Adler Group S.A. (ADJ) Earnings Call Transcript & Summary

Dear ladies and gentlemen, welcome to the conference call of Adler Group SA. At our customers' request, this conference will be recorded. [Operator Instructions] May I now hand you over to Gundolf Moritz, who will lead you through this conference. Please go ahead.

Yes. Thank you, Julia, and a very warm welcome to everyone. And good morning. As I said, my name is Gundolf Moritz, and I'm Head of Investor Relations for Adler Group. So today, we will present our audited financial statements for 2021, and we'll give you an update on recent government topics. With me today are Professor Stefan Kirsten, Chairman of the Board; and Thierry Beaudemoulin, CEO of the Adler Group, and they will guide you through today's presentation, which we will follow an amended structure in light of recent events. A short update of the recent events will be followed by an extensive Q&A session, where Stefan and Thierry will answer your questions. However, we would like to limit the call to approximately an hour and a couple of minutes more. I also would like to refer to the usual disclaimer chart at the end of the presentation. With this, I would like now to hand over to Stefan.

Thank you. Good morning, ladies and gentlemen, dear investors, dear stakeholders. Thanks for joining us today, and I will touch upon the events of the last 2 weeks, several key items from the auditor's full year 2021 results, but also, above all, I will allow an extensive Q&A session to address your questions. Join me on Page 3 now, where I will run you through and we will keep that page for quite a while because there is a lot to talk about. Let's not sugar coat it, ladies and gentlemen. It's a difficult moment for the company and therefore, for us. But it's also a moment for a -- of a fresh start for the Adler Group. When I joined in February, I promised you 5 steps: finishing the special audit report in time for meeting publication deadlines, publishing this report with as much as possible, transparency, publishing our audited financial statements for 2021, changing comprehensively, structure process and people to enhance the governance and reworking our strategy to lead Adler to a new future. By 30 April 2020, we can tick off the first 3.5 points. We have finished and published transparently the special audit report from KPMG, forensics. We have published the audited financial statements at 6:00 p.m. last Saturday, and we made the necessary personnel changes on board level. All on it, and I will refer to that more in detail before midnight 30 April. Why is that so important? The Adler group, in total, has approximately EUR 4.4 billion in bonds outstanding. There is a clear statement in the bonds that we have to publish on our website, IFRS financial statements, which are audited within 120 days. Our covenants there are intact. We have a legal opinion by a reputed law firm, of course, but I must actually say, this was the deadline to catch, even if we had to sacrifice any clean audit opinion. And this was the deadline, which could have simply killed the company. And 5.5 hours only to spare is even from my standards, a close shave. But let's now look at the year 2021, and let's also, in particular, look at the auditor's report. Ladies and gentlemen, this is the moment with my team hears most, because that's when I start lecturing. But the feedback which we received yesterday from various participants in the financial markets showed me that there are a lot of misunderstandings -- by the way, down to the audit profession including, on what has happened on this year-end. And this will not be on the slide, so please sharpen your pencils. Auditor's report, and I would like to stick to fact, yes. If I mention opinions, it's an auditor's opinion, but I would like to stick to facts, are governed by the international standards for auditing #700 and #705, which are fully adopted under Luxembourg loan. You know we are a Luxembourg company. The forms of the opinion and particularly the modifications are in standard ISA 705, and let's start with the worst case. The worst case is if an auditor concludes that the possible effects that I'm quoting here, on the financial statements of undetected misstatements, if any, could be both material and pervasive, so that the qualification would be inadequate. They have to withdraw. KPMG did not withdraw. And let's keep this in mind, this is the only chance that the financial statements are not audited. The same standard says there are 4 different types of audited financial statements, unqualified, and we all love those, and modified. And the modified ones are qualified if you have a misstatement, which is material. So it has to be significant, but it's not pervasive. You can have an adverse opinion, which means it's a misstatement, which is material and it's pervasive or you can have a disclaimer, which means that you have possible effects, which could be material and pervasive, and that's what Adler Group has. There are a couple of additional remarks in this standard, which make it very important. The first one is when the auditor considered it necessary to express an adverse opinion or disclaims an opinion on the financial statements as a whole, the auditor's report shall not also include any unmodified opinion with respect to the same financial reporting framework. That means that they cannot say, "Oh, everything else was fine, but we only had a problem there." But they have to say if they have significant misstatements, which they didn't, because they aren't there. This all has to be seen in connection with ISA 700, yes. And now, I know why Gundolf addressed me as Professor Kirsten because I'm teaching since 20 years, which is the international standard on auditing, forming an opinion where it says it has to state that the financial statements have been audited. If you read into the audit opinion from KPMG, which unfortunately, not too many people are doing at the moment, it says we are engaged, and then there's a section responsibilities of the auditor. And the last paragraph, our audit report. We unfortunately have seen yesterday a publication on the website of KPMG where they said they didn't finish the audit. Our lawyers at the moment, clearing that with KPMG, that's an obvious mistake because it's not in line with the standards. And as I mentioned before, the obligations in our bond prospectives include audited financial statements under IFRS within 120 days on our website. I'm sure that, in particular, the bond investors will have a look with their own counsel. We'll have a look to how to qualify this, but I think it makes a lot of sense, once and for all, to put this to bed. It's an exotic topic. It's exotic enough that I wrote my PhD thesis, it's more than 30 years about it, yes. It's an exotic topic. But nevertheless, that the facts speak. And by the way, I've asked more than one auditor and there are also statements from the German auditor body, the IDW, that we are fine with our interpretation. Good. What do the numbers say? We obviously cleaned out our balance sheet, and this was leading to a significant loss. This is mainly driven by the goodwill impairment, and there's a storyline on this. And if they haven't all set the presentation, it should be on Page 20. The valuations in our portfolios are, as in previous years, valued by CBRE and NAI Apollo. This is on Page 22 and some implicit statements and, of course, a lot in the annual financial statements. Let's not fool ourselves. We stick to our values, also, after the special audit report from KPMG. I think I explained the differences a week ago. Our leverage has decreased, Page 23. But most important, we got cash. So we are not in a dire situation, and Thierry will later allude on that. Ladies and gentlemen, so much for the past. What will happen now? It was consequent that the Board of 2021 have offered collectively their resignation, and I respect the attitude. But it's also consequent that we still must run a company with a complex structure and a business for all stakeholders, so we cannot accept all resignations, but need a trusted core team. So let me be very clear. We accepted the recognitions of Max Rienecker, the co-CEO; Peter Maser, my predecessor and my deputy later; Arzu and Claus. The core team we work with are Thierry, who is in the room here with me today; Thilo Schmid; Thomas Zinnocker; and myself. We are all seasoned experienced managers in that field of business. Nevertheless, I think it's fair that all 4 of us asked the shareholders in the next AGM for an endorsement of the past and a reelection for the future, let the shareholders vote. The company has shrunk, the company has resized. So we will reduce the Board from 8 to 5 members. This is us 4, plus a Chief Financial Officer to be searched. The Board members who did not continue the journey with us have left with immediate effect. Thierry will run the company as a sole CEO. I'm, at the moment, discussing and my script says with an experienced interim CFO. Now, I'm discussing with 2 experienced interim CFOs as of this morning who may be joining end of May. Discussions were a little bit hampered because we didn't have too much data points out there, so that they could make a decision. So no decision from both sides until the end. An international search for a new CFO slash, also, board member is underway. It's my project because I'm chairing and the Board, also, the nomination and compensation committee. That's a decision we will have this Thursday. We are also discussing with one of the big 4 -- well, remaining big 4 because KPMG is, of course, our auditor, companies for an external compliance organization with a compliance officer reporting into our Chief Legal Officer. The offer will come end of this week, decision shortly thereafter, and this function will be run by our Chief Legal Officer. Why do I want an external compliance office that ensures best-in-class standards that ensures independents, and it ensures that we are a bit more protected from the surprises of the past. We're in the process of drafting tighter rules of procedures across the whole range of our companies. I've had quite some feedback from you. And I mean, it was also obvious that we own aggregate bonds. This is absolutely legal. It has been properly reported in the annual report for 2020, and of course, for 2021. That's the fun part of it. It does not even remotely resonate with my understanding of good governance. One does not hold financial instruments of even if it was a former related party. So with immediate effect and the scope of 0, the Board took control of this bond position. We take it away from daily management. We now hold them to maturity. If they recover properly, we might sell them in the market, we will definitely give you a very transparent view on it. Ladies and gentlemen, when you read the research about our company and when you look at it and when you stick your nose into it, you will find that we are having quite a Byzantine structure, which to a certain degree, owed to rapid acquisitory growth. We will run Adler Group more as one economic entity, of course, without neglecting minority rights in our subsidiaries. The reason our information flow, decision times, uniform rules and better controls, and I mean this with a capital C. I mean, let's keep in mind that information flows, for instance, and were one of the reasons for the disclaimer of our audit. Adler real estate concerts and the like will be bound much closer to the group. Measures are not yet decided. This is all in drafting stage. The subsidiary cleanup project will be run by our General Counsel, the Counsel CFO has retired at 30th of April, and will, in due course, in a structured way, hand over his obligations and data to successor and a team of successors. The next project is to clear our name with the auditors. Thilo Schmid, who chairs the audit committee, will run a project to clearly audit opinion. We would start this with our half year because our quarters don't get audited. Our goal is a clean opinion for the year 2022. 2021 is over. I just need to get a fixed starting point with our auditors and a clean opinion for 2022 must be our ago. I got frequently quoted in the media and -- that I said rightly so that I believe that the capital markets are at the moment, de facto, closed for us. Therefore, Thomas Zinnocker, who runs the investment and financing committee, will run a tight cash flow monitoring, together with management. Thierry will give you more color in a few minutes. This is the reason why we don't want to make any statement on dividends now. We would like to push this to mid-May when we invite for our AGM because then, we will have hardened our view about the cash flow forecast for the next 12-plus months. I can assure you under Luxembourg law, it's legally possible to pay a dividend. We definitely have the cash to do it, but the decision is a very economic one. I personally see my role to support Thierry and all capital market relevant questions, and I will coordinate the projects mentioned above and try to keep the ship float. I will also communicate a lot with all stakeholders, internal and external, because it is my true view that sunlight is the best disinfectant, and therefore, I will pursue being transparent with you. Thus, we need to finish step 4 before the AGM on 29 June, our next stop on our way to revitalize. Adler group is mid-May, around that, we will brief markets and invite to the AGM. When we have then finished step 4 under the lead of Thomas Zinnocker, we will do 2 more things. One, we will start to think how we strategically find our future niche in the real estate market. And two, Thilo Schmid, will start the dialogue with KPMG on how to cure the reasons for the disclaimer of opinion. I know it was lengthy for one chart, but I think it was necessary. Now, please, allow me to hand over to Thierry, who will run you through 2021 and the cash on Page 4.

