IFM, co-owners to spend A$25bn on Australian assets to 2030

Australian infra head Michael Hanna says the capex spend - 'one of the biggest across the Australian economy over the next decade' - is ‘very appealing’ due to high valuations for core infra.

IFM Investors and co-shareholders of the assets in its Australian Infrastructure Fund will invest A$25 billion ($17.0 billion; €15.4 billion) in capital expenditure across the portfolio in the decade to 2030.

Federal treasurer Josh Frydenberg called in August for Australian companies to reinvest more profits to grow their businesses, in preference to undertaking share buybacks or paying special dividends. IFM said its spending plans were aligned with this.

Michael Hanna, IFM’s head of infrastructure, Australia, told Infrastructure Investor the firm wanted to highlight the “heavy lifting” that it and its co-shareholders were already doing in assets like Melbourne Airport and NSW Ports.

“That effort is significant and the scale of that investment [will be] one of the biggest spends, in aggregate, by any business or entity across the Australian economy over the next decade,” he said.

IFM declined to provide a list of projects that would benefit from the A$25 billion spending owing to shareholder disclosure requirements. In a statement, it said the cash would go towards funding a rail upgrade at the Sydney suburb of Port Botany to facilitate a shift of freight from road to rail; new solar generation at Darwin Airport to support emissions reductions and lower energy costs; a new international cruise ship terminal at the Port of Brisbane; and several terminal and aviation capacity upgrades across Australia’s city airports.

Hanna told Infrastructure Investor that Melbourne Airport, Brisbane Airport and New South Wales electricity distributor Ausgrid were likely to see the “lion’s share” of the investment, but could not be more specific.

AMP Capital is the largest shareholder in Melbourne Airport with a 27.32 percent stake, while IFM holds a 25.17 percent stake as its second-largest shareholder. IFM is also the second-largest shareholder in Brisbane Airport with a 19.8 percent stake, behind only QIC on 25 percent. IFM and AustralianSuper together hold a 50.4 percent stake in Ausgrid.

IFM said the capital expenditure would average more than A$2 billion a year over the next decade, exceeding A$2.6 billion a year in 2020, 2021 and 2028. It added that it and its co-shareholders had already provided A$8.7 billion of capital expenditure on its assets, including A$1.3 billion on a second runway at Brisbane Airport that is due to open in the first half of 2020.

Hanna said the firm hopes the A$25 billion figure will be an “underestimate”, with other projects not currently factored into business plans that are uncertain or speculative. He cited as an example the proposed Melbourne Airport Rail Link, where IFM is leading a consortium that pledged A$5 billion to the construction of a new rail line to the airport years ahead of a schedule proposed by the Victoria state government. IFM is still waiting to hear back on that proposal, Hanna said.

Capex ‘very appealing’

Hanna also pointed out that the average concession length in the IFM Australian Infrastructure Fund is more than 80 years, which, coupled with current high valuations for core infrastructure assets, made capex investment “very appealing”.

“We’re not making investment decisions unless they are accretive to existing asset returns. It’s a win-win – you’re not competing against anyone else [as you would in competitive auctions for core assets] and you’re investing in the future of that business, in its ability to accommodate growth going forward.

“It’s also very attractive from a risk mitigation perspective by ensuring you can keep pace with population and economic growth and use your asset to its maximum extent. Capital expenditure is very attractive in this environment.”

IFM holds stakes of varying sizes in 16 assets in its Australian infrastructure portfolio: airports in Adelaide, Brisbane, Melbourne, Perth and the Northern Territory; Ausgrid; Axiom Education, a collection of nine PPP schools in NSW; aged care facility Mercy Health; Praeco, which owns, operates and maintains the Defence Headquarters Joint Operations Command facility in NSW; the Eastern Distributor (M1) toll road in Sydney; Perth CBD Law Courts; Wyuna Water filtration plants; Southern Cross Station in Melbourne; and two port assets at Port Botany, Port Kembla (a suburb of Wollongong) and the Port of Brisbane.