Telstra weighs up $1 billion property sell-off

Telstra weighs up $1 billion property sell-off

10 November 2017

Telecommunication giant Telstra is weighing up the sale of up to $1 billion worth of its land holdings as the company faces NBN headwinds and their network exchange footprint starts to shrink, reports the AFR.

During Telstra’s investor presentation yesterday, chief financial officer Warwick Bray told investors that the company had been reviewing “the value of assets on our balance sheet”.

Mr Bray said the telco could potentially rationalise half of the 5,300 exchanges due to reduced accommodation requirements, as the size of electronics shrink and copper is transferred to the NBN.

“Most of our assets deliver a strategically valuable network, and, as such, their composite value is greater than the sum of the individual parts. However, we think our assets give us significant option value, and there may be opportunities to optimise,” he said.

“For example, with exchanges, land and buildings—accommodation requirements are reducing as electronics shrink, copper is transferred to NBN and we simplify our network architecture.”

“This will enable an estimated up to 2,500 or close to half of our exchange sites to be potentially rationalised. Our initial view is that their market value less remediation costs would be more than their current written-down book value of approximately $1 billion.”

The telco’s network of exchanges across the country, is typically used to support traditional local telephone calls.

Many of these exchanges are in prime residential areas such as Vaucluse, Rose Bay and Mosman in Sydney, South Yarra and Toorak in Melbourne, Ascot Ashgrove and Brookfield in Brisbane.

Whether any of these such exchanges would be included in a sale is yet to be made public, yet the sites would clearly attract significant interest from developers.

Major groups such as Frasers, Mirvac, Lendlease, and Stockland all have balance sheets capable of embracing a large-scale purchase of Telstra’s property holdings.

Last month, Telstra networks managing director Mike Wright said the remaining exchanges would be converted into distributed data centres to support the software layer of Telstra’s network, says technology news website CRN.

Wright said Telstra’s customers would be converted to IP calling as the NBN rolled out and that the architecture built 50 years ago to facilitate calls was no longer needed.

“The cost of compute, the scale of data centre technologies, the way that’s evolving is at the heart of what we’re looking to do, which is to build a network that is basically a distributed data centre,” he said.

“If you imagine … a large percentage of our exchanges becoming a distributed data centre, running all these network applications and being able to move workloads around.”

He added that it was essentially Telstra’s goal to transform the network into a distributed data centre.

Telstra’s current property holdings and accommodation requirements are managed by Australia’s largest property services manager JLL.

Telstra also updated its guidance for the full 2018 financial year, expecting revenue in the range of $28.3-$30.2 billion and EBITDA in between $10.7-11.2 billion.