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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

Rob Stanton - JP Morgan Chase & Co, Research Division

Paul Checchin - Macquarie Research

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

Stephen Rich - Crédit Suisse AG, Research Division

Rob Freeman - Macquarie Research

Simon Garing - BofA Merrill Lynch, Research Division

Westfield Group (OTCPK:WFGPY) 2012 Earnings Call February 26, 2013 5:00 PM ET

Operator

Welcome to the Westfield Group 2012 Full Year Results connected on Wednesday, 27th of February, 2013 at 9 a.m. Australian Eastern Daylight 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, everyone. I'd like to welcome you to our results presentation for the year ended 31st of December, 2012. With me presenting today is Steven Lowy and Peter Allen.

We are very pleased with the 2012 results. This was a significant year for the group, and we continue to implement our strategic plan and position the group to generate greater long-term value. The objective of this plan is to enhance return on contributed equity and improve our long-term earnings potential. Our capital management strategy includes the reduction of our invested capital through joint ventures and the sale of non-core assets. Together with the reinvestment of capital into higher return of opportunities, including the buyback of securities.

During the year, we completed a number of major transactions in line with this strategy, including the $4.8 billion joint venture with the Canadian Pension Plan over 12 U.S. assets, raising proceeds of $2.1 billion; the disposal of 17 non-core assets in the U.S., U.K., Australia and New Zealand for $4.1 billion; the investment of $300 million in additional interest in 3 Australian assets; and the investment of $800 million in our development activities. To date, we have bought back 81 million securities for $774 million at an average price of $9.56. We will continue to adjust our portfolio through further joint ventures and non-core asset disposals as opportunities arise. We have also extended our buyback program for a further 12 months.

We now manage a portfolio of assets valued at $64.4 billion. Since our restructuring in 2010, with the establishment of the Westfield Retail Trust, our assets under management have increased by over $6 billion. Over that same period, our investment in those assets has been reduced by $15 billion, and we have returned over $8 billion of that to security holders.

Our business and balance sheet is in a strong position. Since the restructure, we have been able to grow our business, reduce our net debt from $19 billion to $11 billion, reduce our gearing ratio from 37.4% to 32.5% and return capital to shareholders.

We have also substantially improved our return on contributed equity, which was around 9% in 2010 to 11.4% for this year. Our return on equity for 2012 was the same as 2011. However, this was achieved with a leverage ratio of 32.5%, compared to 38.4% in 2011. The income we generated from management fee and development activities represents approximately 22% of our earnings.

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 $12 billion development pipeline and potential new opportunities. Importantly, we will be able to do this without the need for additional share capital.

For the year, funds from operations were $1.47 billion or $0.65 per security, in line with forecast, and reflects the major transactions completed during the year. Adjusting for these transactions, FFO per security would have been up 6%. Distribution for the year was $1.1 billion or $0.495 per security, also in line with forecast. Statutory net profit for the year was $1.7 billion, up 18%. For the 2013 year, we forecast to achieve FFO of $0.665 per security. This forecast includes the full year impact of the transactions in 2012, and is prior to the buyback of any additional WDC securities. We forecast comparable net operating income growth of 4% to 5% in the United States, 4% to 5% in the United Kingdom and 1.5% to 2% in Australia and New Zealand. Distribution for the 2013 year is forecast to be $0.51 per security, an increase of 3%.

I'd now like to hand over to Steve, who will take you through the operating review.

Steven Mark Lowy

Thanks, Pete, and good morning, ladies and gentlemen. I am pleased to report that our operations in 2012 showed income growth in each of our markets with performance in line or at the high end of expectations. Our strategy is to develop and earn superior retail destinations in major cities by integrating food, fashion, leisure and entertainment, using technology to better connect retailers with consumers. We aim to operate our centers at the highest standards and efficiency to create assets that are highly productive, have strong franchise value and have the ability to attract the world's leading retail brands. We are implementing this strategy and improving the overall quality of our portfolio through the creation of flagship centers in some of the world's leading cities, like London, New York, Sydney, Los Angeles, San Francisco, Milan and Melbourne.

Our portfolio now comprises 105 shopping centers in 5 countries, with over 22,800 retail shops, over 1.1 billion annual customer visits generating $40 billion in retail sales. This, together with our globally recognized brand, provides us with a unique perspective of the emerging trends and drives us in how we adapt our business to the next generation of retail.

The adaption lies in 4 key areas: the quality of design and the standard of services; the growing internationalization of retail brands; the higher standard of food and its integration with fashion and entertainment; and the creation of great customer experiences. Throughout development of iconic malls, we combine these elements to make them all an essential part of the city and the community social and economic fabric.

Our focus is to invest our capital on expertise in assets that can continue to adapt in these key areas and, thereby, be the destination of choice for shopping, dining, entertainment, events and socializing. Take, for example, our $1.2 billion project at Westfield Sydney that has changed the face of retailing in downtown Sydney. With its mix of domestic and international luxury and high-street retailers, integrated with a premium dining experience. This center achieves specialty sales of $15,660 per square meter, the highest in the group's global portfolio.

