Non-auditable balance sheet
The Adler real estate group plunges into a deep crisis
May 1, 2022, 7:28 p.m.
The group’s boss had just blithely declared that the real estate giant had been relieved of serious allegations of fraud. But now it turns out that the auditors are unable to certify the balance sheet. Moreover, there is a loss of billions. Half of the board resigns.
No first-class acquittal after UK short seller claims and now no KPMG auditors’ certificate for 2021 annual accounts: Struggling property investor Adler Group has suffered another setback in the fight for the credibility of its balance sheets. KPMG Luxembourg, which was commissioned for the audit, informed the company that it would issue “a disclaimer (disclaimer) for the consolidated financial statements and the separate financial statements for 2021”, the group acknowledged. Adler.
In the 2021 annual accounts presented at the last minute on Saturday, the auditors explain that important information was not made available to them in the context of certain operations. All members of Adler’s eight-member board who held office in 2021 offered to resign for lack of certification, and in four cases new board chairman Stefan Kirsten, accepted. The Adler Group itself explained in the annual financial statements, which were presented without the seal of the auditors, that in 2021, a billion losses had been incurred due to impairments.
KPMG’s auditors are “not in a position to issue an audit opinion”, the Adler group explained. The reason for this is “the denial of access to certain information about affiliated companies and individuals” by the Adler Group. Such a refusal note is due if there are so-called audit obstacles that prevent accountants from verifying the material facts of the balance sheet. The company submitted its uncertified 2021 financial statements on the last day of April – if only to fulfill the terms of its obligations.
Bafin is also investigating
The Adler group had repeatedly postponed the publication of its balance sheet due to an investigation by KPMG’s auditors. The reason for the audit was allegations by short seller Fraser Perring’s company Viceroy regarding Adler’s accounting policies. A network has profited from transactions at the expense of shareholders and bondholders, and there are gaps in property valuations, some of which have been artificially inflated.
KPMG Forensic auditors found no systematic fraud, but did find loopholes – and also complained about the lack of material information. “It’s not a first-class acquittal, of course flaws were found,” Kirsten, head of Adler’s board, said when presenting the results of the special test. “It goes without saying that such a ‘disclaimer’ is not good news, “he adds now in the face of the certificate refused by the Luxembourg KPMG. Adler wants to eliminate the reasons. Kirsten is also looking for a new CFO – this should come from outside the Adler Group.
Financial regulator BaFin is also reviewing the company’s books. “We will assess the results of KPMG’s investigation into the Adler Group and include them in our audit,” a BaFin spokeswoman said.
Operationally, business is going well
Meanwhile, the management of the Adler Group tried to smooth things over. “The Adler Group’s operating base is stable and robust and we are making progress in improving our capital structure,” said co-CEO Maximilian Rienecker. With an operating result from rentals (FFO 1) of 137.1 million euros, Adler has reached the forecast for 2021. In 2022, after the sale of several real estate lots, this key figure will be in the range between 73 and 76 million euros.
Before taxes, the Adler Group recorded a loss of just over one billion euros in 2021. This is explained by the impairment of goodwill. The debt-stressed company’s net loan-to-value (LTV) ratio was 50.9% at the end of 2021. The risk report says the Adler Group has “a high level of debt and is dependent on refinancing significant amounts (…)”. Potentially, given “the allegations made by Viceroy, the high level of indebtedness could lead credit institutions to refuse to grant new loans (…) or to request the provision of additional guarantees until the allegations be refuted”.
Last year, Adler also came under pressure from investors who criticized what they saw as the Adler Group’s excessive indebtedness. As a result, Adler parted with major real estate packages which went to LEG Immobilien and US financial investor KKR. German industry leader Vonovia has access to Adler shares. The housing group owns around 20.5% of the shares of the struggling real estate investor. “Another purchase of Adler shares is currently out of the question,” Vonovia boss Rolf Buch said at Friday’s general meeting – in fact, a sale of the shares is expressly an option.