SHARE AMOUNTS)
12. 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 its sales
threshold. In June 2000, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101B, "Second Amendment: Revenue Recognition in
Financial Statements" which effectively delays the implementation date of SAB
101 until no later than the fourth quarter of 2000. 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 will adopt SAB 101 effective January 1, 2000,
no later than the fourth quarter of 2000. The effect on the quarters will be
determined and disclosed in connection with the Company's annual financial
statements.
14
<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 June 30, 2000, the Company had interests in 39 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 of 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 June 30, 2000, the Company's portfolio of
39 shopping centers (the "Centers") consisted of 24 super-regional shopping
centers with approximately 27.4 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 72.7%, 22.0%, 3.7%, and 1.6%, respectively,
of the Company's 37.7 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 six months ended June 30, 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
At June 30, 2000 and for the six months then ended, the Condensed
Consolidated Financial Statements and Notes thereto reflect the consolidated
financial results of 33 Centers, including Westfield Shoppingtown Palm Desert,
which was acquired in August 1999, the equity in income in six properties held
by unconsolidated real estate affiliates including Westfield Shoppingtown Garden
State Plaza, which was acquired in June 2000, and Westfield Shoppingtown UTC,
which became a deconsolidated entity in June 1999, 12 separate departments store
properties that are net leased to The May Department Stores Company (the "May
Company") under finance leases, and a $145 million secured participating loan
made to two wholly-owned affiliates of WHL in May of 1997 (the "Garden State
Plaza Loan") which was assumed in June 2000 in connection with the Garden State
Plaza acquisition.
At June 30, 1999 and for the six months then ended, the Condensed
Consolidated Financial Statements and Notes thereto reflect the consolidated
financial results of 31 Centers, the equity in income of six properties held by
unconsolidated real estate affiliates, including Westfield Shoppingtown UTC
which became a deconsolidated entity in June 1999, Los Cerritos until this
Center was sold in June 1999 and an additional 32% interest and 15% interest in
Westfield Shoppingtowns Wheaton Plaza and Independence Mall, respectively, which
were acquired effectively in January 1999, 12 separate department store
properties that are net leased to The May Company under financing leases, and
the Garden State Plaza Loan.
Fluctuations in the Company's results of operations from period to period
reflect the acquisition of a 50% interest in Westfield Shoppingtown Garden State
Plaza in June 2000, the acquisition of Westfield Shoppingtown Palm Desert in
August 1999, and the sale of Westfield Shoppingtown Los Cerritos and conveyance
of a joint venture interest in Westfield Shoppingtown UTC, both in June of 1999.
These transactions are referred to as the "Property Transactions".
15
<PAGE>
The acquisition of a 50% interest in Garden State Plaza was facilitated
through the issuance of Series F Preferred Partnership Units in Westfield
America Limited Partnership (the "Operating Partnership") and the assumption of
the $145 million Garden State Plaza Loan. The proceeds obtained from the sale of
Los Cerritos and the conveyance of a joint venture interest in UTC were used to
pay down 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
Cumulative Redeemable Preferred Stock ("Series E Preferred Shares").
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2000 TO THE THREE MONTHS ENDED
JUNE 30, 1999
TOTAL REVENUES increased $3.7 million or 2.9% to $130.9 million for the three
months ended June 30, 2000 compared to $127.2 million for the same period in
1999. Excluding the Property Transactions previously noted, total revenues
increased $9.4 million or 8.1% due to increased occupancy at Westfield
Shoppingtowns Downtown Plaza, Fox Hills, Parkway Plaza and Wheaton, higher
minimum rents generated by recently completed redevelopments at Westfield
Shoppingtowns Meriden, Mid Rivers and Crestwood, higher specialty leasing
throughout the portfolio, higher percentage rents due to higher sales during the
quarter and higher recovery revenues due to higher operating expenses.
TOTAL EXPENSES increased $1.3 million to $73.2 million for the three months
ended June 30, 2000 as compared to $71.9 million for the same period in 1999.
