Sydney Airport has agreed a deal that allows the NSW state government to use 10 hectares (ha) of the airport’s land to build the $2.6bn Sydney Gateway Motorway – which will connect the airport to the WestConnex toll road – in return for a payment of $170m in three years’ time. Ord Minnett views this as a critical piece of infrastructure that should improve airport accessibility in the long term.
The government has been granted a 9.8ha easement over Sydney Airports’ northern lands to support road alignment and 1ha will be used temporarily for construction activities. Part of that land will now be used for the Sydney Gateway connection – a link from the St Peters interchange to the airport precinct – with a significant parcel of land remaining for potential future airport logistics, such as car parking for staff and/or pick-up and drop-off areas, and freight development – we note Sydney Airport handles about half of Australia’s international airfreight.
Sydney Airport will explore opportunities to invest the compensation into transport solutions for the airport. According to management, this could include increasing the number of rail and bus services – we estimate rail has grown its share of airport transport modes from about 10% in 2010 to 20% or more currently – with a new metro link to the airport. Such concessions could help to grow and diversify the company’s earnings in the longer term. In addition, there may be opportunities to partner with the NSW government on other transport projects.
Sydney Airport offers exposure to an attractive asset class with high barriers to entry, limited effective substitutes and an end market that has demonstrated resilient growth in the face of numerous exogenous shocks. We maintain our Buy recommendation and our $8.45 target price.