Thank you, Stefan. Also from my side, I would like to thank everyone who is joining us here today on the call. Over the last 6 months, we have conducted a full reassessment of our development pipeline, and together with Bernd Schade, our Chief Development Officer and his team, we have reviewed project by project. The result of the significant disposal of nonstrategic, but higher yielding part of our portfolio are that the remainder of the portfolio is Encore in Berlin. Given the lower yield in Berlin, our future cash flow is affected and require Adler to refocus the build to pipeline to project, with mainly a residential angle in Germany top city, while keeping our total CapEx headroom in mind. As a result, we decided to focus on 6 build to project only, project that currently carry a GED of around EUR 900 million and has a potential GDV of around EUR 3 billion and -- which will add approximately 6,000 high-quality residential unit in cities like Düsseldorf, Hamburg and Stuttgart. Currently, construction is ongoing at the Kornversuchsspeicher in Berlin and at the Schwabenlandtower in Stuttgart. Given the reclassification of 2/3 of our build tool pipeline, recent economic development on the back of COVID-19 pandemic, as well as the war in Ukraine Consus' current net asset and future profitability are impacted and led to goodwill impairment of EUR 1.1 billion. As EPRA NTA already correct for any goodwill in the balance sheet, our NTA is not affected by this impairment. Moreover, you likely remember the sales of 7 projects to partner Immobilien Capital Management in May 2020. To date, we have received 40% of the sales price, but lack significant clarity on the timing of the payment of the remaining 60%. We made the decision to rescind the contract in order to regain control of the assets, allowing us to sell the asset. Lastly, I'm happy to be able to indicate that we are making substantial progress on a number of project disposals, which we expect to sign during the remainder of Q2 2022, and which should lead to net proceeds of EUR 542 million. Please join me on Page 5, where I will run you through the evolution of our JV of the yielding portfolio on the back of our disposal. As we start of Q4, we had EUR 9.1 billion portfolio of yielding assets. As announced last year, we were able to dispose roughly 15,000 units in the Northern region to LEG for EUR 1.3 billion, which is 15% above our last book value. Since then, we also sold 14,000 units in the Eastern part of Germany to KKR and Velero in an asset deal at 6% premium to latest book value. Given the right of first receivable of the municipality connected to this asset, we are now happy to announce that 97% of the assets have already been transferred as per end of April. Given the fact that we anticipate the transfer of our Eastern asset, as well as the exercise of the option for our remaining 63% stake in BCP throughout 2022, we reclassify all these assets and their associated liability to assets and wholesale. As such, our yielding portfolio has decreased to EUR 5.6 billion at the end of 2021. Given all this change and the associated cash flow, please allow me to run you through the development of our cash position at the end of 2022 on a pro forma basis on Page 6. We ended the year 2021 with EUR 556 million cash at end. Since then, we have received close to EUR 700 million net proceed for the disposal to KKR and Velero. The CapEx on our build to pipeline amounted to EUR 27 million year-to-date. We also repaid EUR 400 million bond and repaid more than EUR 100 million in other financial instruments. Therefore, at the end of April, we sit on EUR 700 million cash, which puts us in a comfortable position to service our obligation in the remainder of the year. We forecast a cash position of around EUR 1.5 billion by the end of 2022, which is obviously dependent on LEG exercise its option to across the remaining of our stake in BCP, as well as completing the sale of volume development project. Now, let's move to Page 7, where we assess the anticipated cash flow until December 2023. As the current situation limit our access to public debt and equity market, we assess our current and anticipated liquidity for the next 2 years and are comfortable that we have all our obligation covered. On the left-hand side, you can see that we envisage receive approximately EUR 4.5 billion on the back of signed and anticipated sales proceed, always as prolongation of secured financing and the marginal contribution of receivables. The right-hand side shows the anticipated cash requirement for both secured and unsecured financing interest, as well as planned, OpEx, maintenance and development CapEx. As you can see, we have our liquidity requirement covered circa 1.7x in the base case, with a decent amount of project disposal. However, even in a very unfortunate situation where only half of the completed sales materialize, where we do not obtain new project financing nor received payment on receivable, but scheduled CapEx will still be covered 1.17x. In case you stress test our worst-case scenario, we would recover cash flow of approximately EUR 250 million, a number which will be manageable. Now, let me hand you back to Stefan, who will discuss our bond covenant on Page 8.

