Adler - Liquidity and next steps
All,
Please find our unchanged analysis of Adler here.
“Thief, thief!” it echoed throughout the town square when a watchful citizen had noticed a stranger inside the bank. The stranger, he claimed, was one of its own shareholders, who had no business in the vault. The bank called in the detective and yes, the shareholder had indeed been in the vault and what’s more, he had been let in from the inside. He had also left plenty of fingerprints all over the bank, especially on the director's desk. But then the detectives noticed something else. All the jewellery was still in the vault. The detective could find no evidence that the shareholder had actually robbed the bank for more than taxi money.
At this point, we trudged off. With such scrutiny, this bank would soon become the safest in the country. But that was not the end of it.
Outside the bank, its supervisor sought to reassure the crowds with promises of new locks and new directors, but news that the detectives had been denied access to a large room only fanned their anger instead.
"What if there are more fingerprints?” cried a voice. “A smoking gun?” yelled another. Their calls were mostly directed at two nearby men, who had been in intense dialogue with the detective, the judge and the sheriff. On their reaction everything depended. The Judge was concerned with the form; this was no way to run a bank. The sheriff was concerned with the substance; the Jewellery had been found still in the bank. Together they were debating two pressing questions: Would punishment of the directors be sufficient to restore order? And if he hadn’t visibly stolen from the bank, what was the shareholder doing in the vault? To the second question, the detective had one lead: Much of the jewellery in the vault seemed to have once belonged to the shareholder’s friends and family.
Who is boss?
- Cevdet Caner. I could write a really long paragraph here on the extent and limits of his influence, but it is clear now that his involvement has so vastly exceeded proper governance rules that there is no other way of describing it.
Liquidity:
- To survive into 2024 the company has to do three things:
1) Sell the Veleo/KKR portfolio to generate liquidity in the interim.
2) Sell its early-stage portfolio.
3) Develop its buy2hold and buy2sell portfolios to create the revenue stream to support the debt.
- The sale of its Veleo/KKR portfolio is as key as it should be relatively straightforward. These assets are not contentious and for a slight price reduction, they will be attractive to a large number of investors, even if KKR are to walk away.
- Adler should then be able to wait with the sale of the majority of its development assets for another 12 months - until after it has received a clean audit opinion.
Next Steps:
- Withholding 800k, or one in five emails is a lot. If so much of the data fails over a technical hurdle, then we are surprised that both parties have not been able to agree on a law firm to outsource the review to or to second KPMG personnel into, if the firm lacks its own capability.
- With the questions about Caner’s motives and positioning only running deeper than before and with so much information withheld for almost dubiously technical reasons, The state attorney and Bafin have few options other than to order a raid of Adler’s offices. This would send shares even lower.
- Valuation of the construction properties and receivables. In our opinion, Adler still have to take significant write-offs. KPMG - having in the past relied on auditing processes only - will have to start a huge campaign together with independent appraisers to gain confidence in the asset valuation at Adler. For that there should be one year of time (subject to liquidity).
Positioning:
- We have been wrong to hold on to our shares for this long and will be discussing all our German Real Estate exposure in the next days. The KPMG report has revealed a deeper involvement of Cevdet Caner than we even thought possible and a lower level of cooperation from KPMG than we deem wise. We should have reacted more quickly.
Wolfgang
E: wfelix@sarria.co.uk
T: +44 203 744 7003