As the Ford government faced mounting public scrutiny this spring over its partnership with Therme Group to redevelop Ontario Place, the province insisted it had done its due diligence.
The coveted lease for the ɫɫ waterfront site included a 2022 financial test that required the Austrian spa company to have a net worth of at least $100 million, officials said.
“I’ll repeat it 10 times over,” Infrastructure Minister Kinga Surma said during question period in April. “They passed the financial test by an arm’s-length agency, world-renowned Infrastructure Ontario.”
Premier Doug Ford has said the spa company underwent a “thorough evaluation.”
But in 2018, before the company behind the Ontario Place spa cleared the $100-million threshold, it was in the red. What led to the sudden transformation of Therme Group RHTG’s net worth has reignited questions about the thoroughness of the Ontario government’s financial review.
Therme Group RHTG undertook a corporate restructuring in 2020, in which it revalued its shares in a yet-to-be-built spa in Germany. Therme used an accounting method that allowed it to count income it believes it will earn from the project in the future, its financial records show.
Therme said construction on its ɫɫ spa is expected to begin in early 2026, with the facility scheduled to open in 2029.
R.J. Johnston / ɫɫ StarThe revaluation added 106 million euros ($170 million) to its profits in 2020 — dwarfing the firm’s reported net worth of roughly 3 million euros ($5 million) in 2019, and the negative value it posted the year before that.
“If most of the value Therme Group RHTG has comes from the anticipated success of their future projects, then any partnership could be at serious risk from these other projects underachieving financially,” said Jan Mahrt-Smith, an associate professor of finance at the University of ɫɫ.
Though Therme said the Ontario government’s financial test was proposed during lease negotiations in 2020, the same year Therme revalued its shares in the German spa, the company said there’s no connection between the two events. The revaluation was done to enable the firm to raise funds for the planned German project, Therme said.
Therme said it is backed by an established shareholder, European engineering firm A-HEAT Allied Heat Exchange Technology, whose deep pockets mean it has “always met” the $100-million-net-worth test, including when the lease was signed in 2022. The province has also reviewed A-HEAT’s finances, Therme said. With A-HEAT’s unwavering support, Therme continues “to have assets that far surpass this level,” the firm said.
But the province said Infrastructure Ontario conducted the financial test solely on Therme Group RHTG’s 2020 financial statements, the latest available when the lease was signed in 2022. Officials also had access to Therme’s 2019 financial statements showing a much lower net worth, according to Ontario’s auditor general, but did not use them for the financial test.
This means the province gave Therme a passing grade mostly based on the expected earnings of the unbuilt German spa, which has been mired in delays and cost overruns.
“For all I know the government did its homework, but if these financial reports are the basis of their homework it would not be enough,” Mahrt-Smith said.
Tourism, Culture and Gaming Minister Stan Cho’s office, which oversees the redevelopment of Ontario Place, did not answer detailed questions from the Star.
“Following a thorough review process, an analysis of audited financial statements demonstrated that Therme met the financial net worth test required,” ministry spokesperson Denelle Balfour said in a statement.
The restructuring is included in financial statements Therme Group RHTG filed to a regulator in Austria. Four German-speaking academics — two experts in accounting and two in finance — confirmed the details of the revaluation on behalf of the Star.
Therme said the information reviewed by the experts was incomplete. The financial statements exclude income from its operating spas, the company said, adding that it has raised $2.5 billion in the last year from private investors who did their own due diligence.
Therme Group says its finances are solid, while Premier Doug Ford remains confident the project will be a huge success.
Therme Group says its finances are solid, while Premier Doug Ford remains confident the project will be a huge success.
“Asking third parties to analyze incomplete information and encouraging them to draw broad and misleading conclusions on the financial health of Therme Group’s enterprise is intentionally misleading and irresponsible,” Therme said.
The financial statements reviewed by the Star also showed that concerns over Therme Group RHTG’s financial stability have emerged in Austria since the company secured its lease at Ontario Place. In notes attached to Therme Group RHTG’s 2022 and 2023 financial reports, an auditor warned that the company has faced unresolved financing issues that made its future a “significant uncertainty,” a recent Star investigation showed.
Experts told the Star the auditor’s comments are a serious warning, though not a sign the company is facing imminent trouble.
Therme said the auditor’s remarks were a recognition of the “inherent risk of a development business,” but said it has no concerns about liquidity and has “unconditional” support from shareholders.
Worry about the Therme plan had surfaced within the Ford government as early as 2019, when officials questioned whether the spa plan might be “high risk,” the Star recently reported. Ontario’s auditor general reported that the province signed the lease with the firm despite internal concerns that, among other issues, its net worth appeared low.
Since the revaluation, Therme Group RHTG’s net worth has declined. As of 2023, the latest year for which financial statements are available, its value was 65 million euros ($103 million), down from a 2020 high of 102 million euros ($162 million).
Therme Group RHTG is a development corporation carrying out the group’s global expansion. Therme said rising expenditures are normal for a developer with projects at different stages.
When Therme Group RHTG revalued its shares in its spa development in Bad Vilbel, Germany, it was part of a larger restructuring of its holdings in the country.
“Therme purchased the Bad Vilbel project from another developer and subsequently reorganized its ownership to enable it to raise funding for the project, in line with market norms related to how projects of this nature are organized from a legal and fiscal standpoint,” the company said.
It’s normal for large companies to shuffle holdings around. The records viewed by the Star indicate Therme followed the rules and international best practices, engaging outside accountants to perform the revaluation and verify the assumptions of the model it used to calculate future income.
“The assumptions were based on comparable and existing thermal spa resorts,” according to a note about the restructuring in Therme’s 2023 financial statements, “and were deemed appropriate and realistic by PricewaterhouseCoopers Management Consultants SRL, Bucharest.”
The Bad Vilbel spa — the source of Therme’s higher net worth in 2020 — is still far from opening its doors and generating any income.
The project, which Therme bought from another developer, has seen its opening date repeatedly pushed back after hitting major roadblocks, including COVID-19 and the death of its planner. At the same time, its cost has doubled to 400 million euros ($650 million), according to media reports.
Therme said its work on Bad Vilbel “continues to evolve, the design has continued to evolve and we have agreed terms for external investment into the project.”
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