ii view: Income star British Land suspends the dividend

An online shopping revolution and now Covid-19. Where next for investors?

Trading update

• Temporarily suspending future dividend payments
• Around 88% of retail units now closed
• Current full-year earnings expected to be in line with estimates
• £1.2 billion of available cash and undrawn facilities
• No requirement to refinance until 2024

ii round-up:

Shop and office property owner British Land (LSE:BLND) is suspending its dividend payment in the wake of UK government measures taken to battle Covid-19. 

The vast majority of its shop properties are now closed, with only essential stores such as supermarkets and pharmacies still open. 

Retail properties account for around two-fifths of its assets – offices blocks just over half, along with a small exposure to London residential. 

Smaller retail, food & beverage and leisure tenants are being given a three-month rent-free period at a cost of £3 million. 

Larger such customers will be allowed to defer the March quarter rent payment and spread its repayment over the six quarters from September. Defers of around £40 million are expected. 

British Land, whose properties include Broadgate at London Liverpool Street train station, has £1.2 billion of available cash and undrawn facilities and no requirement to refinance until 2024. 

Its shares fell by more than 6% in UK morning trading and are down by more than 40% year-to-date. 

Shares in rival Land Securities (LSE:LAND) are also down over 40%. Warehouse owner Segro (LSE:SGRO) shares are down by less than 20% during 2020. 

ii view:

Changing shopping habits have been adjusting the property landscape for some years now. A move by consumers toward destination shopping centres, with lots of parking and eating outlets in abundance, have seen more traditional high streets and their shop value rents suffering. 

The rise of online shopping has increased pressure further, with delivery from a warehouse preferable for many consumers than a trip to the shops. A virus and a government closure of non-essential retail outlets is just about the last development management could have wished for. Coronavirus aside, British Land has been attempting to navigate the changing landscape. A centre of gravity move towards London office campuses has been a strategy response. 

For investors, the potential to withstand a 50% fall in asset values before breaching banking covenants offers some comfort. The biggest discount between the share price and the Net Asset Value (NAV) in 30 years according to broker UBS, is also noteworthy. But, with the dividend suspended and any timing on the end of the corona crisis unknown, a sit tight and wait approach may be the most sensible approach for now.  

Positives: 

• A diversity of office, retail and residential property 
• £1.2 billion of available cash and undrawn facilities

Negatives:

• The value of its retail portfolio fell by 11.1% over the last financial year
• Dividend payment suspended

The average rating of stock market analysts:

Hold