Excluding the Property Transactions previously noted, total expenses increased
$4.6 million or 6.9% primarily due to property tax re-assessments and an
increase in the advisory fee.
INTEREST EXPENSE, net of capitalized interest of $0.8 million, decreased
$3.7 million to $46.3 million for the three months ended June 30, 2000 as
compared to $50.0 million for the same period in 1999, due primarily to the sale
of Los Cerritos and conveyance of a joint venture interest in UTC. The decrease
in interest expense was partially offset by an increase in interest expense as a
result of an increase in floating rate debt.
EQUITY IN INCOME OF UNCONSOLIDATED REAL ESTATE AFFILIATES increased
$0.2 million to $1.8 million for the three months ended June 30, 2000 due
primarily to the acquisition of Garden State Plaza in June 2000 and the
conveyance of a joint venture interest in UTC in June 1999, partially offset by
an increase in interest expense at Valley Fair as a result of a refinancing in
June 1999.
GAIN ON SALE OF INVESTMENTS was $2.0 million for the three months ended
June 30, 1999 due to the sale of Los Cerritos in June 1999.
INTEREST AND OTHER INCOME decreased $0.8 million for the three months ended
June 30, 2000 as compared to the same period in 1999. The decrease was due
primarily to the assumption of the Garden State Plaza Loan in connection with
the Garden State Plaza acquisition in June 2000.
NET INCOME increased $3.3 million or 27% to $15.4 million for the three months
ended June 30, 2000 as compared to $12.1 million for the same period in 1999.
Excluding the Property Transactions, previously noted and the 1999 gain on sale
of investments, net income increased $5.8 million for the reasons discussed
above.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2000 TO THE SIX MONTHS ENDED
JUNE 30, 1999.
TOTAL REVENUES increased $5.0 million or 2.0% to $257.6 million for the six
months ended June 30, 2000 compared to $252.6 million for the same period in
1999. Excluding the Property Transactions previously noted, total revenues
increased $15.6 million or 6.7% due to increased occupancy at Westfield
Shoppingtowns Downtown Plaza, Fox Hills, Parkway Plaza and Wheaton, higher
minimum rents generated by recently completed redevelopments at Westfield
Shoppingtowns Meriden, Mid Rivers and Crestwood,
16
<PAGE>
higher specialty leasing throughout the portfolio, higher percentage rents due
primarily to actual 1999 sales in excess of year-end estimates and higher sales
during the quarter and higher recovery revenues due to higher operating
expenses.
TOTAL EXPENSES increased $1.0 million to $145.0 million for the six months ended
June 30, 2000 as compared to $144.0 million for the same period in 1999.
Excluding the Property Transactions previously noted, total expenses increased
$7.4 million or 6.7% primarily due to property tax re-assessments and an
increase in the advisory fee.
INTEREST EXPENSE, net of capitalized interest of $1.5 million, decreased
$7.5 million to $91.7 million for the six months ended June 30, 2000 as compared
to $99.2 million for the same period in 1999, due primarily to the sale of Los
Cerritos and conveyance of a joint venture interest in UTC. The decrease in
interest expense was partially offset by an increase in interest expense as a
result of an increase in floating rate debt.
EQUITY IN INCOME OF UNCONSOLIDATED REAL ESTATE AFFILIATES increased
$0.2 million to $3.6 million for the six months ended June 30, 2000 due
primarily to the acquisition of Garden State Plaza in June 2000 and the
conveyance of a joint venture interest in UTC in June 1999, partially offset by
an increase in interest expense at Valley Fair as a result of a refinancing in
June 1999.
GAIN ON SALE OF INVESTMENTS was $2.0 million for the six months ended June 30,
1999 due to the sale of Los Cerritos in June 1999.
INTEREST AND OTHER INCOME decreased $0.6 million for the six months ended
June 30, 2000 as compared to the same period in 1999. The decrease was due
primarily to the assumption of the Garden State Plaza Loan in connection with
the Garden State Plaza acquisition in June 2000.