For the GBP 1.8 billion, Westfield Stratford City in East London, which achieved retail sales of GBP 940 million in 2012, its first full year of trading. Its proximity and interaction with the London 2012 Olympic Games demonstrated our capacity, expertise and brands to a global audience. In 2012, our 2 flagship centers in London achieved combined retail sales of more than GBP 1.9 billion, with over 70 million customer visits. Less than 5 years ago, neither mall existed.

Of course, any consideration of the next generation of retail must include a digital platform. In 2012, we announced the appointment of a Chief Digital Officer reporting to me, and the launch of WestfieldLabs, our digital business group based in San Francisco. WestfieldLabs is working on utilizing our global position to innovate and develop the technological platform and infrastructure necessary to converge the digital shopper with the physical world. With so many shoppers now connected to mobile devices, we are well-advanced with strategies to connect with digital shopper, with our malls, including sophisticated carpark technology, concierge and lifestyle services, efficient delivery channels for retailers and utilizing social media and interactive advertising to better interact with consumers. All of the key elements, the international retailers, luxury brands, food, fashion, entertainment and great experiences, combined with the use of digital technology, will continue to evolve and be brought together in our future development opportunities.

Work is well underway at Westfield World Trade Center in New York. Our pipeline of future development opportunities now stands at $12 billion, including major developments at Milan and at Croydon in South London, together with the expansion of Westfield London and the redevelopments of Century City in Valley Fair in California and Miranda in Sydney.

Turning now to some of the highlights of the operating performance for the year. For the 12 months, comparable net operating income for the group was up 3.3% on the prior year, with the United States, up 4.2%; Australia and New Zealand, up 2.9%; and the United Kingdom, up 0.4%. Our operating performance for the year saw a continuing high levels of occupancy, growth in average rents and comparable specialty sales growth in each market, all combined with a serious focus on expense management.

The United States performance in the second half of the year was strong, with comparable NOI up 6%, and resulting in the performance of the year exceeding the upper end of our forecast range. A significant component of this performance was the record number of shops we opened in the United States during the year. The global portfolio at year end was 97.8% leased, up 30 basis points. In the United States, the portfolio was 94.4% leased, up 130 basis points. The United Kingdom was up 50 basis points to 99.5%, Brazil at 93.3% and the Australia and New Zealand portfolio remaining over 99.5% leased. The level of bad debts in arrears across the group for the 12 months remain low and in line with previous years.

WDC's global portfolio achieved specialty sales productivity of USD $701 per square foot, up 3% on the previous year. Comparable specialty retail sales were up 6.3% for the year in the United States, with the December quarter up 3.3%. In Australia, specialty retail sales were up 0.5%, with the December quarter 0.6% lower. Specialty sales were up 0.1% in New Zealand and up 12.8% in Brazil for the 12-month period. In the United States, specialty retail sales growth continued. Specialty retail sales are now $485 per square foot, the highest ever level of sales for the group's U.S. portfolio. This is reflective of the improved quality of the portfolio, plus the completion of developments and asset divestments.

Sales growth has been across all categories and regions, with our high quality centers continuing to outperform. During the year, over 1,600 leasing deals were executed. This represented some 3.7 million square feet, with total rents and new specialty shops up 8.4% over expiring rents. At year end, average specialty rent was $63.56 per square foot, up 2.3% for the 12 months.

In Australia, whilst retail conditions have been subdued for most of the year, the business has responded well, and in January, specialty retail sales were up approximately 4%. Sales productivity at specialty shops remains high, at almost $9,900 per square meter, and we continue to see demand for space from both domestic and international retailers. Average specialty rent during the year for the Australia and New Zealand portfolio grew by 2.5%, with average rents in Australia now at $1,521 per square meter, and New Zealand at $1,123 per square meter.

In Australia, for the 12 months, over 2,400 leasing deals were completed. Excluding projects, this represented 15.6% of specialty area at rents 2.5% lower than expiring rents, in line with the level reported for the first half of the year.

Turning now to the highlights of our development activity. During the year, the group successfully opened a $310 million redevelopment of Carindale in Brisbane, and a $340 million redevelopment of Fountain Gate in Melbourne. These expansions now position both centers in the Top 5 Centers of our Australian portfolio, and amongst our Top 10 performing centers globally.

In the United States, the $180 million redevelopment at UTC in San Diego opened in November, and we also have made good progress during the year on the refurbishment program, completing some $370 million of projects at 9 U.S. shopping centers, with a focus on adding a diverse range of entertainment, services, discounters and food to our malls.

WDC's joint venture operations in Brazil opened its development at Continente Park in Florianopolis, with the center trading in line with expectations since opening. We entered the Brazil markets some 18 months ago with an investment in an operating joint venture of 5 assets. This was our first step into a developing market through an investment of less than 1% of our global portfolio. Our aim is to better understand the opportunities in this region and the appropriate operating structure for our investment in the longer-term.

