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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 Executive Director

Analysts

Paul Checchin - Macquarie

John Kim – CLSA

Stephen Rich - Credit Suisse

Winston Sammut - Maxim Asset Management

Danish Agboatwala - Barclays Capital

Melinda Baxter - Merrill Lynch

Westfield Group ADR (OTCPK:WFGPY) Q4 2013 Earnings Call February 26, 2014 9:00 AM ET

Operator

Ladies and gentlemen thank you for standing by and welcome to the Westfield Group 2013 Full Year results. At this time all participants are in a listen only mode. (Operator Instructions) I must advise you that this conference is being recorded today Wednesday, 26 February 2014, Eastern Daylight Time.

I would now like to hand the conference over to your speaker today Mr. Peter Lowy. Thank you, sir. Please go ahead.

Peter S. Lowy

Thank you. Welcome everybody to the results call for the full year ended December 31, 2013. With me today is Steven Lowy and Peter Allen.

We are pleased with our results for the year, which showed good performance. FFO was $1.44 billion or $0.665 per security, an increase of 2.3% in line with our forecasts, and including the impact of the asset divestments completed during the year.

Comparable NOI growth in the U.S. was 4.7%, UK will 4.3% and Australia 2.0%, also in line with our expectations. Sales performance was strong in the US and the UK while starting to show improvement in Australia. As you know in December of last year we announced the proposal to restructure WDC. At the same time we also announced a proposed merger of WDC's Australian business with the Westfield Retail Trust. I would like to restate the strategy behind the restructure.

The company has been focused for some time on decreasing its total balance sheet assets, increasing assets under management and increasing return on equity. Over the last few years we have divested non-core assets and substantially increased our joint ventures. At the same time we have distributed almost $10 billion to security holders.

WDC now stands in a position of $37 billion of total assets, $70 billion of assets under management and 11.8% return on equity. This is in stark contrast and materially better to the position we were in 2010. We have been successful in strategically repositioning and upgrading our portfolio, by completing a number of major developments including London and Stratford in the UK, Sydney, [indiscernible] in Australia, Garden State Plaza and UTC in the United States.

We have also acquired the Westfield World Trade Center, the Milan opportunity in Italy and Croydon in London. We have divested 29 non-core asset for $4.3 billion. Our portfolio in the UK and the US is much stronger than it was previously. WDC now has market-leading portfolios in Australia, New Zealand, the UK and the US. We believe that in the current environment shareholders would have higher long-term returns and thereby be better awarded if WDC was split into two companies. One focused on Australia and New Zealand and the other focused internationally.

This would free company to pursue its own goals and would allow security holders to decide how much exposure to each company and its currency they would want for their investment. Both companies would have the quality of assets and operating platform together with balance sheet strength and earnings capacity to be successful standalone entities.

WDC’s restructure we believe is the best path going forward. However today WRT is the only pure play investment vehicle available to gain exposure solely to the Westfield portfolio in Australia and New Zealand. WDC’s restructure independent of WRT would mean that there would be two publicly traded vehicles representing the same portfolio of assets. We believe moving the two groups to create one publicly traded entity is preferable for both set of security holders. We therefore approached WRT and its board to discuss merging with the Australian business that would be spun out of WDC.

This was not viewed by either group as an acquisition or takeover. WDC and WRT agreed to merge on the relative FFOs contributed by each entity to the merger. This approach was adopted as it is consistent with the relative value the investment market has placed and continues to place on each business and the proposal reflects the fact [ph]. Both boards believe that this approach is appropriate and fair to set of security holders.

The transaction will move forward on the terms announced on 4 December 2013. The explanatory memorandum outlining the details of the transaction and the new entities is expected to be sent to shareholders in late April. This timetable is consistent with the one outlined in the announcement in December of last year.

I would now like to handle over to Steven for the operational review. Thank you.

Steven Mark Lowy

Thanks, Peter and good morning ladies and gentlemen. We are pleased with the results to the year which reflect solid performance from the portfolio with each market showing high productivity, growth in specialty sales and comparable net operating income.

