Calling of an Extraordinary Shareholders’ Meeting (sec. 122 para. 1 AktG)

Tresidor Europe Credit Limited as shareholder intends to demand the calling of an extraordinary shareholders’ meeting of Adler Real Estate AG (hereinafter also referred to as the "Company"). The shareholders meeting shall resolve to pursue the enforcement of damage claims against the majority shareholder and its legal representatives as well as current and former members of the management board of the Company in accordance with sec. 147 para. 1, 2 AktG. We invite other shareholders to join this demand.

Proposed Resolutions

We will demand to convene an extraordinary shareholders’ meeting of the Company with the following agenda items:

  1. The shareholders’ meeting resolves pursuant to sec. 147 para. 1 AktG to enforce claims by the Company against the majority shareholder ADLER Group S.A. (formerly ADO Properties S.A.) and its legal representatives as well as against the current and former members of the management board of the Company Mr. Maximilian Rienecker, Mr. Sven-Christian Franck and Mr. Tomas de Vargas Machuca arising from or in connection with the sale and transfer of the indirect shareholding of the Company in ADLER Group S.A. (held through ADO Group Ltd.) to Aggregate Holdings S.A. in July 2020 upon instruction by the majority shareholder, in particular claims under secs. 117, 317 para. 1, 3 AktG against the majority shareholder and its legal representatives and claims under sec. 93 para. 2 AktG against the current and former members of the management board of the Company.
  2. Dr. Daniel Lochner, Meilicke Hoffmann & Partner Rechtsanwälte Steuerberater mbB, Poppelsdorfer Allee 114, 53115 Bonn, is appointed as special representative under sec. 147 para. 2 AktG to enforce the claims described under 1. above. In case Dr. Lochner cannot accept the appointment or ceases to be special representative (e.g. through resignation, incapacity or death), Dr. Thomas Heidel, Meilicke Hoffmann & Partner Rechtsanwälte Steuerberater mbB, Poppelsdorfer Allee 114, 53115 Bonn, is appointed as a replacement. The special representative may at his discretion engage support persons as required for the fulfilment of his duties and may obtain external advice e.g. relating to legal and commercial/technical matters, including advice from persons with relevant know-how regarding the Company and its business. The Company through its management board shall grant the special representative access to all information relevant for the fulfilment of his duties, in particular access to the Company’s files and employees.

Background

The resolutions as proposed shall enable the enforcement of claims against the majority shareholder, its legal representatives and members of the management board of the Company arising from the following related-party transaction, which was materially disadvantageous for the Company and its minority shareholders:

  • The Company announced in September 2019 that it had entered into binding agreements to acquire the Israeli listed company ADO Group Ltd. for a purchase price of EUR 708.4m 1. The Company presented the transaction as a strategic acquisition. The sole asset of ADO Group Ltd. was a stake of 33.25% 2 (approx. 14,694,000 shares) in ADO Properties S.A. (now ADLER Group S.A.). According to information provided by the Company at the time, the purchase price represented a 15% discount 3 to the EPRA net asset value (NAV). The purchase was intended to be financed through a capital increase of EUR 275m 4, the sale of non-profitable assets and financial debt.

  • The purchase closed in December 2019, resulting in a temporary controlling interest of the Company in ADO Properties S.A. The closing triggered the early repayment of notes issued by ADO Group Ltd., which resulted in additional acquisition costs of approx. EUR 330m 5. Including the repayment of the notes, the total consideration paid corresponded to EUR 76.17 per share in ADO Properties S.A. (hereinafter "ADO Share"), representing a premium of more than 120% to the closing stock exchange price prior to the announcement of the transaction in September 2019 6.

  • Subsequently, in December 2019, ADO Properties S.A. announced a public exchange offer for the shares in the Company, which led to the acquisition of more than 90% of the shares in the Company by ADO Properties S.A. In this context, ADO Properties S.A. and Aggregate Holdings S.A. entered into a certain Call/Put Option Agreement regarding a business combination of the Company with ADO Properties S.A. and Consus Real Estate AG (a subsidiary of Aggregate Holdings S.A.).