Well, ladies and gentlemen, here, he has left me with a juicy stuff again. But let's stop kidding, most of you know that I've issued a bond or 2 in the past, so I'd love to take this page. First and foremost, we had to publish our audited financial statements, as I mentioned before, within the 120 days. We did this close shave, but we're done. Now, let's look at our covenants. They're not as uniform as you might know them from my last employer, because we've financed less organically and have more grown through acquisitions, including financing there. Loan-to-value, secured loan-to-value -- sorry, interest coverage ratios are all clear. So let's focus on the unencumbered assets. The impairment of the goodwill, quite surprised that actually, a goodwill is seen as an asset, but that's a different story. The impairment of the goodwill affected the unencumbered asset ratio, which stood now at 114.5% at the end of the year. Please allow me to explain that this does not impact our operation, and that we have numerous routes to resolve the situation. First and foremost, it's important to note that since this is an incurrence based covenant, the 2 bonds from the pre-Adler area, it does not constitute any event of default, so save your breath on that. The only thing it does is that we are prevented from raising new funds, while refinancing of existing financing position is still possible. And as explained on the previous 2 pages, that was EUR 700-plus million. We have sufficient existing liquidity on hand, and therefore, are also at no risk of triggering any event of default. I'm also realistic. I said this before, with a disclaimer of opinion for the year-end, the market anyway is more or less closed for us. To move back to a level of more of 125%, we have a combination of 4 options and stress combination at our disposal. We can use cash to buy back the bonds with a limiting covenant. We can use cash to buy back other bonds to include the ratio. We can top up existing mortgage loans and buy back bonds, and we can repay mortgage loans and release encumbrance. Given this flexibility, we expect to increase the ratio as we go along. And I mean, Thierry just addressed the BCP, the anticipated BCP sale, then we will have definitely a chance to reach a comfortable position of more than 135%. Ladies and gentlemen, that concludes the presentation. It's not the usual audited financial statement presentation you're getting from companies, but we have put a lot of the stuff into the appendix. As we expect, and I see this from the number of people who are dialing in, that you may have questions, we deem it more appropriate to take more time for a longer Q&A session rather than running you through the remainder of the year. Due to the lack of CFO, we might also not be able to answer everything on the spot. So on these points, we will simply pencil down the question. And -- or you will ideally phrase it to our IR team, and I can promise you a very speedy delivery. Thank you for attending so far. And Gundolf, Julia, if you could please coordinate the Q&A session.

Julia, over to you, please.

[Operator Instructions] The first question is from [ Harold Santoni ], Citigroup.

Yes. A couple of questions on my side. So the first question is on your CapEx that you have on Slide 25, can you just explain how this CapEx profile has changed? And how is it -- why has it changed versus your Q3 presentation? Could you just explain what's going on there? The second question is, why was it important for you to publish the results when you had a 40-day covenant free there on your bonds to publish non disclaimer accounts? And the third -- I'll leave it there for now.

[ Harold ] thank you. Let me pick up. This is Stefan. The second question was -- Thierry will take the first one. Of course, there's a technical recovery situation, yes. But recovering from a recovery situation, is even worse. So would the next 40 days bring us any clarity on this matter? Everything we have seen is that KPMG and the forensic order, for instance, needed 6 months to dig up a lot of little details, but no comprehensive picture because, as I said last week, they haven't delivered a summary. So it was, for me, more important to go with the bonds into a clean session. And that was a decision which we made and the Board together when I joined mid of February. Then going into any technical procedure, where I would say I'm leaving it too much into the hands of legal teams and interpretation. So conscious decision to do that, conscious decision to put an end, also, to some of the processes to get the project finished. I hope that answers your question. Thierry?