NET INCOME increased $9.4 million or 45% to $30.5 million for the six months
ended June 30, 2000 as compared to $21.1 million for the same period in 1999.
Excluding the Property Transactions, previously noted and the 1999 gain on sale
of investments, net income increased $11.1 million for the reasons discussed
above.
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.
17
<PAGE>
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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Funds from Operations................................... $47,894 $42,037 $93,207 $83,207
======= ======= ======= =======
Increase in Funds from Operations from prior period..... 13.9% 12.0%
======= =======
Reconciliation:
Net income............................................ $15,416 $12,091 $30,539 $21,092
Gain on sale of investments........................... -- (1,971) -- (1,971)
Income allocable to Investor Unit Rights.............. 779 594 1,181 1,533
Depreciation and amortization:
Deferred financing leases........................... 607 567 1,203 1,124
Consolidated properties............................. 27,884 29,078 54,999 57,819
Unconsolidated real estate affiliates............... 3,542 1,941 5,955 4,143
Minority interest portion........................... (334) (263) (670) (533)
------- ------- ------- -------
Funds from Operations................................... $47,894 $42,037 $93,207 $83,207
======= ======= ======= =======
</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 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 $185.0 million
for the six months ended June 30, 1999 to $190.4 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.
18
<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 (amounts in thousands, except percentages):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
EBITDA................................................ $97,320 $93,457 $190,362 $185,017
======= ======= ======== ========
Increase in EBITDA from prior period.................. 4.1% 2.9%
======= ========
Reconciliation:
Funds from Operations............................... $47,894 $42,037 $ 93,207 $ 83,207
Interest expense:
Consolidated properties........................... 46,284 50,041 91,716 99,185
Unconsolidated real estate affiliates............. 3,690 1,839 6,535 3,539
Minority interest portion......................... (548) (460) (1,096) (914)
------- ------- -------- --------
EBITDA................................................ $97,320 $93,457 $190,362 $185,017
======= ======= ======== ========
</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.
The following table summarizes certain quarterly data for 1999 and the first
two quarters 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(1).......................... $700,778 778,533 N/A N/A
Revenues.................................... $151,588(1) 160,172 N/A N/A
Percentage leased........................... 92% 93% N/A N/A
1999 QUARTERLY DATA:(1)
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>
------------------------
(1) Excluding the recently acquired Garden State Plaza
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, excluding Garden State Plaza, for the six months ended June 30, 2000
increased 6.7% 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.
19
<PAGE>
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 SIX MONTHS ENDED
JUNE 30, 2000(1) JUNE 30, 2000(1)
------------------------ -------------------------
MALL SHOP INCREASE PER MALL SHOP INCREASE PER
SALES SQ. FT. SALES SQ. FT.
--------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
East coast...................... $219,858 3.6% $ 410,540 3.4%
Midwest......................... 87,062 4.3% 171,050 3.6%
West coast...................... 471,613 8.4% 897,721 8.9%
-------- --- ---------- ---
Total Centers................... $778,533 6.6% $1,479,311 6.7%
======== === ========== ===
</TABLE>
------------------------
(1) Excluding the recently acquired Garden State Plaza.
LEASING
Mall Shop space was 93% leased at June 30, 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>
JUNE 30,
-------------------
2000 1999
-------- --------
<S> <C> <C>
East coast.................................................. 94% 95%
Midwest..................................................... 92% 93%
West coast.................................................. 93% 90%
Total centers............................................. 93% 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 $32.26 per square foot at June 30, 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Average base rent of Mall Shop leases, at
the end of the period..................... $32.26 $29.71 $32.26 $29.71
Leases expired during the period............ 30.51 22.90 29.15 24.81
Leases executed during the period........... 35.44 38.61 33.26 37.76
</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
20
<PAGE>
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
June 30, 2000 and 1999 were $0.8 million and $1.3 million, respectively and
$1.7 million and $2.5 million for the six months ended June 30, 2000 and 1999,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, the Company had $100 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 7.68%.
