Aareal Bank AG

Investor Presentation • Nov 12, 2019

Analyst Conference Call Q3 2019 results

November 12, 2019 Hermann J. Merkens, CEO - Marc Hess, CFO

Agenda

• Highlights
• Segment performance
• Group results Q3 2019
• Capital, Funding & B/S structure
• Asset quality
• Outlook 2019
• Appendix

Highlights

Highlights

• More countries are entering the triangle of long lasting political uncertainties, weaker economic outlook and economic transformational effects (digitization, e-theme ….)
• Credit liquidity still strong but markets sometimes in a on/off mode
• A decade of regulatory changes to be continued
• Solid results despite challenging environment (Q3: € 64 mn vs. Q2: € 61 mn)
  • Strong capital position even in the light of a short term increased portfolio

RSF:

• Strong new business, YtD margin above target
• As announced, accelerated de-risking initiative started, not included in original guidance

C/S:

• Hedge to our CREF business well on track
• Composition of deposits optimized acc. "Aareal 2020"
• Aareon sales revenue continuously significant above previous year's levels
• First investments in "extended growth"

Aareal Bank Group has once again been awarded a 'Prime Status' rating from renowned sustainability rating agency ISS-ESG

Segment performance

Structured Property Financing

Strong new business with focus on Europe, YtD margins above target

1) incl. private client business (09/19: € 0.5 bn) and WIB's public sector loans (09/19: € 0.4 bn)

Structured Property Financing Strong origination

Highlights

Strong new business origination and off-balance volume demonstrate leading role as underwriter and arranger in CRE lending markets

Robust margins supported by flexible allocation of newly acquired business (9M: 14 countries, different property types, Ø LTV < 60%)

• Meaningful NPL reduction (by ~20% from € 1.9 bn down to € 1.5 bn) within original guidance already achieved
• As announced, accelerated de-risking initiative started, LLP effect: 9M: ~€ 30 mn (Q3: ~€ 20 mn), not included in original guidance

Stable NII despite active de-risking, an adverse interest rate environment as well as margin pressure

Consulting / Services

Aareon: Sales revenue continuously significant above previous year's levels, first investments in "extended growth"

P&L C/S Segment	Q3 '18	Q4 '18	Q1 '19	Q2 '19	Q3 '19
€ mn
Net interest income	-3	-3	-3	-4	-4
▪ Thereof Aareon	0	0	0	0	-1
Loss allowance	0	-1	0	0	0
▪ Thereof Aareon	0	-1	0	0	0
Net commission income	51	62	52	57	54
▪ Thereof Aareon	47	57	49	52	49
− Sales revenue	56	69	59	63	60
− Material costs	9	12	10	11	11
Admin expenses	56	61	58	61	61
▪ Thereof Aareon	41	43	41	44	42
Net other op. income	1	2	0	0	1
▪ Thereof Aareon	1	0	0	1	1
Operating profit	-7	1	-9	-8	-10
▪ Thereof Aareon	7	15	8	9	7

▪ Aareon

• Q3 sales revenue +7% to € 60 mn (Q3 '18: € 56 mn)
• Stronger sales revenue resulting from growth in all product lines, digital +21% (9M)
• As announcement during the Aareon Investor Seminar1) in May 2019 first investments (€ 1 mn) in "extended growth" started
• Housing industry deposits remain on high level (Ø Q3 2019: € 10.6 bn)

1) https://www.aareal-bank.com/fileadmin/downloadlist/DAM\_Content/IR/Praesentationen/2019/aareon-investment-seminar-20192805.pdf

Consulting / Services Dynamic business development

	Highlights
g n ki s s a e sit t n si		▪ Aareal 2020 target to achieve a better composition of deposits fulfilled. Increased share of sustainable deposits (high ASF factor) to be invested in CREF business supporting Group NII / partly offsetting lower-for-longer ➢ Accordingly internal pricing model and use of deposit base to be adjusted with substantial effects on segment results from 2020 onwards
o u p b e D		▪ Successfully entered a new market (Austria): First transaction banking customers / tenant deposits
		▪ Ongoing positive development as integral part of Aareal Bank Group ▪ Key growth driver of the Group with excellent growth perspectives as announced in May 2019 ▪ Both, Aareal and Aareon strongly benefiting from high interdependencies and high customer overlap, especially in Germany
n o e ar A		▪ Strong 9M revenue growth (8%) in line with mid-term targets (ERP: 5%, Digital: 21%) ▪ Increased EBIT (9M/19: € 24 mn1) vs. 9M/18: € 21mn) incl. first investments in "extended growth"
1)		▪ Increased customer penetration in CRM - revenue more than doubled compared previous year ▪ New product launched: Aareon Smart Platform ▪ Successfully entered new markets (Switzerland / Austria): ERP system going live with large property manager Excl. IFRS 16 effect

