Thu 05/19/2022 13:06 PM
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Adler analysis from Reorg's EMEA Core Credit team.

Some bondholders of German real estate company Adler are organizing with one group consisting mostly of Adler Real Estate bondholders working with Kirkland & Ellis and another group working with law firm Hengeler Mueller, sources told Reorg.

Schroders, Pimco, BlackRock and some hedge funds are invested in the bonds, sources added.

The group’s Adler Real Estate-issued bonds due 2024 are quoted at 79/80, while the Adler Real Estate bonds due 2026 are quoted at 75/77. The shorter-dated Adler Group bonds are quoted in a low-to-mid 60s context today, according to Solve Advisors.

The company is being advised by PJT and White & Case, as reported. PJT will work with Kempen, Adler’s long-standing corporate finance advisor. In addition, the company has retained an international law firm to clarify other possible legal claims against the company and its bodies, but said on Tuesday, May 17, that so far nothing that could be considered criminal had been revealed by the KPMG special investigations.

On May 6, law firm Weisswert filed a lawsuit against Adler Group before the regional court of Frankfurt on behalf of a shareholder. The plaintiff is claiming out-of-pocket damages due to an “accounting scandal” after auditor KPMG issued a disclaimer of opinion on the group’s 2021 financial statements. The law firm also filed an application for the establishment of a model case under the German capital markets model case act (Kapitalanleger-Musterverfahrensgesetz - KapMuG). This type of proceeding is normally used to make damage claims against companies due to missing, misleading or wrong capital information provided to investors. The ruling is binding for all claimants.

German law firm DMR published an initial analysis of the bondholders’ rights under the bonds with the conclusion that the published accounts do not meet the legal requirements to be considered “audited” financial statements. According to this analysis, bondholders, if they meet the quorum constituted under the bonds’ terms and conditions (mostly 15% of the nominal value), can accelerate the bonds and ask immediate repayment at par.

On Tuesday, KPMG declined to audit the group going forward because of “the refusal of access to certain information about affiliated companies and persons”.

Adler Group appointed Thomas Echelmeyer as interim CFO and said it will work with a new auditor to cure the disclaimer of opinion. PwC is working to analyze and develop a robust compliance function at the company.

At the end of April, a special investigation carried out by KPMG was not able to refute or confirm a number of allegations the short seller group Viceroy made about Adler’s corporate governance.

In particular, KPMG could not rule out allegations that Austrian businessman Cevdet Caner acted as a decision-maker of Adler and carried out several transactions to the detriment of the group and its shareholders. The KPMG report said that Caner had scheduled strategy meetings with Adler Group on several occasions and exerted personal influence on personnel decisions, the preparation of strategic decisions, and individual issues arising from transactions, although the group told KPMG that Caner was not involved in day-to-day business.

However, the KPMG report did confirm the valuation of the group’s residential portfolio saying that the DCF method selected by CBRE is suitable for deriving fair value for the group’s residential portfolio. It also refuted the allegation made by Viceroy that the valuation parameters of rental growth and capitalization rate used by CBRE were not appropriate.

KPMG said it cannot refute the allegation that the fair value for development portfolios calculated using the residual value method are not appropriate. KPMG has carried out its own indicative market value calculation and derived an impairment of about €411.8 million for a sample of 66% of the development portfolio (about 17.6% below the market value determined by the group), indicating a total impairment of about €624 million for the whole development portfolio.

Adler Group’s capital structure is below:
























































































































































































































































































































































Adler Group - Pro Forma as of 04/30/2022


12/31/2021

EBITDA Multiple

(EUR in Millions)

Amount

Price

Mkt. Val.