At June 30, 2000, the Company's balance of cash and cash equivalents was
$22.2 million, not including its proportionate share of cash held by
unconsolidated real estate affiliates.
The Company's consolidated indebtedness at June 30, 2000 was
$2,493.1 million, of which $2,278.5 million is fixed rate debt and
$214.6 million is variable rate debt after considering interest rate protection
agreements totaling $1.4 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 June 30, 2000, was
58.3%, excluding the Capital Notes from the numerator. The maturity dates of
consolidated indebtedness range from 2001 to 2022. Scheduled principal
amortization and balloon payments in connection with maturing mortgage
indebtedness are included in Note 6 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 $75.2 million and
$51.5 million, for the six months ended June 30, 2000 and 1999, respectively.
The following table shows the components of capital expenditures and capitalized
leasing costs:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30,
-------------------
2000 1999
-------- --------
($ IN MILLIONS)
<S> <C> <C>
Renovations and expansions.................................. $58.4 $40.6
Tenant allowances........................................... 10.8 5.9
Capitalized leasing costs................................... 4.7 3.6
Other capital expenditures.................................. 1.3 1.4
----- -----
Total....................................................... $75.2 $51.5
===== =====
</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
$404.9 million as of June 30, 2000, which will be funded through existing
mortgage debt, new mortgage debt and the secured line of credit.
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
21
<PAGE>
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 June 20, 2000 to shareholders of record on
June 30, 2000 of $37.7 million including $0.37 per common share for the quarter
ended June 30, 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.
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" and (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
22
<PAGE>
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, 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.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
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.
23
<PAGE>
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>
JUNE 30, DECEMBER 31,
2000 1999
---------- ------------
($ IN THOUSANDS)
<S> <C> <C>
Principal amount of fixed rate debt................. $1,130,061 $1,135,067
Principal amount of other current fixed rate payable
instruments....................................... 1,417,000 1,287,000
---------- ----------
$2,547,061 $2,422,067
========== ==========
Fixed rate debt as a percentage of total notes
payable........................................... 92.4% 94.9%
========== ==========
Average effective fixed rate (inclusive of margins)
of total borrowings and hedges, including delayed
start swaps....................................... 7.44% 7.39%
========== ==========
Average remaining term (in years) of total fixed
rate borrowings and hedges, including delayed
start swaps....................................... 7.4 8.0
========== ==========
Interest coverage ratio for the quarter ended....... 2.0 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.
As of June 30, 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
disclosed in Notes 6 and 7 of the Condensed Consolidated Financial Statements
for the quarter ended June 30, 2000 included in this quarterly report on
Form 10-Q.
24
<PAGE>
PART II--OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
Except as set forth below, 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.
On August 3, 2000, the City of New Haven, Connecticut, Long Wharf Galleria
LLC and New Haven Acquisition, LLC filed a lawsuit against us, certain of our
affiliates and the City of Milford. The lawsuit was filed in the Connecticut
Superior Court in New Haven. The complaint, alleges among other things, that the
defendants are obstructing the development of the proposed Long Wharf Galleria
Mall in New Haven. In addition, the complaint alleges that the defendants have
violated various Connecticut antitrust and unfair trade practice laws, engaged
in vexatious litigation, abuse of legal process and tortious interference with
contracts and business relations. The complaint seeks to enjoin us from further
obstructing such development. The complaint also seeks unspecified compensatory
and punitive damages. We believe that we have meritorious defenses against the
claims alleged in this litigation, and we intend to defend the case vigorously.
