British Land has slipped back following reports it could buy a number of Virgin Active health clubs.
The company has been tipped to expand its property portfolio, with an enthusiastic note from Deutsche Bank earlier this week suggesting it was well placed to boost its growth by buying up to £10bn of property loans from Britain's banks.
This latest supposed deal is on a much smaller scale, and is said to involve the sale and leaseback of 17 Virgin Active clubs being sold by Societe Generale, with a price tag of around £175m. Analysts at Espirito Santo put a buy note on the business, but suggested shareholders might be wondering about the strategy:
Coming soon after the Maidenhead and Wardrobe Court acquisitions, the shareholders we have spoken to recently seem puzzled by British Land's recent acquisition strategy. Our forecasts factor in £250m of gross acquisitions in the full year, and were British Land to complete the Virgin Active transaction, they would have deployed £306m in the first four months of the year at an average net initial yield of 6.7%.
Shareholders are likely to look to management for reassurance on the growth prospects of these assets relative to the perceived core of the portfolio; London offices and UK retail. It remains to be seen if increased recent investment will produce a corresponding increase in capital recycling (we assume only £100m of disposals in the full year) and opportunistic acquisitions would take on greater significance if funded by disposal of 'core' assets.
Despite recent noise around investment activity, it remains a marginal contributor to forecast net asset value growth relative to ERV growth in the existing portfolio, which accounts for over 55% of our expected NAV growth on a 3 year view.
British Land is currently down 9p at 619.5p, although to be fair, 6.5p of the decline is due to the shares going ex-dividend.