Group results Q3 2019

Group results Q3 2019 Solid results in the light of the challenging environment

€ mn	Q3 '18	Q4 '18	Q1 '19	Q2 '19	Q3 '19	Q3-comments
Net interest income	131	135	135	134	134	Stable NII despite active de-risking and adverse interest rate environment
Derecognition result	5	8	16	11	15	Incl. € 10 mn from further TR portfolio adjustments
Loss allowance	14	39	5	23	27	Incl. effects from accelerated de-risking (~€ 20 mn)
Net commission income	51	63	53	57	54	Continuously significant above previous year's levels
FV- / hedge-result	1	-1	6	-7	2
Admin expenses	107	118	144	112	114	Stable development
Negative goodwill		55
Others	3	14	0	1	0
Operating profit	70	117	61	61	64
Income taxes	24	22	21	20	24	Based on 35% FY-tax ratio
Minorities / AT1	5	4	5	4	5
Consolidated net income allocated to ord. shareholders	41	91	35	37	35
Earnings per share [€]	0.70	1.51	0.59	0.61	0.60

Net interest income (NII) / Derecognition result (DR)

Stable NII despite active de-risking and adverse interest rate environment

Net interest income Derecognition result

• Newly acquired business: Pre-FX margins of ~170 bps in Q3 / ~195 bps in 9M, optimistic to outperform FY-target of 180-190 bps
• Q3 DR incl.
  • € 10 mn from further TR portfolio adjustments (9M: € 23 mn)
  • € 5 mn from early CRE-repayments (9M: € 19 mn)

Loss allowance (LLP) Includes effects from accelerated de-risking

• Meaningful NPL reduction (by ~20% from € 1.9 bn down to € 1.5 bn) within original guidance already achieved
• ➢ Further NPL reduction to be expected in Q4/2019
• Accelerated de-risking initiative started:
  • Focus on Italian portfolio
  • Accelerated reduction of selected, individual NPLs
  • Moving away from pure "collateral collection"
  • Reduction of larger single borrower risks
  • Adjustment of Italian Government bond portfolio (completed, effects on DR and NII)
  • ➢ 9M figures incl. LLP additions of ~ € 30 mn for accelerated de-risking (Q3: ~ € 20 mn)
  • ➢ Adjusted range for LLPs of € 80 mn € 110 mn accordingly
  • ➢ Additional P&L effects can not be excluded, depending on opportunities for further accelerated derisking

Net commission income

Continuously significant above previous year's levels

Aareon

• Q3 generally seasonally weaker
• Q3 sales revenue +7% to € 60 mn (Q3 '18: € 56 mn)
• Stronger sales revenue resulting from growth in all product lines, digital +21% (9M)
• Q4 regularly includes positive seasonal effects

Admin expenses Stable development

9M of € 370 mn includes

• € 21 mn for the European bank levy and ESF
• € 12 mn transformation costs (FY 2019 plan: € 18 mn)
• € 11 mn costs from DHB integration (incl. European bank levy and ESF)
• € 5 mn reversals of provisions
• € 5 mn Aareon growth thereof € 1 mn investments in "extended growth"

Capital, Funding & B/S structure

Capital

Solid capital ratios already incl. TRIM effects & prudential provisioning… but a decade of regulatory changes to be continued

• B3 capital ratios significantly above SREP requirements
• Fulfilling B4 from day 1
• RWA increased due to temporarily higher REF portfolio
• Portfolio quality improvements in B3 RWA not reflected in B4 accordingly due to "standard approach"
• CET1 burdened by increased pension liabilities ("lower-for-longer" effects)
• T1-Leverage ratio: 6.0%
• Capital ratios incl. TRIM effects & prudential provisioning2) since 12/18
• Remaining regulatory uncertainties (models, ICAAP, ILAAP, B4 etc.): modelled RWA's may further inflate

1) Underlying RWA estimate, given a 72.5 % output floor based on the final Basel Committee framework dated 7 December 2017, calculation subject to outstanding EU implementation as well as the implementation of further regulatory requirements

2) When calculating own funds as at 30 Sep. 2019, interim profits were taken into account, deducting the pro-rata dividend in line with the dividend policy, and incorporating the pro-rata accrual of net interest payable on the AT1 bond. Moreover, the expected relevant impact of the TRIM exercise on commercial property financings, and of the SREP recommendations concerning the NPL inventory as well as the ECB's NPL guidelines for exposures newly classified as NPLs, were taken into account for determining regulatory indicators.