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
SHARES ISSUED TO DIRECTORS
Each director who is not an officer of the Company or an employee of
Westfield Holdings Limited ("WHL") or its affiliates, is entitled to annual
compensation equal to $20,000 in cash and $20,000 in common stock. The number of
shares issued is based on the share price of the Company's common stock on the
anniversary of the director's appointment. On May 15, 2000, the Company issued a
total of 6,900 shares of common stock to five directors. Such shares of common
stock were issued in a private placement to the above mentioned directors
pursuant to the exemption form the registration requirements of the Securities
Act of 1933, as amended (the "Securities Act"), provided by Section 4(2) of the
Securities Act.
THE WESTFIELD CAPITAL PUT RIGHT
On June 1, 2000, the Company sold to Westfield Capital Corporation Finance
Pty. Limited ("Westfield Capital"), a subsidiary of WHL, a put right pursuant to
which Westfield Capital has the right to require the Company to purchase the
stock of Westland Realty Inc., ("WRI"), a subsidiary of Westfield Capital. The
purchase price to be received by Westfield Capital upon the exercise of the put
right is 98% of the fair market value of WRI, with the purchase price to be paid
in Series F Preferred Shares. The put right is exercisable at any time on or
after June 2002 and up to June 2010, and cannot be exercised if there are any
assets of WRI that, in the Company's opinion, could cause WRI to fail to qualify
as a real estate investment trust. In connection with certain assets of WRI that
the Company may elect not to retain, the Company will be entitled to a reduction
in the consideration to be paid equal to the anticipated costs of disposition of
the assets (including tax liabilities). If the put right is exercised, to the
extent that the assets of WRI or its subsidiaries include Series F Preferred
Partnership Units, the effect to the Company will be the exchange of 98
Series F Preferred Shares for each 100 Series F Preferred Partnership Units then
held by WRI, not to exceed 55,000 Series F Preferred Shares, unless approved by
the shareholders of the Company at a regular meeting. The put right was sold in
a private placement to Westfield Capital pursuant to the exemption from the
registration requirements of the Securities Act provided by Section 4(2) of the
Securities Act.
THE 2000 WARRANT
On June 1, 2000, the Company sold a warrant (the "2000 Warrant") to
Westfield America Trust ("WAT") for the purchase of common shares of the
Company. Under the terms of the 2000 Warrant, WAT
25
<PAGE>
is entitled to purchase up to 2,840,000 common shares of the Company at an
exercise price of $19.42 per common share and may exercise the 2000 Warrant at
any time prior to June 1, 2025. The 2000 Warrant was issued in a private
placement to WAT pursuant to the exemption from the registration requirements of
the Securities Act provided by Section 4(2) of the Securities Act.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company's Annual Meeting of Shareholders was held on May 8, 2000 in New
York, New York.
(b) Proxies for the Annual Meeting of Shareholders were solicited pursuant to
Regulation 14 under the Securities Exchange Act of 1934, as amended. There
was no solicitation in opposition to the management's nominees as listed in
the proxy statement to elect three Directors. All of the nominees were
elected.
(c) The matters voted on at the meeting and the results were as follows:
(1) To elect three Directors to serve as such until the Annual Meeting of
Shareholders to be held in 2003 and until their successors are elected
and qualified.