  • In April 2020, the existing bridge financing for the acquisition of ADO Group Ltd. was replaced by two shareholder loans from ADO Properties S.A. in an aggregate amount of EUR 1.119bn 7, including refinancing costs of approx. EUR 3.1m 8 payable by the Company to ADO Properties S.A. and further costs associated with the transaction.

  • On 2 July 2020, the Company announced pursuant to sec. 111c AktG that the 14,692,889 ADO Shares held by ADO Group Ltd. would be transferred to Aggregate Holdings S.A. upon instruction by the majority shareholder ADO Properties S.A. (now ADLER Group S.A.) to fulfil an obligation of ADO Properties S.A. under the Call/Put Option Agreement. The agreed consideration was determined in accordance with the stock price of ADO Shares on the respective date and amounted to EUR 355.3m 9 (i.e. approx. EUR 24.18 per ADO Share). The consideration was not paid in cash, but by way of an offset against the shareholder loan.

  • Overall, the transaction resulted in a loss of more than 68% on the purchase price paid for the ADO Shares within less than a year and left the Company with EUR 765m remaining debt in the form of shareholder loans, but without the asset which was originally acquired. The majority shareholder then intended to convert EUR 500m of the remaining shareholder loans into equity to dilute the minority shareholders and to enable a posible squeeze-out.

  1. Adler Real Estate AG 2019 Annual Report, page 99
  2. Adler Real Estate AG 2019 Annual Report, page 99
  3. Adler Real Estate AG Presentation 23. September 2019, page 3
  4. Adler Real Estate AG Presentation 30. September 2019, page 3
  5. Adler Real Estate AG 2019 Annual Report, page 153
  6. Closing exchange price of EUR 34.382
  7. Adler Real Estate AG Interim Report H1 2020, page 62
  8. Adler Real Estate AG Interim Report H1 2020, page 62
  9. Adler Real Estate AG Interim Report H1 2020, page 35

These facts, which are all documented in reports, press releases and other publications issued by the Company, clearly establish a detrimental related-party transaction. Upon instruction by the majority shareholder ADLER Group S.A., the Company transferred a material strategic asset (the stake in ADLER Group S.A.) to Aggregate Holdings S.A. The consideration was set at the stock market price, which did not reflect the intrinsic value of the ADO Shares at the time of the transfer (which was reported as an EPRA-NRV of EUR 75.32 per ADO Share as of 30 June 2020, equivalent to EUR 1.107bn for the entire stake). In fact, the Company itself had paid a premium of more than 120% – taking into account the purchase price and related costs and expenses, including the repayment of the notes – upon acquisition of the ADO Shares in December 2019, i.e. only seven months prior to the transfer to Aggregate Holdings S.A. There is no discernible strategic or business rationale to this transaction, which left the Company with a loss (and outstanding acquisition-related debt) of approx. EUR 765m.

Under German stock corporation law, in the absence of a domination agreement, a dominating shareholder has to compensate a dependent company for any commercial disadvantage caused to a stock corporation through a transaction entered into upon instruction by the majority shareholder until the end of the business year (sec. 317 para. 1 AktG). Despite several announcements, no domination agreement has yet been concluded between ADLER Group S.A. and the Company.

Accordingly, if there is no compensation by year-end 2020, the Company will have a damage claim under sec. 317 para. 1 AktG against the dominating shareholder (ADLER Group S.A.) and its legal representatives as well as a damage claim for breach of fiduciary duties against the Company’s board members which agreed to or participated in the transaction. As laid out above, the amount of such claims is potentially up to EUR 765m. Unless the Company decides to pursue such claims itself, it will be necessary to appoint a special representative to enforce the claims for the Company and thereby protect the legitimate interests of the Company and its minority shareholders.

We note that the Company has announced several times that the majority shareholder intends to conclude a domination agreement or effect a squeeze-out. Until such a measure is completed, however, the Company needs to be run as a fully independent entity. Regarding in particular the current dual role of Mr. Maximilian Rienecker as CEO of the Company and Co-CEO of ADLER Group S.A., the supervisory board of the Company will need to ensure that any upcoming conflicts of interest are resolved in the best interest of the Company.

No further detrimental transactions must be undertaken upon instruction by the majority shareholder, unless there is full compensation. Any future transactions will need to be carefully scrutinized and we reserve all rights to add further claims with respect to other transactions to our proposed resolutions.

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