Telstra to raise $700m by selling, leasing back 37 exchanges

To lease back exchanges from newly established property trust

Telstra has established a property trust to own 37 of its exchanges, with the telco selling a 49 per cent stake in the trust to a Charter Hall-led consortium.

The $700 million deal with the consortium reflects a capitalisation rate of 4.4 per cent, valuing the trust at $1.43 billion, Telstra said.

Telstra will retain 51 per cent ownership of the trust, with the telco signing long-term leases for the exchanges. The company said that the leases will “have a weighted average lease expiry [WALE] of 21 years” and include options for extensions. The leases range from 10 to 25 years, according to Charter Hall.

Charter Hall said the consortium will be owned 50 per cent by Charter Hall Long WALE REIT, 28.2 per cent by a wholesale capital partner and 21.8 per cent by Charter Hall Group.

“The creation of this partnership continues Charter Hall’s successful growth of new partnerships and funds, whilst further extending the Group’s long WALE investment strategy,” Charter Hall’s managing director and group CEO, David Harrison said.

“It also continues the strong relationship we have with Telstra, one of our significant tenant-customers and demonstrates Charter Hall’s leading position in the sale and leaseback market in Australia.”

The effort to monetise the telco’s assets is the “fourth pillar” of the company’s T22 strategy, unveiled by CEO Andy Penn in mid-2018. Penn told a briefing in June last year that Telstra would push to deliver “industry-leading cost reduction programs and portfolio management”.

“When we announced our T22 strategy in June 2018 it included the goal of monetising up to $2 billion of assets to strengthen our balance sheet,” Penn said in a statement issued today.

“Since then we have been working to unlock the true value of some of our assets and today’s agreement, when completed, will take us to around the $1 billion mark.”

That $1 billion figure includes a deal detailed by Penn yesterday to sell three data centres in Europe and Asia to I-Squared Capital, which owns Hutchison Global Communications. The agreement, worth around $160 million, is subject to a number of conditions precedent.

The telco has also sold the Edison Exchange building in Brisbane’s CBD for $57 million and engaged in a number of smaller transactions, Telstra said.

Penn revealed yesterday that Telstra had restructured its VC arm, Telstra Ventures, releasing $75million.

Telstra’s yesterday reported that its net profit after tax dropped 39.6 per cent in FY19. The company reported NPAT of $2.1 billion, with earnings before interest, tax, depreciation and amortisation (EBITDA) down 21.7 per cent to $8 billion.