<TABLE>
<CAPTION>
FOR AGAINST
---------- --------
<S> <C> <C> <C>
Director #1--Frank P. Lowy, AC.......... common stock 59,205,818 150,974
Director #2--Francis T. Vincent, Jr..... common stock 59,209,065 147,727
Director #3--Larry A. Silverstein....... common stock 59,204,711 152,081
</TABLE>
(2) To approve the issuance of our common stock upon conversion of our
Series E cumulative convertible redeemable preferred shares if then held
by a substantial security holder of us or other restricted holder under
Rule 312 of the New York Stock Exchange Listed company manual.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN BROKER NON-VOTES
---------- -------- -------- ----------------
<S> <C> <C> <C> <C>
common stock.................... 50,245,173 153,298 115,458 8,842,863
</TABLE>
(3) To approve the issuance of a warrant to purchase our common stock to a
substantial security holder of us or other restricted holder under
Rule 312 of the New York Stock Exchange Listed company manual.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN BROKER NON-VOTES
--- -------- -------- ----------------
<S> <C> <C> <C> <C>
common stock.................... 50,230,813 172,625 110,491 8,842,863
</TABLE>
(4) To ratify the appointment of Ernst & Young LLP as our independent
auditors for the fiscal year ending December 31, 2000.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
---------- -------- --------
<S> <C> <C> <C>
common stock..................... 58,964,258 351,534 41,000
</TABLE>
The holders of shares of common stock and the holders of shares of Series C
cumulative convertible redeemable preferred shares (the "Series C Preferred
Shares") voted together as a single class on each of items (2) and (3) above,
the holders of shares of common stock and the holders of shares of Series C-1
cumulative convertible redeemable preferred shares (the "Series C-1 Preferred
Shares") voted together as a single class on each of items (2) and (3) above and
the holders of shares of common stock and the holders of shares of Series C-2
cumulative convertible redeemable preferred shares (the "Series C-2 Preferred
Shares") voted together as a single class on each of items (2) and (3) above. In
each instance with respect to item (2) and item (3), each share of common stock
was entitled to one vote and each Series C Preferred Share, Series C-1 Preferred
Share or Series C-2 Preferred Share, as applicable, was entitled to ten votes.
26
<PAGE>
ITEM 5: OTHER INFORMATION
None.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
NO. DESCRIPTION*
--------------------- ------------
<C> <S>
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
of 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(3)).
10.1 Common Stock Purchase Warrant of the Company, issued to
Westfield America Trust, dated June 1, 2000.
10.2 Contribution Agreement, dated as of June 1, 2000, by and
among Westfield America Limited Partnership, Westland
Management, Inc. and Westfield Partners, Inc.
10.3 Put Agreement, dated as of June 1, 2000, by and among the
Company and Westfield Capital Corporation Finance Pty.
Limited.
11.1 Statement regarding Computation of Per Share Earnings for
the three months ended June 30, 2000.
11.2 Statement regarding Computation of Per Share Earnings for
the three months ended June 30, 1999.
11.3 Statement regarding Computation of Per Share Earnings for
the six months ended June 30, 2000.
11.4 Statement regarding Computation of Per Share Earnings for
the six months ended June 30, 1999.
12 Statement regarding Computation of Ratios.
27 Financial Data Schedule.
99.1 Agreement regarding Disclosure of Long-Term Debt
Instruments.
99.2 Sixth Amendment, dated June 1, 2000, to the First Amended
and Restated Agreement of Limited Partnership of Westfield
America Limited Partnership, dated as of August 3, 1998 (the
"OP Agreement") (Exhibit 99.7(1)).
99.3 Seventh Amendment, dated June 5, 2000, to the OP Agreement
(Exhibit 99.8(1)).
</TABLE>
------------------------
* Some of the schedules and supplemental material to the exhibits have
been omitted but will be provided to the Securities and Exchange
Commission upon request.
(1) Incorporated by reference to designated exhibit to Amendment No. 1 to
the Company's registration statement on Form S-3 filed July 7, 2000
(Registration No. 333-93163).
27
<PAGE>
(2) Incorporated by reference to designated exhibit to the Company's
quarterly report on Form 10-Q filed May 17, 1999, File No. 333-22731.
(3) Incorporated by reference to designated exhibit to the Company's
quarterly report on Form 10-Q filed May 15, 2000, File No. 333-22731.
(b) Reports on Form 8-K:
None.
28
<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.
<TABLE>
<S> <C> <C>
Date: August 14, 2000
WESTFIELD AMERICA, INC.
By: /s/ PETER S. LOWY
-----------------------------------------
Peter S. Lowy
PRESIDENT AND CHIEF EXECUTIVE OFFICER
/s/ MARK A. STEFANEK
-----------------------------------------
Mark A. Stefanek
CHIEF FINANCIAL OFFICER AND TREASURER
</TABLE>
29
