British Land (LON:BLND) , the FTSE 100 real estate group, has agreed a deal to buy a portfolio of freehold and leasehold racket clubs from Societe Generale for £179 million. The portfolio consists of 17 premium racket clubs which will be let on new, 25 year leases to Virgin Active pending its acquisition of the Esporta fitness business. The move is a departure from British Land’s core retail and London office focus but the company said it was an example of ways in which it could add incremental value. The British Land share price responded with a rise of 1.5p to 606.5p.

The properties have been acquired at a net initial yield of 7.3% and an equivalent yield of 8.4% and will generate an initial annual net rental income of £13 million. The leases are subject to a fixed uplift at year five, compounded at 2.5% pa, followed by annual RPI uplifts of between 1% and 4% for the remainder of the term. The average rent on the new leases is £8 per sq ft. The properties acquired have a total of 1.7 million sq ft of leisure and gym facilities spread over 380 acres of land. The purchase price represents a capital value of just over £100 per sq ft. The purchase is conditional on the Office of Fair Trading’s approval of Virgin Active's acquisition of the Esporta business and will be funded through British Land’s existing facilities.

Nearly 85% (by value) of the clubs acquired are located in the south-east of England, with nearly half of the clubs by value within the M25. Offering an extensive range of facilities, the clubs are all well located on the edge of major towns, are highly accessible and dominant in their catchment areas. Virgin Active will be the second largest provider in the UK with 124, mainly mid to high end market clubs and over 425,000 members. The acquisition of the Esporta business will provide Virgin Active with a strong presence in the premium health club sector where membership and revenues have remained resilient. The Esporta clubs are expected to benefit from Virgin Active’s proven management skills alongside significant new investment.

The purchase of the Esporta properties brings British Land’s total acquisition spend over the last 18 months to £784 million. The acquisitions, which include Drake Circus shopping centre in…

Unlock the rest of this article with a 14 day trial

Unlock with Email
Unlock with Google

Already have an account?
Login here