For 2013, the group expects to commence between $1.25 billion and $1.5 billion of new developments, with WDC share being $300 million to $500 million. Major developments are anticipated to commence at Miranda in Sydney, Mt Gravatt in Brisbane and Bradford in the United Kingdom, with works having recently commenced on the $150 million redevelopment at Garden State Plaza in New Jersey and the $90 million redevelopment at Montgomery in Maryland.

That concludes my review, and I would now like to hand over to Peter Allen to go through the financial review for 2012.

Peter Kenneth Allen

Thanks, Steven. This morning, we have released our audited financial reports, including all notes of the financial statements. FFO for the year was $1.474 billion or $0.65 per security, an increase of 6% after adjusting for asset divestments and share buyback completed during the year. Distribution was $0.495 per security, an increase of 2.3% from the prior year.

This detail on Slide 15, our key metrics remained strong, with net property income up 7% on a like-for-like basis after adjusting for property divestments. This increase includes additional property income from our recently completed developments at Westfield Stratford, Sydney, Carindale and Fountain Gate. Management income has increased 12% to $128 million, primarily from the U.S. joint venture with CPPIB, management income from Stratford and increases in underlying property income. Project income remained strong and includes income from developments at Westfield Sydney, Carindale, Fountain Gate and Stratford. We've also decreased overheads by 3% to $224 million, and will continue to focus on overhead savings in 2013. Overall, EBIT on an FFO basis is up 3% to $2.118 billion for the year.

Gross interest for the period was $508 million, of which $444 million was expensed and $64 million capitalized for development projects. We continue to see the benefit from lower debt as a result of our strategic initiatives, as well as a lower interest rate environment. Our old, ineffective interest rate is approximately 4%, similar to that in the prior year. Tax expense is $95 million, a decrease of $15 million from the prior year, which is impacted by the timing of tax on our project income. Our cash flow from operations for the year was $1.616 billion, and was in excess of our FFO earnings.

Our AIFRS profit after tax for the year was $1.718 billion, up 18%. This includes property revaluations of $815 million, reflecting increases in net operating income with cap rates remaining steady. It also includes mark-to-market expense on our derivative financial instruments of $309 million, deferred tax expense of $126 million, amortization of tenant allowances, minority interests and capital profits.

Turning to our balance sheet on Slide 17, the group is in a strong financial position. In 2012, we completed a number of capital initiatives that in aggregate, raised approximately $5.2 billion of proceeds, including the receipt of $1.4 billion from the Westfield Retail Trust following the completion of the Sydney project. Our liquidity has improved to $6 billion from $5.3 billion at the end of last year. During the year, we raised and extended $3.9 billion of debt facilities, including $2.2 billion of new or renewed facilities, a GBP 450 million 10-year bond issue in July, a USD 500 million bond issue in October and USD 600 million of new and renewed secured mortgages. We've refinanced the majority of our debt that was due to be repaid in 2013, with approximately half of the remaining USD 500 million of mortgages outstanding at year end refinanced in early 2013.

We now have sufficient liquidity to cover all of our maturities to the end of 2014. Our average term of bonds and mortgages has extended to 5.2 years and bank facilities extended to 2.9 years. 92% of our interest rate exposure is fixed, and our interest cover was 4.1x.

Gearing at the end of the year has improved the results of the capital initiatives to 32.5% on a look-through basis, compared to 38.4% at the end of last year. We are committed to a A credit rating for the group. The group's key financial ratios are detailed in the appendix on Slide 30, and you will note that we are well within covenant requirements.

Slide 18 summarizes the movement in property investments for the year, from $34.7 billion at the end of last year to $32.4 billion. This movement includes $4.1 billion of proceeds from the new U.S. property joint venture and the divestment of 17 assets during the year. In addition, the group had revaluation gains of $815 million, including development gain of $186 million. This primarily includes the completed developments at Westfield Sydney, Carindale and Fountain Gate.

The group has also acquired additional interest in the 3 centers in Australia during the year, Warringah, Knox and Mt Gravatt for around $300 million, and invested approximately $800 million in development projects during the year. At year-end, the group had $1.4 billion of projects under construction, with the group's share being $1 billion, of which $300 million is being invested to date. Our assets under management have increased from the prior year by $2.1 billion to $64.4 billion, with minimal exchange rate movements to last year.

For 2013, we expect to achieve FFO of $0.665 per security, and we are forecasting an increase in distribution to $0.51 per security.

That concludes our presentation for today, and I would now like to open up the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] The first question comes from Rob Stanton of JPMorgan.

Rob Stanton - JP Morgan Chase & Co, Research Division

A question on the buyback, I think you've got, give or take, about $140 million shares to guide or completed. Given the share price movement, that we've seen since you started, are you as focused on doing the whole lot?

Peter S. Lowy

Rob, it's Peter here. We are. As you see, we've been buying stock judiciously, and as we've said at this time last year, when we announced the buyback, our aim is to be buying stock back. We're not pushing the price, we're not pushing the market. We won't be leaving it, but we will be deploying capital in buying stock back.

