Telkom to develop properties

• Group wants partnership with real-estate companies

Telkom, which estimates that its property portfolio is worth R24bn, has identified about 40 properties it wants to develop in partnership with experienced real estate groups, says CEO Sipho Maseko.

The company’s property portfolio is worth about 90% of its entire market capitalisation, given that investors valued Telkom at R26.7bn on Monday.

In 2017, Telkom shifted its properties into a new subsidiary, Gyro, as part of its plans to commercialise its extensive real estate portfolio and diversify its income streams.

Gyro bought about 6,500 masts and towers from Telkom and manages the group’s portfolio of 1,440 properties, including offices, client service centres, residential dwellings and land parcels.

“We’ve sold most of the tail of the portfolio, and then the nonmast and tower portfolio we will look to develop and optimise,” Maseko told Business Day.

“We’ve identified about 40 properties that we will partner with other people to develop. Let’s say we partner with a Growthpoint or Redefine, because they are the specialists … so we can further derisk by partnering with people who know a lot more about it.”

Maseko said Gyro’s efforts to drive “the operational efficiency” of the property portfolio, starting with masts and towers, were bearing fruit.

“We’re seeing an improvement of about 9% in external revenue.

“But what is more pleasing is also an improvement in the tenancy ratio at about the same mark.

“We brought in a lot of … property people, because previously [the real estate business] was with people like myself, who are not property people,” Maseko said.

Telkom increased Gyro’s headcount 54% to 210 employees in the year ended March. The unit’s operating revenues increased 9.9% to R657m.

Mergence Investment Managers portfolio manager Peter Takaendesa said the market had probably undervalued Telkom’s property portfolio. “I think that’s where some value’s hidden. The market is not valuing Telkom as the sum of its parts, it’s looking mainly at earnings.

“So if they can show the market how they’re going to monetise that, then some of that hidden value could be unlocked,” Takaendesa said.

Telkom’s property portfolio is worth more than some sizeable JSE-listed property counters. Investec Property Fund, for instance, had 105 properties valued at R20.2bn at last count.

Telkom’s total operating revenue increased 0.1% to R41bn in the year ended March, while earnings before interest, taxes, depreciation and amortisation declined 3.6% to R10.5bn.

Maseko said the telecommunications group, which raised R1bn in a bond sale in March, had improved its capital structure. “We’re now using a lot more debt rather than equity to fund our capex [capital expenditure]. With the balance sheet that we have, we get reasonably favourable rates in the market,” he said.

“We’ve been raising capital in the debt markets, we have committed facilities with different financial institutions which give us maximum flexibility, so even if opportunities arise, we can now be opportunistic.”

The group would be “ready to pull the trigger” if it found an attractive asset to buy and if the price was right.