British Land holds talks to acquire Virgin health clubs

Property investor British Land is in talks to buy a £175m group of Virgin Active health and racquet clubs in Britain, potentially adding to a recent buying spree.

British Land’s interest in the Virgin Active clubs being sold by French bank Societe Generale, comprising 17 long leaseholds and freeholds, was the discount price tag which equated to a yield of about 7.5 per cent, according to a source.

There are three Virgin Active clubs in Yorkshire – two in Leeds, on Kirkstall Road and Great George Street, and one at Broadfield Park in Sheffield.

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If the deal goes ahead, it will mark a foray into a real estate class that does not immediately fit with British Land’s ubiquitous office, retail and residential investments around the country, analysts said.

The company owns Meadowhall shopping centre in Sheffield alongside London & Stamford.

“They are just looking at doing value accretive deals and this latest one, on the face of it, looks to be good ... But it (health and racquet clubs) is not a core competency,” said Matt Churstain, an analyst at KBC Peel Hunt.

“The yield looks very good... pending better times they (British Land) should be able to sell this out at a lower yield than where they are buying it,” he said.

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JP Morgan Cazenove analyst Harm Meijer said British Land was clearly on an acquisition spree, following £131m worth of office and residential deals in the past week.

“While we have not discovered a clear focus in British Land’s purchases yet, we see the acquisitions as opportunistic and value added so far,” Meijer said, retaining his ‘overweight’ rating on the shares.

Last week, British Land bought residential property Wardrobe Court in central London for £57m, at a net initial yield of 4.7 per cent.

Most of the property is let to serviced apartment operator BridgeStreet until December 2014.

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“At the end of the lease, we have an opportunity to renew or relet as serviced apartments at a significantly higher rent, or to upgrade and sell off profitably as private residential properties,” British Land said at the time.

Also last week, it bought prime office and leisure scheme Grenfell Island, in Maidenhead town centre, for £74m, equating to a net initial yield of 7.5 per cent.

In May, British Land said a number of new retailers at Meadowhall helped to boost its profits. It said 43 long-term lettings and renewals at the shopping centre had improved its overall retail and leisure offer.

Underlying pre-tax profit increased by 9.9 per cent to £256m for the year ended March 31 and its portfolio valuation rose by 6.9 per cent.

British Land said net asset value per share increased by 12.5 per cent to 567p across the group.