JSE-listed real estate investment trust Growthpoint Properties will sell its 55% share in the 50 466 m² Discovery Phase 1 building to financial services firm Discovery for R2.31-billion. The building serves as Discovery's head office.

The transaction reduces Growthpoint's office exposure in Gauteng and Sandton and contributes to a reduction in single-tenant asset concentration within this node.

It also supports the continued and measured rebalancing of Growthpoint's South African portfolio toward sectors and regions that are expected to deliver more stable and resilient income profiles over the longer term, including retail, logistics and increased Western Cape exposure.

Further, Growthpoint will acquire the remaining 45% shares in the 19 369 m² Discovery Phase 2 building from investment trust Truzen for R323-million.

Discovery Phase 2 is a prime, P-grade, multi-tenanted office building that provides improved income diversification and reduced letting risk relative to single-tenant assets. The asset was acquired at an attractive value, which is considered appropriate in the current market environment and supports the quality and sustainability of the group’s retained office portfolio.

The transactions constitute a large merger as defined in the Competition Act. The merger will undergo the required regulatory processes and remains subject to Competition Tribunal approval, Growthpoint says.

Further, these transactions are consistent with Growthpoint’s ongoing capital allocation discipline and its approach to actively managing the composition of the domestic portfolio.

It continuously assesses opportunities to optimise portfolio balance, including selectively realising value from assets where concentration considerations or longer-term portfolio objectives warrant such action.

In this context, Discovery Phase 1 was identified for disposal, notwithstanding its P-grade quality, thereby allowing Growthpoint to responsibly manage exposure while maintaining overall portfolio quality.

Additionally, the disposal of Discovery Phase 1 will result in a higher reported office vacancy percentage, as a large, fully-let asset is removed from the portfolio.

The Discovery Phase 2 acquisition supports the overall transaction structure and enables Growthpoint to retain an appropriate presence within the Sandton Summit precinct, it adds.

Truzen will also sell its remaining 45% shares in the Discovery Phase 1 building to Discovery.

Discovery, meanwhile, says the acquisition of the Discovery Phase 1 building is a significant long-term investment in the group’s future, while delivering financial advantages.

It points out that, 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 and determined that the economic dynamics had shifted.

“Lower interest rates and reduced commercial property prices in Johannesburg created favourable conditions to switch from a long-term lease arrangement to fully-funded ownership with optimised space, at a lower overall cost.

“The transaction, at R4.05-billion, will result in an immediate and growing net annual cash flow saving, with a net present value benefit of approximately R800-million over the remaining lease period – in addition to securing long-term ownership of a landmark asset,” it notes.

“1 Discovery Place has served us exceptionally well. It’s where our culture comes to life and where people from around the world experience Discovery first-hand. Purchasing the building reflects our long-term outlook, the strength of our group and our deep pride in our South African roots. Our plans are made with permanence in mind,” comments Discovery CE Adrian Gore.