Unverifiable balance sheet: the Adler real estate group falls into deep crisis

Financial statements not verifiable
The Adler real estate group plunges into a deep crisis

The parent company had just happily declared that the real estate giant had been relieved of serious fraud charges. But now it turns out that the auditors are unable to certify the financial statements. Furthermore, there is a loss of billions. Half of the board resigns.

No first-class acquittal after allegations by a British short seller and now no KPMG auditors’ certificates for the 2021 annual report: troubled real estate investor Adler Group has suffered another setback in the struggle for credibility of the its budgets. KPMG Luxembourg, which has been entrusted with the audit, informed the company that it would issue “a disclaimer of opinion (rejection note) for the consolidated financial statements and the individual financial statements for 2021”, admitted the Adler Group.

In the 2021 annual report presented at the last minute on Saturday, the auditors explain that they have not been made available to them important information in relation to some transactions. All members of the eight members of Adler’s board of directors who had a mandate in 2021 have offered to resign due to lack of attestation and in four cases the new chairman of the board, Stefan Kirsten, has accepted them. The Adler Group itself explained in the annual financial statements, presented without the seal of the auditors, that in 2021 it had suffered one billion losses due to write-downs.

KPMG’s auditors “are unable to issue an audit opinion,” explained the Adler group. The reason is “the refusal of access to certain information on companies and affiliated persons” by the Adler Group. This rejection note is due if there are so-called audit obstacles that prevent accountants from verifying material facts in the financial statements. The company filed its unaudited 2021 financial statements on the last day of April, if only to meet the conditions for its bonds.

It also investigates the Bafin

The Adler Group had repeatedly postponed the publication of its financial statements due to an investigation by the KPMG auditors. The reason for the audit was the allegations of the company viceroy of short seller Fraser Perring regarding Adler’s accounting methods. One network benefited from transactions at the expense of shareholders and bondholders, there are gaps in property valuation, some of which have been artificially inflated.

The KPMG Forensic reviewers found no systematic fraud, but they did find deficits and also complained about the lack of important information. “It’s not a first-rate acquittal, obviously shortcomings have been discovered,” said Adler’s head of board, Kirsten, presenting the results of the special test. “It goes without saying that this ‘disclaimer of opinion’ is not good news,” she added now in view of the claim denied by the Luxembourgish KPMG. Adler wants to eliminate the reasons for this. Kirsten is also looking for a new chief financial officer, who should come from outside the Adler Group.

Financial regulator BaFin is also reviewing the company’s books. “We will evaluate the results of KPMG’s investigation into the Adler Group and incorporate them into our audit,” said a BaFin spokesperson.

Operationally, business is going well

Meanwhile, the management of the Adler Group has been trying to smooth things out. “The operating base of the Adler Group is stable and solid and we are making progress in improving our capital structure,” said co-CEO Maximilian Rienecker. With an operating income from rentals (FFO 1) of 137.1 million euros, Adler has made the forecasts for 2021. In 2022, after the sale of some real estate packages, this key figure will be between 73 and 76 million euros .

Before tax, the Adler Group recorded a loss of just over one billion euros in 2021. The reason for this was the goodwill impairment. The debt-to-equity (LTV) ratio of the debt-struggling company was 50.9% at the end of 2021. The risk report states that the Adler group has “a high level of debt and is dependent on refinancing large amounts. (…) “. Potentially, given “the allegations made by the 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 are refuted”.

Last year, Adler also came under pressure from investors who criticized what they considered the Adler Group’s indebtedness was too high. As a result, Adler parted ways with large real estate packages which went to LEG Immobilien and US financial investor KKR. German industry leader Vonovia has access to Adler shares. The real estate group holds about 20.5 percent of the troubled real estate investor’s shares. “Another purchase of Adler shares is currently out of the question,” Vonovia boss Rolf Buch told the general meeting Friday – in fact, the sale of the shares is expressly an option.

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