The group’s focus is on creating and owning world-leading retail destinations by integrating food, fashion, leisure and entertainment using technology to better connect retailers with consumers. During the year we saw improving performance in both our Australian and international businesses.

In Australia, our portfolio remains strong and robust with vacancies near historic lows and improving retail sales environment, excellent specialty sales productivity and continued growth in average rents and comparable NOI. Our Australian business and platform has proved highly resilient due to the high quality of the portfolio and continues to support our expansion and redevelopment activities.

The strong performance of the international business reflects a continued focus on improving the quality of portfolio through redevelopment as well as the divestments completed during 2012 and 2013. The international portfolio is now 95.4% leased and has high productivity with annual retail specialty sales of US$667 per square foot. About 80% of the portfolio generates annual retail specialty sales in excess of US$500 per square foot.

Turning now to some of the highlights of the operating performance of the year. For the 12 months, comparable property net operating income in the United States was up 4.7% with the United Kingdom up 4.3% and Australia 2%. In Australia the portfolio remains about 99.5% leased with vacancies at levels lower than the previous year.

During the year, in excess of 2200 leasing deals were completed. Excluding development project, this represented 15.5% of specialty area which were completed at rental spreads of 6% to 7% lower than expiring rents. Average specially rent for the year increased 1.8% to $1537 per square meter. For the 12 months comparable specialty sales in Australia were up 1.4%. It is pleasing to note that specialty sales in the December quarter were up 3% and we are seeing this continue into January up some 4%, with improved performances across most categories.

In the United States, the comparable NOI growth for the year was driven by a 60 basis point improvement in percentage leased to 94.5%, an increase in average specialty rent of 3.8%, now at $73.95 per square foot, with growth over expiring rents for comparable space of 11.1% for the year.

Specialty retail sales for the year grew by 5.7% to $582 per square foot, reflecting the improved quality of the group’s portfolio with our high quality centers continuing to outperform. In the United Kingdom, the solid performances of Westfield London and Stratford City continue with retail sales for the year up 2.2% and 4.1% respectively. With these two centers generating a combined annual sales of almost 2 billion pounds from some 66 million customer visits.

For the 12 months, total sales were up 3.1% in the UK with comparable specialty sales up 3.2% to 825 pounds per square foot. Comparable NOI growth for the year of 4.3% in the UK was likely driven by the first five year rent reviews at Westfield London which commenced during the second half, coinciding with the fifth anniversary of the center’s completion.

Our digital strategy at Westfield Labs forms an integral part of the group’s broader objective of better connecting retailers and consumers and enhancing the overall shopping and entertainment experience. During the year, the group made good progress on digital initiatives, including piloting interactive digital store fronts and same day delivery in the US and introducing seamless express parking in London, as well as launching for more credibility in Australia.

Turning now to our development activity. The group’s Australian and New Zealand business continue to make good progress on the $4.9 billion of current and future projects. The $1.9 billion of current projects includes Miranda in Sydney and Mt Gravatt in Brisbane. In early 2014 works commenced at Pacific Fair in Queensland on behalf of AMP Capital.

The future development pipeline for the Australia and New Zealand business of $3 billion of major projects include Warringah in Sydney, Chermside in Brisbane and Marion in Adelaide. The group’s international business also continues to make good progress on current and future projects. Current projects include Garden State Plaza in New Jersey and Montgomery Mall in Maryland.

In 2014 works have already commenced at Bradford in the UK on behalf of Meyer Bergman and we expect to commence shortly the $250 million development of The Village at Topanga in Los Angeles. The future development pipeline of the international business of $9 billion includes landmark developments at Croydon in South London and Milan in Italy, together with the expansion of Westfield London and the redevelopment of Century City, Valley Fair, UTC in California.

During the year we announced the group would increase its ownership in the retail development of Westfield World Trade Center in New York from 50% to 100% with this project on track and expected to open in 2015.

Some important milestones were also achieved on major future developments during the year. We announced that John Lewis intends to open a new full line department store in the upcoming expansion at Westfield London. We recently achieved planning approval for our project at Croydon. Already in 2014 the group has started or is expected to start some $1.5 billion of projects globally.

