BENO Holding is a property portfolio holder with a focus on the Light Industrial segment. According to BENO boss Florian Renner, the real estate boom has not yet arrived there and high spreads can be achieved between property return and interest costs. Even so, competition is low and the company has attractive growth opportunities. BENO wants to use this and issues a bond with a volume of up to 30 million euros and an interest rate of 5.3 percent. The subscription period on the Munich Stock Exchange runs until November 27th. In an exclusive interview with our editorial team, Florian Renner explains BENO’s business model and what plans he has with the fresh money.
Personal-Financial.com: BENO Holding is quite unknown on the market. What do you do?
Renner: The BENO Group is a property portfolio holder. We buy real estate, rent it out to medium-sized companies and thus generate easily predictable income. With Light Industrial Immobilien we specialize in a very attractive niche in German-speaking countries. Our portfolio with 11 locations and 37 tenants currently has a market value of 58.6 million euros and the net annual rent in 2019 was 5.4 million euros. We started in 2008 when we took over properties from MS Industrie AG. The company is still one of our tenants to this day.
Personal-Financial.com: Could you please briefly explain the “Light Industrial” segment and can your focus expand in the future?
Renner: The light industrial asset class comprises commercial areas with mixed use of logistics, administration and production. As a rule, it is real estate that is required for business operations. This is a big difference compared to office properties, for example. These can be changed relatively easily by the tenant. But if a company has to relocate not only offices but also the entire machine park, it becomes considerably more expensive and complex. Not to mention the loss of production during this time.
Personal-Financial.com: How are you feeling the current pandemic? Have there been rental losses?
Renner: Of course, our tenants are feeling the effects of the pandemic and we are in close contact with them. A quarterly credit check is also one of our standards. So far in the current year we have not had to record any rental losses or deferrals. We benefit from the focus on essential real estate and a strict selection process for properties and tenants.
Personal-Financial.com: You have 37 tenants in your properties, into which categories can they be divided?
Renner: Our property portfolio is broadly diversified and represents German medium-sized companies. The tenants are active in a wide variety of industries: machine and plant manufacturers, manufacturers of traffic technology, electric motors, heat exchangers, agricultural machinery and floor coverings.
Personal-Financial.com: Your average rent is 3.35 euros per square meter. That can be increased ?!
Renner: Correct. BENO has significant rental and value growth potential in the coming years. Through consistent property management, we are able to sustainably increase rental income, rental periods and values. The building costs, which have risen sharply in recent years, play into our hands. Because for a new building, companies have to pay rents from 10 euros per square meter. It only pays off for a very few.
Personal-Financial.com: Bonds usually have a term of five years, your bond has a seven-year term. Why?
Renner: As a portfolio holder, we are interested in the longest possible financing with planning security. But we also understand that seven years is a long time for investors. We therefore offer the option of early termination after five years.
Personal-Financial.com: Why do you opt for a bond instead of borrowing money from the bank?
Renner: We use the funds as part of the respective property financing to provide parts of the equity. The rest is then funded through long-term bank loans. In addition, with the liquidity we accelerate our reaction time when interesting objects are on the market. We then finance the purchase 100 percent from our own funds and then finalize the bank financing. A positive side effect: without time pressure, more attractive conditions can often be negotiated.
Personal-Financial.com: So far, you are hardly represented in the north and east of the republic. Will this change?
Renner: That is historical. Our founders are very well networked in North Rhine-Westphalia and Baden-Württemberg and there are enough attractive buying opportunities in the regions. But of course we are open to purchases in other federal states.
Personal-Financial.com: How do you get new properties and which ones are right for you?
Renner: BENO has made a name for itself over the past twelve years. Potential properties are regularly brought to us via brokers or the general network. We have developed a strict selection process based on MUST and CAN criteria that has proven itself. The MUST criteria include, for example, that less than 50 percent is office or administrative space. In addition, the occupancy rate must be over 60 percent.
Personal-Financial.com: You are a portfolio holder. Building new properties is just as little an issue for you as selling property from your portfolio?
Renner: We want to grow and expand our portfolio, but if the price is right, a targeted sale is an option. Due to the high construction costs mentioned, new buildings are only attractive to us or our tenants in special cases if a tenant has expansion wishes and would like to implement them on the existing site. In individual cases there may also be changes in use initiated by the municipality, such as Housing coming. The increases in value with such conversions are of course considerable.
Personal-Financial.com: What distinguishes you from other portfolio holders in the industry?
Renner: We are in a specialty that other portfolio holders hardly have on their radar. Very enjoyable for us. Because the real estate boom has not yet arrived in this segment and attractive spreads can still be achieved between the property yield and interest costs. These days are over for residential, office or logistics properties, for example. The special know-how is an additional barrier to market entry in our segment.
Personal-Financial.com: How is your debt situation (possibly in an industry comparison)?
Renner: We have been profitable since the company was founded and have not made any distributions during this time. The available funds were therefore permanently reinvested or used to reduce debt. Accordingly, we have continuously improved key portfolio indicators such as NAV and LTV. At the end of 2019, the debt ratio (LTV) of the property portfolio was 48.2 percent (previous year: 55.6 percent) and the net asset value was 30.3 million euros (previous year: 23.0 million euros). Group equity increased in 2019 from 10.1 to 16.5 million euros and the equity ratio from 18.6 to 26.7 percent. A conservative dividend policy is also ensured during the term of the bond. Our security package provides, among other things, that dividends may only be distributed if the equity ratio is over 30 percent.
Personal-Financial.com: And what about your hidden reserves on the balance sheet?
Renner: Since we account in accordance with IFRS, increases in value are at least partially taken into account in the annual financial statements. In the event of a sale, the prices achieved are usually somewhat higher. That is why we have little or no hidden reserves in the traditional sense, but we have a very transparent balance sheet.
Personal-Financial.com: Last question. Why should investors subscribe to the BENO bond?
Renner: BENO generates rental income that is easy to plan. With the specialization in the inventory of necessary real estate we occupy a very attractive niche and as the first issuer in this area offer the possibility to diversify within the real estate bond. In contrast to many other real estate segments, Light Industrial can still achieve attractive margins. We therefore see further rental and value growth potential and interesting purchase opportunities in the coming years. We have committed ourselves to a distribution block of up to an equity ratio of 30 percent and have proven ourselves as a reliable issuer with our existing convertible bond over the past few years.