August 1, 2022

ADLER Real Estate AG: BaFin finds accounting errors in valuation of Gerresheim site

The German Federal Financial Supervisory Authority (BaFin) has determined during its balance sheet control audit that the consolidated financial statements of ADLER Real Estate Aktiengesellschaft (AG), Berlin, as of the balance sheet date December 31, 2019, are erroneous. The “Glasmacherviertel” real estate project in Düsseldorf-Gerresheim was recognized at EUR 375 million and thus overvalued by at least EUR 170 million to a maximum of EUR 233 million. This is a partial error finding.

In valuing the Gerresheim site, ADLER Real Estate AG had incorrectly recognized a property value that was not representative of the price that could have been obtained for the sale in an orderly transaction between market participants as of December 31, 2019. As a result, the balance sheet item “Non-current assets held for sale” and the “Result from the valuation of investment properties” were overstated.

The identified overvaluation of at least 170 million euros corresponds to the difference between the book value of 375 million euros and the carrying amount as of June 30, 2019 (205 million euros). Compared with the original acquisition cost of 142 million euros, the overvaluation is no more than 233 million euros. Within this range, the correct fair value should have been determined (fair value as defined by International Financial Reporting Standards IFRS). The real estate value, which was implicitly agreed in the sales contract for the shares in the owner of the Gerresheim site and on which the valuation was based, did not represent a fair value. ADLER Real Estate AG assumed in the valuation that the Gerresheim site could be developed as planned, although the necessary permits had not yet been obtained. This was based on assumptions regarding possible uses that were not certain as of December 31, 2019. In addition, the sale agreement was not an orderly business transaction between any market participants.

The BaFin’s error finding is a so-called partial error finding, i.e. the audit of the accounting of the consolidated financial statements and the combined management report for fiscal year 2019 is still ongoing. The same applies to the audit of the 2020 and 2021 financial years. BaFin is making use of the option of a partial error finding for the first time. In this way, the capital market can already be informed of accounting errors during a balance sheet audit that is still ongoing.

BaFin had initiated the audit of ADLER Real Estate AG’s financial statements for the years 2019 and 2020 in August 2021 at the German Financial Reporting Enforcement Panel (FREP), which is still responsible until the end of 2021. Following the failure opinion of the auditor of the consolidated financial statements, BaFin also opened an audit for the 2021 consolidated financial statements and combined management report in June 2022.
ADLER Real Estate AG, which is domiciled and listed in Germany, is 96.72 percent owned by Luxembourg-based Adler Group S.A. The Commission de Surveillance du Secteur Financier (CSSF) is responsible for auditing the financial statements of the Luxembourg parent company.