Balance sheet not auditable
Real estate group Adler plunges into deep crisis
May 1, 2022, 7:28 p.m
The head of the group had just happily declared that the real estate giant had been relieved of serious allegations of fraud. But now it turns out that auditors are unable to certify the balance sheet. In addition, there is a loss of billions. Half the board resigns.
No first-class acquittal after allegations by a British short seller and now no certificate from the KPMG auditors for the 2021 annual financial statements: The troubled real estate investor Adler Group has suffered another setback in the struggle for the credibility of its balance sheets. KPMG Luxembourg, which was commissioned with the audit, informed the company that it would issue “a disclaimer of opinion (note of refusal) for the consolidated financial statements and individual financial statements for 2021,” the Adler Group admitted.
In the 2021 annual financial statements presented at the last minute on Saturday, the auditors explain that important information was not made available to them in connection with some transactions. All members of the eight-strong Adler Board of Directors who had a mandate in 2021 offered to resign due to the lack of attestation, and in four cases the new Chairman of the Board of Directors, Stefan Kirsten, accepted them. The Adler Group itself explained in the annual financial statements, which were presented without the seal of the auditors, that in 2021 a billion loss had been incurred due to impairments.
The auditors of KPMG are “not in a position to issue an audit opinion,” the Adler Group explained. The reason is “the refusal of access to certain information about affiliated companies and persons” by the Adler Group. Such a note of refusal is due if there are so-called audit obstacles that prevent the accounting experts from checking material facts in the balance sheet. The company presented its uncertified 2021 financial statements on the last day of April – if only to meet the conditions for its bonds.
The Bafin is also investigating
The Adler Group had repeatedly postponed the publication of its balance sheet due to an investigation by the KPMG auditors. The reason for the audit was allegations by the Viceroy company of the short seller Fraser Perring with regard to Adler’s accounting methods. A network has benefited from transactions at the expense of shareholders and bondholders, there are deficiencies in the valuation of real estate, some of which have been artificially inflated.
The auditors at KPMG Forensic did not find any systematic fraud, but did find deficits – and also complained about the lack of important information. “It’s not a first-class acquittal, of course deficiencies were uncovered,” said Adler’s head of the board of directors, Kirsten, when presenting the results of the special test. “It goes without saying that such a ‘disclaimer of opinion’ is not good news,” he added now with a view to the denied attestation by the Luxembourg KPMG. Adler wants to eliminate the reasons for this. Kirsten is also looking for a new chief financial officer – this should come from outside the Adler Group.
The financial regulator BaFin is also examining the company’s books. “We will evaluate the results of KPMG’s investigation into the Adler Group and include them in our audit,” said a BaFin spokeswoman.
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 EUR 137.1 million, Adler achieved the forecast for 2021. In 2022, after the sale of a number of real estate packages, this key figure will be in a range between 73 and 76 million euros.
Before taxes, the Adler Group wrote a loss of just over one billion euros in 2021. The reason for this was the impairment of goodwill. The debt-struggling company’s net loan-to-value ratio (LTV) was 50.9 percent at the end of 2021. The risk report states that the Adler Group has “a high level of debt and is dependent on the refinancing of large amounts (…)”. Potentially, given “the allegations made by Viceroy, the high level of indebtedness could result in credit institutions refusing to grant new loans (…) or requesting the provision of additional collateral until the allegations are refuted”.
Last year, Adler also came under pressure from investors who had criticized what they saw as the Adler Group’s indebtedness being too high. As a result, Adler parted with large real estate packages that went to LEG Immobilien and the US financial investor KKR. The German industry leader Vonovia has access to Adler shares. The housing group holds around 20.5 percent of the shares in the troubled real estate investor. “Another purchase of Adler shares is currently out of the question,” said Vonovia boss Rolf Buch at the general meeting on Friday – in fact, a sale of the shares is expressly an option.