Telstra Corporation Ltd (ASX: TLS) just unlocked $1 billion of value for shareholders.
Telstra is our country’s oldest telecommunications business, having built the first telegraph line in 1854. In 2019, it provides more than 17 million retail mobile services, around 5 million retail fixed voice services (e.g. home phones) and 3.6 million broadband services. Telstra also has operations in eHealth, network applications and subsea cabling. In 1997 (until 2006), the Government sold Telstra to Australian investors by listing the shares on the ASX. The second batch of Government share sales, called “T2”, was conducted in 1999 at $7.40 per share.
How Telstra Just Unlocked $1 Billion
This morning Telstra announced the establishment and part sale of an unlisted property trust to own 37 of Telstra’s existing exchange properties.
Telstra said that a Charter Hall Group (ASX: CHC) led consortium will acquire a 49% stake in the new trust for $700 million, reflecting a capitalisation rate of 4.4% and valuing the property trust at $1.43 billion.
Charter Hall is setting up a new partnership for its portion of the stake (the 49%), the ownership of that partnership will be 21.8% owned by Charter Hall itself, Charter Hall Long WALE REIT (ASX: CLW) will own 50% and a wholesale capital partner will own 28.2%.
The telco will retain 51% of the trust and it will still have operational control of the properties. But Telstra will sign long term triple-net lease arrangements with the property trust to provide a stable flow of payments.
These leases will have a weighted average lease expiry (WALE) of 21 years with options for lease extensions. The lease expiries vary from 10 years to 25 years.
As part of Telstra’s T22 strategy it is trying to monetise up to $2 billion of assets. As part of Telstra’s FY19 report the telco announced it had reached an agreement to sell some of its data centres in Europe and Asia for $160 million.
When you combine the exchange property trust sale, the data centres and other transactions, Telstra has monetised around $1 billion.
Getting the cash is useful if it helps Telstra earnings in better ways, but these transactions do reduce Telstra’s earnings power a little until the money is re-invested. As I said yesterday, I’m not convinced Telstra can grow its profit strongly unless 5G can turn into a stream of gold for Telstra.
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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).
At the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.