Chairman’s Review

When Westfield began its life as a public company 50 years ago no-one, least of all its founders, could have predicted it would grow to become one of Australia’s largest and most successful corporations, let alone a world leader in retail property.

The company was formed in 1960 to raise funds to build a shopping centre at Hornsby in sydney. Today, it has interests in a portfolio of 119 centres in four countries with almost 24,000 retailers and assets valued at $59 billion.

Each decade of the company’s history reveals a story of growth, in the scale of its operations and in returns for investors. Over the 50 years, shareholders in the entities which today comprise the Westfield Group have contributed equity of $19.9 billion and received back some $15.6 billion in dividends and distributions. With a market capitalisation at 31 December 2009 of around $29 billion, some $25 billion of wealth has been created for Westfield shareholders.

since 1960 original shareholders in the Westfield Development Corporation have received a total return of 27.63% per annum, compared with 10.91% for the All Ordinaries Index over the same period.

The goals I shared in 1960 with my partner, John saunders, were not grand ones. As young businessmen our objectives were necessarily short term. What kept us awake at night were not dreams of a global business empire, but cash-flow. Could we pay the bills next week? Could we lease that vacant shop? should we expand beyond sydney, to Brisbane, or perhaps Melbourne?

From the vantage point of 50 years’ experience I can see that while the scale and complexity of the company has grown enormously, our core business remains essentially unchanged – Westfield aims to provide the best possible environment for retailers to trade and shoppers to shop.

Frank Lowy

The many changes Westfield has undergone over the years, to our corporate and financial structure, to our management organisation and our geographical expansion and to the design and type of retail outlets in the shopping centres themselves, have all been made to put us in a stronger position to deliver on this core business objective.

And the changes have been profound. The establishment of the Westfield Property Trust (which subsequently became the Westfield Trust) in the late 1970s to hold the assets managed by Westfield Holdings was at the forefront of a new path for property ownership and management.

During the 1990s Westfield America Trust was created to hold Westfield’s Us properties, the first Australian property trust dedicated to investment exclusively in off-shore assets, and for a period Westfield America Inc was created and listed on the New York stock Exchange.

These moves were the right ones for the times but Westfield has always been prepared to change its structure where necessary, even when the existing structure has historically proven sound. Looking ahead five, 10 and 15 years and anticipating and planning for potential change has been a hallmark of the company.

In the past decade the most significant example of this was our decision to merge the three Westfield entities – Westfield Holdings, Westfield Trust and Westfield America Trust – to create the Westfield Group in 2004. The rationale was to create a global operating and financial structure to match increasing international opportunities, and in so doing Westfield became the largest listed retail property group in the world by equity market capitalisation.

Another example of looking ahead was our decision to expand internationally in the 1970s. John saunders and I had been frequent visitors to the Us from the ‘60s and drew from that country valuable lessons about the shopping centre business and were inspired by the infectious optimism of its people. Our success in the Us provided the foundation of confidence for later moves into other markets – New Zealand in 1997 and the United Kingdom in 2000.

The Westfield brand itself is another hallmark of the company. In the beginning no-one “branded” shopping centres and even to us it was simply a sign on our centres which was shorthand for our humble beginnings, in a “field” in the “west” of sydney. The first red “Westfield” sign was installed on our Burwood centre in sydney in 1966.

Today, the Westfield brand sends a simple and powerful message to the world of shopping centre excellence, a message understood by investors, staff, retailers and shoppers in Australia, New Zealand the United states and United Kingdom.

The Westfield story of the past 50 years has many chapters, and I’ve touched on just some of them here. There’s the consistent financial performance; the ability to adapt; the different capital structures; our international expansion; and, most importantly, the people who collectively over the years have made Westfield the success that it is.

All of these elements of the Westfield story are an enduring source of pride for me and it is both an honour and a humbling experience to lead a company of such standing.

Westfield Plaza, Sydney, AUS, 1959 Advertising for Westfield Hornsby, Sydney, AUS, 1961 Westfield headquarters, Sydney, AUS, established in 1973

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But while our 50th anniversary as a public company will be a time to look back with pride on our achievements, it will be done in the knowledge that our gains are hard won and that we must nurture Westfield’s culture of hard work, attention to detail, careful planning and bold execution, if we are to carry the company forward in the years ahead.

We needed no reminding, but the past couple of years have demonstrated just how unpredictable the marketplace can be.

Fortunately, and despite the unavoidable impact on the Group’s share price, financial discipline and prudent planning meant we were well-placed to withstand the shock of what became known as “the global financial crisis.”

