Home Business Property giants mount bid to thwart Fitness First closure and rent cut plot

Property giants mount bid to thwart Fitness First closure and rent cut plot

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The Crown Estate, Land Securities and M&G Real Estate are among landlords preparing a legal challenge to a restructuring plan tabled by the gym chain’s owners, Sky News learns.
City editor
Friday 2 June 2023 11:31, UK
Some of Britain’s biggest commercial property-owners are joining forces in a bid to thwart a plot to slash rents at dozens of Fitness First health clubs.
Sky News has learnt that landlords including The Crown Estate, M&G Real Estate and Land Securities are preparing to challenge a restructuring plan that is due to be heard in court later this month.
The property giants are said to be furious about the terms of the plan, which has been hatched by Fitness First’s owner, the family of former sportswear tycoon and Wigan Athletic Football Club owner Dave Whelan.
One real estate source said the landlords’ objections related to the depth of the financial information they claimed to have seen, their singling out as a creditor class and the apparent repayment of a loan taken out by Fitness First under one of the government’s COVID lending schemes.
Hilton, Legal & General Investment Management and Nuveen are also said to be among the landlords involved in the challenge.
Under Fitness First’s plans, ten of its UK sites, representing just under a quarter of its estate, would close permanently.
Rent cuts would affect many of the remaining 34 sites, according to the proposals circulated to creditors.
A court is due to hear the case on 12 June.
Efforts to block restructurings by retailers and restaurant chains were commonplace during the pandemic as landlords sought to avoid being financially compromised on a disproportionate basis.
Mr Whelan bought Fitness First in 2016, with its most recently filed accounts showing a loss of more than £10m in the year to 31 March 2021 – although its performance during that period was hammered by the pandemic.
Accounts for the following year are now two months overdue.
The bulk of Fitness First’s operations are in London, with clubs in prominent locations such as Oxford Circus, Baker Street and Liverpool Street.
Filings show that earlier this year, Teneo Financial Advisory was appointed administrator to Fitness First (Curzons) Limited, a company affiliated to the wider group.
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The impact on jobs at the company as a result of prospective gym closures could not be ascertained.
Mr Whelan, who founded JJB Sports, acquired a large chunk of Fitness First’s UK operations seven years ago as part of a separate restructuring of the multinational gyms operator.
Under different ownership, Fitness First had previously shed dozens of struggling UK clubs through a mechanism known as a company voluntary arrangement (CVA) in 2013.
The use of a restructuring plan rather than a CVA to implement its latest overhaul could prove controversial among affected landlords.
Virgin Active, another gyms group, deployed a restructuring plan to force through a financial restructuring in 2021 as it teetered on the brink of collapse.
The mechanism allows companies to ‘cram down’ creditors to force proposals through even if they vote against them.
Mr Whelan himself has also experienced the sharp end of the health and fitness sector as competition has grown, particularly among cheaper operators.
In 2020, DW Sports, the chain he founded in 2009 after acquiring 50 sites from JJB Sports, crashed into administration, citing the impact of COVID-19 lockdowns.
Roughly half of the company’s 1,700-strong workforce was saved when Mr Whelan’s rival, the Sports Direct tycoon Mike Ashley, engineered a deal for his Frasers Group to buy just over half of DW Sports’ sites.
The gyms industry has faced extraordinary turbulence in recent years, with the pandemic and soaring energy costs having a marked impact on operators’ ability to make money.
None of the landlords contacted by Sky News would comment on Friday, while Fitness First could not be reached for comment.
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