British Land to enter opportunistic territory with £175m deal

The UK REIT is poised to make an uncharacteristically opportunistic foray by buying a portfolio of properties occupied by Virgin Active health clubs.

British Land is on the cusp of snapping up a portfolio of 17 properties across the UK occupied by Virgin’s gym chain Virgin Active.

According to a report by the Financial Times, British Land, which has a market capitalisation of £5.4 billion (€195 million; $279.6 million), is in ‘final negotiations’ to buy the properties from Societé Générale, which took control of the portfolio in 2009 from the family trust of private investor Simon Halabi.

Halabi originally acquired the health and fitness properties and their then-occupier Esporta in 2006 for more than £450 million but the business then collapsed into administration in 2007

French lender Soc Gen subsequently sold the operating business to Virgin Active in April, simultaneously becoming its landlord. The portfolio British Land has bought is made up of freeholds and long leaseholds occupied by the gym chain on 25 year leases for £13.1 million in rent a year.

Though British Land has invested in portfolios occupied by UK corporates before such as supermarket groups Tesco and Sainsbury’s, this latest investment is more akin to a distressed real estate deal and follows on from the company’s recent decision to diversify its core office and retail holdings by branching out into London residential. Last month, it acquired a 71,000 square foot property in the City of London called Wardrobe Court for £57 million. The majority of the property is let to serviced apartment operator BridgeStreet.

While that deal’s net initial yield of 4.7 percent does not suggest it was an opportunistic foray, it was nonetheless and departure from British Land’s traditional core office and retail market and was regarded by the company as an opportunistic foray. Indeed, Tim Roberts, head of offices at British Land said of the deal: “With this acquisition….We are confident we can either attract a higher rent from a serviced apartment operator or upgrade and sell as private residential at a significant premium to our entry price.”

According to the FT, however, these deals are not expected to replace, rather supplement, its activities in its traditional office and retail sectors.