16

Funding Diversified funding position

• Sustainable and strong deposit base counts for more than 40% of the well diversified funding mix
• Refinancing needs for 2019 already fulfilled
  • Taking advantage of very good market conditions for fixed income securities
  • Anticipating Brexit-related market uncertainties
• Successful issuances of EUR 2.9 bn incl. one USD Pfandbrief of USD 600 mn
• MREL significantly over fulfilled
• NSFR/ LCR well above 100% due to comfortable liquidity position

B/S structure according to IFRS As at 30.09.2019: € 43.2 bn (31.12.2018: € 42.7 bn)

• TR portfolio
  • Adjustments after acquisition of DHB
  • De-risking of Italian Government bonds successfully concluded

• Burden from lower-for-longer clearly overcompensates effects from ECB-tiering

• 1) CREF-portfolio only, private client business (€ 0.5 bn) and WIB's public sector loans (€ 0.4 bn) not included

• 2) Other assets includes € 0.5 bn private client portfolio and WIB's € 0.4 bn public sector loans

Asset quality

Commercial real estate finance portfolio (CREF) € 27.1 bn highly diversified and sound

1) Incl. Student housing (UK & Australia only)

Commercial real estate finance portfolio (CREF) Portfolio details by country

Defaulted exposure Significant reduction of NPL portfolio

Defaulted exposure / Total CREF portfolio

Defaulted exposure

Defaulted exposure by country Q3 2019 (vs. Q4 2018)

▪ Meaningful NPL reduction (by ~20% from € 1.9 bn down to € 1.5 bn) within original guidance already achieved

➢ Further NPL reduction to be expected in Q4/2019

Spotlight: Italian CREF portfolio € 2.7 bn (~10% of total CREF-portfolio)

Spotlight: UK CREF portfolio € 3.9 bn (~14% of total CREF-portfolio)

Comments (vs. Q4 2018)

• Cap-rates already reacted on subdued economic outlook. Entire portfolio revalued on that basis in 2019
• Performing:
  • Investment finance only, no developments
  • ~ 60% of total portfolio in Greater London area, emphasising on hotels
  • € 161 mn with LTV > 60%
  • Theoretical stress on property values (-20%): would lead to portfolio LTV of approx. 74%
• Defaulted exposure: € 231 mn (€ 0 mn)

Treasury portfolio € 7.8 bn of high quality and highly liquid assets

As at 30.09.2019 – all figures are nominal amounts 1) Composite Rating

• BBB de-risking fulfilled: i.a. significant reduction of Italian Government bonds portfolio by ~40% successfully concluded
• Reinvestments in highly liquid AAA / AA

Outlook 2019

Outlook 2019 Our priorities for the upcoming months

Highlights

Finalising our Group-wide strategic review process, further developing our strategy beyond our successfully implemented and value creating program "Aareal 2020"

Execute on our growth strategy for Aareon as outlined in May 2019, including selectively assessing potential M&A opportunities

Internal pricing model and use of deposit base to be adjusted with substantial effects on segment results from 2020 onwards

CREF: Execute planned origination and syndications

➢ Further NPL reduction to be expected in Q4/2019

➢ Opportunities for further accelerated de-risking will be assessed if they emerge, additional burdens cannot be excluded

Outlook 2019

	Original	Adjustments / Comments
Net interest income	€ 530 mn - € 560 mn	Unchanged despite additional burden from lower-for-longer and de-risking (- € 10 mn)
Derecognition result	€ 20 mn - € 40 mn	+ ~€ 20 mn to € 40 mn - € 60 mn
Allowance for credit losses1)	€ 50 mn - € 80 mn	+ ~€ 30 mn to € 80 mn - € 110 mn due to accelerated de-risking initiative
Net commission income	€ 225 mn - € 245 mn
Admin expenses	€ 470 mn - € 510 mn
Operating profit	€ 240 mn - € 280 mn	Lower end of given range expected
Pre-tax RoE	8.5% - 10%	Lower end of given range expected
EpS	~ € 2.40 - € 2.80	Lower end of given range expected
Target portfolio size	€ 26 bn - € 28 bn
New business origination2)	€ 7 bn - € 8 bn	Upper end of given range expected

