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Telstra share price on watch after major asset sale announcement

Telstra share price
Source: Telstra presentation

The Telstra Corporation Ltd (ASX: TLS) share price will be one to watch on Wednesday after the release of an announcement.

What did Telstra announce?

This morning Telstra announced that it has entered into an agreement to sell its data centre complex in Clayton, Victoria, to Centuria Industrial REIT (ASX: CIP) for a total of $416.7 million.

The 3.2 hectare complex is 25km from the Melbourne CBD and incorporates 10 buildings. This includes the telco giant’s newest 6.1MW data centre and its adjacent 6.6MW data centre and associated energy centre.

According to the release, the sale includes a triple-net lease-back arrangement. This means Telstra will retain ownership of all IT and telecommunications equipment, as well as ongoing operations and responsibility for building upgrades and repairs, future capex requirements, and security.

The lease is for an initial period of 30 years, with two 10-year options for Telstra to extend the lease. Importantly, the sale has no impact for Telstra customers.

T22 strategy progressing well.

Telstra’s CEO, Andrew Penn, notes that the sale is part of the company’s T22 strategy which is cutting costs and simplifying its business.

He commented: “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 now 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 company advised that transaction is expected to be completed by the end of August and will generate $416.7 million in proceeds.

However, due to the long tenure of the lease-back, the transaction will not be treated as a sale under accounting standards. As a result, no accounting gain will arise from the transaction.

The acquirer, Centuria Industrial REIT, has placed its shares in a trading halt this morning while it raises funds to complete the transaction.

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Motley Fool contributor James Mickleboro 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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