Our development activity is expected to result in earnings accretion and create significant long-term value to shareholders. The targeted unleveraged, unlevered internal rate of return for our development projects is between 12% and 15%. For the 2014 year we forecast comparable net operating income to grow in the range of 2% to 2.5% in Australia, 4% to 5% in the United States and 10% to 11% in the United Kingdom.

Ladies and gentlemen that concludes our business review for 2013. And I’d now like to hand over to Peter Allen to go through the financial results.

Peter Kenneth Allen

Thanks, Steven. Our FFO for the year was $1.4 billion, or $0.665 per security, an increase of 2.3% over the previous corresponding period. The distribution was $0.51 per security, an increase of 3% to last year. Return on contributed equity was 11.8%, up from 11.4% in the prior year.

As detailed on Slide 3, our key metrics remained strong with net property income of $2 billion. As a result of the $7 billion of property divestments since the beginning of 2012 and the strengthening of the US dollar, net property income is consistent with the previous period and up 8% on a like-for-like basis. This increase includes comparable net property income growth in all regions and additional property income from our recently completed developments at Carindale, Fountain Gate, Sydney and Stratford.

Management income has increased 9% to $140 million, primarily from the new US joint ventures and increases in underlying property income. Project income has increased to $204 million and includes income from developments at Mt Gravatt, Miranda, Macquarie, West Lakes and Westfield Sydney in Australia, Garden State Plaza, Montgomery and World Trade Center in the United States and Stratford in London.

Overheads have been by 7% to $208 million reflecting cost savings from our divestments and our efficiency program over recent years. Overall EBIT on an FFO basis was $2.1 billion for the year, up 9% after adjusting for asset divestments. Gross interest for the period was $556 million of which $508 million was expensed and $48 million capitalized for development projects.

Our old ineffective interest rate is approximately 4%, similar to that in the prior year. Tax expense for the year was $102 million, an increase of 7% to last year and is consistent with the growth in projects and management income.

Our AIFRS profit after tax which is set on Slide 15, was $1.603 billion. This includes property revaluations of $864 million compared to $820 million for the prior year with capitalization rates remaining steady across the portfolio. Mark-to-market expense on our derivative financial instruments and realized currency differences was $288 million, $141 million was expensed primarily representing a premium on the repurchase of $1.8 billion of bonds as well as the mark-to-market of fixed rate mortgages on properties sold during the year. Deferred tax expense was $199 million.

Turning to our balance sheet on Slide 16. The group is in a strong financial position. Over the last two years we've completed a number of capital initiatives including $7 billion of asset divestments. Our balance sheet is also benefited by depreciation of the US dollar, pound sterling and New Zealand dollar against the Aussie dollar.

Our property investments have increased by $1.8 billion from $33.2 billion at the end of last year to $34 billion at the end of this year. This movement includes $864 million of revaluation gains, $3.2 billion from divestments and $3.1 billion of exchange rate gains. During the year the group invested over $200 million on our future developments at Croydon and Milan. Approximately $800 million was invested in development projects.

Our assets under management have increase from the prior year by $5.6 billion to $70 billion. $5 billion of which has arisen from exchange rate movements. Our current availability liquidity is $4.3 billion. We have over time reduced our liquidity as our joint venture partners now fund the largest share of the development pipeline. During the period, we raised and extended $3.1 billion of buyback for bank facilities and $1.7 billion of first mortgages. We also retired US$1.8 billion of bonds from the proceeds of asset divestments.

We refinanced bank all of our bonds and bank debts scheduled to mature in 2013 and ’14. We have no maturities until 2015. Our average term of bonds and mortgages has extended to 5.4 years and bank facilities extended to 3.8 years. Our interest cover is 3.9 times and our metrics are well within our covenant requirements. 68% of our interest rate exposure is currently fixed.

Gearing at the end of the year is 35.8% on a look-through basis compared to 32.5% at the end of last year, principally reflecting the impact of currency and the repurchase of $1.6 billion of securities under our buyback program.

For 2014 our forecast FFO prior to the restructure is $0.686 per security and our forecast distribution prior to the restructure is $0.525 per security, up 3% from 2013.

