Frank Lowy, Westfield Corporation Chairman

Chairman’s Letter

I am proud to present Westfield Corporation’s 2016 Shareholder Review.

This is our second Shareholder Review following the restructure of Westfield Group in 2014 and I am pleased to report that in our first full financial year, Westfield Corporation has delivered a strong financial and operating performance and made significant progress on its development program. In 2015 we delivered A-IFRS profit of $2.3 billion, Funds from Operations (FFO) of $783 million (37.7 cents per security) and distributions of 25.1 cents per security – all in line with our forecast.

Since the restructure Westfield Corporation has delivered a total return of 47.1%, outperforming the ASX200 Index by 42.5% and the ASX200 REIT Index (excluding Westfield Corporation) by 20.3% and has ranked in the top 10 companies in the ASX50 in terms of total return to security holders in that period.

I am pleased to report that in our first full financial year Westfield Corporation has delivered a strong financial and operating performance and made significant progress on its development program.

Our strategy is to create and operate flagship assets in leading markets that deliver great experiences for retailers, brands and consumers. We are focused on innovation and are creating a digital platform to converge with our physical portfolio to better connect retailers, brands and consumers.

We have continued to evolve our assets into vibrant, exciting places in densely populated locations by integrating fashion, food, leisure and entertainment as well as focusing on digital technology and leveraging the data generated across our business. Our aim is to connect the retailer with the shopper more closely than ever and help retailers and brands build a lasting and meaningful relationship with their customers.

Over the past decade we have continued to transform our portfolio through landmark developments, strategic divestments and innovation. Our evolution has anticipated the emerging demand by consumers for better designed buildings and improved customer services and the demand by retailers, especially international, luxury and high street retailers, for space in high profile and prestigious locations in the world’s leading cities.

It has also anticipated the rapid rise of the role digital devices and technology play in our lives. We have already seen that the future of retail is not a choice between physical and digital. Rather, the choice is both – the best centres in great locations, combined with a vibrant and totally integrated digital experience for retailers, brands and shoppers.

That trend will accelerate in the years ahead and it is the integration of the best physical assets with digital initiatives that will underpin our future success.

Our continued success would not be possible without our team around the world and I want to formally acknowledge and thank them for their efforts. I would also like to thank my fellow directors for their contribution to the success of Westfield Corporation. Their strategic guidance and advice has been invaluable.

I am proud to be leading Westfield Corporation during this exciting period of growth and am confident we will continue to improve further what is already the highest quality retail portfolio in the world.

Frank Lowy AC
Chairman
Steven Lowy, Co-CEO and Peter Lowy, Co-CEO

Co-CEO Review

We are pleased to report on the significant progress made in implementing our strategy over the past 12 months. This involves delivering destinations with impressive architecture that incorporate embedded digital technologies and integrate the best in fashion, food, leisure and entertainment to create exceptional experiences.

OUR PORTFOLIO & DEVELOPMENT PROGRAM

We have $29 billion in Assets under Management and a $10.5 billion 
development program. During 2015, we:

  • Completed over $1 billion in projects;
  • Commenced $2.5 billion of projects including Century City in Los Angeles, UTC in San Diego and Westfield London;
  • Completed the $925 million joint venture of three regional assets in the US; and
  • Divested six non-core assets for $1.3 billion.
We are committed to leading our industry, physically and digitally and to delivering best-in-class assets, market leading operating and financial metrics as well as making a positive contribution to the social, environmental and economic well-being of the communities in which we operate.

Today our portfolio consists of 34 centres, of which 82% are flagship assets. Upon completion of our current development program we expect this percentage to be in the range of 85% - 90%.

Our development program comprises $3.7 billion of projects currently under construction, including Westfield World Trade Center in New York, Century City in Los Angeles, UTC in San Diego and Westfield London.

We have $6.8 billion of future developments, including Valley Fair in San Jose California, Westfield Milan in Italy (which will be our first development in continental Europe) and Croydon in South London.

With expected yields of between 7% and 8% on our $10.5 billion development program, we believe Westfield Corporation will generate significant long-term value and earnings accretion for shareholders.

Our $10.5 billion development program excludes residential opportunities on land we currently own, adjacent to our centers, including approvals for 2,500 apartments at Westfield London and Westfield Stratford City in the United Kingdom and the possibility of several thousand apartments on existing owned land adjacent to our US centres. We are currently evaluating the best way to proceed to leverage these opportunities and create the most value for the Group.

OPERATING PERFORMANCE

Our portfolio achieved specialty sales of $726 per square foot (psf), up 6.4% for the 12 months to 31 December 2015 and our flagship assets delivered specialty sales of $902 psf, up 8.0%.

Comparable net operating income for our portfolio for the 12 month period was up 3.9%, and our flagship portfolio was up 4.2%.

Our portfolio was 95.9% leased as at 31 December 2015.

FINANCIAL PERFORMANCE

For the 2015 financial year, we reported A-IFRS profit of $2.3 billion, Funds from Operations (FFO) of $783 million or 37.7 cents per security and distributions of 25.1 cents per security.

We have a strong Balance Sheet with $20 billion of balance sheet assets, a gearing ratio of 29.9%, $4.5 billion of available liquidity and interest cover of 4.7 times.

For the 2016 financial year, we expect to deliver FFO of between 34.2 and 34.5 cents per security, after taking into account the dilution from our non-core asset divestments in late 2015 and lost income from our Century City development. This represents pro-forma growth of 3%-4% on the previous corresponding period. Distributions are forecast to be 25.1 cents per security.

DIGITAL TECHNOLOGY & INNOVATION

The rapid uptake of mobile technology means that innovation and adaptation will continue to be crucial to our success.

We see the opportunity to create new revenue streams and extract greater value from our portfolio by continuing to invest in our digital platform which is focused on better connecting retailers and consumers both physically and digitally.

During 2015, we made significant progress in the roll-out of our digital strategy including:

  • Successfully unifying all of our assets onto a single digital platform;
  • Piloting a digital suite of services at Westfield London, including express car parking, mobile app, wayfinding, offers, food ordering and product search capabilities. We intend rolling out this digital suite of services firstly into a US pilot centre and then across our flagship centres.
  • Launching Bespoke, a new dedicated space within our San Francisco centre that retail technology businesses can use to develop, test and refine their initiatives within a shopping centre environment; and
  • Establishing a new Data and Analytics unit whose function it is to work with retailers to better understand the data generated in our centres and to utilise it to create relevant and compelling end-to-end retail innovations and experiences.

We are also leveraging our flagship assets and close relationships with global retailers and brands to deliver new income streams. For example, at the Westfield World Trade Center, we have concluded a number of multi-year sponsorships with major brands, including Chase and Ford, which will open its first innovative concept called FordHub. In addition to leasing stores these brands will participate in media and event activation at Westfield World Trade Center, similar to major sporting and entertainment venues. We are actively pursuing similar opportunities across our portfolio.

All of these activities underscore our view that the relationship between owners and developers of shopping centres and retailers must change.

In the past, the most intense phase of that relationship was in the lead up to the opening of a store. Now, it must begin with the opening of a store, with far greater collaboration and sharing of information to produce a better offer for the consumer.

The power of that combined knowledge and expertise will make already highly successful shopping centres and retailers even more so in the future.

OUTLOOK

We are committed to leading our industry, physically and digitally and to delivering best-in-class assets, market leading operating and financial metrics as well as making a positive contribution to the social, environmental and economic well-being of the communities in which we operate.

Steven Lowy, AM
Co-CEO
Peter Lowy
Co-CEO