Rob Stanton - JP Morgan Chase & Co, Research Division

Okay. On the overheads comment, Peter, should we take that as a guide for around flat on this year or can you get it lower?

Peter Kenneth Allen

I think, yes, we have had a substantial change last year. We have, as I mentioned, we have focused on overheads during 2012. We expect to continue to do that in 2013, but I think flat to slightly lower than flat would probably be something reasonable, not withstanding increases in terms of overall cost and CPI and inflation across the world.

Rob Stanton - JP Morgan Chase & Co, Research Division

And what's a reasonable guide for project management income for the coming year?

Peter Kenneth Allen

Well, I think that, as I said probably this time last year, that we were looking at around $200 million of our project income for 2012, and I think that we'd see a similar number in 2013.

Rob Stanton - JP Morgan Chase & Co, Research Division

Okay, cool. And just 1 more, and I guess a broader question. I think that the consistent guide for the business has been around 5% to 6% EPS growth. I guess my question is, when are we likely to see that?

Peter S. Lowy

Well, you have to take into account on that the transactions, and the capital transactions we've been doing and the deployment of the excess capital that we've had, Rob. If you have a look at this year's earnings and you actually take out the dilution from the asset sales, we actually got 6%, and the differential really is in the deployment of the capital and the time it takes to buy the stock back.

Rob Stanton - JP Morgan Chase & Co, Research Division

So did that -- I mean, does that mean that gearing needs to be up close to that kind of 40%, 45% mark that I think you've previously been ing comfortable with, to generate that kind of EPS growth?

Peter Kenneth Allen

Rob, I think that our gearing in terms of, as Pete mentioned, I think the real difference is the deployment of capital. And as we've said, we've got about $1.2 billion still to buyback in terms of the stock. If we assume that the asset values remain the same and we include an additional $1.2 billion out of our additional liability, in effect, reducing our cash balance, our gearing goes up to the 36%. So I think in terms of that mid-30s level there's a number which we're comfortable with, because the underlying operating business is growing somewhere around 4.5% to 5%, so we're pretty comfortable with that level of gearing to be able to have that 5% to 6% growth going forward.

Peter S. Lowy

Yes, the other thing I'd add, Rob, is if you look at the 2013 projection that we've had and you take the dilution out again, because we have assumed we haven't bought any more stock back with that, you'd get the same 5% to 6% growth.

Operator

The next question in the queue comes from Paul Checchin of Macquarie.

Paul Checchin - Macquarie Research

Just the first one on the outlook for Australia and New Zealand, that comp NOI growth expectation of 1.5% to 2% is a substantial step down from what you delivered in 2012. Can you just talk me through some of the moving parts there? And predominantly, is it an expectation of a change in occupancy, or is it down time due to remixing of tenants, or is it kind of continued negative rental reversions on release that's kind of bringing that number down?

Peter S. Lowy

Probably a combination of all of the above. I wouldn't say mall vacancy. I think we're holding out occupancy levels very well, Paul. It's really just a function of a slowing economy, lower inflation and on the renewals and new leasing taking place, that's generally being done. This year, it was effectually 4% to 5% below. Renewals were basically flat and new leases were about 4% to 5% below the previous expiries. You combine that, that's about 15% of our space, you combine that with the balance of the specialty stores growing at CPI plus 2, and that's sort of how the math pops out. So we should be -- on maintaining occupancy levels, we should be in that 1.5% to 2% range. And I think that, that's really just a reflection of the overall market conditions. There have been subdued retail sales growth, has been subdued in Australia for a number of years now, and I suppose we're feeling a lagging effect of that. We've also had, in the last couple of years in Australia, you have that impact of retail sales. Quite a bit of that impact has been due to an increase in savings rate. I think you can expect that the indicators at the moment look like that leveling off. And with GDP growth, that is forecast, combined with a stable savings rate, I think you can to expect a return to some sales growth again. But that's yet to be seen, and we'll play that out as it comes.

Paul Checchin - Macquarie Research

Okay, great. And just secondly, in terms of the contribution in fiscal year '12 from Sydney City and Stratford, can you provide some color as to how much income was recognized on Sydney City and Stratford, and then still how much is to go?

Peter Kenneth Allen

Yes, I think as we said when we announced the completion of those 2 centers, that we were looking at the recognition of over probably a 3-year period. If you look at Sydney this year, we saw in our project income, there's probably around $50-odd million in terms of project income recognized as far as Sydney, particularly as we finish off the works here in this building. We still have a number of floors in the office building to lease and et cetera. And then we also saw an increase in our revaluation of a slightly higher amounts in terms of Westfield Sydney. As far as Stratford there's around GBP 30 odd-million, I think recognized in the project income, and we'll have probably a similar amount level next year in 2013.

Paul Checchin - Macquarie Research

Great. And then just a final question. Just again -- and I asked this one 6 months ago, but just came for an update on what's happening to U.S. asset values. I mean, it doesn't look like you guys have booked any material asset value increases. I know in total it's like $815 million, part of which was in the first half, and as a percentage of your book value, it's not that much. Can you just talk about your expectations, particularly on asset values in the U.S. and perhaps why your book value may or may not be conservative relative to what kind of other indicators might suggest?

