Adler - Debt Free
All,
Please refer to our unchanged analysis of Adler here.
Only two days ago one of you asked if I thought the Velero/KKR deal would close soon. Today I know I gave the wrong answer. Of the three transactions Adler had been advertising to markets, this one seemed the least developed. Adler had given only very little information on it and comprising multi-family portfolios on the one hand and involving high return-seeking investors on the other, we had formed the opinion that it would be used as back-up to the other two transactions with LEG - as and when needed.
Next events:
- No, however well-timed, there will not be an investigation by Bafin into the recent purchase of shares by Gerda Caner. The deal had been announced and everyone was invited to do the same as Caner.
- We think the LEG transaction for Brack may not be immediate as the option runs until September 30th. But regardless of the specific timing, Adler should have enough liquidity from the first two transactions and the sale of Brack is highly likely to go through, given LEG have already taken the first 7% from Adler and have bought shares away.
- Both Adler and Aggregate are aiming to publish independent audit/legal reviews in Q1. Those - in theory - should drive value and Bafin, won’t make a move before - if ever.
- The sale of ADO to make Adler (Consus) almost debt-free.
Vonovia:
- We heard from a well connected German RE financier yesterday that he believes Vonovia will soon come and buy all of Adler. The thesis is strange to us as Adler is selling vast portfolios of what Vonovia are all about and the remainder Vonovia would receive is full of construction.
- Vonovia do however have a pledge on Aggregate’s 26.6% in Adler, even if the option only covers half of that.
- In light of that, Caner’s increase in holdings appears in a new light. Those holdings coupled with Aggregates incidentally match Consus’ proportion relative to all of Adler’s. Could the trick be to sell Adler and buy back a debt-free Consus?
Debt Free:
- ADO is worth €5bn. When sold, the proceeds combined with the €3.7bn in transactions being prepared now = €8.7bn assets sold vs. €7.8bn net Debt, there would be very little (if any) debt remaining on Adler/Consus’ balance sheet.
- With very little debt, Adler would be a debt-free Consus with nearly €3bn in assets:
€2.5bn in development property (after taking corrections)
€300m in receivables (after taking corrections)
- If ADO is sold, the share price would have to return to where it was in the summer. If Adler is sold and Consus is sold back to Aggregate / Caner, then… good for Adler shares anyway, good for Aggregate and Caner (and good for the Aggregate bonds).
- Cevdet Caner does not strike us as being particularly interested in Zero leverage. So the final deal is almost certain to look different. He may be looking for more control instead and he likes public listings.
Investment Rationale:
- For now we only hold a minor position in the Consus 22 converts for 2.5% of NAV. We also hold a 5% of NAV position in Aggregate, which holds 26.6% of Adler.
- We have been thinking about Adler equity as at least a less convoluted substitute for the Aggregate bonds and will keep that in mind as events unfold.
Please reach out to discuss,
Wolfgang