We are pleased to report our financial performance for the year was strong with Funds from Operations (FFO) growing by 3.2% on a pro forma basis (1) and distributions growing by 2.0%, both in line with forecast.
We have delivered what we said we would because we have remained focused on our customers and curated our offer to keep pace with their changing expectations.
Operating Earnings – the Group’s FFO excluding Project Income – was $1.287 billion for the 12-month period, up 1.0% per security or 3.6% on a pro forma basis.
The strength of our portfolio and source of competitive advantage for our leading operating platform of 42 Westfield Living Centres is executing a customer focussed strategy and consistently delivering results.
Our plan and strategic objective is to create the places more people choose to come, more often, for longer.
Annual customer visits increased by more than 12 million during 2019 to over 548 million and our occupancy remains high at 99.3%. We are the leading platform in Australia and New Zealand for retailers and brands to interact with consumers.
Retail partner in-store sales within our portfolio grew by $1 billion during the year to $25 billion. This represents more than 7.5% of total retail sales in Australia. We have 3,600 brands represented in more than 12,000 outlets across our portfolio. The average annual specialty in-store sales within our portfolio is $1,525 million per store.
By listening and acting on what our customers want we have actively curated the mix within our portfolio.
During the year we introduced 344 new brands to our portfolio and 279 existing brands grew their store network with us.
In recent years we have seen consumers shift their preferences towards experiential retail and consume on-site. Today, 43% of the stores in our portfolio are experienced based. Customers want a seamless shopping experience. We continue to see increased investment in click and collect as retailers seek to optimise their store networks and close proximity to customers.
We view this as an opportunity and believe that physical retail is, and will remain, a central part of the retail ecosystem – key to retailers’ sales and distribution strategy. This is based on the fact that well-located high-quality physical retail, like our portfolio, is the most cost-efficient means for a brand to engage with the customer. It is also difficult to replicate.
We continue to innovate in how we engage with our customer to leverage these opportunities. New technologies are providing more opportunities to enhance our direct engagement with the consumer. For example, as part of the launch of Westfield Newmarket, we developed and launched Westfield Plus, a mobile app based membership program. More than 200,000 customers in New Zealand have downloaded the app.
The Group’s completion of the NZD790 million Westfield Newmarket development on time was a highlight of the year, creating the leading lifestyle and fashion destination in New Zealand.
We continue to reinvest in the portfolio and have commenced a number of projects that will improve the offer and experience for our customers. This includes commencing the $50 million project at Westfield Carindale which includes a new David Jones and introduction of Kmart; the $55 million dining and entertainment precinct at Westfield Mt Druitt adding 12 new rooftop restaurants as well as $89 million of special projects including the opening of Bradley Street dining precinct at Westfield Woden and the expansion and refurbishment of the dining precinct at Westfield Doncaster.
Capital management continues to be a priority for the Group.
In 2019 we released $2.1 billion of capital through the divestment of the Sydney Office Towers for $1.52 billion and the joint venturing of Westfield Burwood for $575 million. The capital released from these transactions is being redeployed into our business.
During the year we acquired a 50% interest in Westfield Booragoon in Perth for $570 million, becoming the long-term manager and developer for that centre. Westfield Booragoon’s strategic location and high quality make this acquisition consistent with our strategy. We also commenced our security buy-back program of up to $800 million and to date have purchased $304 million securities.
The Group’s financial position remains strong with FFO to Debt of 10.3% and interest cover of 3.6 times. Our balance sheet gearing is 33% at 31 December 2019. Our balance sheet does not ascribe any value to the Group’s unique operating platform, which generates more than $215 million equivalent to 16% of our FFO. The Group has A grade credit ratings from S&P, Fitch and Moody’s. We continue to maintain high levels of liquidity with undrawn committed facilities and cash totalling $1.8 billion.
Our long-term objective to create sustainable returns for our securityholders is consistent with our approach to be a responsible, sustainable business. Our Sustainable Business Framework is built on four pillars – our communities, our people, our environmental impact and our economic performance.
Our Westfield Living Centres are regarded as valued social infrastructure and at times of emergencies, are regarded by local authorities as places of refuge and shelter. Whilst our assets were not directly impacted by Australia’s recent bushfire emergencies, we believe we have a role to play in the nation’s recovery process. We partnered with the Salvation Army as part of our response to the bushfires by way of a cash donation of $500,000 and will provide significant in-kind support through our digital screen and media networks across our platform to expand the reach of their message and facilitate further fundraising.
Creating a safe, healthy, diverse and inclusive workplace where talent thrives is the focus of our people strategy. We were pleased to have sustained a high employee engagement rate of 84% in our most recent engagement survey, which places us in the top 2% of companies globally. We have recently been included in the 2020 Bloomberg Gender-Equality Index acknowledging our focus on talent, diversity and inclusion in a global peer group.
We are committed to operating an efficient and resilient business for the long-term.
We have existing environmental targets for emissions intensity, waste and recycling that our teams are making progress on. In addition to this, the Group today announced it will target net zero emissions across our wholly-owned portfolio by 2030. Work will continue in FY20 to align initiatives to our primary environmental target.
Full highlights and performance data across our four pillars will be disclosed in our standalone Responsible Business report at the end of the first quarter.
As we look to the year ahead, the Group forecasts Operating Earnings for the 12 months ending 31 December 2020 to be between 24.75 and 24.80 cents per security. This would represent growth, on a pro forma basis, of approximately 3.1%.
The Group forecasts to achieve Project Income (after tax) of approximately $28 million. This is a function of the amount of project work currently underway on behalf of external parties. The Group forecasts FFO for the 12 months ending 31 December 2020 of approximately 25.30 cents per security. This would represent growth, on a pro forma basis, of approximately 0.7%. These forecasts do not take into account the expected positive impact of completing the remainder of the up to $800 million security buy-back program. The distribution for 2020 is forecast to be 23.28 cents per security, an increase of 3%. In future years distributions are expected to grow in line with growth in Operating Earnings.
We would like to thank our people for their commitment to our customers during 2019 and for their contribution to this year’s results. The Board, management and our people are excited about the future of our business and our ability to listen and respond to rapidly changing customer expectations.
To be successful in today’s market, you need to have your eye firmly on your customer and stay close to their changing needs and preferences. Our ability to understand what customers want has secured a strong position for our business. Our proposition is to deliver long-term sustainable returns through economic cycles.
We will continue to adapt, grow earnings and distribution and deliver on Our Purpose: creating extraordinary places, connecting and enriching communities.
Brian Schwartz AM, Chairman
Peter Allen, Chief Executive Officer
(i) Pro forma FFO adjusts for the transactions completed during the year, including the sale of the Sydney Office towers for $1.52 billion in June 2019, the 50% joint venture of Westfield Burwood for $575 million also in June, the acquisition of 50% of Westfield Booragoon for $570 million in December and the $304 million of securities bought back under the 2019 buy-back program as at 31 December 2019.