Aareal Bank AG

Investor Presentation • Jan 1, 2020

Roadshow Presentation – Our plans beyond Aareal 2020 –

January 2020

• Result 2019 / De-risking
• Current environment
• Aareal 2020: Promised and delivered
• Aareal Next Level: Activate! Elevate! Accelerate!

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Our priorities for Q4 2019 and what we have achieved – confirming FY 2019 operating profit guidance

Recap from the Q3 2019 result presentation:

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	Confirming operating profit (EBT) guidance
	for 2019 of ≥ EUR 240m 
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40% NPL reduction achieved since 30.6.2019, supported by successful execution of accelerated de-risking program in Q4 2019

Accelerated de-risking

• Program with focus on Italian portfolio, continued in Q4 with Italian credit risk further down by approx. EUR 0.6bn (thereof EUR 0.3bn NPL, EUR 0.3bn single borrower risk)
• Total effect from accelerated de-risking of approx. EUR 1.2bn* Italian credit risk in 2019
• P&L burden 2019 of approx. EUR 50m (EUR ~15m in Q4)

• In H2 2019 total NPL volume down by approx. 40%
• Italian NPL also down by approx. 40% in 2019 (includes a foreclosed Italian asset of approx. EUR 90m taken on own book for future development, not part of acc. de-risking)

* thereof EUR 350m NPL (in FY 2019, of which EUR 310 in H2 2019), EUR 350m single borrower risk, EUR 410m BTPs, EUR 80m NPL provisioned for future reduction

3

• Result 2019 / De-risking
• Current environment
• Aareal 2020: Promised and delivered
• Aareal Next Level: Activate! Elevate! Accelerate!

Environment: New uncertainties, continued low interest rates and increasing volatility

	Outlook 2018 (February 2018)	Outlook 2019 (February 2019)	Current environment (January 2020)
GDP dynamics		Slowdown of growth in key regions	Continued slowdown of growth in key regions
Interest rates		Rather stable interest rate environment	Lower for longer interest rate environment
Funding costs		Secondary trading on higher credit spreads	Credit spread tightening on secondary trading
Brexit	"One year ahead"	? "Hard Brexit" as relevant option	? "Brexit", what does that mean
Italy		? High political and fiscal uncertainty	? High political and fiscal uncertainty
Regulatory requirements (Aareal Bank)	Basel IV anticipated	TRIM, NPL guidelines anticipated	ICAAP to become new constraint for European ? banks EBA guideline on internal models
Catch up of the European real estate industry compared to the US to be continued Tech-/Software Still pockets of share of wallet growth by penetration and process optimization Sector Valuations on record highs (growth dynamic and low interest rate environment as drivers)

Economic ICAAP the next focus on the regulatory agenda – our reading and take away

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Economic ICAAP on SSM priority list 2020

• Ongoing discussions regarding interpretation of requirements
• Different methods currently used throughout Europe to estimate future volatility (scenario based vs. VAR models)
• ICAAP Guidelines published end of 2018 are very conservative regarding holding period and confidential interval
• ECB aims for future harmonization (equal to TRIM?) and potential tightening

AT1 with normative triggers will no longer be eligible under Economic ICAAP: 2

Regulatory capital ratios: Future treatment appears to be more generous, although decisions will be taken on a case by case basis

• P2R could be partly covered by AT1 (and/or T2)

Economic ICAAP: Future requirements will be tightened

• AT1 with normative triggers not accountable any more (see ECB feedback statement; question 208)
• Interim grandfathering of existing AT1 (issued, cut off date?) not decided yet, but unlikely from our point of view
• − AT1 in the economic ICAAP, currently and presumably in future no alternative instruments (beside CET1) available to fulfil ECB requirements (economic triggers instead of normative)
• − Economic ICAAP to become the new capital constraint for European banks?

* Different risk categories regarding regulatory capital ratios and economic ICAAP

Note: All 2019 figures preliminary and unaudited

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• Result 2019 / De-risking
• Current environment
• Aareal 2020: Promised and delivered
• Aareal Next Level: Activate! Elevate! Accelerate!

