Signa’s high real estate valuations are criticized
Published: Tuesday, Dec 12th 2023, 14:00
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The corporate strategy of the financially troubled real estate group Signa, led by Tyrolean investor René Benko, is coming under increasing criticism.
Benko is said to have "inflated the valuations of properties with expensive rental agreements", writes the German newspaper Handelsblatt (Tuesday edition). According to experts, the rents for the luxury department stores are in some cases well above the market level. Signa, however, denies usurious rents - it "rejected all accusations".
Like other large real estate groups, Signa is likely to have made full use of the available scope for valuation and valued the planned properties very highly. This is possible within the framework of the International Financial Reporting Standards (IFRS). "According to IAS 40 (International Accounting Standards, note), which regulates the accounting of real estate in financial investments, the valuation is very much dependent on the judgment of the appraisers," explained Roman Rohatschek, head of the Institute for Corporate Accounting and Auditing at the Johannes Kepler University Linz, according to "Oberösterreichische Nachrichten" (Tuesday edition). It depends very much on who the experts are and how reputable they are. There is also the question of how high the expected rental income is.
"Massively exaggerated" in valuations
Benko had "massively exaggerated" the valuations and revenue expectations, the newspaper "OÖN" quotes Gerhard Weinhofer, Managing Director of the Creditreform creditor protection association. He is a supporter of the lowest value principle in the Austrian Commercial Code (UGB), which is characterized by commercial prudence and is based on the acquisition value of real estate. However, this is not a good way to present equity.
In the course of the insolvency proceedings surrounding Signa Holding, it is not unlikely that there will be a general devaluation of the Signa properties by 30 to 40 percent, for example, in order to determine a realistic break-up value in the event of bankruptcy, the report also states.
According to Handelsblatt, insiders accuse Benko of having "inflated the valuations of his department stores with gagging contracts and thus artificially inflated the Signa portfolio". The higher the rent and the longer the contract, the more a property is worth - at least on paper. The accusations are completely unfounded, a media lawyer for the company countered when asked by the newspaper.
Excessive rents
According to experts, retail rents are excessive: At the Alsterhaus in Hamburg, the rent burden amounts to a good 17 percent of sales with an estimated turnover of around 70 million euros. This is "very high", the "Handelsblatt" quotes the managing partner of BBE Handelsberatung, Johannes Berentzen. BBE specializes in the valuation, development and management of retail properties. At the Oberpollinger department store in Munich, "the rent level is at the absolute pain threshold", according to Berentzen. With an estimated turnover of 130 million euros, the rental share amounts to around 20 percent of turnover.
According to the newspaper, the expert confirmed that the owner could use the high rents to drive up the valuation of its properties. The Berlin luxury department store KaDeWe, on the other hand, could "probably cope rather well" with the very high rent of EUR 50 million, Berentzen added. It accounts for just under 13 percent of sales. Turnover per square meter of retail space there is just under EUR 6,700, but only EUR 3,800 at Oberpollinger.
According to company sources, the rents for the 18 stores owned by Signa's Swiss subsidiary Galeria are also significantly higher than the market price, reports the Handelsblatt, quoting an insider: "If the Signa rents were in line with the market, Galeria's profits would be 70 million euros higher."
As with KaDeWe, Signa had also promised investments in Galeria in return for the expensive rental agreements. However, following the insolvency of Signa Holding at the end of November, it is questionable whether the promised payments of 200 million euros will still be made.
Within Signa, inconsistencies within the real estate empire became apparent following the dismissal without notice of the CEO of the two currently not insolvent subsidiaries Signa Prime Selection and Signa Development Selection, Timo Herzberg, which was announced on Monday evening. The exact reasons are still unknown.
Questions about Herzberg's business
On Monday morning, the "Frankfurter Allgemeine Zeitung" sent the supervisory board of the real estate companies an extensive list of questions regarding research into "possible questionable business dealings by Herzberg", reports the "F.A.Z." online. Among other things, it was about a company called Havit, in which the manager held a majority stake. It had rented space in Signa buildings, but apparently at low rents that were not in line with the market. According to the newspaper, Herzberg has not yet responded to an inquiry from the newspaper on Monday.
"The reasons for the dismissals are an urgent suspicion of gross violations of duties as a member of the Management Board," the company's press release had cryptically stated on Monday evening. "The suspicions were clear and left the supervisory boards with no other choice," said Alfred Gusenbauer, Chairman of the Supervisory Board of the companies and former Austrian Chancellor.
It could be decided as early as next week whether the restructuring process with self-administration sought by the insolvent Signa Holding will become one with external administration. The creditors would then only receive 20 percent of their claim instead of 30 percent. In January, it should be clear who actually wants how much money from Signa, and on February 12, a scenario should be available as to how the group will continue.
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