Sydney Airport has posted another strong result for 1H15, with EBITDA and revenue growth again exceeding total passenger growth. The company will also purchase the Terminal 3 lease from Qantas for $535m
Key results:
- Sydney Airport's 1H15 revenue of $594.8m is up 4.6% on the prior corresponding period (pcp) but was slightly below consensus estimates of $598m
- EBITDA of $488.3m beat consensus forecasts due to lower than forecast costs, depreciation and interest expenses and was up 6.4% versus pcp
- International passenger growth of 2.8% exceeded domestic passenger growth of 1.7%, driven by the strong 16.8% growth Chinese national passengers
- No refinancing requirements until 2017, average debt maturity in 2023 and a stable cash cost of debt of 6.0%
- An improvement in the cash flow cover ratio to 2.37 times and consistent net debt to EBITDA of 6.9 times reflect a continuation of the natural deleveraging of the business, as reflected in the figure below
The figure above includes two graphs one depicting the total interest coverage and the other, the net debt to EBITDA.
Source: Sydney Airport presentation
Sydney Airport has also announced that it will purchase the Terminal 3 lease from Qantas for $535m. The lease term was due to expire in September 2019. For Sydney Airport, the transaction is EBITDA and cash flow accretive from the first year. The transaction will be funded through a combination of bank debt (69%) and cash (31%). The terminal lease was purchased on an EBITDA multiple of approximately 11 times for the first full year, implying that the leverage ratio used in the transaction (total debt to EBITDA) was about 7.5 times, which is broadly in line with Sydney Airport’s existing leverage ratio prior to the transaction. As such, we consider the transaction to be broadly neutral from a credit perspective.
For Qantas, the transaction provides an upfront cash consideration as well as the certainty of a longer tenure at the terminal, with Qantas retaining priority usage of the terminal until 2025. Qantas will now pay a per-passenger fee to Sydney Airport to use Terminal 3 just as Jetstar and Virgin do at their domestic operations in Terminal 2.
Please contact your FIIG representative for more information on the Sydney Airport bonds available to FIIG investors.