The two founders of Dis-Chem, along with other directors and prescribed officers at the group, have sold its head office and Midrand distribution centre to the group in a transaction valued at nearly half a billion rand.
Last year, the pharmacy group paid nearly R55 million in rent for this space, around R4.6 million a month.
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The group says: “The transaction will ensure that Dis-Chem owns all its core distribution centres, as well as its head office premises in Midrand. The ownership of the asset is a long-term strategic objective of the group that has a positive impact on the income statement and a minimal impact on the balance sheet.”
The property is owned by an entity called Columbia Falls Properties 7, which in turn in owned by The Directors Adventures Trust. This trust counts Dis-Chem founders Ivan and Lynnette Saltzman as well as directors Saul Saltzman and Stanley Goetsch and prescribed officers Lynette Saltzman, Brian Epstein and Kevin Sterling as shareholders.
Together, the two founders own 78% of the trust via their Ivlyn (Pty) Ltd vehicle. The other significant shareholder (with 12%) is SGFT Investments, controlled by Goetsch. This is according to a disclosure made by the group at its July 2018 investor day following pressure from shareholders.
In January 2022, entities controlled by the founders and directors sold three warehouses to the group in transactions totalling more than R200 million.
Read: Dis-Chem founders, execs untangle themselves from group warehouse leases
The Midrand property was not part of that deal. The lease over this distribution centre and head office runs for 30 years, with an annual escalation of 8%.
Criticism
Dis-Chem has drawn sharp criticism for the ownership of its distribution centres by related parties. This peaked during the Covid-19 pandemic in April 2020 when Dis-Chem withheld rent for its retail outlets due to the lockdown.
It contended that it had paid “a fair and significant portion of the base rental together with suggesting a turnover-based rental” given that it was not able to sell goods deemed as non-essential, which trade at higher margins.
At the time, Dis-Chem would not confirm whether or not it was withholding rent from those related-party landlords of its distribution centres.
It simply said that it was “looking for relief on the non-essential part of the business”.
“This applies to all space leased across the group and is a principle pertaining to all leases regardless of the nature of the lease.”
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Concerns ‘noted’
In its 2020 integrated report, it noted the ‘concerns’ around conflicts of interest and related-party transactions.
It said that to address this, it “strictly” manages “conflicts of interest” and has increased disclosure where related parties are involved. “The Group is also driving the process of selling its distribution centres.”
The 2022 purchases of the three warehouses addressed the bulk of this problem, and the transaction for the Midrand property means that related parties will no longer own any significant property assets leased by the group.
However, entities controlled by the directors own a number of other properties across the country to which Dis-Chem pays rent.
These would primarily consist of shopping centres or medical centres. In total, the group pays these companies R13 million in rent a year, about R1 million a month. In its related-party disclosure, it categorises these simply as “Various property companies”.
The founders sold down their stake in the group in 2021, which netted them around R5.5 billion. It sold this chunk of shares in three separate transactions: a bookbuild to institutional investors, to a select number of key senior executives, and to a consortium of BEE investors.
Their shareholding is now 35.1%, which at the current share price is worth R9 billion. Coronation Fund Managers (20%) and the Public Investment Corporation (10%) are the next largest shareholders.
