Financial services firm Discovery has moved to acquire part of its Sandton head office at R4-billion, while cancelling the lease of the second phase.
The Grove and Park buildings of 1 Discovery Place, also known as phase one of the Discovery head office, is wholly owned by real estate investment multinational Growthpoint with 55% shares and the remaining 45% of the shares owned by Truzen 114 Trust.
Growthpoint, which has Rhidwaan Gasant as board chair and prominent businessman Andile Sanqu as lead independent non-executive director, in South Africa owns and manages a portfolio of 328 properties, including V&A Waterfront, that are valued at R66.7-billion.
Growthpoint and Truzen have both agreed to sell their shares to Discovery, which will now fully own phase one. This ends the long-term lease from 2018, which still had seven more valid years.
In 2018, Discovery Group reportedly paid R23.3-million a month to rent its plush global headquarters located in Sandton, equating to R280-million per annum.
Economic dynamics favour purchase
On Friday, Discovery revealed that the economic dynamics have moved in favour of the purchase. Both prevailing interest rates and property prices in Johannesburg having reduced significantly also helped. They highlighted that this purchase provides an overall lower cost.
“The effect of the transaction is that the group is locked into an immediate and expanding net annual cash-flow saving, delivering approximately R800-million in net present value over the remaining lease period, in addition to ownership of the building.
“From a financial presentation perspective, the group has accounted for the long-term lease obligations in terms of IFRS 16, where the right-of-use asset and corresponding lease liability are included in the statement of financial position,” reads the statement in part.
Phase two of the Discovery head office will also fully belong to Growthpoint. The latter previously owned 55% shares of the building. And the remaining 45% was also owned by Truzen, who are selling them to Growthpoint at R323-million.
According to Growthpoint, the company continually assessed opportunities to improve the balance of its portfolio and sometimes realised value from certain assets where concentration or long-term goals required it.
Group’s office exposure reduced
They said Discovery phase one was identified for disposal despite its prime grade quality. But they allowed Growthpoint to manage its exposure responsibly while keeping the overall quality of the portfolio.
They said the disposal reduced the group’s office exposure in Gauteng and Sandton. And it helped reduce concentration in single-tenant assets in that area.
However, it also supported the continued and careful rebalancing of the South African portfolio towards sectors and regions expected to deliver more stable and resilient income over the long term. These include retail, logistics and greater exposure to the Western Cape.
“From a metrics perspective, the disposal of Discovery phase one will result in a higher reported office vacancy percentage. As a large, fully let asset is removed from the portfolio.
“The Discovery phase two acquisition supports the overall transaction structure and enables Growthpoint to retain an appropriate presence within the Sandton Summit precinct,” reads Growthpoint’s statement.
