Bitter moment of truth for Adler shareholders
fThe real estate company Adler Group, which has been under severe criticism since autumn 2021, has come to the extreme. The group wants to publish its belated annual financial statements for 2021 on Saturday. But as the company, which is listed in the S-Dax small-cap index, informed its shareholders late on Friday evening, the auditing department responsible for checking the annual balance sheets KPMG issue a waiver. The auditors therefore refuse to confirm that the business figures represent the actual economic situation of the company correctly.
This is a shock for investors and creditors. They are presented with figures, but there is no independent confirmation as to whether they can trust the calculations. The Adler share closed on Friday down more than 3 percent. After the market closed, the share price on the Tradegate trading platform collapsed by more than a third to less than 5 euros in response to the company’s shocking capital market announcement.
On Monday, the Adler share had already lost 20 percent in value on one trading day after investors had taken a closer look at the report published a week ago about a special forensic audit of Adler’s balance sheets. The company, which manages 53,900 rental apartments in cities such as Berlin and Düsseldorf and is developing other real estate projects, was relieved of the most serious allegations according to the report. Adler’s chairman of the board, Stefan Kirsten, admitted that the special audit uncovered weaknesses, but there was no fraud or deception. However, the results of the forensic experts could not dispel all doubts, as was later shown by the stock market’s reaction.
It is particularly sobering that it wasn’t the auditors responsible for Adler who first drew attention to the question marks in the balance sheets. Serious allegations by the British stock market speculator got the ball rolling Fraser Perring and his company Viceroy. He reacted to the current events on the short message service Twitter and raised the question of whether the auditors would now appear as accused or witnesses in the case.
Perring had already shown a nose for inconsistencies in balance sheets with criticism of the Dax company Wirecard, which went bankrupt in 2020. At the beginning of October 2021, he also made serious allegations against Adler. He accuses the company of arranging deals to the detriment of its shareholders. According to Perring, the management is also said to have valued real estate assets at inflated values and manipulated balance sheet figures.
Perring’s allegations had triggered a chain reaction. For example, Adler commissioned forensic experts from the auditing company KPMG to conduct a special audit to investigate the allegations. KPMG is the same audit firm that is responsible for Adler’s annual balance sheet audits. The special audit, which was later extended and expanded by Adler, meant that the auditors were unable to complete their annual audit of the balance sheet, which delayed the presentation of the business figures for 2021.
Doubts about balance sheets not dispelled
The report on the special audit has been available for a week now and the business figures are also to be published now. But the doubts about the balance sheets have not been eliminated. A look at the special audit report is quite disillusioning, because the KPMG forensic experts did not want to give a final verdict on numerous important questions. For example, they could not refute that a real estate project by the Adler Group in the Gerresheim district of Düsseldorf had been sold at an inflated price. However, they were able to confirm that this sale was made to a person related to the company.
The special auditors were also unable to confirm or refute whether an excessive price had been paid for the takeover of the subsidiary Adler Real Estate. The examiners justify this by the fact that appropriate and sufficient evidence is missing. KPMG was also unable to dispel the allegation that Adler shareholders were said to have been cheated by the acquisition of the Consus Real Estate subsidiary. The special auditors point out that no appropriate and sufficient evidence for determining the purchase price of Consus Real Estate was provided during the special investigation.
Shareholders are now rightly asking themselves why these questions of doubt were not already noticed during the annual balance sheet audits. Because the transactions in question took place in previous financial years.