The allegations against the controversial group are becoming more concrete. The Bafin accuses Adler of a misvaluation of up to 233 million euros in an important Düsseldorf project. Adler insists on the correctness of the assessment. The share price falls to a record low.
Advertisement “Coole Location” at the construction site of a new building on Berlin’s Heidestrasse. The building is part of the “Water Town Center” project by Adler Real Estate. An urban district is to be created.
Just in time for the start of the summer month of August, the already dark clouds over the ailing Adler Group have once again cleared. Existing allegations of accounting fraud against the Luxembourg-based real estate group became more concrete at the beginning of the week. According to the German financial regulator Bafin The company financial statements of the German Adler Real Estate, a 97 percent subsidiary of the Adler Group, are incorrect at the end of 2019. It is, of all things, about one of the most important construction projects of the group in the past.
Rush sale, no due diligence
That is the focus prestigious real estate project Glasmacherviertel in the Gerresheim district of Düsseldorf. At the end of 2019, the Adler subsidiary recognized the project, for which a binding sales contract was concluded in September 2019, according to the appendix in the group report, at EUR 375 million. From Bafin’s point of view, it is overvalued by at least 170 million to a maximum of 233 million euros, as the authority announced after a so-called partial error determination.
The supervisors accuse the management of having recognized a non-representative property value at the time of sale, “which could have been accepted in an orderly transaction between market participants for the sale”. According to research by the NZZ, the project was sold in a single weekend. There was also no due diligence and no significant contract negotiations, it is said. This, in turn, is likely to have led to the assessment by the financial regulator that, from their point of view, no orderly sale took place.
Controversial family structures
According to publicly available information, the purchaser of the Glasmacherviertel project was Berliner Spree Holding. Their authorized representative is Josef Schrattbauer, Cevdet Caner’s brother-in-law. Of the Austrian entrepreneur Caner keeps popping up around the Adler Group. Critics regard him as an important backer of many real estate transactions. Caner himself rejects all allegations against him.
The overvaluation found by the Bafin in the case of the Glasmacherviertel results from two considerations. First, the value of €170 million is the difference between the €375 million and Adler Real Estate’s reported book value as of June 30, 2019 of €205 million. Second, the value of 233 million results from the difference to the original acquisition cost of 142 million euros. According to Bafin, the correct time value should have been determined within this range, i.e. the fair value in the sense of the IFRS accounting standard.
In addition, when evaluating the project, Adler Real Estate assumed that the Gerresheim site could be developed as planned, although the necessary permits had not yet been obtained. This was based on assumptions about the possibility of use that were not certain to exist. Adler, in turn, is sticking to its assessment and intends to clarify the matter in court, exhausting all legal channels.
Adler share price falls to record low
The group has been exposed to serious allegations for almost a year. Last October, British short seller Fraser Perring accused the company and people close to it of deception, fraud and financial misrepresentation, among other things. The Adler Group has consistently denied the allegations. Perring’s business is betting on falling stock prices. Bad news always helps. However, he was involved in exposing the Wirecard scandal, which greatly increased his public credibility.
In April, the auditors from KPMG finally refused the Adler Group’s attestation for the 2021 financial statements. A little later, KPMG resigned from the mandate; the group is still looking for a new auditor. According to media reports, the public prosecutor’s office in Frankfurt is now also investigating the suspicion of incorrect accounting based on a criminal complaint by the Bafin.
With the ongoing balance sheet reviews for the years 2019 to 2021, there is even more bad news for the Adler Group and its shareholders. The group’s price fell to a record low of 3.20 euros this week. A year ago, the titles were still well over 20 euros. This means that the loss of shareholders within one year is 85 percent. The high was just under 50 euros in October 2018. Shareholder protectors are already positioning themselves for lawsuits.
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