Steve McCann | Group Chief Executive Officer and Managing Director Lendlease

Steve McCann

Key points:

• Increasing population growth in major cities will require urban regeneration and supporting investment into transport infrastructure. • Key challenges including an ageing, growing population, efficient utility and transport costs and climate change see a largely non-discretionary case for change. • The community will support major changes, like urban densification and major motorway and metro rail projects – provided the case for investment is clear and well made.

Group Chief Executive Officer and Managing Director, Lendlease

Lendlease has a proud track record of creating some of the best places around the world through urban regeneration, proudly partnering to deliver these outcomes in safety, sustainability, and health and wellbeing.

The last two years have been quite good for us on the city-making front. Lendlease’s portfolio of major urban regeneration projects has grown by around $8 billion dollars, with new developments secured in Singapore, Malaysia and the United States. Lendlease was selected as the major developer for projects such as the London Olympic Village and the remarkable Barangaroo, and is responible for more than $40 billion worth of construction in New York, including the National September 11 Memorial & Museum. This recently led Federal Trade Minister Andrew Robb to declare that Lendlease is at the epicentre of delivering high-quality services, both in Australia and around the world.

Lendlease has been at the forefront of both the social and the economic infrastructure sectors for more than 50 years. The organisation has partnered with governments to design and construct largescale bridges in Australia’s major cities, including the Anzac Bridge in Sydney, which enjoys its 20th anniversary this December, and the Story Bridge in Brisbane. Through our great forebears – Civil and Civic, and Baulderstone – Lendlease is proud to have delivered the Sydney Opera House. Beyond these, Lendlease also helped to deliver the Clem7 in Brisbane, and the Cross City Tunnel and M5 East Tunnel projects in Sydney.

In delivering some of the nation’s most notable roads, not only does Lendlease aim to create the best places; we also work hard to connect them. Through an integrated model of investment, development and construction, Lendlease is in an enviable position to both work in, and learn from, some of the best cities across the world. Lendlease has delivered more than 350 healthcare projects around the world, including major public-private partnerships in the United Kingdom, as well as the Royal Children’s Hospital in Melbourne, Bendigo Hospital in Victoria, and the Sunshine Coast University Hospital.

From modest beginnings on the Snowy Hydro scheme, Lendlease has come a long way as an organisation.

In this increasingly challenging business environment of international competition, I am proud to be leading one of the few surviving Australian companies with a track record of successful execution of major projects both at home and abroad.

This strong position makes Lendlease a leader, and with that comes a responsibility to help drive good-quality outcomes for our country, and the associated local employment and productivity benefits that result from that. The bearishness of the Australian market and global economy has increased the urgency of the discussion.

Fewer than 10 years ago, Lendlease commissioned Harvard Economics to present on whether or not the Chinese economy could decouple from its dependence on the United States economy for growth. What is now referred to as the global financial crisis (GFC) clearly took care of that vexed question. Today, when China stumbles, the entire global share market responds, the Australian economy slips a gear, and the resurging United States economy becomes a secondary topic.

This shift highlights the need for quick, effective, brave decisions to stimulate growth through urgent infrastructure spending.

This discussion must be elevated with people across the nation in order to achieve this reform. Dialogue needs to be about answering the ‘why’ question about major infrastructure projects.

Good leaders learn that people gravitate to the ‘why’.

Why do we need a new road? Why is it better to create a range of alternative means of transport? Why do we need to anticipate the healthcare requirements of the future? Why is the user-pays structure more sustainable and fair?

The question of why is a more engaging passion, and is ultimately a more supportable conversation, than explaining what we think is needed, or how it might be delivered.

In Australia, we have some interesting challenges – funding, risk allocation, community engagement, and politics – but ultimately, we have a solvable problem, which, on a relative scale, re-emphasises our position as a lucky country.

The Australian economy has recently slowed significantly, and industry is becoming increasingly focused on what it might mean if a China slowdown becomes more permanent; although, Australia is still growing and maintaining employment levels superior to what Europe has enjoyed since the GFC.

Australians have a great standard of living, and a number of our cities rate among the world’s most livable. Australians aren’t choking on density and aren’t facing the pollution issues that are beginning to make some major global cities unattractive for human habitation.

Maintaining that standard of living, while accommodating an unstoppable wave of urbanisation, is the reason that major infrastructure projects are needed to anticipate and address the needs of the future.

The concentration of population growth in our cities reflects a long-term global trend.

In the 1960s, the urban population accounted for about one-third of the total global population. That figure has now passed 50 per cent, and by 2030, more than 60 per cent of the world’s population will live in urban areas, increasing demand for urban regeneration.

In Australia, cities are the engines of prosperity, generating 80 per cent of our GDP, and employing three in four Australians.

Australia is already one of the most urbanised countries in the world, with more than 90 per cent of the population living in cities.

Below: M5 West Widening Project

While we do have it better than most, our infrastructure is not keeping pace.

Given the challenges that cities face – including population growth, an ageing population, climate change and increasing energy costs, to name a few – we can no longer rely on our existing infrastructure.

