ii view: British Land has good news on the dividend

Shares for this major UK property REIT are down around 40% in 2020. Buy, sell or hold?

Operational and dividend update

• 86% of stores reopened
• Dividend payments to resume and be paid semi-annually

ii round-up:

Shop and office property owner British Land (LSE:BLND) today announced the resumption of dividend payments as rent collection levels continued to improve from the fallout caused by property closures under the pandemic. 

Rental collection rates for its shop properties had reached 50% for the September quarter, up from 36% in the June quarter. Office collection totalled 91%, up from a prior 88%.  

British Land shares rose by more than 5% in UK trading having fallen by around 40% year-to-date. Shares for fellow shop and office owner Land Securities (LSE:LAND) are down by a similar amount. Shares for warehouse distribution owners - used widely to complete online purchases - Segro (LSE:SGRO) and Tritax Big Box (LSE:BBOX), are up over 5% in 2020.  

Having ceased earlier this year due to Covid uncertainty, dividend payments will resume at a rate of 80% of underlying earnings per share, with the first being announced at its November interim results. Payments will now be made on a twice-yearly frequency as opposed to the previous quarterly basis. 

A total of 86% of its shop properties are now back open following Covid closures, up from 64% as of late June. Footfall is currently 21% ahead of the industry benchmark, while retailer sales are running at 90% of those made in the same period last year. Its shop portfolio is focused on retail parks and shopping centres. 

Its London campuses and standalone office buildings remained opened throughout the virus lockdowns, although physical occupancy was low. Government guidance continues to favour working from home wherever possible.     

ii view:

A combination of long-term changing preferences towards online shopping and the hit from Covid-19 have seen retail properties accounting for a reducing proportion of its overall portfolio. However, management is responding to broader changes in shopping habits. A move towards destination shopping centres with lots of parking and eating outlets was made some time ago. Now, a more focused portfolio is being pursued. It sold £296 million worth of shop outlets in its last financial year. But management still believes there is a place for the right kind of retail property, assets that can play a key role for retailers in terms of fulfilment of online sales, returns and click and collect.

For investors, potential for further lockdown across the UK cannot be ignored and could see rent collection rates hit once again. Administrations among its retail tenants have already seen £11.6 million in annualised rents lost. But the pending resumption of dividend payments returns a major attraction for investors. A current £1 billion of undrawn facilities and cash available offer reassurance, while an approximate 50% discount between the current share price and the Net Asset Value (NAV) as of late March 2020 is also noteworthy. In all, despite some progress, continued investor patience is required. 

Positives: 

• A diversity of office, retail and residential property 
• £1 billion of available cash and undrawn facilities

Negatives:

• Uncertain Covid-19 outlook
• Some companies may now work from home permanently

The average rating of stock market analysts:

Hold