Discovery buys its own building for R4 billion

Financial services giant Discovery has bought its head office building on 1 Discovery Place for R4 billion as it believes it is likely to utilise the office space beyond the end of its lease agreement in seven years. 

The company also noted that short-term economic factors have moved in favour of a purchase, with lower interest rates and property prices in Johannesburg coming down significantly. 

Discovery has been a long-term tenant in the head office building in Sandton since 2018, with it becoming synonymous with the company’s brand. 

“Given the scale of the group, long-term and strategic nature of office planning, particularly given the scale of Discovery’s Johannesburg operation, and with seven years until expiry of the lease agreement, the group determined it would stay beyond the current period,” Discovery said. 

“The group is deeply committed to South Africa and believes the head office has served it well in all aspects and aligns with its purpose and values, and long-term outlook.”

Coupled with these reasons is the fact that Discovery believes it makes financial sense for the company to purchase its own office space. 

“This arises because economic dynamics have moved in favour of a purchase, with both prevailing interest rates and property prices in Johannesburg having reduced significantly,” it said. 

“This has enabled a switch from a long-term lease arrangement to a fully-funded financing arrangement with ownership, at a lower overall cost.” 

Discovery said the result of this transaction is that it 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. 

Once the transaction becomes effective, Discovery expects a positive effect on earnings, followed by a continued reduction in its leverage ratio. 

The transaction will see Discovery acquire Phase 1 of Discovery Place and cancel the lease for Phase 2, which is the Ridge Building. 

Discovery said this will be facilitated by Discovery Propco, a wholly owned subsidiary of Discovery, which will enter into an agreement with Growthpoint, who currently owns the building. 

The total consideration of the transaction is R4.05 billion (exclusive of VAT), with the acquisition to be fully funded through pre-arranged debt.

The transaction is subject to Competition Authority approval and other customary suspensive conditions.

Images of Discovery Place