In Sydney alone, the population is expected to hit the five million mark within the next year. Significantly, New South Wales’s 10 largest growth areas over the past year are all in the Sydney metro area. These 10 growth areas have absorbed threequarters of the state’s recent population increase.

The challenge remains [establishing] how to harness and direct this growth so that it contributes positively to community amenity and the broader economy. Integrating transport infrastructure into urban renewal plans is vital to success, because transport infrastructure plays a vital role in shaping cities, their economies and, ultimately, urban landscapes and lifestyles.

It is not such a radical idea to switch that thinking and see transport investment as the precursor to urban renewal.

Recently, the investigation of completed large-scale investments in Melbourne’s transport network revealed the extent of the long-run economic and land-use impacts brought about by major transport investments.

Melbourne’s City Loop, CityLink and Western Ring Road projects had, and continue to have, profound and lasting influences on the economic and physical growth of the city, in addition to the transportation functions that they perform.

CityLink, which was completed in 2000, improved the accessibility of large sections of Melbourne by linking the north and south-east of Melbourne with the central core of the city. The project added an estimated $9 billion to Melbourne’s economy in 2010 to 2011, by facilitating an estimated 70,000 jobs.

If infrastructure is the catalyst for urban renewal, how can infrastructure investments be targeted to ensure that cities truly enable residents and businesses?

The development of urban transport is one area in need of attention. Transport goes beyond the motor vehicle, and is increasingly about sustainable mobility. A significant proportion of the population growth in cities should be encouraged into corridors supported by new, high-quality public transport – otherwise, new housing and economic activity will be dislocated from high-quality public transport, or concentrated around public transport corridors with significant capacity constraints.

A growing number of trips are being taken using public transport.

Between 2004 and 2013, aggregate metropolitan urban public transport passenger kilometres grew by close to 30 per cent – a rate almost five times that of private motor vehicles – according to the Bureau of Infrastructure, Transport and Regional Economics.

The cost of avoidable congestion is predicted to grow to $20 billion per year by 2020.

To properly leverage investments in infrastructure and maximise yields on land use, densities surrounding existing transport corridors, interchanges and activity centres need to be increased.

The Central to Eveleigh Transformation Programme, Sydney Metro, the Victorian Level Crossing Removal Programme and other projects will create interesting urban renewal opportunities, because they offer old spaces for new users, parks, pathways, recreational facilities, and residential and commercial purposes. It is critical that as many people as possible are given the opportunity to live closer to transport in order to access employment, education and markets.

Australia needs to match the world’s best in terms of transport and other infrastructure. This challenge requires a national response, and suggests the need

for greater Commonwealth involvement in urban planning and outcomes than has occurred in the past. There is no better example of this beginning to work than the future development of Sydney’s second airport, which is critical for the future of New South Wales, and for our national productivity.

While the Commonwealth has policy responsibility for aviation, it is pleasing to see it maintaining high-level roles in the development of transport, links and corridors to the south-west growth centre. Strong cooperation between both levels of government, and an active role by the Commonwealth, will unlock the economic capacity for the region, making it a better place to live and to do business.

Well-planned cities can help address some of the pressing issues of our time: the age of our population, inequality of opportunity, and climate change. This requires industry leaders, governments and the relevant government authorities to be thinking about urban development and infrastructure from a precinct-wide perspective. The Lendlease experience shows that successful urban renewal and regeneration of our cities depends on directing population growth to corridors that are supported by transport – particularly public transport.

Below: Sydney International Convention Centre

Steve McCann Group Chief Executive Officer and Managing Director, Lendlease

Steve McCann was appointed Group Chief Executive Officer and Managing Director of Lendlease in December 2008, and joined the Board in March 2009.

Prior to his current role, Mr McCann was Group Finance Director, appointed in March 2007, and Chief Executive Officer for Lendlease’s Investment Management business from September 2005 to December 2007.

Mr McCann has more than 15 years’ experience in funds management and capital markets transactions. Prior to joining Lendlease in 2005, he spent six years at ABN Amro, where his roles included Head of Property, Head of Industrial Mergers and Acquisitions, and, for the last three years, Head of Equity Capital Markets for Australia and New Zealand.

Previous roles also include Head of Property at Bankers’ Trust; four years as a mergers and acquisitions lawyer at Freehills, Melbourne; and four years in taxation accounting at Deloitte, Melbourne.

Mr McCann holds a Bachelor of Economics (finance major) and a Bachelor of Laws from Monash University in Melbourne.

INFRASTRUCTURE: A TRULY GLOBAL INDUSTRY

Globally, governments are looking to promote infrastructure as a way to boost economic growth, productivity and international competitiveness, as well as to keep pace with population growth. This is complemented by interest from developers, contractors, investors and financiers in the private sector.

Chris Scougall – Managing Director, Transport Tracey Gibson – Executive Director, Project Finance John Russell – Executive Director, Project Finance Infrastructure

‘Commonwealth Bank is one of the leading Australian financiers of infrastructure assets globally, and its footprint provides insights into the sector’s capital flows.’

