View from City Road: Hammerson runs out of space

SYDNEY MASON, chairman of Hammerson, should stop searching for ever-more apocalyptic descriptions of the property crash; the figures say enough by themselves. Hammerson warned that its dividend would be more than halved from 20.5p to 10p, but its yield is still 6.6 per cent. Its shares stand at a discount of almost 60 per cent to net assets, based on forecasts that net assets will fall 25 per cent to 480p a share at the year end. Full-year profits are expected to be about pounds 45m, putting it on a prospective multiple of just 10 times earnings. But it is difficult to find any convincing reason to buy the shares.

The City decided to focus on the dividend and expressed its relief that it has been cut to a realistic level by marking the shares up 11p to 201p. But, unless the world office market starts to recover - and no one is betting on that - Hammerson could be forced to make yet more disposals to keep its borrowings under control.

So far this year, it has sold pounds 100m of property - although half of this was re-invested in two buildings acquired from Prudential - but debt at the year end is likely to be only 'down a little' on last year's pounds 824.1m. The fall in net assets, expected to continue in 1993, will mean that gearing will rise from 78 per cent to almost 100 per cent - when it would breach banking covenants. Without asset sales, analysts estimate that it could rise to 111 per cent at the end of 1993.

Prospects for earnings are little brighter. Pre-tax profits in the first six months fell from pounds 31.2m to pounds 23.3m, partly due to a reduction in capitalised interest from pounds 19.4m to pounds 8.5m. In the full year, capitalised interest will fall from pounds 32.1m to about pounds 15m, and 'virtually nothing' next year. The lease on one property in Melbourne - where the market is worse than London - expires next autumn, which is likely to cost pounds 3m in rent. The following year, the lease on Marathon House in London, where the rent is estimated at pounds 5m, also expires. Hammerson will either have to find the cash to refurbish it, or face a substantial drop in income.

John Parry, managing director, shows he is facing up to reality when he talks about seeking joint ventures with financial institutions as the way forward for the group. He is also sensible to look more towards Europe, although there are signs that many of those markets will decline.

Hammerson's discount will undoubtedly narrow eventually - the long-term average for the sector is about 30 per cent. But only the most patient investors will wait around.

(Photograph omitted)