Risk level “medium to high”: this is how Benko increased the valuation of Globus real estate

Benko’s Globus financing is based on a dilemma: The retail business is controlled by the Globus holding, but the real estate is held by the separately established Matterhorn holding in Luxembourg and is leased by Globus. The same shareholders are behind each: Both Globus and Matterhorn are indirectly controlled by Signa and Thai Central Group, with 50 percent each.

Apparently there are a lot of cantonal banks behind the mortgages. Basler Kantonalbank, mentioned in the annual reports, and Aargauische Kantonalbank, which recently formalized its commitment, have been confirmed. Other cantonal banks have now registered claims as part of insolvency proceedings.

High property values ​​are justified by high rental rates

It has now been revealed that Signa justified the very high valuations by signing long-term leases with it on very expensive terms and thus transferring the income to its real estate division. This allowed obtaining large amounts of loans from banks.

Calculation trick: Rents were low to begin with but then rose rapidly. Moreover, as PWC’s 2020 research confirms, with maturities of up to thirty years. Thanks to long maturities, Signa was able to create valuations with high rent payments, even though these rents had not yet flowed at the time. An example of this is the most expensive property: the Globus flagship store in Zurich. The thirty-year lease provides for payments initially of around 9.5 million euros per year, rising later to 21.5 million euros. This model is also confirmed by the actual rental income rising to 18 million francs by 2022. Signa Group did not want to comment on these figures or other questions regarding property valuations when asked.

Thus, Benko offered its investors an estimated market value of at least 1.3 billion euros based on rental estimates, while at the same time the Zurich property was listed in the internal annual report with a book value of 761 million francs. During the Migros period, the valuation was even lower. The “Handelszeitung” knows: Before the sale, the consulting company Wüest Partner estimated its value to the then owner at 550 million francs. This almost corresponds to the last known mortgage debt. Benko has greatly increased the valuation.

Rent demands “outside reasonable range”

PWC puts clear question marks in its report and describes Globus Zurich’s risk level as “medium-high”. PWC describes the maximum rental price of 104 euros per square meter as “outside the reasonable range” for the Zurich market. PWC notes that even compared to high-end stores abroad, the rent is “at the top of the line” and about the same size as Galeries Lafayette in Paris.

The situation is similar at the second department store in Basel, which is currently being completely rebuilt. Here too, a thirty-year contract provides high long-term rental payments. According to documents from PWC, Signa, by 2027 this amount is expected to increase to 49 euros per square meter or a total of 7.7 million euros (based on the situation in 2020). This means the Basel rent is at the “upper end of the reasonable range.” Here too the auditors’ rating: “medium to high risk”.

Valuation of real estate is vital for the banks that finance them. Your loans are safe only as long as their market value exceeds the amount owed. Overall, around 70 percent of Signa-controlled Globus properties in Switzerland are likely to be mortgaged – this is when measured against official book value balances at the end of 2022. There isn’t much room for price crashes.

Also, Benko’s Signa group’s calculations are apparently very different. While there are differences of up to 70 percent between book value and market value for individual properties, for others the values ​​are almost the same. St. The value of the former department store in St. Gallen was also probably conservatively assessed, as it could be sold in 2022 with even a slight valuation gain.

What happens when tenants and landlord are no longer the same?

The presumption of financial innocence still applies to Swiss Globus companies: although a number of Signa companies across Europe have gone bankrupt, all retail and real estate companies worldwide continue to operate normally, something Globus representatives have emphasized in the past. Store business continues normally.

This is probably how bank interest has been paid so far. Mortgages are considered solid as long as most banks do this, but how much longer? So will the loans be extended? For example, according to the 2022 annual financial statements, the 7 million financing provided by Basler Kantonalbank to the Basel Globus temporary financing will expire at the end of January 2024.

When there is a change of hands between shareholders, the worldwide practical constellation becomes difficult. It is clear that Signa shares are likely to be sold on both sides in the medium term. It is known that Thai people are interested in the retail side. On the tenant side, whoever buys Signa shares will likely have a strong interest in terminating or renegotiating expensive leases. At this point at the latest, some of the valuation calculations will probably no longer work.