Globalisation is a well-established megatrend, and infrastructure is no exception to this phenomenon. In an increasingly mobile world, intellectual and financial capital is freely moving from one region to another. In recognition of this, Commonwealth Bank has established teams based in Sydney, Melbourne, London, New York, Houston, Hong Kong and Beijing. Commonwealth Bank is one of the leading Australian financiers of infrastructure assets globally, and its footprint provides insights into the sector’s capital flows.

Commonwealth Bank’s Head of Transport, Chris Scougall, and infrastructure project finance experts Tracey Gibson and John Russell, comment on some of the geographic trends that we are seeing.

Ideal investment conditions

Economic and population growth, along with urbanisation, are driving the need for infrastructure. This is coinciding with ideal conditions for infrastructure investment, and low interest rates globally are one of the key drivers here. While it is expected that there will be a rise in interest rates in the United States, which will have implications across the board, it is coming off a very low base, and it is expected that there will be a very gradual increase, and that, globally, interest rates will remain low in the medium term.

Currently, another supportive factor is the abundance of global liquidity. Against a backdrop of volatile stock markets, investors are seeking assets such as infrastructure that offer stable, long-term returns and growth. The linkage to inflation, which is direct in the case of regulated infrastructure assets, is also valued by long-term investors such as pension funds, which draws additional and consistent liquidity allocation.

Commonwealth Bank was Mandated Lead Arranger, Underwriter and Bookrunner of the A$1.5 billion Senior Secured Syndicated Facilities for the Sydney Light Rail PPP. Image © Transport for NSW

These conditions have resulted in an increasing interest in Australia from all of the global infrastructure funds, with many of them already having investments in Australian infrastructure for a number of years. This is occurring against the backdrop of various state governments’ asset sale programs, and tenders of longterm leases for key infrastructure assets. Interestingly, of the $9.5 billion of direct investment coming into Australia from China last year, $2 billion went into infrastructure, according to data published by KPMG and The University of Sydney.

Equally, Australian-based infrastructure funds, which are big investors in Australian infrastructure, are also successfully investing in infrastructure assets outside Australia to improve the geographic diversification of their portfolios.

Governments that have an attractive pipeline of greenfield and brownfield opportunities are primary beneficiaries, as investors willingly commit investment resources and capital to these nations. These governments have also become adept at project coordination, ensuring that transactions are brought to market to reflect the availability of financial and human resources. As a result, outcomes are optimised.

Contractors

Governments and taxpayers will obviously benefit from the global competition among infrastructure investors; however, there is also growing international competition between contractors as they follow their partners around the world.

As an example, Nexus Infrastructure, the consortium that won the contract to design, construct, operate and maintain the Toowoomba Second Range Crossing, includes Spanish groups Cintra Infraestructuras Internacional and Acciona Concesiones. It is a recent example of a major infrastructure project that is being built predominantly by offshore contractors.

Encouragingly, on very large infrastructure projects such as WestConnex, local and offshore contractors have shown a propensity to work together to deliver best-in-class outcomes for government.

With a combined capital expenditure program of more than $10 billion across three stages, the WestConnex project is simply too large and complex for one contractor to manage. For Stage 2, known as the New M5, the government recently announced that a Leighton Dragados Samsung Joint Venture had been selected as the preferred tenderer for a $3.5 billion contract. The Leighton John Holland Samsung Joint Venture was awarded a $2.7 billion contract for the M4 East Motorway, for Stage 1 of the project.

This greater involvement of offshore construction companies means that there is more competitive tension between suppliers, therefore providing governments with better value for money. For financiers, the combined strength of the joint venturers’ balance sheets is also necessary, given the ever-growing project size and technical complexity.

Financiers

Many banks retreated from global financing in the aftermath of the global financial crisis (GFC), while others, like Commonwealth Bank, stepped up to fill the gap. Now, a growing number of international banks are returning –some more aggressively than others.

The stable characteristics of the infrastructure sector are also attracting significant pools of non-bank funds. Many equity sponsors have further evolved to accept debt placement mandates, while a number of the global insurers and pension funds are also seeking sizeable, long-dated direct investment opportunities on a private placement basis.

What hasn’t changed over time is that when a project becomes problematic, governments tend to look to domestic banks to come up with a solution. So, while it is important to have international parties adding to the competitive tension and driving value for money for the government, the Commonwealth Bank believes that governments value the presence of local banks in greenfield projects.

Commonwealth Bank expects infrastructure to become increasingly globalised and increasingly owned by the private sector, with governments responsible for providing a regulatory framework to govern delivery and price standards. The market rewards those governments that provide a stable, evolving regulatory structure with deep, low-cost pools of debt and equity capital.

Given that demand for infrastructure is driven by urbanisation, and economic and population growth, a considerable proportion of the demand for infrastructure will also be coming from the developing countries in the Asian and African regions in the medium to long term.

Mature economies are expected to continue targeted investment in renewing ageing infrastructure, as a tool to reinvigorate economies via the competitive benefits that modern infrastructure delivers. This provides industry participants like Commonwealth Bank the opportunity to bring global best practices to a range of markets.