Peter Kenneth Allen

Okay. It's Peter here, Paul. The 1 thing about values and current value accounts, when you deal with value is you have to have a look over a period of time that the values do change over time, but they do not bounce up and down always, how you see market transactions. So if you ever look at the values when they were falling from 2008 onwards, it took quite a while for that to work through the system, and the valuations went down in quite a steady manner. And now that they're recovered and prices are recovering, I think you'll see the values increase in a steady manner. We had -- of the revaluations that we had, which was $850-odd million, $270-odd million of that is out of the U.S. As you see from the slides, we haven't been -- with the values, we haven't been looking at cap rate compression. But when you go and have a look at the way the U.S. stocks trade, when you look at the way Simon trades, General Growth trades, Calvin, Metreon trade there, they are trading on higher cap rates than you are seeing in our values. I just think it's function of the market and -- sorry, on lower cap rates, higher values, lower cap rates than you're seeing in our values. I just think of it's a way of how and valuers work and how the market works. And when you see these stocks trade, they get marked-to-market, I think, a lot quicker than you do when you use long-terms valuations.

Operator

The next question comes from the line of John Kim of CLSA.

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

I was interested in your views on the increased retail development pipelines among your competitors in Australia. If you look at the REITs and also some of your unlisted competitors like AMP, it now totals probably over 5 billion, and this is despite slowing fundamentals in the sector. So I'm just questioning or wanted to know what your views on this increased pipeline is. Is it a good sign of confidence back in the sector? Or should we be concerned just given the increased supply and competition?

Steven Mark Lowy

John, Steven here. I'm not really concerned about it. I think with the program you're seeing is maybe kicking in at some delays that may have taken place over the last couple of years. If you look where that program is, I mean, our center in Miranda is obviously we haven't worked on that for some 20 years. The AMP portfolio, that expansion is clearly at Macquarie and Pacific Fair. Both centers have also lagged, in a sense, all of both of which have the capacity to absorb the supply that's coming in place. It isn't really a Westfield issue, because I think the other competitors who may have suffered deeply through the GFC are now sort of getting their act together, and there's probably been a lag effect there. From our perspective, we've just kept going. I mean, last year, we obviously opened Carindale and Fountain Gate. I think we've opened $2 billion of work in the last number of years in Australia through the GFC. I think that's since 2008. And of course, we are now powering ahead with the anticipation of Miranda and Mount Gravatt and the other development pipeline and you're now seeing it in our results. So I think it's just probably a function of the market catching up on a number of our competitors getting going again from not doing very much for some period of time. And I'm not concerned about the supply side. I think it's spread across the country and they're generally being done in high-quality assets and high-quality markets.

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

So I noticed your development pipeline for this year as far as starts hasn't really changed from your guidance from last year. You don't see any need or pressure to expedite some of your Australian redevelopments?

Steven Mark Lowy

Well, I mean, innate of pressure, I don't think that's the case. I think we have a well-articulated program. It's growing. It's growing globally, not just in Australia, and we do it in a very methodical and disciplined fashion. We make sure that the market is capable of absorbing the supply we're putting on the ground. In a sense, the supply that we have put on the ground, we're really excited about because these are absolutely market-leading assets, whether it's Fountain Gate or Carindale or what we're doing now this year at Miranda and Mount Gravatt. These will be sort of really leading assets in the country, and they're absolutely full fit that strategy that I outlined in my words before about this really dominant assets and just strong markets integrating food, fashion, entertainment and leisure. So we're really confident of those. I mean, I think you can -- there is a slowing, there has been a slowing market for a number of years, but the underlying markets in which we're operating are very strong, very solid and have the capacity to absorb what we're doing.

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

Your unlevered IR targets for your global development pipeline is also stable at 12% to 15%, but I'm wondering, within Australia, if it's come down at all? Especially given the increased international retailers coming in, and a lot of them wanting or desiring lower rents?

Steven Mark Lowy

No, no. I thought we haven't reduced our internal rate of return requirements. I would be very confident that, particularly the anticipated projects start this year of Miranda and Mount Gravatt, will fall within those parameters. And of course, the centers that we just opened last year, particularly Fountain Gate and Carindale will also fall in those parameters. And that doesn't really even take into account long-term cap rate compression. If you get long-term cap rate compression, which relates incredibly solid assets, you'll beat those figures over that period of time.

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

Okay. And then a follow-up question to Rob on the earnings growth and the potential timing of the earnings growth, kind of matching your improvements in ROE. But Peter, based on your prepared remarks, you discussed that you're continuing to look at asset sales. So I'm wondering if you could provide some more commentary on the timing of this, if this is going to be dilutive? And also the type of asset sales that you're looking at?

