German regulator says Adler overstated 2019 accounts by up to €233mn

Embattled German real estate group Adler overstated its 2019 accounts by up to €233mn, according to Germany’s financial watchdog.

BaFin, which is probing Adler’s financial statements for the past three years, said on Monday that the group booked the sale of a project to develop a former glassworks in Düsseldorf at roughly double its fair valuation.

The regulator described Adler’s 2019 annual report as “deficient”, in what it said was the first time it has released an interim finding of an ongoing accounting probe.

The move is the latest blow for Adler which has already lost its auditor KPMG, which refused to sign off Adler’s 2021 financial results, and has been fighting short seller allegations since a report published by Viceroy Research last October.

Viceroy’s report questioned the valuation of its assets and outlined its alleged ties to Cevdet Caner, an Austrian entrepreneur who previously presided over one of Germany’s largest-ever real estate insolvencies.

The probe is a test case for BaFin, which has taken over the duties of overseeing accounting in Germany after it was found that half of financial group Wirecard’s revenues and €1.9bn of corporate cash did not exist. The role had previously been carried out by a private sector body.

Adler, a real estate group that owns 27,500 flats in German cities and has a property-development arm, said in a statement on Monday that it would take legal action against BaFin’s finding, arguing that the valuation “had been audited and certified several times in the consolidated financial statements” as “proper and correct” and was also “appraised by a professional independent surveyor”.

BaFin had homed on on a transaction dubbed “Gerresheim”, after the borough in Düsseldorf where the land is located. The regulator has said that Adler sold a 75 per cent stake in the development for twice the price a company later acquired by Adler had paid for it two years earlier.

The deal valued the project at €375mn — an overvaluation of between €170mn and €230mn, according to BaFin.

Adler booked €168.5mn in profit from the deal and reported a significant improvement in its loan-to-value ratio, a key benchmark of balance sheet strength.

BaFin’s view on the Gerresheim transaction is echoed by the findings of a forensic KPMG investigation that was published in April, which said it was “doubtful” that the €375mn represented a fair value.

The regulator said in its statement that the valuation of the property was based on flawed assumptions, including agreements with the owner of an adjacent site that had not yet been granted. The watchdog also raised concerns about whether the sale was between two unrelated market participants.

The forensic investigation by KPMG, launched after short sellers accused Adler of fraud in October 2021, found that the buyer of the Gerresheim stake was an indirect shareholder of Adler, and the brother-in-law of Caner, who had no formal role in Adler but was a major shareholder.

BaFin said on Monday that its investigation into Adler’s financial statements in 2019, 2020 and 2021 was ongoing. Ebner Stolz, the German audit firm that covered Adler in 2019, declined to comment. A lawyer for Caner did not respond to an FT request for comment.