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Standard Life Reit slashes dividend after some tenants ‘abuse’ system

3 August 2020

Standard Life Investments Property Income cuts its quarterly dividend by 40% as it struggles to collect rent, accusing some tenants of abusing government measures.

Standard Life Investments Property Income (SLI ) has become the latest real estate investment trust  (Reit) to slash its dividend as rent collections remain under pressure, with the landlord accusing some tenants of abusing the system to delay payment.

Shares in the £232m real estate investment trust (Reit) fell 2.8%, or 1.6p, to 55p after it cut its quarterly dividend 40% to 0.714p per share, joining a long list of peers that have reduced, suspended, or cancelled their payouts during the coronavirus crisis. 

Covid-19 has had a severe impact on the property sector as landlords struggle to collect rents from tenants that saw revenues reduce, in some cases to zero, amid the government-enforced lockdown. 

SLI’s tenants were no different and the board said the reduced dividend ‘balances the need for shareholders to continue receiving income during this difficult period while maintaining a prudent approach given the rent collection rates presently being experienced from both quarter two and quarter three’. 

Analysts at Numis Securities said the dividend cut was not a shock as the board had indicated a reduction was likely. ‘UK Commercial Property (£893m market cap), the larger Aberdeen Standard vehicle, announced a 50% dividend reduction in April, and the peer group have seen cuts of between 30-55%, although Custodian Reit saw some recovery in the level of its dividend in the second quarter,’ they said.

In its second quarter update for the three months to the end of June, the trust reported a 4.3% decline in net asset value (NAV) to 79.6p per share, adding to the 7.5% hit suffered in the previous quarter. 

The company received just 60% of rents due for ‘what can collectively be termed advance billing for the third quarter of the year’, with the figure expected to rise to just 69%. Rents from industrial tenants were the most robust, with 68% of monies owed collected by 22 July, 59% of office rent was collected, 40% of retail and just 20% of leisure rents. 

‘It is expected both the second quarter and third quarter figures will continue to improve as we continue to engage with our tenants,’ it said, adding that rent deferrals and renegotiated payment plans had been agreed with some tenants.

The trust complained that ‘several’ tenants had ‘chosen not to pay and not to engage’ despite being able to afford to. 

Aberdeen Standard Life’s Jason Baggaley, manager of the Reit, said: ‘Unfortunately, we have also found some tenants abusing the government restrictions on landlords being able to enforce lease covenants.

‘We have found a number of organisations that could pay but choose not to, or are restructuring in such a manner that the landlord takes the brunt of the pain, rather than equity or debt holders. Needless to say, we will chase those tenants with vigour as and when government restrictions allow.’

The outcome of rental collection will determine the next step in the dividend policy, which remains ‘under review’ with the board ‘aiming to strike a balance between rental income and shareholders’ dividend requirements, noting that rent collections are forecast to improve on the assumption that more of the economy begins to open up and  lockdown eases’. 

Baggaley said only one new letting and two lease renewals were completed during the quarter, with one of the leases being for office space.

The future of offices has come under scrutiny during coronavirus as half the population worked from home but Baggaley said he does ‘not foresee the demise of the office’ which remains an ‘important environment for people to socialise, learn, share, and develop’.

‘We are going to see more people work in an agile way, not spending five days a week in the office, or five days a week working from home,’ he said. 

‘An early trend we have seen is increased demand for fully fitted suites, and during lockdown we completed the lease on one, and agreed terms on another. We had already rolled out fitted suites across our estate, and believe our policy of investing in buildings that create an environment where people want to work remains relevant.’ 

Investment company news brought to you by Citywire Financial Publishers Limited.

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