Troubled real estate group: what about the Adler Group?

The events surrounding the Adler Group are extremely unusual. What is the ailing real estate company accused of? And how could it go on?

Who is the Adler Group?

The Adler Group only emerged at the end of 2020 from the merger of the Luxembourg-based ADO Properties with the Berlin-based housing companies Adler Real Estate and Consus Real Estate. ADO Properties first took over its own major shareholder Adler Real Estate and then Consus.

The aim of the merger was to diversify the housing stock geographically in order to reduce the effects of the Berlin rent cap on the company’s own business. ADO itself was originally founded in Cyprus in 2006. The company has been listed in the small-cap index SDAX since October 2015.

How important is the group in Germany?

As one of the largest real estate developers in Germany, the Adler Group has maintained several large construction projects across the country. A major project is the development of the site of the former Holsten brewery in Hamburg-Altona, where up to 1300 apartments were supposed to be built. The former headquarters of IBM Germany in the west of Stuttgart should also become a modern city district. The Grand Central district with more than 1000 apartments and shops was to be built in Düsseldorf-Gerresheim. These projects have been stagnating for months, apparently because the company lacks the money for further development.

How vulnerable is the company?

The Adler Group is badly hit. At the end of April, the accounting firm KPMG refused to certify the company’s annual report for 2021. This means that the auditors who subsequently resigned their audit mandate found significant deficiencies in the report. As a result, the actual economic situation of the company can hardly be estimated, which is considered a major alarm signal for the capital markets.

Since the departure of KPMG, the Adler Group has not been able to find a new auditor, which is also unusual. All current data from the company are therefore unaudited until further notice.

According to the information currently available, the group’s debt in June was around 7.2 billion euros. There is no doubt that the company has significant payment problems. After research by NDR and rbb thousands of invoices remained open until the end of June.

What is Adler accused of?

At the beginning of October 2021, serious allegations against the Adler Group were made for the first time. The originator was the British short seller Fraser Perring, who made money from the falling prices of the companies he attacked. His research service Viceroy accused Adler of fraud, manipulation and deception of his financiers. Perring had made a name for himself on the financial markets, among other things, when he denounced irregularities at the then DAX group Wirecard in 2016 – and despite fierce resistance from Germany was ultimately right.

Perring described a group of shareholders and managers at Adler and those around the group as the beneficiaries of the machinations. These belonged to a network around the Austrian entrepreneur Cevdet Caner, who allegedly controls the real estate group from the background. Also one ARD-Documentation suggests such a network.

Adler rejected the allegations “in the strongest possible terms” and spoke of insinuations. In order to invalidate them, the company commissioned its auditor at the time, KPMG, to carry out a special audit. The report, published in mid-April, pointed to deficiencies in the balance sheets but provided no evidence of systematic fraud. However, according to their own statements, the auditors were denied access to thousands of the company’s files.

At the beginning of August, the financial supervisory authority BaFin also announced that Adler Real Estate’s 2019 annual balance sheet was incorrect. The value of the Düsseldorf Grand Central project was estimated at 375 million euros, about twice as high as the market value. The Adler Group then entered into open conflict with the authorities. The company maintains the correctness and regularity of the audited consolidated financial statements for 2019 and announced an appeal against the BaFin decision.

According to information from the “Handelsblatt” from June, the Frankfurt public prosecutor’s office is also investigating against the company – the public prosecutor’s office has so far refused any comment.

Can the company still be saved?

Shortly after the announcement by BaFin, hopes that the ailing group could be rescued through a takeover were dashed. “The markets have changed and that’s why the original idea of ​​taking over the Adler Group is definitely off the table for us,” explained Vonovia CEO Rolf Buch on August 3rd. In February, the housing group from the DAX secured a 20.5 percent stake in the competitor by realizing a loan deposit. The decision at that time could also be critically questioned, said Buch.

Almost simultaneously, competitor LEG announced that it would not exercise an option to purchase a 63 percent stake in subsidiary Brack Capital Properties (BCP). The transaction would have brought more than 700 million euros into the Adler Group’s coffers.

A rescue under one’s own power has become much more difficult in recent months. In view of the considerable doubts about the accounting, the company is largely prevented from refinancing via the credit and capital markets. However, bonds with a volume of 700 million euros will mature by the end of 2023.

The only way out of the crisis currently appears to be selling the stock of 70,000 apartments. According to information from June, the company has done just that in the past few months and most recently still had around 27,000 apartments. At the Annual General Meeting on August 31, the subsidiary Adler Real Estate wants to get approval for the sale of more than 22,000 apartments, which corresponds to almost its entire portfolio.

What’s next?

The focus of the capital market is initially on the Annual General Meeting of Aareal Real Estate on August 31 in Berlin. There, the shareholders’ association SdK (protection group for capital investors) wants to apply for a special audit to clarify the most urgent open questions.

The special audit is intended to “fully clarify the influence exerted by Cevdet Caner and persons and companies close to him and their consequences for Adler in the 2021 financial year”. In addition, the events surrounding the major Düsseldorf project, a loan of 265 million euros to the parent company and the sale of shares in Accentro Real Estate AG to Luxembourg Brookline Real Estate, for which Adler did not receive the full price, are to be clarified.

Since the parent company, the Adler Group, holds 96.7 percent of Adler Real Estate, the SdK application is likely to be rejected at the general meeting. However, since the Stock Corporation Act also allows for a special audit by court order, observers believe the shareholder protectors have a good chance of legal success.