So on the CapEx, a new forecast for 2023-28 of around EUR 200 million. This is a consequence of 2 events: First, we have disposed BCP, which we're having some development projects. So we don't expect this CapEx on our balance sheet once the call option is exercised. So these are the projects in Grafental, in Gerresheim, in Düsseldorf. And secondly, we have reassessed our development pipeline and reduced the number of build to hold projects from 11 to 6 concentrating on the most important project for us in Hamburg, in Düsseldorf and in Stuttgart. So as such, our CapEx requirement has reduced, and we can fund that by our cash reserve and by the sale of the upfront portfolio.

Okay. If I could just follow up on that. So what's going to happen with the build to sell, which the projects have moved into build to sell? What's going to happen to those? And then secondly, on slide -- I think it's Slide 6, you talked about your liquidity profile. There is the KKR transaction, which you show us EUR 1 billion worth of proceeds coming in. I understand you said there's 97% of that complete. So there's only EUR 687 million of cash and then EUR 36 million pro forma after April. So can you just explain what's going on there?

So on the build to sell. So now, as we are calcify project from build to hold to build to sell, we have EUR 2.1 billion, build-to-sale. We have -- we target -- we anticipate for this year to -- we have already sold 5 projects at beginning of the year. We anticipate to sell additional 7 for total loan of EUR 546 million. And then, we expect to sell, as a reminder, in the course of 2023. That's the plan. In regard to Velero/KKR, in the published accounts, all the proceeds were not included because they were still preemption right well. But as per today, we have received 97% of the total amount in cash and the 3% we expect to receive it in the coming weeks.

[ Harold ], I hope that answers your questions. Julia to the next?

The next question is from Jennifer [indiscernible], Barclays.

This is [indiscernible] from Barclays. We had a couple of questions. Firstly, on the unencumbered asset ratio. I understand that Adler Group can't raise any new debt. Is that also the case for the intercompany loans that it receive -- can receive from Adler real estate? Is that possible now after the current unencumbered asset ratio?

I believe so.

Okay, so the covenant is not for the intercompany loan. And the second question I had was a couple of times, you mentioned about BCP and when LEG exercised the option. I'm just trying to understand, how much clarity you have on that? Because I haven't seen anything from LEG commenting on the option in the recent cost.

So -- so we -- LEG has already acquired 7% of BCP directly from us and 24% from the minority. So they have a significant stake in BCP. And secondly, they have confirmed, in their last communication, that BCP is a perfect fit for the strategy. So they have until end of September to exercise this option. And we believe given the stake they have and given the quality of the portfolio and the complementary for the strategy that they will exercise the call option.

And then final question. Looking at your Slide 17, where you show the development portfolio as of full year '21 is roughly EUR 2.7 billion. Is -- how do we look at it? Is that comparable to the roughly EUR 3.5 billion in H1 '21? And how much of that has been excluded because of BCP?

So in the Slide 17, so you see the evolution from 3.8% to 2.6%. You have a similar effect there. So the sale of one-by-one projects. So as I mentioned, we have sold upfront sale 1 project, you have the impact on BCP and you have the impact on the devaluation of the portfolio on the back of rising construction costs. So you have 3 effects, which lead the valutions between 3.8% and 2.7%. So BCP is only one part in relation to Garrison project and Grafental project.

Understood. And sorry, final, final question.

No problem.

In the past, you had mentioned that you were looking to put in a domination agreement in place for both Adler real estate and Consus. I just wanted to understand what's the progress on that? And if you are hoping to still do that?

Let me be frank, our General Counsel was rather busy in the last 6 months with other things. So no progress from the last update from management. This is part of the project to bind the group together to one economic unit, as I mentioned before, including our minority rights, as I mentioned before, too. So I can't give you an update on that. I'm sure that this will be in the whole structure, which we get presented by him. That's the reason why a lawyer runs the project. I hope that answered your questions.

The next question is from [indiscernible] Capital.

Would like to ask you about a release, which Adler Real Estate put out on the 31st of March 2022. And the release says that Adler real estate, today, signed a loan agreement relating to the granting of the EUR 265 million loan to Adler Group. When I read the Adler real estate accounts, the Adler real estate accounts seem to say that the loan and the cash transfer was actually made in December 2021, and yet, there is a release saying that the Supervisory Board signed off on the loan agreement in March 2022. Why was there a 4-month gap between sending the cash and having a loan agreement and a Board decision approving it? And did you, Dr. Kirsten preside over the backdating of this Board decision?

Well, you will never catch me backdating anything in my life. So that's the first one. Honestly, I don't know the details. I know that we asked Adler real estate to come to a formal Board decision. Let me dig into this. We will -- I mean if it's of general interest, we will have this, of course, published.

Right. Just to confirm, your tenure at the company began in February and you meant to bring an overview of good...

At Adler Group SA. So I'm not digging into the subsidiaries.

I mean, my understanding is that when you have a loan agreement, both the borrower and the lender sign it, Adler Group SA would have been the borrower, Adler real estate would have been the lender. So presumably, you did know something about the EUR 265 million transaction. And I think we would all appreciate some...

I'm sure that the Adler Group approval was earlier. Do me a favor, let me look into this matter. It's an intercompany affair. I know there are minorities involved, but...

And bondholders as well, there are -- as you know, there is EUR 1.5 billion of bonds that -- Adler real estate.

Please allow me to finish my sentence because I think it's important to me. There is one additional point, which I would like to make very clear. Do me a big favor and never bring me into connection with backdating anything. That would be most appreciated. Do you have other questions?

Well, if you could provide clarity to us on why the cash transferred 4 months prior to the execution of the loan agreement. That would be helpful.

It's going to happen. Absolutely. Any further questions?

No, that was all. Very much appreciated.

The next question is from [ Mark Breece, Bridge ] Capital.

Mark, we can hear you not very loudly. Why don't you simply shout at us?

It's actually Clarke First from [indiscernible]. Had a couple of questions. First of all, on the audit opinion, you said you have a legal opinion to the effect that this is -- this does fulfill the requirements of the covenants. Would you be willing to publish that legal opinion?

I have to ask the law firm. Our law firm is white in case, whether or not they are willing to publish it. We have it for the Board. When we saw in which direction the special audit went with regards to the first summaries, which we, I think, articulated a view on tenth of March. I've asked White in Case to give us a wide-ranging view on all scenarios with regard to the bonds, and this is part of it. Let me ask the law firm. If they agree, you will have it on the website.

