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Is Telstra about to hit a $1.5 billion payday?

Our largest telco has found a way to squeeze $1.5 billion in cash from its property assets, according to a press report today.

The cash would come in useful to keep dividend seeking investors happy although the news did little for the Telstra Corporation Ltd (ASX: TLS) share price, which slumped 1% to $3.36 during afternoon trade when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index shed 0.7% in value.

It seems that Telstra is looking at putting its telecommunications exchange properties into a new trust and has appointed investment bank UBS to sell a 49% stake in the proposed trust to investors, according to the Australian Financial Review.

How the Telstra property trust will be structured

The AFR said (without quoting any sources) that UBS is reaching out to local and international real estate investors to drum up interest in what’s tipped to be a keenly contested auction.

It’s believed that Telstra would lease back the properties from the trust but it wanted to maintain majority ownership over the trust.

There will be 37 sites housed in the trust and these will be located across major Australian cities and metropolitan areas.

“The portfolio would have a 21-year weighted average lease term and Telstra would be responsible for all outgoings, repairs and maintenance and capital expenditure during the term of the lease,” reported the AFR.

This isn’t too dissimilar to the relationship between Wesfarmers Ltd (ASX: WES) and BWP Trust (ASX: BWP) with Wesfarmers owning Bunnings and BWP acting as the landlord to several of Bunning’s properties.

Cash proceeds and dividends

This forms part of Telstra’s plan to offload assets to raise $2 billion by the end of 2020, and while it may be too early to put a value on the 49% stake in the new property trust, Telstra would be well on the way to achieving that target if it can get anywhere near the estimated $1.5 billion figure touted by the AFR.

This is the right time to be divesting property assets or any dependable income paying vehicle. Demand for unlisted property assets are high and that is driving valuations for the sector.

No doubt, the falling interest rate environment we find ourselves in is one big reason driving demand, although property investors are also purported to be cashed up and willing to deal.

Proceeds from divestments will go a long way in reassuring Telstra shareholders that its dividends won’t be cut (or at least not by much) in the coming years as the telco’s margins and profits are squeezed by the NBN and competition.

Macquarie Group Ltd (ASX: MQG) is an emerging challenger in the sector as it looks to launch a cut-price service using second hand smartphones.

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Motley Fool contributor Brendon Lau owns shares of Macquarie Group Limited and Telstra Limited. The Motley Fool Australia owns shares of and has recommended Telstra Limited and Wesfarmers Limited. The Motley Fool Australia has recommended Macquarie Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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