What does this mean for the real estate industry?

NOTfter a weekend of shocking corporate news, Adler Chairman Stefan Kirsten is now talking about a fresh start. The company posted a billion-dollar loss and did not receive an accounting certificate for the 2021 fiscal year. on the wall this weekend. “It was a pretty close race,” he said. Just five hours before the deadline, the Adler Group released its 2021 financial statements to comply with the terms of its corporate obligations.

Michael Potta

Editor-in-chief, responsible for the real estate section.

Adler has nearly 4.5 billion euros in bonds on the market that would have become due had the conditions not been met. The company would then have had to repay this debt in advance. The situation remains tense, as the eagles are prevented from obtaining fresh money from banks and the capital market.

Can’t cure the old degree

With the stringent timelines of the bond terms, Kristen justified the decision to release 2021 revenues without an audit certificate instead of waiting for further, more in-depth reviews. “We finished April 30 with the past Spitz on a button,” Kirsten said and emphasized, “There was an exam, we have an audited diploma.” The audit company KPMG could not form an opinion, which does not mean that the balance sheet is not correct. Kirsten now wants to speak to reviewers to receive an unrestricted certificate again, at least for 2022. “We won’t be curing again in 2021,” he said, with the goal now being to reach an opening balance. stable as of January 1, 2022.

Property manager Kirsten was brought in in mid-February to clean up as Adler has been trying to build confidence in its balance sheets since October 2021 – so far to no avail. In the past, Kirsten was CFO of real estate giant Deutsche Annington, which later became Vonovia, which is now a member of Dax. Vonovia recently became a reference shareholder of Adler via the detour of the realization of a pledge. The real estate sector is interconnected.


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For a detailed view

In industry, the Adler case raises the question of whether it is simply an isolated case or whether the spotlight is on a declining overall sector of the economy. Apartment prices, especially in large cities, have sometimes risen dramatically over the past ten years, while rents have also risen, albeit much less than purchase prices. But the Bundesbank is now warning that prices are up to 40% above a justified market value. In extreme cases, this would indicate that a bubble has emerged and is about to burst.

However, the prevailing view in the industry is that instead of a shock, a smaller price increase than before or smaller price declines are imminent. This is supported by the fact that there are rather too few apartments and this is not going to change anytime soon given soaring building prices and the lack of building land.

put yourself under pressure

Nevertheless, the housing industry as a whole is definitely under pressure: this is due to the gradual rise in interest rates, which makes construction financing more expensive and favors alternative investments. This can already be seen in the stock prices of major real estate companies: Vonovia, Deutsche Wohnen, LEG and TAG have lost more value than the leading stock market index Dax since the start of the year. Adler shares, which are listed on the S-Dax, suffered even more due to local problems and collapsed as much as 40% on Monday to less than four euros temporarily after bad news over the weekend.


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For a detailed view

How does Adler’s main shareholder, Vonovia, assess the situation? The Dax group holds 20.5% of the shares of Adler, which it had taken over from a loan via the detour of a pledge. Vonovia has no general concern that valuations in the real estate industry are generally too high. After all, selling prices are currently well above book values. Following the Ukrainian crisis, the demand for apartments has increased again and real estate groups generally see demand continuing to increase. “Our baseline assessment has not changed, and the most recent market reaction does not change our assessment,” a Vonovia spokeswoman said when asked Monday. “Our starting premise was that there is more value to Adler than the stock market suggests because there is a portfolio that we know very well.”

Vonovia analyzed Adler’s portfolio last October, when the real estate group obtained its first call options on Adler. However, Vonovia is not aiming for a full takeover, as CEO Rolf Buch reiterated at the annual general meeting late last week. Given the increased cost of capital and already high debts resulting from the multi-billion takeover of competitor Deutsche Wohnen, Vonovia has no plans to make any further purchases at this time. Adler’s participation is a purely financial and relatively small investment.

Adler board chairwoman Kirsten admitted on Monday that the Consus Real Estate subsidiary with its properties under development had been written off to a residual value of just 90 million euros and referred to a collapse new business. Adler had also justified the billions in write-offs on lower development volume and increased construction costs. According to Kirsten, construction costs are currently rising even faster than general inflation, but real estate projects can still be completed. But you have to set priorities.

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