Great. And I may have -- you may have discussed this during the presentation, but the RCF, there was a press comment yesterday that you no longer had availability to the RCF. But in the accounts, it states the RCF has been terminated. So a couple of questions around that. On what basis was it terminated? Were there outstandings against the RCF before it was terminated? And have you had an opinion whether this might actually constitute a default under the cross-default language in the EMTN program?

No, absolutely not. Key point was that we paid back the RCF because we have the cash at the end of the year, I think, from the LEG transaction, I'm looking over to Thierry. And we didn't need it anymore. And termination sounds so much like terminator. It was just not a necessary instrument anymore.

So you're saying you didn't need the RCF at the moment? I mean, there seems to be...

We have the same thing with the working capital facility, which we don't need. I mean, there was always this rumor that we are in cash trouble, we simply aren't. I think the numbers of today prove that. But the key point is, no, we didn't need that, and we had more efficient ways. So we simply paid it back.

So can you confirm to me that Adler terminated the RCF?

Well, it never...

Or was it terminated by the banks?

Honestly, I don't know. Yes, don't use the word terminated. We just ended it. I'm sure it was not because we paid it back, but...

But you used terminated in -- that is the language that is used in the annual accounts.

Okay.

So I'm not using anything different from the word that you used, but...

No, no, no. That's absolutely fine...

But it's very important for us to know whether it was terminated by the banks or by Adler?

It was repaid. Yes, that was repaid.

But the facilities are terminated?

I simply don't know. Let's not get hung up on this, I simply don't know. It was repaid because we didn't feel the necessity, so I'm expecting the initiative came from us. But I can't confirm that it didn't come from the bank. Honestly, I don't know. Yes, sorry about it.

The next question is from [ Ella Cruiser ] Wellington.

I'll have 3 questions, please. The first one is on the -- on Slide 6, where you get to -- about EUR 6 billion of cash balance by the end of FY '22. It's obviously very much dependent on BCP exercising the option. And obviously, there is good strategic reasons why they should, and then, there is another about EUR 1 billion of project development disposal plans. Can you give us a bit more detail around the EUR 1 billion? I realize you mentioned about EUR 546 million that you expect to be signed in the remaining of second quarter of '22. What's the other EUR 0.5 billion, please? And I guess, the main question is, is there a backup plan to these disposals, LEG's deadline, obviously, is rather late in the year if it comes to October, and these haven't materialized, is there a backup plan to these disposals? That's the first question. The second question is, there are some of the reversals, I believe the partner's deal. I'm wondering if you expect any debt to come back to the balance sheet as a result of the reversals? And now that the unencumbered asset test is not met on the incurring side, whether you can actually incur those debt or do you need to first tackle the ratio and then you can actually reverse that transaction? And the last one is on the -- on getting a clean audit opinion for 2022, that's obviously high up on the agenda. And the auditors for 2021 are basically saying they didn't have access to all the information they needed. And I understand the timing being tightened priority getting out the report, but does that mean in order to get a clean audit opinion for next year, you'll basically work with the auditors in the next 6 to 8 months and basically, made everything available to them such that they can provide an opinion?

Ella, these were a number of questions. Let me start with not answering your question, but answering Claus' question because I've got a good team in Berlin, which just texted me. The RCF facility was canceled by Adler. Okay, one step back. Clean audit opinion. Yes, we have with Thilo Schmid, Head of the Audit Committee, who started there in early February, who will sit down. We'll have to keep a couple of things in mind. When you read the documentation from KPMG, it says very clearly that especially, with regard to related party or alleged related party transactions, they didn't get enough information. They are, of course, alluding also to the 800,000 data points, which we withheld under attorney-client privilege. By the way, we don't have 800,000 e-mails under attorney-client privilege. We just have 800,000 e-mails where we couldn't after the machine sorting, deny it and it would have delayed the audit. So therefore, you rightly pointed out, we were under the gun from a deadline point of view. Everything which is legally possible for us will be made available to the auditors at half year to ensure that we are getting a clean audit for 2022. I hope that answers this question. With regard to stress testing the numbers, if BCP doesn't work and if the sales proceeds don't work, we need, of course, a backup plan of approximately EUR 250 million, yes? That's the worst-case stress test, and we are, of course, putting a number of measures in without being too specific now to get this going, so that our pro forma for the year-end is in any case clear. With regard to taking back companies which might incur debt, let's always keep in mind that we are also having an asset behind that. We personally believe at the moment, but this gets hardened on a case-by-case basis that each of these incidents does not incur any covenant bridge. There was one additional question, Thierry.

Yes. On the -- I can confirm that on the reversal of the transaction of Partners Immobilien Capital Management, we will get real estate assets without any debt. And then, we will work on that to sell it until end of 2023 in addition to our sales plan.

Can I have one more question, please? And regarding the investigation, obviously, it's ongoing, and I believe you said you've already been in contact with them. Can you -- do you have any idea where that stands? And what's in BaFin remit? I'm sure you've done a bit of work on it. What shall we expect? What are the, I guess, best case, worst-case sort of options that we should expect to hear, I guess?

Okay. Well, I don't want to speculate too much on the outcome. Let's talk about BaFin, and let's start with BaFin and then come to us. You know that BaFin, on a case-by-case basis analyzes year-end statements. And that was, in the past, done by the FREP, the Financial Reporting Enforcement Panel, which ceased to work for BaFin at 31st of December last year. So BaFin is, at the moment, in the process of building up its own apparatus. My personal contact with BaFin in this case was very simple. I introduced myself. Because I wanted to give BaFin a very clear view that they have a communication channel. If they have the feeling that things are not going the normal course of things. By the way, let me also articulate one additional view because frequently, in the media, you read BaFin is knocking at the door. This very close to BaFin, it's kicking in the door. It's not going to happen. This is an e-mail exchange. It's a pingpong of e-mails of questions and answers. We will have the next delivery deadline, I think, on the 5th May. I'm just looking to Thierry, he's nodding. I think in the -- on the 5th May, where we will provide them with new data. They may, at some point in time, come to a conclusion, they may extend the scope, they may ask for more data. We may also not be able to answer 100% of the questions. These questions are along the 2020 year-end. And they are very specific, and I must actually say they're very clear. So this is what I like a lot, they're very factual. So they are not in any case colored. And we've had enough colored comments about our financial statements over the last weeks and days. So this is a process which is ongoing. We're getting supported by external counsel. We're getting supported by PwC on this matter. Both sides are sharpening their tools. So therefore, I cannot speculate on the timeline. I cannot speculate on the results. I can only assure everybody that we are, of course, not only cooperating, but trying to go together with BaFin through this process. Does that answer your question, Ella? Okay.