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) And your question comes from the line of Paul Checchin of Macquarie. Please go ahead.

Paul Checchin - Macquarie

Thank you. Just a couple of questions, look, the first is just in relation to your comp NOI growth guidance for Australia and New Zealand for 2014. It looks like it has increased from 1.5% to 2% to 2% to 2.5%. Is that on the back of inflation picking up, or what's the driver for that uplift?

Steven Mark Lowy

Paul, it's Steven here just to confirm, the 2% to 2.5% is through Australia. We expect New Zealand to be pretty flat and so the combined between Australia and New Zealand would be between 1.5% and 2%, probably on the higher end of that. But that’s how we were looking at –

Paul Checchin - Macquarie

I see you have split it out between the two geographies now -

Steven Mark Lowy

The Australian business is in excess of 90% and we want to better reflect that by breaking it up here.

Paul Checchin - Macquarie

Got it and just a second question on your cash flow, we kind of had this discussion at the half year and there was a pretty material shortfall between your cash flow and your FFO. That shortfall seems to have widened further in the second half. So your cash flow just looking at the second half is around $600 million and your FFO is around $710 million. Why has it widened further? Because I was under the expectation that actually some of the differential between your equity counted profits and your distributions from those equity counted profits was going to turn around in the second half.

Steven Mark Lowy

Yeah. Paul, that’s correct. In terms of the major differences between the equity counted profits which were showing with -- and I suppose cash flow which is being distributed from those equity counted. As we said, that will turn around, but it does not necessarily need to mean that it’ll turn around these last six months. So if you look at the equity counted profits it’s about $1.3 billion of equity counted profits and you add back both revaluations and the capital profits you get to that $819 million and then you’ll see the cash flow is about $629 million in terms of distributions. So there is a $190 million difference. Over time that will come through, but it hasn’t come through in these six months.

Paul Checchin - Macquarie

And just why it hasn’t it, Peter?

Peter S. Lowy

Well. In terms of the need for the cashes in terms of – our view at this point of time we’re keeping within the joint ventures.

Paul Checchin - Macquarie

Got it, and just a last question, if you sell those US assets that you kind of nominated in your materials in December, the $1.2 billion in the US and it also looks like you're trying to sell 700 odd million pounds also in the UK. What is the cost of debt that you would expect to retire, or the rate on the cost of debt that you'd expect to retire if you sold those assets?

Steven Mark Lowy

Yeah. I think, Paul, it’s going to be somewhere between 2% and 3% somewhere in that range.

Paul Checchin - Macquarie

Okay. Thank you very much.

Operator

And your next question comes from the line of John Kim from CLSA. Please go ahead.

John Kim – CLSA

Good morning. I had a couple of questions on your specialty rents. There was some big changes during the quarter, and this is in the US it's gone up 9% to $73.95, last quarter it was $67.76. Conversely in the UK the specialty rents went down 14%. So these are pretty big movements, I don't think you had a lot of portfolio changes during the last quarter. So what drove these material changes in rents?

Steven Mark Lowy

John, it’s Steven here. For the UK, we have actually brought the UK definition in line that with the United States and so the definition of change, speciality stores now those over -- under 10,000 square feet. We thought that was more appropriate to do and while that brings the headline figure down from 83 pounds to square foot of 71, it’s really actually on a like-to-like basis up 2.7%. So simply a definitional change to bring the UK definition in line with the US definition of stores under 10,000 square feet. It previously was stores under 400 square meters which was in line with the Australian definition and we felt it more appropriate for the international portfolio to be aligned with each other and so it’s a definitional change.

On a like-for-like basis, they’re actually up 2.7%. On United States, the only change there in the definition which is highlighted in the presentation is that we’re now showing the figures to the core portfolio which excludes the six centers that are for divestment and it also excludes three centers that are currently under redevelopment. So it’s really these definitional changes and the real figure to focus on is whilst the headline figure is adjusted because of the definitional change the real figure that is focused on is the like-for-like change which we’ve also highlighted and in the United States that is up 3.8% on a like-for-like basis for the core portfolio.