Peter Kenneth Allen

Sure, John. I mean, if you remember from last year, we had planned to sell probably another $1 billion odd, maybe $0.5 billion odd of assets, and we're still planning to do that. As I said last year, the timing is going to be what it's going to be, where the market is, where the demand is. We're in no hurry to do that. As you can see, we haven't exactly deployed all capital that we've raised just yet. So it'll just be part of our ongoing management at that company and part of our strategy just to keep looking to peal off some of those noncore assets and then redeploy that capital.

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

Okay. And then finally, on your $12 billion future pipeline, I'm just wondering how much of that component is office? It seems like on some of your larger projects, office is a fairly significant component and it could be complementary to the center. So I'm just wondering if that $12 billion includes any office in it?

Peter Kenneth Allen

It would be very much the margin, John. The vast majority of that would be retail. The 1 exception to that may be in Westfield London, where we have an approval for an expansion of 0.5 million square feet of retail and 1,700-odd apartments. And we'll have to work out between now and then of how to properly get the value for that and monetize that, because it's a great asset that we've created. That's quite an anomaly. And we'll, I think that you're referring to our project, obviously, in Sydney, where we have a major office component. But that would be more an abnormal development for us.

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

So is there an update to your current views on the Sydney office component? Are you looking to keep it or potentially sell it?

Steven Mark Lowy

Well I think that we are very pleased with it. It sort of fits within the overall profile here. We have no plans to adjust that at the moment.

Operator

Your next question comes from the line of Stephen Rich of Crédit Suisse.

Stephen Rich - Crédit Suisse AG, Research Division

Just a couple of questions of you this morning. Firstly, you've mentioned or talked about Miranda and Mount Gravatt and the potential commencement this year. When should we expect it to hit that Slide 13 development and construction activity at full? Can you provide some details in terms of potential yields and anticipated timing?

Steven Mark Lowy

For those 2 projects?

Stephen Rich - Crédit Suisse AG, Research Division

Yes.

Steven Mark Lowy

I think soon. I can't do it today. I think ourselves and our partners, WRT, in the case of Mount Gravatt, and both of us and DEXUS in the case of Miranda, are going through those debt [ph] work at the moment, and when we finalize that, I'm sure we'll inform the market. I did say before to a previous question that we certainly expect to achieve those returns that we've outlined in a more broader, in an aggregated and broader way.

Stephen Rich - Crédit Suisse AG, Research Division

And along the same lines, I assume no further color on the commencement of Garden State Plaza and Montgomery?

Steven Mark Lowy

No, we have, actually, in the announcement, in my words and in the press release, we have already started those projects earlier in the year, 2 weeks ago.

Stephen Rich - Crédit Suisse AG, Research Division

And any guid then on the anticipated yield or timing?

Steven Mark Lowy

Yes. The timing will be the completion of both of those will be next year. In a yield sense, Montgomery should be in the 7% range and Garden State Plaza will be more in the 5% to 6% range. The reason for that is that we are actually rebuilding an 1800 carpark that was built many years ago, and about half the cost is actually to do that. The balance of the work is actually we'll achieve a much higher yield, probably in the 9% to 10% range. But overall, we expect that to be in the 5-odd-percent range. But we expect that to provide a very strong benefit to the center. And we expect value growth of that when it's complete as well. I think you need to look Garden State as an anomaly because of the rebuilding of a carpark built many years ago as a one-off issue.

Stephen Rich - Crédit Suisse AG, Research Division

Right. Just on the domestic outlook, I guess just about to pull [ph] presumably part of the reason why the comp NOI will be somewhat depressed in Australia over the next year is the lower inflation rate and with obviously, the leases being inflation-linked. Can you give us a feel for what your expectation is for inflation this year in that guidance?

Steven Mark Lowy

We're assuming around 2% in that figure.

Stephen Rich - Crédit Suisse AG, Research Division

Right. And just one final one with respect to the interest rate forecast coming into 2013. Seems like you've still got a number products that are somewhat out of the money relative to what in particular your U.S. peers are doing and market events over there? Can you give us a feel for the potential upside associated with buying back debt like we saw in the fourth quarter or any sort of capital management initiatives there?

Peter Kenneth Allen

We're not looking at that, Steven. I think that we bought back some of those bonds as a way of being in a position to reissue 10-year bonds in the United States. There was a cost of roughly $27 million, $25 million in terms of doing that. We did that really to link them in maturities at this time of our low interest rates. We've got a pretty average length of maturities of just over 5 years, which has probably -- you assume you're doing a 10-year bond every year, that's probably the maximum you can get to. There's a cost in terms of the cash flow cost, in terms of buying back debt and bonds. We don't anticipate to do that notwithstanding the interest rates that we have with our existing debt. Our overall interest rates going forward is probably going to be very similar to last year around 4%.

Operator

Your next question comes from the line of Rob Freeman of Macquarie.

Rob Freeman - Macquarie Research

Just honing in on that 1.5% comparable NOI guidance again for Australia and New Zealand. Just doing the back of the envelope math, I mean, I need to assume that double-digit sort of rent renewal and new deal assumption to get there. What else is going on in that number? So for example, is there lease break income in the PCP?