Next question is from Danny Walter, Morgan Stanley.

Thank you for this detailed presentation. Much appreciated. A question on the sale proceeds. On your cash bridge, you show EUR 975 million of sales proceeds. I think that number is new. We haven't seen it before. From the presentation, I can gather, you've already sold EUR 192 million, and you want to close, I guess, up to EUR 540 million of signed in Q2. And then, it mentions this Waypoint project. So just trying to get a bit more kind of breakdown of this EUR 975 million.

So the -- So there are 2 buckets. So one bucket, which is roughly -- which is slightly below EUR 200 million. It's a yielding portfolio in Berlin, which we have as a joint venture with a third-party partner who want to sell this portfolio. So this is an existing portfolio where we have just signed an LOI. And then, the remainder is a noncore development project where we have already signed 5 of them, and we expect to sign another EUR 700 million. So altogether, it will be above EUR 500 million that we expect to cash in before the end of the year.

Is that answering your question?

Not quite. So how do I get to EUR 975 million? Maybe, we could just break it down?

What I suggest, send us an e-mail, and then we will give you project-by-project, the breakdown. Okay.

Okay. Second question was, I mean, just given sort of also the number of questions on this call regarding covenants, regarding intercompany loans, et cetera. I mean, doesn't it make sense to engage a bit more, also, with supportive bondholders and just sort of also, enabling you to get wafers, et cetera, for any kind of questions that may arise? So is that something you're considering?

Daniel, you see me smiling, yes? I mean, in my previous job as CFO, Vonovia was 125 days on the road, out of which 50% for bond holders. Yes, I agree. I can't agree more. But what can I do? I'm again in a blackout period for Q1 at the moment, yes? So that's why we only talk about -- that's why we only talk about the year-end. So we had no chance to communicate further because we were so restricted by the special audit, which took much, to my regret, went a little bit astray from a project management point of view. And then we have to finish the year-end accounts. You can have more personal assurance that we will communicate much more. It will be less Thierry, it will be more me, why because Thierry has to run the company, and we are trying to fill the CFO job, and then I will hand this job -- this position, of course, over to the new CFO. So be assured, if anybody asks a question, you will get an answer. Yes, Daniel?

Yes. I think almost more -- in a more formal way, right, where you sort of have the bond holders a line. So if covenant waivers are needed, if secured financing is needed, then you can quickly resolve these things. I think that would actually be quite helpful to you given sort of the difficult situation that you've been given?

Promise, this is an analysis which is underway. And this is something where we will also articulate a view, then within one of the quarters when we are ready, of course. Daniel, do you have another question because one of the questions from Ella, which I would like to answer. Ella, you asked if we -- and I just received a text on this one, too. Here is when -- if we get some, for instance, a company back which has debt, is that new indebtedness? Well, I would be very cautious that this is something which has 100% loan to value, for instance. But financial -- new financial debt is defined as non-group debt. So in the moment when we get something in the group, which lowers our loan-to-value ratio, even if they bring debt in, we will -- it's within the group, and we would not violate any covenants there. Dig a little bit deeper into the papers, and I'm quite happy that we have lawyers on hand who can do this fast enough. Julian, next question, please?

The next question is from [indiscernible]

Yes, I'm wondering if you're cutting short of the forensic report and therefore, the 800,000 e-mails or base points that are outstanding, et cetera. And ultimately, perhaps the missing overall picture from KPMG or anyone. Is that -- does that ultimately, in your opinion, open the company up to the risk of potentially say, a rate for the remaining information, et cetera? And what are you doing -- what are you considering to do to possibly prevent that? Are you perhaps, maybe, starting at KPMG forensic to new kind of project for the second half of it that may not now be running you into a covenant deadline? Or what are your potential solutions?

Thank you.

If that requires any.

No, no, no. It's an absolutely fair question. Well, let me be frank here. I mean, I know we have nearly 500 people on the call at the moment. But -- 700, oh dear. KPMG articulated its view about the e-mail research and the e-mail investigation quite in detail. And I had a little bit of feeling that they were a bit missed about the attorney-client privilege issue, which I personally would find surprising. Because let's keep in mind, as an audit firm, they are not under a attorney-client privilege. And if KPMG, for instance, says I want to see all your e-mails from your General Counsel over the last 4 years, then you can assume that this will be a lot of digging to sort the attorney-client privilege staff out. And we will not weaken the companies, and this has happened, okay? So that's what I meant when I said we had legally-educated people whose e-mails were on the roster. And this is something where you have to go line-by-line through it and say, is that ACP isn't it ACP? The ACP rule itself is absolutely normal, particularly in the Anglo-Saxon world. So I'll absolutely defend our approach there. What I don't defend is that things took too long, and we are in the process, as we speak, to go through the e-mails on ourselves to say what is hard core out of it and we won't show anybody for all sorts of reasons, personality rights, data protection rights, everything else, pure legal reasons and what can we offer for future scrutiny. I doubt that we will take KPMG forensic for analyzing that, because we have auditors and auditors have their rights, and auditors have their methods to go through. The forensics was a very specific project, which, as I stated on the 22nd, is definitely closed. Is that answering your question, [indiscernible]?

That's all I have, by the way. I think most of the rest has been answered.

Your next question is from Peter [indiscernible].

I just have 2 questions. Can you verify whether KPMG audit has been able to verify the cash balances as of December 31? And then my second question is regarding, can you just give us an update on your discussions with the banks? I believe, in September, you were looking to roll over around EUR 240 million of bank debt. Where does that stand today?

Yes. I think it is good practice. I mean, you might not know this, but I'm a trained forensic auditor even if it was in the '80s when the PC was just developed. Yes, it's good practice to verify cash balances. I know there's a prominent case in Germany where that has not happened every time, but I can assure you the cash is there. So that has been done as a standard audit procedure and also, after the events of the last years. Discussions with the banks. They were, of course, mainly driven by the people around Max Rienecker, who's not with us anymore. I know from him on the updates, which I've gotten in my role, that they are positively going forward, because these are mainly loans, which are secured and are therefore in a different risk bracket. And there, the banks are clinching far less because what's more important there is the financial statement of that specific SPV, for instance. And there, we have absolutely no problems. Peter, is that answering your question?