John Kim – CLSA

Got it. I don't know if you've provided an update for World Trade Center, or if you're prepared to do that now. But where does it stand in terms of the centre being leased? There's market reports saying that the rents are $550 per square foot, is that an anomaly? And also can you discuss the sales of Time Warner Center, TGIC and ADIA, and what do you think that means for valuations?

Steven Mark Lowy

I didn’t quite catch the second part of your question. Can you repeat that, John?

John Kim – CLSA

The sales of Time Warner Center in New York, where that sits as far as maybe price per square foot, verses your acquisition at World Trade Center and also maybe if you could discuss where you think cap rates are for an asset like that?

Peter S. Lowy

Sure. John, it’s Peter here. On the leasing side of the World Trade Center, we are not really pulling out very much information at the moment. What we want to do is consolidate the work that we’re doing, get everything lined up and then at the appropriate time we will come out with an announcement of where we are and what’s going on. I can tell you the leasing is strong. The World Trade Center should open up sometime next year in 2015 and it is a spectacular asset. I don’t know where the rents are from, why comment on them anyway, but the rates are pretty high and you can be sure that it is probably one of the best pieces of retail real estate in the country.

On the Time Warner Center, I actually didn’t know it traded, it must have either been in the air or haven’t read the newspaper in the last day or two, so it’s hard to comment but as you know the retail at Time Warner Center is very good. At Columbus Circle, you would get one of the lowest cap rates – sorry lowest cap rates and highest values that you could get in the country and sure that let’s just see where that goes. I think on cap rates, particularly there’s been a couple of trades around as you know that have raised eyebrows, the last one is the Teachers’ [ph] trade I think at International Plaza down in Tampa. So you’re seeing a strengthening of cap rates, you’re seeing large amounts of sovereign wealth moneys come along and everyone is chasing very, very good assets. I think the only one -- I just want one thing though, John, is you can also see that sort of trade that you saw at Time Warner and the International Plaza in Germany and I don’t know if you saw that trade by Uni Buy where they bought a piece of Oberhausen, also at something like 4.5 odd cap rates. So there is lot -- you know this I have been saying this for a really long time that the sovereign wealth funds have large amounts of capital that are allocated for real estate, they are looking for very good retail real estate. They haven’t gone really down the spectrum yet and so you’re seeing a very strong trades in the upper level of the mall business.

John Kim – CLSA

Can I ask just one final question on your gearing levels, it's at 35% today and interest cover at 3.9 times. It's pretty consistent where you've been operating WDC, but I was just wondering where you feel comfortable operating the company. And also it's coming in to the lower gearing than center, and just wondering why you think centers should be operating at a higher gearing level?

Peter S. Lowy

In terms of the gearing for WDC it’s consistent and certainly within the metrics of maintaining our single A credit ratings in terms of our A minus rating which we have with S&P. We are very confident and comfortable with that level of gearing going forward as far as the group is concerned. I think the difference in terms of the gearing that is proposed and as I said comfortable with Scentre group in terms of being slightly higher, is the fact that the reduction in the amount of development that is going to be taking place for the Australia and New Zealand business compared to the International business of Westfield Group and therefore the need to be able to have the capacity in terms of funding capacity for those developments?

John Kim – CLSA

Thank you.

Operator

And your next question comes from the line of Stephen Rich from Credit Suisse. Please go ahead.

Stephen Rich - Credit Suisse

Good morning, guys. Just following on from a couple of those questions earlier. Firstly you mentioned the potential to pay down debt on US and UK disposals at 2% to 3%. Is there any potential to redeploy capital in the buy back while the center proposal is ongoing?

Peter Kenneth Allen

Steven, Peter Allen here. I don’t believe it is so, that we’re able to institute the buyback while the proposal is out.

Stephen Rich - Credit Suisse

Okay. Just in terms of the -- one of the key statistics from the Scentre Group proposal, there was a number sighted for effectively the mark to market on the fixed income products, that might have to be reset on the restructure. Can you give us a feel for where that stands on 31 debt balance sheet?

