Adler Efforts to Contain Crisis Unravel in Roller Coaster
Adler’s Efforts to Contain Crisis Backfire in Chaotic Weekend
(Bloomberg) -- The troubles at Adler Group SA are exploding into a full-blown crisis.
A series of extraordinary events over the past four days has sowed new doubts about the future of what was one of Germany’s biggest home landlords.
First, Adler’s auditor, KPMG, refused to endorse its accounts after the company raced to file them on time. Then, most of the board offered to resign. On Monday, investors panicked, and Adler’s stock and bonds plummeted to record lows.
The firm’s decimated leadership tried to contain the damage on a lengthy call with analysts on Tuesday where 700 people dialed in. Chairman Stefan Kirsten told investors that Adler is still working to clear up issues with its auditor and that it’s not in breach of bond terms, helping shares recover around half of Monday’s plunge.
While Kirsten said the company has a healthy amount of cash from asset sales, questions remain because Adler is shut out from banks and markets for funding, German regulator BaFin is still investigating the company, and shareholder groups are threatening legal action.
“Let’s not sugarcoat it, ladies and gentlemen,” Kirsten said on the analyst call Tuesday, even as he sought to portray the publication of the results as a new beginning. “It is a difficult moment for the company and therefore for us. But it is also a moment for a fresh start for the Adler Group.”
On that call, Kirsten said the firm plans more asset sales this year and is searching for a chief financial officer. He also sought to reassure investors that the lack of audit opinion did not mean it had failed to file audited accounts.
Based on the findings of the forensic investigation, KPMG was unable to complete its audit of Adler’s annual accounts, KPMG said in a press release. Adler’s lawyers have contacted KPMG and asked them to correct that statement to remove the part saying they hadn’t finished the audit, Kirsten said on the call.
Lawyers at White & Case have given Adler a letter of opinion that the audit has been concluded and reporting requirements met, Kirsten added.
“Bond investors will have a look with their own counsel how to qualify this but it makes a lot sense to put this to bed,” Kirsten said on the call. “It is an exotic topic -- exotic enough that I wrote my PhD thesis more than 30-years ago about it -- but nevertheless let the facts speak. I have asked more than one auditor that we are fine with our interpretation.”
Adler has 4.4 billion euros ($4.6 billion) of bonds outstanding that required it to file audited reports by the end of April. The firm met the deadline with just hours to spare.
“This was the deadline which could have simply killed the company,” Kirsten said. “Five and a half hours to spare is, even to my standards, a close shave.”
A major landlord in a nation of renters, Adler has been under mounting pressure for months after prominent short-seller Fraser Perring accused the company of being built on systemic fraud and run for the benefit of a small group of investors. Adler has said the results of a forensic probe exonerate it. But investors digesting the report over the past week disagreed.
Now the events of the weekend revive the question of what the company might be forced to sell next; how long bondholders will sit still; and what the future holds for Cevdet Caner, the Austrian tycoon accused by Perring of being the silent mastermind behind some of Adler’s controversial deals.
The long-delayed results published Saturday showed a 1.18 billion-euro annual loss -- roughly twice Adler’s current stock market value -- that reflected a near total writedown of the Consus development unit, which was part of the controversial three-way merger creating Adler Group two years ago.
Adler shares fell 29% on Monday, before climbing 17% on Tuesday. BaFin said it’s examining price movements before Saturday’s announcement with regard to potential insider trading.
The chaos has also weighed on Vonovia SE, Germany’s largest real estate firm and now Adler’s biggest shareholder. Its shares are down almost 8% in the past week. Adler’s chairman said on Tuesday that Vonovia supports the company’s strategy.
Kirsten, who joined in February, is staying on as chairman, along with three board members whose resignations he rejected, including Thierry Beaudemoulin, who will become sole chief executive officer. All four will seek re-election at the company shareholder meeting.
Shareholder lobby SdK on Monday rejected that proposal, saying Adler needs a fresh start on every level in terms of personnel. It said it was in contact with litigation financiers about cases for bond- and shareholders.
On the call on Tuesday, Kirsten faced questions about his previous relationship and contact with Caner and another real estate mogul Amir Dayan.
Kirsten said he first met Caner in Cannes in 2016 when Vonovia, where he was serving as CFO, was in the process of buying Conwert Immobilien Invest SE, the Austrian landlord in which Adler owned a stake. Caner was advising Adler on the sale, he said. He subsequently met the Austrian entrepreneur at various real estate trade events and said he has not had contact with him since taking over as Adler chairman, beyond receiving a congratulatory text message when he took up the role.
Investors also asked about his relationship with Dayan, the real estate investor who sold Israel-based ADO Group to Adler, a move that paved the way for the controversial three-way merger that created Adler Group. Dayan’s Vivion Investments Sarl -- where Kirsten served on the supervisory board -- also sold a major project to Aggregate Holdings, Adler’s then largest shareholder.
Kirsten said his work with Vivion was limited to advising on a commercial mortgage-backed securitization and helping the company prepare to issue its first bond.
“There are a lot of wild speculations out there,” Kirsten said on the call Tuesday. “Who belongs to whom, and which bandit bands up with other bandits. You know what, we don’t have time for that.”
Viceroy’s accusations focused on transactions with allegedly related parties; valuations the company placed on its properties; and the role of Caner, who holds no official position at the company but whose family owns a stake. While KPMG’s investigators satisfied themselves that the bulk of Adler’s portfolio was valued accurately, they were unable to disprove many of the other claims because Adler withheld hundreds of thousands of documents.
Adler claims it couldn’t hand over the documents because they were potentially protected by client-attorney privileges.
On the Tuesday call, investors also questioned the timing of an inter-company loan provided by Adler Real Estate to the group, pointing out a discrepancy in the timing of disclosures. Kirsten promised to examine the issue and provide an update later.
Key to the annual loss was a 1.08 billion-euro writedown of Consus, which Kirsten said was roughly the entire purchase price. Adler blamed construction inflation and supply chain bottlenecks that had forced it to revise assumptions about the likely profitability of its projects.
Consus is one of the firms that merged to form Adler Group in 2020. At the time of the transaction, Consus was controlled by Aggregate Holdings, an investment vehicle owned by Guenther Walcher and advised by Caner. Aggregate eventually became Adler’s largest shareholder until it had to cede much of it when the stock slumped.
Adler in turn bought Aggregate debt. While Kirsten acknowledged that such a related party transaction wasn’t in line with his definition of good governance, he said that purchase was legal and done to steer clear of negative interest rates. The value of the debt has since collapsed, and Kirsten said Adler will either hold it to maturity or sell if the price recovers.
The chairman said he’s aspiring to obtain an unqualified audit opinion for 2022. He said it was “far more important” to report audited 2021 results by the deadline of the end of April to avoid running afoul of terms for its debt, than to have “longer-lasting auditing procedures.” Making all the documents available that KPMG had asked for would have delayed the results further, he said.
Kirsten said the company will seek a dialog with KPMG to clarify “how these information deficits could be cured without legal detriment.” At the same time, he criticized the auditor for commenting on construction delays that he said KPMG had no expertise in, and said he didn’t know whether Adler would appoint the firm again.
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