Frankfurt, Düsseldorf The heavily indebted real estate group Adler Group has reported a success: the company, which has been attacked by hedge funds for months, completed the sale of a residential portfolio to the US financial investor KKR. Around 14,400 residential and commercial units, mostly in medium-sized cities in eastern Germany, were sold to the private equity company. According to Adler, the transaction will generate net proceeds of around 600 million euros.
Through its subsidiary Velero, KKR will thus become a major player on the German housing market: the company will then own more than 23,000 residential units.
For the tenants of the previous Adler apartments, nothing should change for the time being: the leases would be taken over unchanged, Velero explained. The 170 Adler employees who operate the portfolio are also likely to keep their jobs.
Adler wants to use the sales proceeds to further apologize: After the deal with KKR has been concluded, the debt capitalization rate is now below 50 percent, said Adler co-boss Maximilian Rienecker in an interview with the Handelsblatt.
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At the end of last year, the company set itself the goal of reducing the level of debt (loan-to-value, LTV) to below 50 percent. At the end of September this value was 57 percent. For comparison: at the end of the third quarter, the rate at LEG’s competitor was 38 percent.
The leverage is important, among other things, for companies that have issued bonds and whose terms and conditions stipulate that certain thresholds for the mortgage lending value may not be exceeded. And in fact, the accusation had become loud that Adler had accumulated too much debt.
In the sights of the hedge funds
Above all, the report by British investor Fraser Perring last autumn caused an uproar and sent the shares listed in Frankfurt downhill. The shortseller had published a 61-page report on the website of its analysis company Viceroy Research. In it he accused Adler of fraud, manipulation and deception of the financiers.
Particularly in focus: questionable transactions. One accusation by Perring was also that Adler was glossing over its debt. This is tricky because the group guarantees its bondholders a leverage ratio (LTV) of less than 60 percent. Adler vehemently rejected Perring’s criticism at the time and made it clear that “there was no reason for termination under the bonds issued by Adler and its daughters”.
Nevertheless, the attack by the hedge fund left its mark: The stock fell by 30 percent. Adler announced a timely, detailed replica in October. The group also commissioned the auditing company KPMG to conduct a forensic investigation. So far, however, neither results nor a detailed statement have been made.
Adler co-boss Maximilian Rienecker had also announced at the time that he would sell apartments on a large scale. Of the around 70,000 apartments in the portfolio, 40,000 to 60,000 apartments could be sold, it said.
In an initial transaction, Adler reached an agreement with the Düsseldorf housing group LEG: LEG bought around 15,400 apartments from Adler for just under 1.3 billion euros. LEG made a good deal, as LEG boss Lars von Lackum announced: The originally expected valuation of the package of around 1.5 billion euros was able to be reduced by around 200 million euros, said von Lackum.
A London hedge fund then accused Adler of quoting a price in a conference call with analysts that was 130 million euros above that given by LEG. Argonaut also questioned transaction costs of 100 million euros.
No further sales planned
In an interview with the Handelsblatt, Adler co-boss Rienecker rejected these allegations. They are “wrong”, said Rienecker. The deal with LEG was a share deal, so in the end different amounts of money flowed than in an asset deal. In all of the sales they “delivered what we promised”.
Even with the now announced transaction with KKR, no concessions have been made. “It was very interesting properties and a large volume, which is why we achieved a very good price above book value.” Specifically, the agreed purchase price corresponds to a valuation of the portfolio of 1.05 billion euros, of which net proceeds of around 600 million euros Euro is to be expected.
“Further sales are not planned,” said Rienecker. “We have now optimized our portfolio, this is how we want to continue our business,” he explained. Adler has around 30,000 apartments in its portfolio, around 20,000 of which are in Berlin, the others mostly in Duisburg and Leipzig. In addition, Adler still has project developments in the other seven major cities.
Adler Co-CEO: “We pay our bills”
As announced in October, a statement will be made about the attacks by the hedge funds, the Adler manager assured. “We will take a stand on the allegations of the shortsellers against us when we have the special audit report,” he said. He cannot yet say when this will be. The examination by KPMG is very extensive.
Some of the allegations that were made against Adler, for example because of unpaid bills, “do not apply. Others also hit other companies, for example delivery problems. We pay our bills. Three large companies have grown together to form the Adler Group, there are difficulties here and there, ”said Rienecker.
On the stock exchange, the share went up. On Thursday, the price rose by over four percent. Since the beginning of the year, the share has gained around nine percent – over the year, however, the share is still more than 50 percent in the red.
More: High-rise deal burst: Adler Group reverses 670 million euro deal.