Telkom could unbundle property assets worth about R24bn
Telkom will consider spinning off its vast property portfolio — potentially the equivalent of about 90% of its whole market capitalisation — as a “mega” real estate investment trust (Reit) to unlock value for shareholders, says CEO Sipho Maseko.
The network operator’s Gyro subsidiary manages Telkom’s portfolio of 1,332 properties, including offices, client-service centres, residential dwellings and land parcels.
“Taking that as some kind of mega-Reit that would hold masts and towers, properties and developments is one opportunity we’re looking at,” Maseko told Business Day. “We’ve been looking at how we can unlock value because if you look at Telkom’s valuation, the property value is not reflected in our share price.”
The telecommunications group's capitalisation was R27.3bn on Tuesday, making it slightly more valuable than its property assets, which had an insured value of R24bn. Telkom's Reit would have an asset base similar to that of a diversified mid-sized property company and would be slightly bigger than that of Vukile Property Fund, the only South African diversified real estate group with a presence in Spain.
Maseko said Gyro had already identified 40 properties for development. They would be turned into anything from “high-end residential units in Cape Town to student accommodation at universities where we have vacant land, or to mixed-use developments — it varies”.
He also said Telkom group companies could consolidate their properties to free up additional space.
The group’s IT subsidiary BCX, for instance, will need less space after it retrenches about 700 staff, equivalent to about 10% of its workforce. The headcount reduction, which includes managerial positions, could yield cost savings of about R400m a year, according to Maseko.
“This is not the only bucket of costs we’re looking at. They’re looking at sales costs, which are high, resulting in lower realised margins.”
Cost cuts at BCX are necessary to mitigate declining revenue as organisations defer spending on information and communications technology.
In the six months to the end of September, BCX’s revenue fell to R10.2bn, from R10.7bn a year before. “There’s been marginal growth on the IT side, but it’s not been strong enough to offset the decline in fixed voice. I think the second half will be better,” Maseko said.
Telkom’s group operating revenue grew 5.2% to R20.8bn in the interim period as mobile service revenue soared 53.8% to R3.6bn.
Earnings before interest, taxes, depreciation and amortisation rose 2.9% to R5.3bn.
Meanwhile, Maseko said Telkom was looking for deals in areas such as content and e-commerce.
Through its Yellow Pages and other divisions, it serviced about 900,000 small and medium-sized enterprises, which meant an e-commerce platform could be a good strategic fit, he said.
“So we are starting to think about how we create a platform for them to do a lot more than just buy connectivity and IT.”
Maseko said Telkom was also interested in the government’s planned spectrum auction, slated for March 2019.
“One of the most important things will be what competitive outcome policymakers want to realise," Maseko said. "We are focusing our efforts on making sure the spectrum-allocation process recognises the need for competition, the need for investment and the need to rebalance the competitive landscape.”