Maturity

Rate

Yield

Book

Market


Adler RE Secured Bank Debt Excl BCP 1

739.3


739.3




Consus Secured Loans 2

434.2


434.2




BCP Bank Liabilities as assets held for sale 3

602.3


602.3




Total OpCo Secured Debt

1,775.8

1,775.8

8.5x

8.5x

Adler RE BCP - Israeli Shekel-Denom. Amort. Debenture Tranche B due 2024 4

32.0


32.0

Dec-01-2024

3.290%


Adler RE BCP - Israeli Shekel-Denom. Amort. Debenture Tranche C due 2026 4

41.0


41.0

Jul-01-2026

3.300%


Adler RE- €500M SUNs due 2023

500.0

92.6

463.1

Apr-27-2023

1.875%

7.630%

Adler RE - €300M SUNs due 2024

300.0

91.4

274.1

Feb-06-2024

2.125%

6.500%

Adler RE - €300M SUNs due 2026

300.0

91.5

274.4

Apr-27-2026

3.000%

5.220%

Consus - €200M Senior Unsecured Convertible Bond due 2022

120.0

90.5

108.6

Nov-29-2022

4.000%

15.170%

Total OpCo Unsecured Debt

1,293.0

1,193.1

14.7x

14.3x

Adler RE - Leases

6.2


6.2




Total OpCo Leases

6.2

6.2

14.8x

14.3x

Adler Group - Bank Debt and Other Loans 5

1,041.2


1,041.2




Total Adler Group - Secured Debt

1,041.2

1,041.2

19.8x

19.3x

Adler Group - €400M Senior Unsecured Notes due 2024

400.0

88.2

353.0

Jul-26-2024

1.500%

6.470%

Adler Group - €400M Senior Unsecured Notes due 2025

400.0

88.7

355.0

Aug-05-2025

3.250%

6.810%

Adler Group - €700M Unsecured Notes due 2026

700.0

85.4

597.4

Jan-14-2026

1.875%

5.990%

Adler Group- €400M Senior Unsecured Notes due 2026

400.0

86.5

346.0

Nov-13-2026

2.750%

6.050%

Adler Group - New €500M Senior Unsecured Notes due 2027

500.0

84.5

422.5

Apr-27-2027

2.250%

5.660%

Adler Group - €800M Unsecured Notes due 2029

800.0

83.4

667.2

Jan-14-2029

2.250%

5.090%

Adler Group - €165M Senior Unsecured Convertible Bond due 2023

102.0


102.0

Nov-23-2023

2.000%


Total Adler Group Unsecured Notes

3,302.0

2,843.0

35.6x

32.9x

Adler Group Lease Liabilities 6

10.8


10.8




Total Adler Group Leases

10.8

10.8

35.7x

33.0x

Total Debt

7,429.0

6,870.1

35.7x

33.0x

Less: Cash and Equivalents

(700.0)

(700.0)

Net Debt

6,729.0

6,170.1

32.3x

29.6x

Operating Metrics

LTM Revenue

1,143.7

LTM Reported EBITDA

208.2


Liquidity

Plus: Cash and Equivalents

700.0

Total Liquidity

700.0

Credit Metrics

Gross Leverage

35.7x

Net Leverage

32.3x

Notes:
Adler Group IR said that the unsecured bonds of Adler RE, Consus and Adler Group will be pari passu after the denomination agreement. However, IR did not provide any details of timing or content of this agreement. The capital structure is on a post-IFRS 16 basis. Cash position is pro forma for April end. EBITDA refers to the EBITDA total as reported by the company. The group also has €500M commercial paper program which was not added in liquidity, €5 million of it was drawn as of Dec 31,2021.
1. The figure is taken from Adler Real Estate report under financial liabilities to banks, which include liabilities relating to the acquisition and financing of investment properties. This figure excludes BCP liabilities.
2. Amount as of March 31 as latest figure is not disclosed. The figure was provided by Adler Group's IR team via an email with Reorg, and pro forma for the €170M project loan repayment in Q3'21.
3. BCP was classified as assets held for sale. Adler Group currently has a 63% stake in BCP for which LEG has a call option to acquire Adler's stake. The option acquires on 30 September 2022.
4. BCP bonds are amortizing in nature. Issued by Brack Capital Properties NV (a subsidiary of Adler Real Estate).
5. Most of the loans were secured with the assets. Calculated as Adler Group's bank debt and other loans of €2.817B less Adler Real Estate bank debt and Consus secured loans. Including an amount of €5M outstanding under the commercial paper program.
6. Adler Group Leases excludes leases at Adler Real Estate level.
Pro Forma: The capital structure is pro forma for April end. April end cash balance of about €700 million is proforma for repayment of the €400 million Adler RE 2022 bond and €687 million proceeds received from sale of assets to KKR. The group's €300 million RCF was also terminated in April.



–Aurelia Seidlhofer
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