Dusseldorf, Berlin, Frankfurt It’s a dramatic crash: After the presentation of unaudited consolidated financial statements for 2021, investors flee the shares of the real estate group Adler Group. On Monday, the paper of the company listed in the SDax small-cap index fell by around 40 percent by the afternoon. At times, the share was even listed 46 percent lower and was worth less than four euros.
In a press conference in the morning, the chairman of the Adler board of directors, Stefan Kirsten, commented on the chaotic developments. There is nothing to sugarcoat, said the manager. Only 5.5 hours would have been missing last Saturday, then the group would have “driven against the wall”. “It was a pretty close race,” Kirsten said.
Adler published its annual financial statements for 2021 five hours before midnight on Saturday. A look at the terms of an Adler bond shows why the deadline was so important: it states that issuers must submit an annual report “with audited consolidated financial statements” within 120 days of the end of each financial year.
Kirsten was accordingly important to emphasize: “There was an examination. We have audited financial statements.” If the balance sheet had been delayed further, 4.4 billion euros in bonds would have fallen due.
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April 30 stands for a new beginning at the Adler Group, emphasized Kirsten. The group cleared out the balance sheet, reduced debt “significantly” and increased the cash position. Adler has over half a billion euros in liquidity. Despite losing billions, the company is well positioned.
Kirsten announced that the group’s “Byzantine structure” would be converted into “an economic entity”. The background to the drama are allegations against Adler made in October by short buyer Fraser Perring’s investment firm Viceroy. This involved, among other things, the valuation of real estate projects.
Adler rejected the criticism and initiated a special audit by the auditor KPMG. The group felt relieved by the results. The Adler balance sheet for the past year may have been checked, but it has not been certified. KPMG had denied the group the attestation on Friday evening.
As a result, all the members of the board offered to resign, with the exception of the head of the board of directors who had only been in office for a short time. Four board members had to go. The rest are to remain in office until the Annual General Meeting at the end of June and stand for re-election.
April 30 stands for a new beginning at the Adler Group, emphasized the Chairman of the Board of Directors.
(Photo: imago/Rainer Unkel)
The protective community of investors is already thinking about legal measures against Adler and responsible managers. Criminal law action against the people involved is being examined and talks are being held with two litigation financiers to make claims for damages by investors and bond buyers possible, said Marc Liebscher, SdK board member on Monday. The organization was shocked by what had happened and demanded full transparency.
The financial supervisory authority Bafin is also examining the case: “We are looking at the price development at Adler Group SA and Adler Real Estate AG before the reports from last Friday and Saturday regarding possible insider trading,” said a spokeswoman for the authority.
The reason for this is the continuous price losses of the share since the beginning of last week. While the Adler price was still EUR 11.50 on Monday a week ago, it had already slipped to EUR 7.20 by Friday. The regulators therefore raise the question of whether there were investors who knew in advance that Adler would announce bad news. According to the spokeswoman, the Bafin also checks “the communication in this context”.
Not only the refused KPMG attestation is bad news: the figures presented on Saturday evening showed a loss of 1.17 billion euros, which was mainly due to high depreciation at the Consus Real Estate subsidiary.
Kirsten emphasized that KPMG cannot form an opinion. “It does not mean that our balance sheet or income statement is not in order.” There is no negative statement, underlined the Chairman of the Board of Directors, adding: “If there had been a material point for an objection, KPMG would have these must also be presented in the ‘Disclaimer of Opinion’. They don’t. There is nothing.”
High level of distrust
Nevertheless, Kirsten had already emphasized over the weekend that the KPMG refusal notice reflects a high level of mistrust between the company and the auditors. Above all, it should now be difficult for Adler to obtain new capital. “We also need to be aware that as long as we have a dis‧claimer of opinion, the banking and capital markets are closed to us,” Kirsten said.
With a view to the liquidity cushion, he gave the all-clear: “We have no worries at this point.” The fact that the board of directors offered to resign is logical, according to Kirsten, who has only been in office as head of the management body since February and is therefore responsible for the earlier events is unencumbered.
Read more about the real estate group Adler Group:
Kirsten confirmed that Adler will examine any claims for damages against those responsible from the old management. However, he was neither willing nor able to accept all resignations. After all, Adler needs a functioning team. The work with the previous co-CEO Thierry Beaudemoulin will continue for the time being. However, the shareholders should have the last word on the future management staff at the general meeting at the end of June.
Until then, Adler wants to at least initiate further changes. One is internationally looking for a new chief financial officer. According to Kirsten, Adler will significantly strengthen compliance in the company. KPMG’s main reason for refusing the attestation was that Adler’s management had refused access to certain information.
Now the group wants to remove all obstacles to the auditors, at least for the current year’s balance sheet. Elsewhere, however, Kirsten attacked KPMG violently after the auditors had summarized the group’s numerous delayed projects: “The accusation that Adler does not have the financial means to implement the project developments can be based on the information available to us in the special investigation standing documents are not refuted.”
According to Kirsten, he “considered this statement in the auditors’ special report to be outrageous”. Once under way, the manager also attacked KPMG for the fact that the auditors had found a construction freeze “for the vast majority” of the projects as of June 30, 2021, as well as “unauditable documentation of actual costs” and the lack of ” detailed planning of the construction and ancillary construction costs”.
According to Kirsten, KPMG has ventured into areas that do not correspond to their full expertise. It could be that some construction sites have construction stops. “But it is far from the case that all our wheels stand still. Cobbler stick to your last,” he advised KPMG.
Europe’s largest housing group Vonovia, which holds around a fifth of the Adler Group, again rejected an increase in its shares on Monday. The participation is a “pure financial investment”, emphasized the group. The share in Adler would make up “not even 0.25 percent of the total assets” of the group.
“Given the very small size, there is no reason to rush a decision,” it said. The most recent market reaction does not change that. Vonovia’s scope is also limited by the unusually high level of debt that the group had to enter into when it took over Deutsche Wohnen.
More: One billion euros loss: write-downs at Consus ruin the Adler Group’s 2021 consolidated balance sheet.