Adler 'significantly overstated' value of old debt, German watchdog finds

A subsidiary of troubled landlord Adler Group SA "significantly overstated" the value of stale debts in its 2021 accounts, according to German financial watchdog BaFin.

In its approved financial statements, Adler Real Estate AG should have cut the valuation of a receivable linked to the sale of shares in Accentro Real Estate AG in 2017, the regulator said Wednesday. Adler sold the shares in the company to a partnership advised by the firm of an Azeri businessman, but was still waiting to recover much of the money on the date the accounts were filed. 

Bafin also took issue with the high valuation of a real estate project in Dusseldorf and said that the firm didn't say whether an inter-company loan was collateralized. However, the watchdog didn't impose fines or order any corrections.

Krisztian Bocsi/Bloomberg

"Even though we do not agree with the error determinations by BaFin, we are pleased to have concluded the proceedings with BaFin in an always constructive and professional dialogue," Adler's Chief Financial Officer Thomas Echelmeyer said in a separate statement.

Adler, a residential landlord with thousands of properties across Germany, has been under intense public scrutiny since October 2021, when short-seller Fraser Perring released a scathing report accusing the property giant of widespread fraud. Since then the firm has seen a restructuring deal approved in a London court that would see the firm conduct an orderly sale of its assets to repay debt. Earlier this year, premises related to Adler and Cevdet Caner, a real estate tycoon linked to the firm, were raided by law enforcement.

Adler and Caner have denied any wrongdoing. The property group hired accountancy firm KPMG to investigate the allegations. The ensuing 125-page report, which Adler characterized as a vindication of its business practices, cleared the company of systemic fraud but failed to disprove several key claims.

Adler Real Estate valued the receivable related to the Accentro share sale in 2017 at €59 million ($65 million) by the end of 2021, despite the company knowing that there was a risk that the money would not be recovered, the regulator said in its statement. 

"Adler had not taken into account the significant credit and liquidation risks of which it was aware — contrary to the relevant accounting regulations," BaFin said in its statement.

The shares were sold to a partnership advised by Vestigo Capital Advisors LLP, a company run by Azeri businessman Natig Ganiyev. The transaction was one of a number of deals involving Adler and Ganiyev and companies linked to the businessman still owe Adler money for those deals. 

In October, Adler found an auditor to take on the job of checking its books after failing to hire one for a year and a half. The developer was previously audited by KPMG, but the firm resigned in May 2022 after refusing to give an opinion on the company's 2021 accounts and saying its audit report on Adler's 2020 financial statements should not be relied on.