Telstra Corporation Sells 49% Stake in Unlisted Property Trust to Charter Hall-Led Consortium

Telecommunications company, Telstra Corporation Limited (ASX: TLS) has divested a 49% stake worth $ 700 million in a newly created property trust to a consortium of investors that are led by Charter Hall Group (ASX: CHC), an integrated property group, which is experienced in property investment and funds management. Other players in the consortium included a wholesale capital partner and Charter Hall Long WALE REIT (ASX: CLW).

Of the total, 50% of the Charter Hall managed partnership would be owned by CLW, 21.8% by Charter Hall Group and the remaining 28.2% by the wholesale capital partner. The total value of the property trust stands at $ 1.43 billion. The newly created property trust has a portfolio of 37 telco exchange properties leased to TLS with a weighted average lease expiry (WALE) of 21 years. The staggered lease has an expiry duration ranging from 10 years to 25 years.

Charter Hall would fund the equity commitment for its stake via available investment capacity, while Charter Hall Long WALE REIT is undertaking an equity raising, including an accelerated non-renounceable entitlement offer. Charter Hall Group plans to subscribe for its entitlements as part of that offer.c;

CLW – Equity Raising:

To fund the acquisition partially, in addition to related transactions costs, Charter Hall Long WALE REIT would be undertaking the fully underwritten equity raising of ~ $ 261 million. Through an institutional placement, REIT plans to raise around $ 130 million, while through a 1-for-13 accelerated non-renounceable entitlement offer, it would raise around $ 131 million.

The shares would be issued at a price of $ 5.20 per security. Further, the equities issued under the placement and entitlement offer would have the same rank as that of other existing CLW shares.

Telstra – $ 1 Billion Asset Monetisation:

Telstra would retain the remaining 51% stake in the unlisted property trust. Moreover, the company would have operational control of the properties. Its transaction with the Charter Hall-led consortium reflected a capitalisation rate of 4.4%. Moreover, with the sale of this unlisted property trust, the company achieved $ 1 billion in asset monetisation. According to Andrew Penn, the CEO of Telstra, the company made further progress against the fourth pillar of its T22 strategy, owing to the agreement. The T22 strategy, which the company unveiled in June 2018, includes the goal of monetising up to $ 2 billion of assets, aimed towards strengthening TLS’ balance sheet.

T22 Strategic Pillars:

The T22 Strategic Pillars of TLS include:

  • Pillar One – To simplify product offerings and simultaneously reduce the pain points for customers as well as create an all-digital experience.
  • Pillar Two – To set up an independent infrastructure business segment for driving the company’s performance as well as establishing optionality after the rollout of nbn.
  • Pillar Three- The company also aims to simplify the structure and ways of working to empower its employees as well as provide better services to customers.
  • Pillar Four – Intended to progress towards the industry-leading cost reduction program along with portfolio management.

Telstra’s Further Progress on its T22 Strategy:

In the full year results presentation, Telstra highlighted that it had reached an agreement, under which it would be selling 3 data centres in Europe and Asia to global private equity firm I-Squared Capital. I-Squared Capital is the owner of HGC Global Communications. The three data centres serve Telstra’s International Enterprise clients.

HGC Global Communications is the second-largest fixed-line telecom operator in Hong Kong. It has a presence (data centre) in Asia, an in-country network in Hong Kong along with international connectivity business.

The finalisation of the deal depends on multiple terms and conditions and is expected in the first half of FY2020. Once the conditions get fulfilled, around $ 160 million is expected from the sale.

Financial Highlights:

According to the FY2019 results released by the company on 15 August 2019, it made strong progress against its T22 strategy. Under its T22 strategy in the first year, the company was able to reduce the no. of customers as well as small business plans in market from 1.8k to 20. It also introduced no lock in plans across fixed and mobile and at the same time eliminated surplus data charges in Australia. Commercial 5G service was also launched during the period. The most important progress was a 22% or 7.7 million drop in calls to call centres.

The company reported a decline of 3.6% in total income to $ 27.8 million. There was also a drop in the company’s Earnings Before Interest, Tax, Depreciation and Amortisation of 21.7% to $ 8 billion. The decline in the EBITDA was primarily due to the impact of nbn, with TLS absorbing ~ $ 600 million of negative recurring EBITDA headwind during the period. Since the financial year 2016, nbn has adversely impacted TLS’ EBITDA by nearly $ 1.7 billion. The net profit after tax declined significantly by 39.6% to $ 2.1 billion. The underlying EBITDA declined by 11.2% to $ 7.8 billion.

Balance Sheet and Cash Flow Statement Highlights:

Net assets of the company by the end of FY2019 on 30 June 2019 were $ 14,530 million, down from $ 14,619 million in FY2018. The total shareholders’ equity for the period was $ 14,530 million.

The company generated $ 6,683 million through its operating activities. Around $ 3,615 million were used in investing activities and $ 3,088 million in financing activities. The net decrease in cash and cash equivalent was $ 20 million. The company’s cash and cash equivalents at the end of FY2019 were $ 604 million.

Stock Performance:

TLS stock traded flat at A$ 3.770 on 19 August 2019. TLS has a market cap of A$ 44.84 billion and ~ 11.89 billion outstanding shares. It has given positive returns of 0.80%, 7.41% and 18.57% in the last one month, three months and six months, respectively. Its annual dividend yield is 2.65%, while EPS stands at A$ 0.181.


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