Steven Mark Lowy

I'm not sure of the calculation you're doing. Probably requires more than the back of the envelope. But I would suggest maybe we sit down with you afterwards, but I'll just reiterate for the call. Our assumptions in that are a similar occupancy level, 2% inflation rate, a slight reduction on the renewed, not -- review's probably around flat and when we get stores back, the releasing is those at a slight reduction. And our analysis will show between 1.5% to 2% on that. If you have an issue, we can deal with that offline.

Rob Freeman - Macquarie Research

Okay. And then just in terms of that sort of weaker than expected spec sales growth to December, how many, I suppose, stores were handed back during the period from tenants and administration?

Steven Mark Lowy

We haven't had an excessive amount. Our occupancy level was pretty similar through the year. We haven't had an excessive amount of stores handed back during the year. So the 2 don’t quite go hand in hand. But I think it's fair to say that the December quarter was softer than we would've liked. But of course, we're pleased with the bounce back in January. Whether that continues or not, I mean, I think we also need to remind ourselves that the consumer confidence figures that have come out more recently show some leading indicators that are a little bit more positive. And also our view of -- with GDP growth and -- with savings rate, that is, I think you could expect some retail sales growth this year. But, of course, we can't really predict that, but that would not be an unreasonable analysis.

Operator

Your next question comes from the line of Simon Garing of Merrill Lynch.

Simon Garing - BofA Merrill Lynch, Research Division

Just a couple of quick questions for me, please. Milan, the kickoff date, we have to reconfirm when that's likely to start?

Steven Mark Lowy

Yes, I think this year is a year of really finalizing our plan and feasibility and all the major tenants here are interested, which is going really well. And then I think we would hope to be in a position to get going next year. I mean, that depends on a lot of things happening this year. But what I will say is that we are really excited about Milan. The market is very excited about Milan, notwithstanding the obvious issues in Europe and Italy, and I don't think we'll go into that on this call. But the fundamental on the supply in what is a very wealthy part of Europe and the opportunity to put a product on the ground that would be absolutely the leading retail asset in continental Europe is very exciting, and the retailers are embracing it. Milan itself is one of the 4 fashion capitals of the world. They're very proud of it. And our early feedback from dealing with the retailers is that they're usually responsive and excited about that. So we are very confident about it and we're getting our act together this year and we want to do something very special.

Simon Garing - BofA Merrill Lynch, Research Division

Previous calls you've talked about the sort of the funding side between potential breakup of the euro and perhaps protecting the group from that. Have you made progress in understanding how it's best to finance that project?

Peter Kenneth Allen

Now, you're asking a really simple question. One of the issues there is that, as you've seen, one of the ways to de-risk projects when you get into them, either funding or otherwise, is do you look to bring in institutional partners? When you do that? How do you do that? But I think we're working very carefully on the funding of that. How do we de-risk our position, particularly with where the euro is. But I think you have to look at it on an overall basis of the company. I mean, just have a look what's happened over the last 3 or 4 years. We have some $15 billion of assets, while the Australian dollar's appreciated over 35%. So when you look at the currency, then you look at currency risk. We have to take the overall risk of the company where it is, not just the 1 product. So we are looking at that. We are seeing how we mitigate it, how much equity we put into it, where we go and how we deal with it. But it's a fundamentally strong asset in a fundamentally good market. And as you know, the work we tend to do starts at the asset level, on the fundamentals and then works up from there.

Simon Garing - BofA Merrill Lynch, Research Division

On the London project, I was over there 6 weeks ago. It looks like a fantastic potential there. Has the major department store signed, and are you willing to kick that off this year if they do sign?

Steven Mark Lowy

We're not going to kick that off this year. We're again, we're working very well. We have all the approvals necessary. We're working with major tenants, actually, right now. There's a lot of work to do there and I wouldn't anticipate that getting going this year. But certainly maybe next year. And as the progress is put into place, we'll keep you informed. We don't have a specific announcement to make yet. But again, like my discussion on Milan, I know the market is hugely excited about this. Of course, Westfield London as has Stratford fit the cover off the ball in terms of retail sales and impact on the market, and I have no doubt that those will be -- they will be very exciting projects. But we're really focused on, as Pete talked about before, putting our fundamentals into place. And as we do that, we'll keep you informed.

Simon Garing - BofA Merrill Lynch, Research Division

Okay. And then with Australia, you've given some sort of general guidance. Just wondering how many of the 47 properties actually had declining NOI last year?

Steven Mark Lowy

I'm not sure that any did. And if they did, it would be maybe 1 or 2 or so. I don’t think any, actually, Simon.

Simon Garing - BofA Merrill Lynch, Research Division

Okay. A lot of your peers have seen a substantial pickup in the number of stores going backwards, so just interesting to contrast that you've got virtually none.

