KarstadtQuelle, the ailing German retailer, will be forced to make provisions of about €100m ($132m) for anticipated losses from the rental of outsourced real estate assets. KarstadtQuelle sold the real estate assets - still under construction - to Oppenheim Esch, the real estate company, while Wolfgang Urban was chairman of the supervisory board.
The fund provided financial backing for the construction of shopping centres and the extension of Karstadt warehouses in Potsdam, Leipzig, Munich, Wiesbaden and Karlsruhe. In return, KarstadtQuelle is obliged to rehire or sublet the sold properties over the next 20 years.
In the prospectus for last week´s €535m capital increase, KarstadtQuelle warned that 'although the project had not been finished yet, it was foreseeable that the risks resulting from the long-term rental obligations will not be negligible'. KarstadtQuelle said it saw difficulties in hiring out or subletting the properties to a third party under the conditions of the contract with Oppenheim-Esch. As a result, the company is expected to 'make provisions for anticipated losses of around €100m' in the year to December 31 2004, according to the prospectus. 'We cannot rule out the possibility that the actual losses from these projects will be higher than this figure,' the prospectus said. The legal position of the contracts is being reviewed. Thomas Middelhoff, chairman of the group´s supervisory board, and his wife have a stake in four of the five real estate funds that make up the outsourcing deal.
Source: The Financial Times