British Land jumps the gun by restoring the dividend

With rents still down by a quarter, the decision by British Land’s departing boss to resume dividend payments may prove premature

This article is from The Telegraph’s City Intelligence newsletter. Sign up here for incisive analysis of the day's biggest corporate story from our chief City commentator Ben Marlow.

Talk about leaving on a high. A cynic would say that the decision to reinstate investor payouts at British Land was at least partly inspired by the pending departure of long-standing chief executive Chris Grigg next month.

Grigg would probably have chosen a different backdrop for his exit but 11 years is a good innings and who knows how long he would have to stick around to see things normalise, not when the Government seems determined to wreck the recovery by forcing the country back into lockdown.

So you can understand the board wanting to give him a decent send-off after the dividend was shelved at the beginning of the outbreak. No boss wants to be remembered for that.

It’s bad enough that the share price is a fifth lower than where it was when he took charge in 2009, but at least Grigg can largely blame Covid for that.

The shares were languishing at 365p before today’s trading statement, having crashed more than 40pc since the start of the year as rental income fell off a cliff during the pandemic.

The company’s version is that there has been a sudden improvement in its fortunes, but there’s only some truth in that. Footfall is 21pc ahead of forecasts, and sales have recovered to 90pc of where they were a year ago.

But the real measure is rent payments. In the quarter between March and June, 97pc of office rents were collected, versus just 44pc for retail tenants, and equivalent to roughly two thirds of what was owed overall.

There was a further improvement in the following quarter between June and September with offices at 98pc and retail at 57pc, but that still only equates to 74pc of total takings. Or, put another way, a shortfall of more than a quarter. So isn’t the company jumping the gun?

Sure, September’s collections were “encouraging” and are expected to improve further.

The balance sheet is strong too, with £1bn of cash and borrowings at its disposal, but the outlook is hardly rosy, as it readily admits.

Bankruptcies are on the up and tenants are renegotiating rents in increasing numbers at much lower rates than before, and at levels that will be set for years to come.

And although occupancy levels are around 95pc of pre-Covid levels, physical occupancy is far lower. Just 18pc of the desks found in its London office blocks are being used, while just 65pc of the retail and food outlets serving office workers have reopened. That is plainly unsustainable.

But perhaps that’s not even the real issue here. Even if British Land can afford to pay a dividend, that doesn’t mean it should. Companies that continue making payouts through the pandemic will find they have lost all moral force if, and when, they need to lobby the Government for help again.

Take Tesco. Its decision to recycle a business rates holiday into shareholder dividends means there is no hope of receiving a second one, or any further state support.

Fortunately, it probably won’t need it, in the same way supermarkets never needed a bailout in the first place. But with another national lockdown potentially looming, can British Land be equally confident?

It must be, because any negotiating position it had before has probably just disappeared out the door along with its departing chief.

Dawning of a new Day

The irony of Edinburgh Woollen Mill facing insolvency surely won’t be lost on founder Philip Day.

The billionaire is a fervent bottom-fisher, creating a vast high street empire out of the detritus of failed retail ventures.

Yet, here is the owner of Jaeger, Austin Reed, and a shopping trolley of other unremarkable brands, facing the same fate as many of its previous conquests, having filed a notice to appoint administrators.

With a staggering 21,000 jobs on the line, it would be the biggest retail collapse since the implosion of pick and mix emporium Woolworths in 2008. But it surely won’t come to that.

Day is the undisputed pre-pack king and the company’s warning of “significant cuts and closures” is telling, so too his position as a secured creditor. It must be short odds on a slimmed-down business rising from the ashes still under the control of its founder.