Charter Hall grabs half stake in Telstra property portfolio

Charter Hall grabs half stake in Telstra property portfolio

23 August 2019

A consortium of investors led by ASX-listed fund manager Charter Hall have teamed up with Telstra to launch a $1.43 billion unlisted property trust to manage a lucrative portfolio of Telstra’s communication exchanges, says The Sydney Morning Herald.

Charter Hall’s consortium will take a 49 per cent stake in the newly formed trust for $700 million, valuing the entire portfolio of properties housing the telco’s critical telecommunications infrastructure at $1.43 billion.

Telstra will retain operating control of the 37 exchanges and keep a majority 51 per cent stake in the trust.

The telecommunications giant will sign a deal to lease the properties back from the trust, with a weighted average lease expiry (WALE) of 21 years, and multiple options to extend the leases.

The long lease expiry is accompanied by annual rent reviews of 0.5 per cent plus inflation.

The deal was struck at a capitalisation rate of 4.4 per cent, setting a fresh benchmark for sale-and-leaseback style deals.

Telstra had flagged that it would look to sell off non-core assets as part of its turnaround strategy under chief executive Andy Penn.

The deal nets Telstra $700m and sees the telco hit the halfway mark on its goal of raising $2 billion through asset sales, says The Australian.

“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,” Mr Penn said.

“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.”

Charter Hall’s share will be funded by using $76 million of its own equity along with a $261 million capital raising for the Charter Hall Long WALE REIT was conducted by investment banks JPMorgan and UBS.

Charter Hall chief executive David Harrison said creating the partnership continued the group’s successful growth of new partnerships and funds, while further extending its long lease investment strategy.

“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,” he said.

Moving its exchanges into the new trust isn’t the telco’s only property deal, says the AFR.

Telstra has also reached a provisional agreement to sell three of its data centres in Europe and Asia to global private equity firm I-Squared Capital, owners of HGC Global Communications, for $160 million.

Telstra’s exchanges house a range of network infrastructure including mobile network sites, fibre optic network infrastructure and copper assets.

This week Charter Hall announced a bumper 25.5 per cent lift in operating earnings for the 2019 financial year.

The increase in the full-year operating result, to $220.7 million, betters the guidance issued most recently at the start of July of a 24 per cent increase and follows several earlier upgrades in profit expectations through the year, says the AFR.