Adler
The embattled Adler Group, currently the object of a major wall of short-selling, managed to boost its liquid financial position by a further sale of a 14,400-unit portfolio to private equity group KKR. The deal is likely to net Adler about €600m.
The move is designed to help the listed Adler Group to deleverage from its heavy debt burden and streamline its holdings, bundled together rapidly in a flurry of controversial mergers and takeovers, mainly over the past two years.
The cash from the sale of the 14,400 residential and commercial units, mostly located in mid-sized towns in eastern Germany, will help push Adler's loan-to-value ratio below 50%, Adler said in a statement. The deal values the portfolio at €1.05 billion, which is a premium to the book value of the assets as of Sept. 30th.
The deal is the first major residential portfolio transaction of 2022 in Germany, and is structured as an asset deal. The assets will be managed by Berlin-based Velero, the property company KKR majority-acquired to handle its residential property assets, and which now brings Velero's portfolio to over 23,000 units.
KKR and Velero had been rumoured to be the buyer of a substantial Adler package back in October last year, but at the time neither company was confirming their involvement in a deal. Adler would only say it had signed a letter of intent to divest a package to "one of the largest providers of alternative asset management" but did not disclose the name of the buyer.
KKR said it would be "investing considerably" in the assets. Sascha Giest and Thomas Lange, the co-CEO's of Velero, said Velero would be taking over the 170 Adler operating staff managing the portfolio, and existing rental agreements with tenants would remain unchanged.
Most of the acquired units are located in strong and stable markets in which Velero had already been active, including the cities of Cottbus, Leipzig, Halle, Erfurt, Jena, Dresden and Chemnitz, as well as other cities in eastern Germany, greater Berlin and North Rhine-Westphalia.
KKR's stated strategy is to typically hold such residential assets for four or five years, according to KKR's head of real estate in Germany, Jan Baumgart. The company plans further acquisitions and said it was "open for attractive opportunities." The focus is on mid-sized towns across Germany, which was very much Velero's own strategy before being integrated into KKR, where Baumgart says he sees the greatest current potential in the housing sector.
Velero's target segment is affordable housing, particularly in economically strong B- and C-cities throughout Germany. It handles the entire spectrum of residential property management from asset management to property management, letting control and caretaker services with its own employees, which gives it almost total control over the development of the portfolio.
Velero had already built up its 7,500-unit residential portfolio since its founding by Giest and Lange in 2015, before selling a majority stake in the business to KKR in 2020. It had originally been planning an IPO, valued at up to €500m, before switching strategies and teaming up with KKR.
After seeing the collapse of 60% of its market capitalization in 2021 due to short-seller attacks, the SDAX-listed Adler has been hurrying to trim its €8.5 billion debt burden, selling more than 15,000 apartments to rival LEG Immobilien AG for €1.29 billion in a share deal in December.
LEG said at the time it had struck a good deal, knocking about €200m off the book valuation of the assets, put originally at €1.5bn. The combined KKR and LEG deals have almost halved Adler’s original residential portfolio of 70,000 units.
Adler came under crossfire from short sellers last year, mainly Fraser Perring’s Viceroy Research, which published a damning 61-page report in October. Perring's team accused Adler Group of pumping up asset valuations, related party deals, and being run for the benefit of investors, mainly a cohort surrounding Austrian investor Cevdet Caner, whose family owns a minority stake in the company.
Adler has yet to respond with a point-for-point rebuttal of the Viceroy accusations, saying it will respond fully following an extensive examination of its business and assets by consultants KPMG. (As REFIRE went to press, Adler Group announced that it had postponed publication of its audited consolidated financial statement “due to the ongoing forensic special investigation”. The company “will inform the market of a new timeline as soon as possible.” This is not a good sign.The share price plunged on the news to a new record low.)
Adler co-CEO Maximilian Rienecker said in an interview with business daily Handelsblatt that, given that the deal with KKR was an asset deal, no discount or other concessions had been made on the book valuation of the asset. "These are really interesting properties, and very many of them, and we achieved a good price, above book value", he said. "We're not planning any further disposals. We've now optimised our portfolio, and want to just get on with our business."
This leaves Adler now with about 30,000 apartments, of which 20,000 are located in Berlin, with most of the others in Duisburg and Leipzig. It also has diverse project development in Germany's Big 7 cities - at various stages of progression.
