Westfield Group Management Discusses Q2 2012 (H1 2012) Results - Earnings Call Transcript

Westfield Group (WFGPY.PK)

Q2 2012 (H1 2012) Earnings Call

August 14, 2012 7:00 pm ET

Executives

Peter S. Lowy - Co-Chief Executive Officer and Executive Director

Steven Mark Lowy - Co-Chief Executive Officer and Executive Director

Peter Kenneth Allen - Group Chief Financial Officer and Director

Analysts

Stephen Rich - Crédit Suisse AG, Research Division

Paul Checchin - Macquarie Research

Lourens Pirenc - Morgan Stanley, Research Division

Rob Stanton - JP Morgan Chase & Co, Research Division

John P. Kim - CLSA Asia-Pacific Markets, Research Division

Simon Garing - BofA Merrill Lynch, Research Division

Andrew Smith - Evergreen Capital Partners Pty Ltd.

Simon Wheatley - Goldman Sachs & Partners Australia Pty Ltd, Research Division

Presentation

Operator

Welcome to the Westfield Group 2012 Half Year Results, connected on Wednesday, 15 August 2012 at 9 a.m. Australian Eastern Standard Time [Operator Instructions] I would like to advise that today's conference is being recorded and would now like to introduce the presenter for today, Mr. Peter Lowy. Mr. Lowy, please go ahead.

Peter S. Lowy

Thank you. Good morning, everybody. I'd like to welcome you to our results presentation for the 6 months ended 30th of June, 2012. With me today is Steven Lowy and Peter Allen. In November 2010, we articulated a strategic plan that would position the group to generate greater long-term value in a volatile economic environment. This plan focused on investing capital in a development of world-class iconic shopping centers in major world cities, introducing joint venture capital to the group and disposing of non-core assets to enhance our return on invested capital and long-term earnings growth.

In the 20 months since the establishment of the Westfield Retail Trust, we have implemented this plan through a number of transactions, and our results today highlight its benefits. Over the period, we have raised approximately $10 billion of capital for redeployment into our higher-return opportunities. We have successfully completed and opened $3.7 billion of development and expansions, including Stratford in London and Sydney in Australia.

We have expanded our business with the World Trade Center development in New York, our entry into Brazil and the development opportunity in Milan, Italy. We have completed a number of joint ventures, including Sydney, Stratford and the 12-asset joint venture in the United States and have disposed of 14 non-core assets globally, 8 in the United States, 4 in the United Kingdom, 1 in Australia and 1 in New Zealand. In the first 6 months of this year, we have also bought back 48.5 million WDC securities for $440 million and raised $3.3 billion of debt facilities, including our recent issuance of GBP 450 million of public bonds in the U.K.

Our business and balance sheet is in a strong position. Since June of 2010, we have reduced our invested capital from $47 billion to $32 billion, whilst maintaining the same $61.7 billion of assets under management. We have also reduced our debt from $19 billion to $11 billion and our gearing ratio, from 37.4% to 31.9% today. We have substantially improved our return on contributed equity, which was around 9% in 2010 and is now 11.4%.

In summary, in just over 18 months, we have moved the group to a stronger financial position, higher return on contributed equity and improved the long-term earnings profile. We will continue to allocate our capital efficiently to create value for our shareholders. We are well-positioned to grow our business, particularly through the investment in our $11 billion pipeline and potential new opportunities. Importantly, we will be able to do all this without the need for additional share capital.

For the first half of this year, funds from operations were $751 million or $0.328 per security, up 3.1% for the year. Distribution for the first half of the year was $558 million, or $0.2475 per security, representing 50% of our announced full year distribution forecast of $0.495. Statutory net profit for the half year was $800 million, up 31% on the previous year. For 2012, we forecast to achieve funds from operations of $0.65 per security.

I'd now like to hand over to Steven, who'll take you through the business review.

Steven Mark Lowy

Thanks, Peter, and good morning, ladies and gentlemen. Our strategy is to invest in and develop world-class iconic retail destinations in major global cities. We are focused on these assets because they are highly productive, create strong franchise value and are resilient through economic cycles. The benefits of this strategy are evident today through the operating performance of our business, and in particular, centers like Westfield London, Stratford and Sydney. We are pleased with the operations in the first half of 2012, which has seen solid performances in all markets.

We are on track to achieve comparable net operating income growth for the 2012 full year in the range of 2.5% to 3% in both the United States and the Australia and New Zealand portfolios. At the end of June, the global portfolio was 97.5% leased, up 80 basis points from the same time last year, with the Australia and New Zealand portfolio at over 99.5%, the United States portfolio at 92.7% leased, up 70 basis points on last year, the United Kingdom at 99.2% and Brazil at 95.8%. We have also seen solid demand for our new projects, as highlighted by the successful completion of our expansion at Carindale in Brisbane and the progress being made at Fountain Gate in Melbourne and UTC in San Diego. Tenant receivables across the portfolio remain low and in line with previous periods, at approximately 1% of annual billings and bad debts at 30 basis points.

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