Peter S. Lowy

Yeah. In terms of the balance sheet itself, the mark-to-market is not included in that because of the nature of the bond themselves and as we said in the presentation of December 4th, the mark-to-market hasn’t really changed since that announcement.

Stephen Rich - Credit Suisse

Okay. Great. Thanks. Just in terms of the Australian portfolio, can you just give us a feel for the retention rates amongst these specialty tenants that are expiring, and also where your holdover levels stand?

Steven Mark Lowy

It’s pretty similar to what has been, Stephen. It’s around two thirds of retailers where leases come up. And that really hasn’t varied very much and actually hold those at 7, 8 – slightly better but actually reduced certainly in 13 [ph] month of this year. So there is nothing untoward there. Our sense is that there is obviously a turn going on where consumer is very strong and has been for some time. But there is certainly, the consumer confidence is now coming through in [inaudible]. Certainly in the last 4 months which is a best four months we have seen in four years.

Stephen Rich - Credit Suisse

Just on the project income, you mentioned some of the names that contributed. Could you give us a feel for what the Sydney and Stratford contribution were in 2013 and any guidance what they might be in ‘14?

Peter S. Lowy

Yeah, okay in terms of the contribution of the Stratford and Sydney, we are basically nearly completions in terms of the recognition [ph] of both of those projects. As far as Sydney is concerned it's somewhere around $90 odd million. As far as Stratford is concerned that’s around 27 million, 28 million pounds in that order. I think that we probably got less than $10 million and 10 million pounds to recognize going forward on most projects.

Stephen Rich - Credit Suisse

Just one final question, on your Aussie current projects, you talked about 1.9 billion, it's obviously Pac Fair and the other two that have been known for some time, Miranda and Mt Gravatt. What else do I need to look at to get the 1.9 billion?

Peter S. Lowy

We are doing two major projects now for AMP. And if there is substantial projects, it’s all in billion dollars worth of work at the two centers and add to that 1.9 billion between Mt. Gravatt and Miranda.

Operator

And your next question comes from the line of Winston Sammut from Maxim Asset Management.

Winston Sammut - Maxim Asset Management

Just two questions if I have. Firstly can you talk about releasing spreads comparison between US and Australia? And the second question is for Peter. Peter, assuming the restructure occurs pre August, this could well be your Australian result presentation swan song. Can you just please provide some colour as to what your role will be going forward after that?

Steven Mark Lowy

This is Steven here, filling in for the first question, and to answer the second question, the releasing spreads we've announced negative 6, 7% in Australia, that’s pretty consistent through the year, just disclosed to that in the first half. And the releasing spread in the United States about 11%, which is actually pretty consistent over the lot three years, we've been between 8% and 11% over the last 3 years. So you can see the strength of the US market coming through and obviously the strength of our portfolio and I think you can see the Australian releasing spreads pretty much outlook going out now.

Peter S. Lowy

Yeah, I did think about that, [inaudible]. You have to look at the issue is after the both – and when company is split there is a very large job to do in getting the balance sheet right, getting the funding right. And we have a few more transactions as you know and to determine where the best place for Westfield Corporation is to be with this, we will be doing the work on looking at where it should go, as we said before we will be looking at mainly New York, London and/or leaving the company here. It’s a good precedent for the company -- for a company not having assets in Australia or just having assets in the US and Europe being here [ph] – we did it before with the Westfield America Trust and it traded quite well. So we have quite a bit of work to do here at the company and try to move forward.

After that I just want to remind everyone, I will be a nonexecutive director, so I am not exactly going away. There’s still to be plenty to do and so – but before we get to that we need to get the EML [ph], we need to get through the vote and then we need to put Westfield Corp on the right track for it to execute its business plan. So I have plenty to do for a while.

Operator

Your next question comes from the line of Danish Agboatwala from Barclays.

Danish Agboatwala - Barclays Capital

Hey guys, thank you for taking the question. I had a question on the balance sheet. Can you remind us what your plan is for the unsecured bonds as far as the merger. I think you've announced consent for the UK Sterling bond, but nothing on the US dollar side. If you could just update us on your thinking on that front.