2) Incl. renewals

3) After segment adjustments

¹⁾ As in 2018, the bank cannot rule out additional allowances for credit losses

Conclusion Robust business, powerfully positioned, creating value

Key takeaways

Aareal Bank Gruppe competes successfully in an ambitious market environment; operating profit is expected to meet communicated range, despite earnings-burdening low interest rate environment and accelerated de-risking

Powerfully positioned:

Aareal Bank Group benefits from unique structure of two prosperous business segments, of which Aareon is an integral part and a key growth driver

Creating value:

Aareal Bank Group uses all economically reasonable means to continuously create value for shareholders and all other stakeholders – based on the Group's successful strategy

Appendix Group results

Aareal Bank Group Results Q3 2019

	01.07.- 30.09.2019	01.07.- 30.09.2018	Change
	€ mn	€ mn
Profit and loss account
Net interest income	134	131	2%
Loss allowance	27	14	93%
Net commission income	54	51	6%
Net derecognition gain or loss	15	5	200%
Net gain or loss from financial instruments (fvpl)	5	0
Net gain or loss on hedge accounting	-3	1	-400%
Net gain or loss from investments accounted for using the equity method	0	-
Administrative expenses	114	107	7%
Net other operating income / expenses	0	3	-100%
Negative goodwill from acquisitions	-	-
Operating Profit	64	70	-9%
Income taxes	24	24	0%
Consolidated net income	40	46	-13%
Consolidated net income attributable to non-controlling interests	1	1
Consolidated net income attributable to shareholders of Aareal Bank AG	39	45	-13%
Earnings per share (EpS)
Consolidated net income attributable to shareholders of Aareal Bank AG1)	39	45	-13%
of which: allocated to ordinary shareholders	35	41	-15%
of which: allocated to AT1 investors	4	4
Earnings per ordinary share (in €)2)	0.60	0.70	-14%
Earnings per ordinary AT1 unit (in €)3)	0.04	0.04

1) The allocation of earnings is based on the assumption that net interest payable on the AT1 bond is recognised on an accrual basis.

• 2) Earnings per ordinary share are determined by dividing the earnings allocated to ordinary shareholders of Aareal Bank AG by the weighted average of ordinary shares outstanding during the financial year (59,857,221 shares). Basic earnings per ordinary share correspond to diluted earnings per ordinary share.
• 3) Earnings per AT1 unit (based on 100,000,000 AT1 units with a notional amount of 3 € each) are determined by dividing the earnings allocated to AT1 investors by the weighted average of AT1 units outstanding during the financial year. Earnings per AT1 unit (basic) correspond to (diluted) earnings per AT1 unit.

Aareal Bank Group Results Q3 2019 by segments

	Structured Property Financing		Consulting / Services		Consolidation/ Reconciliation		Aareal Bank Group
	01.07.- 30.09. 2019	01.07- 30.09. 2018	01.07.- 30.09. 2019	01.07- 30.09. 2018	01.07.- 30.09. 2019	01.07- 30.09. 2018	01.07.- 30.09. 2019	01.07- 30.09. 2018
€ mn
Net interest income1)	138	134	-4	-3	0	0	134	131
Loss allowance	27	14	0	0			27	14
Net commission income1)	2	2	54	51	-2	-2	54	51
Net derecognition gain or loss	15	5					15	5
Net gain or loss from financial instruments (fvpl)	5	0					5	0
Net gain or loss on hedge accounting	-3	1					-3	1
Net gain or loss from investments			0				0
accounted for using the equity method
Administrative expenses	55	53	61	56	-2	-2	114	107
Net other operating income / expenses	-1	2	1	1	0	0	0	3
Negative goodwill from acquisitions
Operating profit	74	77	-10	-7	0	0	64	70
Income taxes	27	27	-3	-3			24	24
Consolidated net income	47	50	-7	-4	0	0	40	46
Allocation of results
Cons. net income attributable to non-controlling interests	0	0	1	1			1	1
Cons. net income attributable to shareholders of Aareal Bank AG	47	50	-8	-5	0	0	39	45

1) As of this reporting year, interest on deposits from the housing industry is shown under the net interest income of the Consulting/Services segment (previously included in net commission income).