Promised. Delivered. What we have achieved so far with "Aareal 2020" (1/2)

Adjust: Setup optimised	− Sustained cost reduction achieved; Bank cost structure significantly down from around EUR 360m (excl. WestImmo integration costs) in 2016 to around EUR 320m in 2019 − Structures and processes successfully streamlined, IT transformation in plan; reached major milestone with S/4 Hana implementation in 2019 − Funding structure optimised (with housing deposits permanently above EUR 10bn) − Capital ratios well above Basel III and IV requirements
Advance SPF: Business protected in adverse environment	− Increased flexibility by adding further countries, products and asset classes − Extended placement and syndication capabilities − Expansion along the value chain continued, e.g. servicing with Mount Street
Advance C/S: Good starting position to grow	− Accelerate Aareon (see next page) − Development of business with adjacent sectors (e.g. utilities) started − Technical Base for growing fee business of C/S Bank (Aareal Portal) implemented
Achieve: All major financial goals achieved	− Loan portfolio within target range − Aareon's annual operational EBIT targets achieved – additional growth investments started in 2019 − RoE close to target within the period of "Aareal 2020" − Attractive dividend policy* implemented, despite further regulatory burdens − Successful management of regulatory changes; however some elements of the ICAAP guidelines came as a surprise → effect on optimal capital structure to be further assessed

"Aareal 2020" successfully implemented

8 *Base dividend payout ratio of 50% plus supplementary dividend of 20-30% Note: All 2019 figures preliminary and unaudited

Promised. Delivered. What we have achieved so far with "Aareal 2020" (2/2)

Spotlight Aareon

Key points to consider

• − Digitisation of European industry and real estate industry has been lagging behind the US
• − Stable cashflow-model established as a base for funding further growth. At the same time second fast growing pillar digital solutions developed, started and ramped up for future growth
• − Foundation for future success created within "Aareal 2020":
  • • − Prepared the housing industry for digital transformation, by updating the ERP system for most of the German customers (~1,200) from GES (classical mainframe-system) to a new digital-ready system (Wodis Sigma); achieved with only 3% churn within five years
    • − Increase ERP customer base to become # 1 in Europe; revenue CAGR of 4% between 2016 and 2018
  • − Developed the digital roadmap and deliver digital solutions; revenue CAGR target of >20% already achieved (9M 2019) and planned to remain at this level (Revenue FY 2018: EUR 42m)
  • − We kicked-off Phase 3 of the Aareon plan presented at our Investor Seminar in May 2019 with the clear goal to double EBITDA mid term

− Positive cash conversion rate allows self-funded organic as well as inorganic growth

− Management has created value and laid the foundation for future optionality in the group

• Result 2019 / De-risking
• Current environment
• Aareal 2020: Promised and delivered
• Aareal Next Level: Activate! Elevate! Accelerate!

Aareal Next Level: What our plans are beyond Aareal 2020

Structured Property Financing ACTIVATE! How we want to further develop our SPF business

Consulting / Services Pillars for achieving mid-term success

Roadmap for the mid-term …. clear positioning for each division and develop Aareon as an integral part of our strategy from a subsidiary within a strong group to a software company in the European real estate industry with a strong independent value proposition

Current situation

C/S Bank for the housing industry and Aareon are

Note: All 2019 figures preliminary and unaudited

Consulting / Services – Housing and adjacent industries ELEVATE! How we are going to unlock our potential

Consulting / Services – Aareon ACCELERATE! How we are going to achieve our objectives

Current positioning		Roadmap for the next years
		− industry	with a strong independent value proposition	In addition to the organic growth program we are now looking into the next level to build up the platform business in the real estate industry; develop Aareon as an integral part of the group from a subsidiary within a strong group to a software company in the European real estate
	#1 ERP provider for the			Mainly self-funded
	European real estate industry	# of Units C	A D	RPU driven: Execute organic growth cases (e.g. predictive maintenance and virtual assistant as first success stories)
	Digitization enabler for the European real estate industry	M&A Growth Dimensions		Mainly through M&A
			B	RPU driven: Leverage existing customers with expanded product offering
		New Status A Growth Quo Cases	B C Revenue per Unit	Unit driven: Target newly identified customers beyond professional housing companies with existing product set
			(RPU) D	Expand along both dimensions (new customers and new products in the adjacent areas)

Summary: What our plans beyond Aareal 2020 are

By doing so create value for Aareal and hence our shareholders…