Peter S. Lowy

In terms of UK sterling bonds, we are going out to the market as you would have seen in terms of – in fact, including a make whole provision in those bonds which would then give us flexibility going forward in terms of any transaction that goes ahead. In terms of the plans of what we are going to do with those bonds in the future as part of the restructure of the transaction, it’s something we’re still working on in terms of the need as to whether we fully pay them out, so we look at some sort of exchange type of program and that will be all set out in the explanatory memorandum when that’s put outside in the late April.

Danish Agboatwala - Barclays Capital

And so the announcement of the UK sterling [ph] inclusion of the make whole does not necessarily mean you are going to announce a make whole, but just gives you the option, is that correct?

Peter S. Lowy

That is correct.

Danish Agboatwala - Barclays Capital

And then secondly, just as part of the demerger you've talked about reducing leverage, have you identified which parts of the capital structure you will be reducing?

Peter S. Lowy

In terms of the announcement of the transaction I don't think we have spoken specifically about reducing leverage, I think there’s going some [ph] market talk about reducing leverage, I think that when you look at the expected ratings of the two entities in terms of Scentre Group as well as Westfield Corporation that the level of gearing that is set out in the announcements back in December 4 is -- would be consistent with those ratings which we’re expecting. And so therefore any plans and certainly the expected ratings will be put out again in the explanatory memorandum when that’s out in the end of April.

Operator

And your next question comes from the line of Melinda Baxter from Merrill Lynch.

Melinda Baxter - Merrill Lynch

Sorry guys. Just wondering, can you give us any indication of when Century City or Milan will kick off in terms of the development? Then secondly, you just mentioned that obviously you've got planning approval for Croydon, should we expect that to start before London now?

Steven Mark Lowy

No, the answer to the last question is no, we would expect London to start before Croydon, because we are well ahead for that -- London was well ahead of the expansion. We’ve got a very large development book in international business, around US$9 billion, it does include those projects you described, London. Milan, Croydon, major expansion, Century City, Valley Fair and UTC. We actually have approvals for all of those projects now and we’re in the pre-development stage at the moment. And we’re probably as I said more -- more ahead at London than we would be at Croydon. I mean I think we need to recall that we only became involved in Croydon about 12 months ago and the joint venture with Hammerson and in that period of time, we already have approval. But of course it’s a long way to go there.

Milan, we are making very good progress at, but I think we can expect them to be sort of evenly spread certainly the major projects in probably one year, in the next 5, 7 years. But the scale of the projects in Europe are larger than in United States, probably at Century City and we will be balancing sort of the capital needs of the entity, plus when these projects have to be ready to start. The very good news is these are hugely exciting projects to work on. These are world leading projects in world leading cities. And the demand from the retailers is exceptional for these projects. John Lewis will anchor the expansion of Westfield London. We’re probably at the most advanced there out of any of the projects. We haven't yet announced the anchor stores for Milan but I kind of assure you we are well down the track and excited about -- we think that that will completely rewrite the [indiscernible] business in Europe and we’re very excited to do that – retail community. Croydon and South London is just a very exciting project, think of a probably Stratford and the success of Stratford and we expect the building of that quality in South London. And of course, in the United States, the expansion of Century City in the West side of LA, these are the wealthiest sites on the planet, in that area and we are very excited about that. And Valley Fair being in Silicon Valley – Valley Fair, Garden State Plaza today are our two highest grossing shopping centers. Also the start of The Village at Topanga, we expect on completion that Topanga, including the Village at Topanga plus Garden State Plaza and will be a billion dollar projects and there’s few of those in the United States. The quality of the development program and the demand from retailers really we are seeing is first class. But we will appropriately spread those over time, obviously so we are confident of the execution and confident of the financial constraints on the organization.

Operator

As there are no further questions at this time, I would now like to hand the conference back to today’s presenters. Please continue gentlemen.

Peter S. Lowy

Well for my swan song, I'd like to thank you for attending [ph] and as always we are available for calls and we will available to see it. Thanks again for your time.

Operator

Ladies and gentlemen, this does conclude our conference for today. We thank you for participating. You may now all disconnect.

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