Financial services giant Discovery’s surprise purchase of its plush Sandton headquarters for an eye-watering R4.05bn has no doubt raised eyebrows among some shareholders.
Granted, the 92,000m² building, in a prime spot just off Rivonia Road and Sandton Drive, is an architectural icon. But some may argue that splurging billions on a deluxe head office instead of investing in the core business won’t necessarily translate into higher profits.
Still, Discovery argues that the deal makes sense from a cash flow perspective, as it will save the company rent of more than R100m a year. The group has been leasing the building from co-owners Growthpoint Properties and Truzen 114 Trust since 2018.
The building was custom-developed for Discovery, which signed a 15-year lease. The cost savings over the remaining seven years will add up to a net present value benefit of about R800m — and give Discovery long-term ownership of what CEO Adrian Gore describes as a “landmark asset”.
Apart from the office component, 1 Discovery Place houses several retail outlets and leisure amenities, including a Woolworths Food store, a Seattle Coffee Co café, a Clicks, a gym and a rooftop terrace.
While Discovery shareholders may be less than enamoured of the purchase, it has been well received by investors in Growthpoint. Its share price touched a six-year high of R18.90 this week, bringing its 12-month rally to more than 50%.
The sale of the Discovery building is one of several recent big-ticket transactions in the JSE’s property sector
Growthpoint will rake in cash proceeds of R2.3bn for the sale of its 55% share in the building — about 40% more than the roughly R1.65bn it reportedly spent on development costs and 5% above its current R2.2bn book value.
Importantly, the deal supports Growthpoint’s strategy to trim exposure to Gauteng’s spluttering office market and increase the portfolio’s weighting to the retail and logistics sectors, especially in the Western Cape, where it co‑owns the V&A Waterfront. The Waterfront is widely regarded as the crown jewel in Growthpoint’s R170bn portfolio.
Some of the proceeds will likely be invested in Growthpoint’s Olympus Sandton, a R1.2bn upscale high-rise apartment development breaking ground this month on a site opposite Discovery’s HQ.
The sale of the Discovery building is one of several recent big-ticket transactions in the JSE’s property sector. This week, Rosebank Mall owner Hyprop Investments announced the sale of 50% of Woodlands Boulevard in Pretoria for R791m. That comes after the collapse of Hyprop’s proposed 50% sale of Hyde Park Corner in Joburg for R805m.
Vukile Property Fund last week announced the 70% acquisition of Berceo Shopping Centre in Logroño, northern Spain, for about R2bn, which comes soon after it bought Bonaire Shopping Centre, the largest mall in Valencia, for R6bn. In December, Vukile spent another R600m to buy 50% of Chatsworth Centre in Durban.
Late last year, Dipula Properties bought Protea Gardens Mall in Soweto, among others, for R478m, while Fairvest acquired seven centres in various townships and rural areas for a combined R1.15bn.
Renewed merger & acquisition activity has buoyed investor sentiment and marks a welcome shift from the post‑pandemic period, when property stocks had to batten down the hatches and focus on paying down debt and restoring dividends instead of pursuing acquisitive growth opportunities.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.