The next question is from line of [ Hayden, EIP Investments ].

I appreciate the very detailed presentation that you released last night. I think most of my questions have actually been answered by previous people, but I feel like I just wanted to follow up on. I think Daniel at Morgan Stanley mentioned the cash bridge of the EUR 975 million, and I think, Thierry, you mentioned that EUR 546 million was for the remainder of the year. Is that suggesting that, that EUR 400 million has effectively closed in, in the first part of this year? And then secondly, just is there any kind of update on the relationship with Vonovia and how that has developed as a result of the forensic audit and the audit opinion that was just recently released?

Good questions. Let me start with Vonovia because it seems to be the easier one. After everything has been released, I mean, you know that Vonovia has 20.5% approximately of our stock. I, of course, had a conversation or the respective department of Vonovia to take them through the situation based on publicly available material like I would do with every shareholder. And you don't want to have a 20.5% lift. We mentioned before, yes, we'd like to have every shareholder in the roster who supports our strategy. Vonovia clearly does that. Vonovia has yesterday, I think, articulated a statement either by spokesperson or a press statement. Between us, I was too busy yesterday to where they articulated that this is a financial investment for them. So it's the normal relationship between a shareholder and the company. I'll just look at it more closely, obviously, because of the sheer percentage, which they have within all the remits of equal information and equal participation. I hope that answers this question, and Thierry is now dealing with the EUR 975 million or shall we do this later?

Yes. So on the EUR 975 million, as I mentioned, so 20% of that is yielding portfolio where we expect to sign LOI and remaining its 9 development projects. As per today, EUR 428 million has been signed, and we expect closing before the end of the year and for the remaining of EUR 542 million. So we are in different stages of negotiation with the buyer LOI exclusivity. So that's why we expect this proceed to come.

Got it. That's super clear and very, very helpful. And I appreciate the color on the Vonovia relationship as well. Just one further follow-up, if you don't mind. In relation to the Consus' write-off, and effectively, the situation there. Has there been any discussions internally or from external investors about potentially pursuing any legal action against the vendor of that business? Or is that something that hasn't come up?

Let's put it that way. The Consus' write-off and the business plan for Consus' took us quite some while. So it has not come up, but it is obviously more than a box we have to tick. This is something with which Consus and Adler Group will look into. And if there is something which we intend to do, we will also brief you on this. Let me -- is that answering the question?

Absolutely. I appreciate your time, and thanks for the color, guys.

Don't worry. That's absolutely fine. I had one question about cash balances. My head of the audit commentary just sent to me that I mean, in the real estate companies, you have, very frequently, a lot of accounts, because you might have an account per tenant, for instance, more than 1,000, they had 100% scope 0 cash confirmations at year-end. It took us a while because it's more than 1,000 accounts. I think for the new CFO, there is something to look at in the future. okay? So the cash is there, that's the statement, which I'd like to make. Next question please. Who is next?

The next question is from Julius Kling, Strategic Value Partners.

Hi, good morning. Can everybody hear me?

Yes, we can hear you.

Excellent. I had 2 questions, please. The first one, are there any cross guarantees or security within the group, meaning between Adler Group, Adler real estate to Consus or vice versa?

Pardon?

I'm looking at Thierry. This is a very good question. I know that we are looking at these things at the moment. I can't answer that. I'm not long enough in the show. So have to park this. I have to come back to you.

Okay. Maybe, related to that. I think you gave some detail on the CapEx, which now, I understand, is mostly Consus given that BCP has been classified as asset held for sale on Page 25. How much of the CapEx spend do you expect to be funded from Adler Group or Adler real estate versus organically, within Consus, please?

What we show in Page 25 is around EUR 200 million per year, which is a reduced amount because we are refocusing to a limited number of projects and we intend, primarily, to finance them by the sale of the ront development. So we have EUR 2.1 billion, and we have already secured EUR 400 million sales of development. We expect another EUR 442 million before the end of the year and the remaining. So it's going to be mainly funded by the development project, which are in Consus of the CapEx we need in Consus.

Understood. Maybe, related to that, can you confirm if any of the EUR 265 million upstream loan from Adler Real Estate to Group was then on land into Consus?

Can't confirm, I see. Yes, honestly, we simply don't know. We have to check this.

Maybe I can take it up...

I see the thinking behind it. Between us, I've heard this now various times. We'll look into this, and we'll definitely put a piece out on this.

Perfect. And then last question, if I may. Could you give us a breakdown of where the cash sits within the group? At Group, Real Estate, and Consus as of 31st of December and potentially, as of end of April, as you've shown in the cash bridge? Just so just integrate the EUR 700 million?

Honest answer, I don't know, because I felt like a group Chairman. I have to come back to this on 2. Yes. But it's mainly -- it's in the 3 main entities. Sorry, Julian, that we couldn't answer there everything, but that's -- touch the detail for me at the moment. And Julian, one silver bullet question, please, because then we have to close down. Who's next?

Yes, sure. Sorry. The last question for today is from [indiscernible], ExodusPoint.

Two very quick questions for me. Question one is Dr. Kirsten, you're obviously a member of the Board of Directors at Vivion prior to taking on the Chairman role at Adler. Over your time at Vivion, that company also received or ended up owning a bunch of aggregate bonds. Clearly see that position again in Adler. And I just want to ascertain, how you ended up at Vivion and how that role sort of landed in front of you and why you decided to take it? And there are pieces of rhetoric out there, which I'm sure you've seen that suggest you're part of a broader kind of cost of character, shall we say. Have you met Mr. Caner? Do you have a relationship with him? Any light on any of that, including Mr. [indiscernible] who's done some PA investment through the Dayan family, et cetera? I would love to just get some clarity and some color on that. And then, I have one very quick follow-up, which may take very long.

