Bottom Line: PosTel deal makes sense for both sides

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The Independent Online
HAVING failed to get its hands on some trophy London buildings by striking a deal with Greycoat, PosTel is now getting rid of a pounds 143.3m portfolio of prime retail and office space to Hammerson.

But it clearly deems that a good exchange for the chance to tag along while Ron Spinney, Hammerson's chief executive, tries to revitalise the group.

For Hammerson the deal makes a lot of sense. Together with the acquisition of the bomb-damaged Bishopsgate building, it gives the group some properties on which to flex its redevelopment muscles - something the chunky size of most of its holdings makes difficult.

By funding the purchase with shares rather than cash it improves gearing - though this will become less of an issue as markets recover - and, because the shares were issued at a premium to net asset value, avoids dilution.

It also improves the rather gloomy prospects for income by adding pounds 10.9m to the rent roll without a rise in the interest charge. Shareholders would be rash to expect that to feed through to dividend increases too quickly, given its meagre cover.

They should, however, be able to console themselves with a rise in net asset value. The UK was the only area to show a rise in valuations last year, but there are early indications of an improvement in Australia and Europe, if not yet in Canada. Increases here should start to feed through to net asset value as the UK improvement falters, making Hammerson's international spread an asset, rather than a liability, once again.

Hammerson's shares have underperformed the sector by about 8 per cent and the market by 12 per cent since the property market developed the jitters at the start of the year. With yesterday's 8p fall to 354p, they stand at a 7 per cent discount to a forecast net asset value of about 380p.

While that is slightly ahead of the 11 per cent average for the sector, if Mr Spinney's promise is fulfilled PosTel's timing could look impeccable.

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