Discovery acquires Sandton headquarters for R4.05 billion in strategic property move

Discovery has announced plans to purchase of its head office, 1 Discovery Place, in Sandton, for R4.05 billion, which will result in an initial annual cash‑flow saving of R800 million over the remaining lease period.

The medical aid and financial services group said on Friday the deal, which would also secure its long‑term ownership of a landmark asset, was being done because lower interest rates and reduced commercial property prices in Johannesburg had created favourable conditions to switch from a long-term lease arrangement, to fully-funded ownership, with optimised space, at a lower overall cost.

"When 1 Discovery Place was built, the economics of a long‑term lease were more attractive than an outright purchase. With seven years remaining on the existing lease, the group initiated a comprehensive review of its long‑term property requirements," Discovery's directors said in a statement.

The property's Phase 1 is 55% owned by JSE-listed REIT, Growthpoint Properties, which also plans to acquire 45% of the Discovery Phase 2. Growthpoint said separately Friday that its interest in Discovery Phase 1 would be sold for R2.32bn in cash.

Growthpoint's 55% share of Discovery Phase 1 was valued at R2.23bn at June 30, 2023. Growthpoint would also acquire a 45% interest in the Discovery Phase 2. Upon implementation, Growthpoint would own 100% of the Discovery Phase 2 building.

"Discovery Phase 1 was identified for disposal, notwithstanding its P-grade quality… These transactions are consistent with Growthpoint's capital allocation discipline and its approach to actively manage the composition of the domestic portfolio," the group said.

Growthpoint directors said the disposal would reduce its office exposure in Gauteng and Sandton and contribute to a reduction in single tenant asset concentration in this node. It also supported the measured rebalancing of the South African portfolio towards sectors and regions that were expected to deliver more stable and resilient income streams over the long term, including retail logistics and increased Western Cape exposure, the group said.

However, the disposal would result in a higher reported office vacancy percentage. The acquisition price of 45% of Discovery Phase 2 was R323.1m. Phase 2 was a prime, P-Grade, multi-tenanted office building providing income diversification and reduced letting risk relative to single tenant assets.

"1 Discovery Place has served us exceptionally well. Purchasing the building reflects our long‑term outlook, the strength of our group, and our deep pride in our South African roots," said Adrian Gore, Discovery CEO, in a statement.

Discovery's share price fell 1.35% to R233.18 on Friday morning on the JSE, a price that was still well up from R191.23 a year before. Growthpoint's share price increased 0.49% to R18.44. A year before the share was trading at R12.08.

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