Steven Mark Lowy

I think this is an important moment to understand the quality of the assets and the risks associated with our portfolio versus some of our peers. Again, we're very proud of the portfolio that's been built up in this country. We feel that we now have investments in 8 of the top 10 assets in the country, and I think 14 of the top 20 assets in the country. So the vast, vast majority of our exposure in Australia is in the top-tier assets. And I think, in a more difficult market, you see better quality assets performing better than lesser quality assets, and generally risk is more understood in a more complex environment. And I think we are in a complex environment right now. But our assets, notwithstanding the subdued retail conditions, have very, very high productivity levels and good demand. And I think if you see particularly an important focus is, where are these international retailers going to land? And we have opened many international retails already. We're in discussions with many more. And where are they coming? They're coming to centers like Sydney, they're coming to centers like Bondi Junction, like Doncaster, like Chermside, like Carindale, like Mount Gravatt, like what will be in Miranda. We are designing Miranda to accommodate these international retailers in a way will be very exciting. So I think it's in these times, Simon, you need to appreciate the quality of our portfolio.

Simon Garing - BofA Merrill Lynch, Research Division

Great. And final question over in the states, if I can. Some of the developments in the pipeline require, I think, some buying out of some of the big department store boxes such as Sears. What's the appetite for some of these major anchors to sell out that unlocks the pipeline for you?

Steven Mark Lowy

No, I don't. I just want to correct you on that for a moment. The vast majority -- well, the projects that I've spoken about like the predevelopment work that we're progressing now on Valley Fair, on UTC, on Century City. In fact, I can't think of 1 that is an important project for us where we need to buy out any major tenant like Sears. So I think there are overall issues with the trading performance of retailers like Sears. But in a sense of getting in the way of our development program, I would not have that assumption. I think it's actually timely, maybe, here, to remind the market of all the work that's taken place in the last 3 or 4 years. We have actually replaced some 23 department stores, which is about 3 million square feet of space. The vast majority of that is already open, and that comes from taking back space over time from the federated deals that we made and also Mervyn's and a few other one-off stores like Dillard's. We've opened 1 Costco, we're about to open another one and about to start another one. We've opened a number of Nordstrom Racks. We've opened a number of Target stores. We've opened a number of Forever 21s. I think we've opened 14 gyms and 9 theaters are either open or underway. So I think that -- and, I think, not -- 8 supermarkets. In that, we started a program some years ago during the GFC where we effectively shut off the major projects, but got very focused on realigning our assets and focusing on the interaction of food, fashion and entertainment and lifestyle services like gymnasiums, et cetera. And the vast majority of that work is now complete. And I think you can see that, that's now coming through in the -- now, the retail sales performance of our assets, and coming through in our NOI growth. Second half last year was 6%. We're expecting really good NOI growth this year. And that's coming about not just because there's some wind behind the sails in the market, but also the hard yacker [ph] that we've put in, in the last 4 to 5 years in getting the assets ready for that. So in a sense that -- in that with the slower growth in Australia, that's certainly being offset now by superior growth now coming out of the U.S.

Operator

Your last questions today comes from Mr. Rob Stanton of JPMorgan.

Rob Stanton - JP Morgan Chase & Co, Research Division

Just interested in your strategy statement there on Slide 8. And the focus there on major cities, and just wondering what that means for places like Canber or Wollongong in Australia to take a couple of examples?

Steven Mark Lowy

Are you suggesting Canberra zone and Portland City to Australia? No. I think that you have an overarching strategy which gets the majority of focus and certainly your future capital, but that doesn't mean that you can't have very good assets in markets that are also very strong. And certainly, a market like Canberra is a very strong market for obvious reasons. You may have a different view -- or a company like ours may have a different view in the longer term of a market like Wollongong, which clearly doesn't fit that same criteria. But I'm not going to flag any position that we have on Wollongong or any, sort of, let's call it, second-tier city. But you can see where our capital is going is in these major global cities that attract these international retailers and have the capacity to be real powerhouses. And almost all the capital that we're deploying right now is certainly towards that strategy. Of course, a company like ours has many assets that have been acquired or developed over a long period of time. In the case of -- let's just use the example of Wollongong, you go back to '70s, and the formation of Westfield Holdings at the time. So there are a number of assets like that. There are also a number of assets like that in the United States and that these big portfolios have, and we'll review those over time. But I don't think it's appropriate to flag any action on those smaller assets. And again, I remind us, the vast majority of our portfolio has a much bigger assets in the stronger cities.

Rob Stanton - JP Morgan Chase & Co, Research Division

Okay. So at this stage, it's really just $1 billion of U.S. assets that Peter mentioned that we should be considering on call?

Steven Mark Lowy

I think that would be a fair assumption. But there's nothing more to add on this call about that.

Peter Kenneth Allen

Okay. I think I'd like to thank everybody for being on the call. I would like to say one thing before we finish. This is the first time in the history of the company that, when we put the results out, that we've had our statutory accounts come out at exactly the same time. And I'd like to thank our team for doing that. It was a Herculean effort. And from now on, that's the standard, so you can expect that every year. And thanks, everyone, for their time. If anyone has any other questions, please give us a call. Thank you.

Operator

Thank you, ladies and gentlemen. This concludes the Westfield Group 2012 Full Year Results. You may now disconnect.

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