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ASX 200 drops 0.6%, Telstra sells data centre for $416.7 million

ASX 200
Credit: Cimexus

The S&P/ASX 200 Index (ASX: XJO) fell by 0.6% today to 6,001 points.

COVID-19 restrictions continue to get stronger across the country. People travelling from NSW to Victoria will now have to quarantine in a hotel for 14 days. Meanwhile, Queensland has shut the border to NSW and ACT.

Telstra Corporation Ltd (ASX: TLS) asset sale

Australia’s biggest ASX 200 telco announced today that it has entered into an agreement to sell its data centre complex in Clayton, Victoria, to Centuria Industrial REIT (ASX: CIP) for $416.7 million.

The sale includes a triple-net lease-back arrangement which means Telstra will keep ownership of all the IT and telco equipment. Telstra will be responsible for the operations, upgrades, repairs, future capex spending and the security.

The lease is for an initial period of 30 years with two 10-year options for Telstra to extend the lease. Centuria said that the data centre complex had an initial yield of 4.2% and it had a gross lettable area of 26,139 square metres.

The 3.2 hectare complex is 25km from the Melbourne CBD and includes 10 buildings. It has Telstra’s newest 6.1MW data centre, its adjacent 6.6MW data centre and the associated energy centre.

Telstra CEO Andy Penn said: “As part of T22, we have an ambition to monetise up to $2 billion worth of assets to strengthen our balance sheet. This deal means we have no reached over $1.5 billion. Data centres are an incredibly important part of the digital ecosystem and we continue to own and operate world-leading facilities in Australia and overseas.”

The Telstra share price fell 2.3% today.

Centuria Industrial REIT FY20 result and capital raising

Centuria announced its FY20 result and a capital raising along with the Telstra data centre acquisition.

The ASX 200 share’s net rental profit, called the funds from operations (FFO), was $63.5 million for the year. This translated to FFO per unit of 18.9 cents, down from 19.3 cents.

The industrial real estate investment trust (REIT) announced a full year distribution of 18.7 cents per unit, up from 18.4 cents last year.

Its gearing reduced from 37.4% last year to 27.2% at 30 June 2020. The net tangible assets (NTA) per unit increased from $2.73 to $2.82 at the end of FY20.

In FY21 the REIT is guiding that FFO per unit will be 17.4 cents and the FY21 distribution will be 17 cents.

Not only did the ASX 200 share announce the acquisition, but it’s also buying a $16.4 million industrial facility in Smeaton Grange, NSW and a $14 million facility in Tullamarine, Victoria.

To fund all of these new properties it’s doing a fully underwritten entitlement offer of $340.8 million at an issue price of $3.15 per unit. That’s a 4.8% discount to the last closing share price yesterday.

Centuria Office REIT (ASX: COF) FY20 result

Another Centuria property fund also announced its result today.

Management said that the REIT performed well despite the difficult operating conditions because of COVID-19 impacts. Around 25% of its income is derived from Australian state and federal government tenants.

Its funds from operations rose by $24.2 million to $85.4 million. However, in per-unit terms FFO actually declined slightly to 18.6 cents. The distribution increased slightly to 17.8 cents, up from 17.6 cents. Distribution guidance for FY21 is 16.5 cents per unit.

The REIT’s NTA didn’t change, it was still $2.49 at the end of FY20. Gearing increased slightly to 34.5%.

Centuria Office Fund manager Grant Nichols said: “We believe COF provides quality, highly connected and affordable office space at a time when tenants are focused on their operating costs. Due to its high occupancy, strong underlying tenant covenants and an average building age of 15.9 years, COF remains well pleased to continue delivering attractive income returns to unitholders, with FY21 distribution guidance equating to a current distribution yield of around 9%.”

The forward distribution yield guidance may have been 9% when Mr Nichols delivered that statement, but the Centuria Office REIT share price rose 6.6% today, reducing the prospective yield for future buyers.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra 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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