In the period before the crisis hit we raised equity and long-term debt. We sold properties that did not fit with our long-term strategic objectives. Having taken these steps, the Group entered this period in a strong financial position. As a consequence we were able to extend our banking maturities during the crisis, and to further protect our position by reducing our capital expenditure, including postponing most of our redevelopment work. We reduced expenses across the business. All of this activity put us in a strong financial position and we are emerging from the crisis with conservative gearing and a strong balance sheet. At 31 December 2009 Westfield’s gearing was 35.8%, with $7.8 billion of available liquidity.

Over 50 years we have confronted several downturns and have emerged from each in a stronger position than we entered it. The credit squeeze of the early ‘60s; the oil shock and inflation of the ‘70s; the boom and bust of the late ‘80s and the deep recession of the early ‘90s. Then came the Asian financial crisis of 1997; the dot-com boom and bust and then the most recent global financial crisis.

Each episode had different characteristics and each taught us lessons about how to deal with the adversity that any long-term business must inevitably confront. Perhaps the most enduring lesson has been the importance of a resilient business model, in Westfield’s case based on stable income flows made possible by a portfolio diversified by geography and type of retailer.

Rarely do all markets experience precisely the same economic conditions at the same time. The geographic diversity in our portfolio allows for stronger growth in one market to compensate for slower growth in another. similarly, our 24,000 retailers cover the entire spectrum of retail and entertainment, from fashion to food to homewares and discounters. There are entertainment precincts with cinemas and dozens of other retail categories which means a downturn in one particular type of retail can be offset by the stronger performance of another.

Equally importantly, the quality of our portfolio also contributed to the Group’s resilience in the face of the economic downturn.

During the second half of 2009 we saw signs that the worst effects of the financial crisis were receding and as we enter 2010 there is cautious optimism that we can perhaps begin to plan for more promising times ahead.

Our results for 2009 bear this out, with a 6.2% increase in operational earnings over the previous year. Notwithstanding the difficult conditions globally the Group was able to meet its forecast given in February last year. The Australian business continued to prove resilient while conditions stabilised in the second half of 2009 in our United states, United Kingdom and New Zealand businesses.

Chairman’s Review continued

Naturally, the Westfield of 2010 looks very different to the Westfield of 1960. Then, urban design of public buildings was not what it is today. Now we build and manage flagship centres from the heart of sydney to Los Angeles to san Francisco and London. Westfield has led the way in this transformation of shopping centres from utilitarian buildings to shopping and entertainment destinations that rival the best commercial properties anywhere.

One theme that has continued throughout has been the role of the shopping centre as a focus, or hub, for community activity. Whether in 1960 or 2010, the shopping centre with its mix of food, fashion and entertainment has fulfilled an important social role.

During the year we will publish more about the company’s history, to pay tribute to all those who have made a contribution to Westfield.

It is an important story in Australia’s corporate history, and one worth sharing, especially with you, our shareholders, who have continued to show faith in Westfield through your investment in the Group.

I would like to thank and acknowledge the contribution of the many directors who have served on the board of the company during its 50 years. Few companies anywhere have been better served than Westfield by the wise counsel and guidance of its board.

I would also like to acknowledge my co-founder, the late John saunders, and the many executives who have served the company. Their story has mirrored the wider Westfield experience, as our senior executive team has deepened and broadened over the years, away from the partnership model into a much larger and more mature global organisation. It is personally very satifying to me that my sons have been, and continue to be in the leadership of the Group.

The reputation of Westfield executives is without peer in our industry, and with good reason, and I am grateful for the support and teamwork they have demonstrated over such a long period.

As we enter 2010 I am reminded that while Westfield is now 50 years old, each decade seems to have brought a new beginning. I am confident this will be the case again.

The shopping centre has proved to be resilient and adaptive – it has moved with the times and embraced new retailers and new retail formats. Today, it is incorporating the use of digital and other new technology at a rapid pace. Throughout all this change over 50 years, the shopping centre remains a community hub where people come together to shop, to meet and explore, to be entertained and to do business. I believe that the shopping centres of the future will go on fulfilling that role.

Ahead lies much hard work, and challenges we cannot foresee, but we enter this new decade as we have the previous five – well-equipped to confront the challenges and eager to make the most of the opportunities.

An over-arching theme of the Westfield story of the past 50 years has been optimism, and today I look forward to the future of the Group with the same optimism as ever.

Frank Lowy AC, Chairman

Westfield Century City, Los Angeles, US Westfield San Francisco, US Artist impression of Westfield Sydney City, AUS

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