Real Estate

Adler: short seller claims require forensic rebuttal


Adler unnerved investors at third-quarter results on Tuesday. What it said was fine: rents were a third higher and property prices rose almost 9 per cent. But the shares fell by a fifth to a new low.

Investors were rattled by what the German residential property group did not say. They were expecting a detailed refutation of fraud allegations against the company. The appointment of KPMG forensic accountants to review some past transactions was not enough.

Short seller Viceroy Research, which has stood to benefit from share price falls, has alleged that Adler is secretly controlled by Cevdet Caner. This property magnate became well known when his Level One empire fell apart in 2008.

Caner vigorously denies Viceroy’s allegations. He says he is just an adviser and not even a shareholder personally. Adler also rejects Viceroy’s claims. Even so, the argument has left shareholders badly shaken.

There is a dispute over financials as well as ownership. Viceroy claims the capitalisation rate Adler uses to value properties overstate their quality. Applying the same “cap” rates as peers reduces Adler’s residential portfolio value by €2.3bn to €6.5bn, Viceroy says.

Further adjustments would write down Adler’s total value by €4.6bn. Adler’s loan-to-value would soar to almost 90 per cent compared to 57 per cent reported at results. That would conflict with bond covenants. Adler says real estate values ​​are determined by independent, market-leading appraisers.

Adler is selling assets to reach a target LTV of 50 per cent. An agreement to dispose of 16,000 residential units in October was struck above certified book value, which should give hope to battered shareholders. The stock is at a 80 per cent discount to the last reported net asset value.

Opportunists are already circling. Rival landlord Vonovia arranged loans to Adler shareholder Aggregate in October, backed by the latter’s stake. Five-year bonds now trade at 85 cents on the euro. Investors deserve a clearer rebuttal of Viceroy’s allegations than Adler provided on Tuesday.

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