Adler Board Members Quit After Auditor Refuses to Sign Off on Huge Loss

(Bloomberg) -- The bulk of Adler Group SA's board offered their resignations after the company posted a 1.18 billion-euro ($1.24 billion) loss in annual results that the company's auditor declined to endorse.

The embattled German landlord said Saturday that the loss was largely tied a writedown of its property development business and that auditor KPMG refused to provide an opinion on the accounts after Adler withheld information on some deals. Hours after the company released the delayed results, it said in a separate statement that all members of the board who held a role last year offered to quit.

Chairman Stefan Kirsten, who joined in February, will stay on, and the company said it will accept the resignation of three of the board members -- including one of its co-chief executive officers -- only in two months to ensure continuity.

The loss and exits are the latest twist in the saga of Adler, which has been battling short-seller allegations in recent months. They come days after Adler released findings of a KPMG probe into the allegations made by Fraser Perring's Viceroy Research in October. KPMG's report triggered a further sell off in the company's stock and bonds because it was unable to refute many of the accusations and found a series of corporate governance failings.

In a follow-up statement, Adler said it's aspiring to obtain an unqualified audit opinion for 2022. Kirsten said it was “far more important” for Adler to report its results by the deadline of the end of April than to have “longer lasting auditing procedures.” He said the company will seek a dialogue with KPMG to clarify “how these information deficits could be cured without legal detriment.”

The firm took a 1.08 billion-euro writedown of goodwill, including in its Consus development business. It blamed construction inflation and supply chain bottlenecks that had forced it to revise assumptions about the likely profitability of its projects, according to the delayed full-year earnings statement Saturday.

Auditor KPMG refused to provide an opinion on the accounts after Adler withheld correspondence about related party deals that are a focus in fraud allegations by Viceroy. That meant auditors were unable to judge whether the deals, for which Adler is still owed money in some cases, had been accounted for properly, KPMG said.

“It goes without saying that such a disclaimer of opinion is no good news,” Kirsten said. “Such a note reflects a high level of distrust between the company and the auditors; but once again: we are about to make a new start, because in my opinion Adler has sufficient substance. Our existing portfolio is rock solid.”

Thilo Schmid, Thomas Zinnocker and co-CEO Thierry Beaudemoulin's resignations were accepted from the date of the company's annual meeting on June 29. That means the company now has a four-person board, half the size it was before today.

Key to Viceroy's accusations were valuations Adler placed on its holdings and deals between the landlord and companies linked to some of its backers, including the extended family of Austrian financier Cevdet Caner. Adler is still owed money for some of the deals, which date back several years. It has refused to write off the sums despite recommendations from KPMG that it should mark down the receivables from at least one of the deals.

The company on Saturday acknowledged there was a risk it may not recover 58.6 million euros it is owed by Azeri investor Natig Ganiyev, who agreed to buy its Accentro unit in 2017. It now has more than 423 million euros in in outstanding receivables. That's down from a restated figure of 461 million euros for 2020.

The company's property portfolio was valued at 9.97 billion euros at the end of December, down from 11.7 billion euros a year earlier following sales designed to cut debt. Adler's loan-to-value ratio -- a key metric for real estate companies that measures relative indebtedness -- was 50.9%, down from 54.3% a year earlier. The company had 556 million euros of liquidity at the end of last year, according to a separate press release published alongside its earnings.

The Consus writedown came after KPMG's forensic investigation raised concerns about some of Adler's development valuations. In its analysis, KPMG said Adler's estimated construction timeline for the projects was too optimistic and its estimates for construction costs were too low.

Adler, which had rapidly grown into one of Germany's biggest landlords through debt-fueled acquisitions and a controversial merger, has spent much of the last year reeling from the allegations by Viceroy as well as an anonymous whistleblower, who sent information to the firm's banks. The company sold off about 40% of its 70,000 apartments in an effort to pay down a debt pile that had reached $9 billion.

In the past week, since KPMG released its report, Adler's shares have lost 38% of their value and are trading at a record low. 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.