Warner Estate Holdings is scrapping its half-year dividend after suffering a huge drop in its net asset value.

The co-investing property fund manager said it would not be paying a dividend for the six months to 30 September to conserve cash and reduce debt.

As a REIT, Warner is required to distribute at least 90% of the profits of its property rental business by way of a dividend, which last year was 17.5p a share. Chairman Philip Warner said the company would ‘meet this requirement in respect of the full financial year’.

In the six months Warner’s NAV fell by 43% to 320p a share. There was little information on the revaluation, but the net initial yield of the £971m portfolio rose by 59 basis points to 6.36%.

The news hit Warner’s share price this morning, sending it down more than 7% to 47p, which is a drop of 87% in 12 months.

We are concentrating on those areas which we can control, namely, improving our income, reducing our costs and maximising our cash,’ said Philip Warner. ‘We are being proactive in meeting the challenge of falling values and remain in compliance with our banking covenants.’

Warner’s net debt increased in the six months by £2m to £348.7m and its non-recourse, joint venture debt, at the end of September was £332m.

‘It remains our intention to reduce debt through, inter alia, the continuing programme of sales,’ said Philip Warner.

The company’s facilities remain at £415m with an average loan-to-value covenant of 79%.

‘Discussions with our relationship banks have commenced regarding the renewal of those facilities reaching maturity in 2010 and 2011,’ said Philip Warner.

‘The £30m facility maturing in January 2009 is not being utilised and will not be renewed. Continuous dialogue with our banks has allowed us to increase loan to value covenants to provide a level of insurance against further falls in investment values, although further actions have been initiated to ensure we continue to remain in compliance with our banking covenants.

‘Equally important are our income cover covenants and the recent changes in LIBOR have increased significantly the group's headroom in relation to these.’