Discovery acquires Sandton head office for $252.7 million, cancels Phase 2 lease

Discovery Limited, South Africa’s leading insurer and financial services group, has purchased its Sandton head office, 1 Discovery Place, from landlords Growthpoint and Zenprop for R4.05 billion ($252.7 million). The move transitions Discovery from long-term tenant to owner, following a strategic review of the group’s long-term office requirements in Johannesburg.

Acquisition executed through Discovery Propco

The acquisition covers Phase 1 of the 1DP complex, including the Grove and Park buildings, totaling 91,756 square meters. Discovery will also end its lease for Phase 2, the Ridge building, spanning 19,369 square meters. Both moves will be executed through Discovery Propco, a wholly owned subsidiary, with the transaction fully financed through pre-arranged debt.

Adrian Gore, Discovery’s Chief Executive, said, “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 pride in our South African roots. Our plans are made with permanence in mind.”

Falling rates spur office purchase

Discovery has occupied the head office since 2018. With seven years remaining on its lease, the group concluded that ownership aligns better with its strategic and operational outlook. The decision demonstrates a strong commitment to South Africa and Johannesburg, while ensuring office space meets current and future needs.

Falling interest rates and lower commercial property prices in Johannesburg created favorable conditions to switch from leasing to ownership at a lower overall cost. The transaction, valued at R4.05 billion ($252.7 million), is expected to produce immediate and growing net annual cash-flow savings, with a net present value benefit of roughly R800 million ($49.9 million) over the remaining lease period.

Discovery purchase impacts balance sheet

Under IFRS 16, long-term lease obligations appear on the balance sheet as right-of-use assets and liabilities. While financing the purchase carries similar risks to debt, the accounting impact is expected to boost earnings. Discovery anticipates an initial rise in its financial leverage ratio, which should gradually settle within its 10 percent to 20 percent target. The deal remains subject to approval by South Africa’s Competition Authority and other customary conditions.