Okay. Well, I'm happy to answer that. Yes, Amir Dayan and I met a few years ago, and he had an issue because he had a CMBS in the United Kingdom and wanted to bring Vivion into the bond market. And let me correct one of the sentences, I was never in the Board of Vivion. It's an advisory Board only. So it's a pure advisory role. So I was advising Amir on specifically, the waivers for the CMBS in the U.K. Obtaining -- getting his accounts into a shape that we can go for a rating, getting a rating and getting the first bond out. Afterwards, I stayed on the advisory board. I had, at no point in time, anything to do with aggregate bonds. I had, at no point in time, anything to do with his involvement with Adler. So that was simply never a question which was asked and which was brought forward to me. I've met Mr. Caner at the mid -- I think, in 2016 in March. And he was advising Adler end of 2016 when Adler was owning a 20-plus percent stake in Conwert. I was the CFO of Vonovia. You might recall that we acquired Conwert Vonovia Style, which means you start Friday evening and you finish Monday morning and everything is done. And we had 2 teams. One was dealing with the stake which Adler had, and that was headed by me and the other one was dealing with the target company itself, which was headed by Rolf Buch, our CEO. So that was the time where I spent time with Mr. Caner because Mr. Caner was advising Mr. Krienen, who was the Adler, I think, CEO at that time or for [indiscernible], whatever you call it. That was my only -- doing with him. I then met him a couple of times on real estate fairs and real estate events. There is no further major relationship. As I mentioned, when I got appointed, he sent me a nice text and congratulated me. Yes. And this is all there is to say. I know that there are a lot of wild speculation out there, who belongs to whom, and which bandit bands up with other bandits and things like that. You know what, that's [indiscernible] . We don't have time for that. Yes. But I could clarify my -- and by the way, it was a matter of course, at the 16th of February, that I stepped down from the chairmanship of Vonovia Finance BV. Where I, by the way, was also approving the loan, which Vonovia gave to aggregate at that time, because I was the Chairman, yes. I was stepping down from my advisory road with Amir Dayan, even if it was just an advisory or just to avoid any conflict of interest. And I was stepping down from 2 additional roles at a family business and the fund, because I have no interest, a, not to concentrate on Adler and b, to have even the slightest implication of a conflict of interest out there. Is that answering...

Thank you for the answer. And then a very quick follow-up. Very quick follow-up, which is in relation to KPMG and the audit, which obviously a lot of people are focused on, 2 quick things. One is that Thilo Schmid is now running the Audit Committee, but he was obviously a member of the Audit Committee when all of these problems arose, shall we say. Is it really appropriate to keep him, on as someone who's running the audit committee? Should you not have like a full on clear out and just bring in someone totally new to run the audit committee, given that someone who is potentially complicit in the end outcome of the KPMG audit process is now sharing that committee? That doesn't strike me as ideal. And then, also, on that note, you've mentioned the issues around the 2021 opinion, but there was also a 2020 opinion. Because obviously, the KPMG withdrew their opinion essentially for both years. What was the issue with the 2020 opinion? And why couldn't that be resolved? Because obviously, there you have more time? Or can we expect that this will come back around and there'll be a more, should we say, palatable response from the auditor in the 2020 period at least?

No. On the 2020 opinion, I think that's -- I don't want to diminish KPMG here, yes, but that's a technicality. When they had 2021 in doubt, because they couldn't clear some of the information, they said, may this be reverberating to 2020. We don't know, so let's take this opinion off the rack. This is, for me, a follow-on, a ripple effect. This is for me, nothing which was really surprising or has any effects in a legal or factual matter. But I think it was from KPMG, from their statutes and professional standards, a standard point of view.

Understood. And very quickly, before you talk about Thilo Schmid, just on that point very, very quickly. Obviously, you want the clean order opinion for 2022, but the point you just made about 2020 in relation to 2021 will follow on for 2021 in relation to 2022. So the intention is to sort of open everything up to the auditor. Will you change the auditor by the way, before you talk about...

Well, those were 2 questions. Let's start with very fair point. Our current goal is to harden the balance sheet at 1st January 2022. Because in a moment, when I have that point, I de facto jettison, myself, from the audit opinions of 2020 and 2021 and can obtain a clear audit opinion in 2022. Will we change the auditor? You know what? We will not talk to the auditor. To have -- we have a professional relationship, but to also rebuild the trust relationship with them. And then, I think both sides have to decide. This is, by the way, a decision of the shareholders, and we will make recommendations. Maybe, mid of May, maybe later, that depends. Everybody has now to take a breather and go through that process of the last weeks. Let's talk about my colleague, Thilo. I like your sentence when if it wouldn't it be ideal for Adler. I mean, I haven't worked the word with ideal for Adler in the last days at all. Yes. I mentioned very clearly, we have problems, we're trying to fix them. And I also made it very clear that all the Board members who are on board, for me, in any case, because I was only coopted, for Thierry, for Thilo, for Thomas. It's a time where we are de facto on probation. And we are not on probation for opinions and the media and others. We are on probation for our shareholders who own the company. So 29 June, AGM, we will know whether or not they endorse Thilo. The last thing I wanted to do now, having joined 16th of February, is to cut off every single piece of know-how and information. And everything I've seen so far in working with all of my colleagues and the Board is absolutely up to standard. So the word ideal doesn't fit. What fits is we did the personnel changes, which we deemed absolutely necessary, we kept the people whom we feel are absolutely necessary, and we will put, in front of the shareholders, and ask them to endorse our measures. And they are the ones to judge because they own the stock even if it's very -- yes. Okay. Thank you. Well, Julian, I have to conclude on the Q&A. So please allow me some closing remarks. Ladies and gentlemen, I'm doing these type of calls like, more than 25 years. I had a lot of investor calls in the past, but nothing comes even close to our current situation. Please allow me to summarize, from a Chairman's perspective who, by the way, is still in his first 100 days. The year 2021, from an operational point of view, for all the hinderances which we had, was from an accounting point of view, not that bad. I mean, look at our FFO 1, look at the progress, which we did. Yes, our numbers there stand tall. We have enough cash to sustain a prolonged period of time. We had reasons for forensic special audit and the forensic special audit, as well as the audit has had a significant impact on the perception of Adler and rightly so. I'm not sugarcoating anything there. Mistakes were made, and we have to avoid those things in future and rectify whatever can be put right. We have restarted the company with a smaller Board, with a smaller company on May 1. We will tighten our rules. We will, as I just mentioned in the last question, put ourselves to the vote of the shareholders, because even if the media and others try to judge our shareholders, ladies and gentlemen, own. The next stops are an update on our measures. Mid of May. I don't want to be too specific because we now have to resort ourselves but mid of May, because then we have to invite for the AGM. We will publish our Q1 end of the month. Teams are working on this as we can. I can only say thank you for your interest. Thank you for the overwhelming number of people who dialed in. Thank you for your patience, and I'm wishing you a very good day.

Ladies and gentlemen, thank you for your attendance. This conference has been concluded. You may disconnect.