The previous year's figures were adjusted accordingly

Aareal Bank Group Results 9M 2019 Aareal Bank Group Results 9M 2019

	01.01.- 30.09.2019	01.01.- 30.09.2018	Change
	€ mn	€ mn
Profit and loss account
Net interest income	403	400	1%
Loss allowance	55	33	67%
Net commission income	164	152	8%
Net derecognition gain or loss	42	16	163%
Net gain or loss from financial instruments (fvpl)	5	-1	-600%
Net gain or loss on hedge accounting	-4	-2	100%
Net gain or loss from investments accounted for using the equity method	0	-
Administrative expenses	370	344	8%
Net other operating income / expenses	1	11	-91%
Negative goodwill from acquisitions	-	-
Operating Profit	186	199	-7%
Income taxes	65	68	-4%
Consolidated net income	121	131	-8%
Consolidated net income attributable to non-controlling interests	2	2
Consolidated net income attributable to shareholders of Aareal Bank AG	119	129	-8%
Earnings per share (EpS)
Consolidated net income attributable to shareholders of Aareal Bank AG1)	119	129	-8%
of which: allocated to ordinary shareholders	107	117	-9%
of which: allocated to AT1 investors	12	12
Earnings per ordinary share (in €)2)	1.80	1.97	-9%
Earnings per ordinary AT1 unit (in €)3)	0.12	0.12

1) The allocation of earnings is based on the assumption that net interest payable on the AT1 bond is recognised on an accrual basis. 1)The allocation of earnings is based on the assumption that net interest payable on the AT1 bond is recognised on an accrual basis.2) Earnings per ordinary share are determined by dividing the earnings allocated to ordinary shareholders of Aareal Bank AG by the

• 2) Earnings per ordinary share are determined by dividing the earnings allocated to ordinary shareholders of Aareal Bank AG by the weighted average of ordinary shares outstanding during the financial year (59,857,221 shares). Basic earnings per ordinary share correspond to diluted earnings per ordinary share. weighted average of ordinary shares outstanding during the financial year (59,857,221 shares). Basic earnings per ordinary share correspond to diluted earnings per ordinary share.
• 3) Earnings per AT1 unit (based on 100,000,000 AT1 units with a notional amount of 3 € each) are determined by dividing the earnings allocated to AT1 investors by the weighted average of AT1 units outstanding during the financial year. Earnings per AT1 unit (basic) correspond to (diluted) earnings per AT1 unit. allocated to AT1 investors by the weighted average of AT1 units outstanding during the financial year. Earnings per AT1 unit (basic) correspond to (diluted) earnings per AT1 unit.

Aareal Bank Group Results 9M 2019 by segments

	Financing	Structured Property		Consulting / Services	Consolidation/ Reconciliation		Aareal Bank Group
	01.01.- 30.09.	01.01- 30.09.		01.01.- 01.01- 30.09. 30.09.		01.01- 30.09.	01.01.- 30.09.	01.01- 30.09.
	2019	2018	2019	2018	30.09. 2019	2018	2019	2018
€ mn
Net interest income1)	414	409	-11	-9	0	0	403	400
Loss allowance	55	33	0	0			55	33
Net commission income1)	6	6	163	150	-5	-4	164	152
Net derecognition gain or loss	42	16					42	16
Net gain or loss from financial instruments (fvpl)		-1					5	-1
Net gain or loss on hedge accounting		-2					-4	-2
Net gain or loss from investments			0				0
accounted for using the equity method
Administrative expenses	195	182	180	166	-5	-4	370	344
Net other operating income / expenses	0	9	1	2	0	0	1	11
Negative goodwill from acquisitions
Operating profit	213	222	-27	-23	0	0	186	199
Income taxes	74	77	-9	-9			65	68
Consolidated net income	139	145	-18	-14	0	0	121	131
Allocation of results
Cons. net income attributable to non-controlling interests	0	0	2	2			2	2
Cons. net income attributable to shareholders of Aareal Bank AG	139	145	-20	-16	0	0	119	129

1) As of this reporting year, interest on deposits from the housing industry is shown under the net interest income of the Consulting/Services segment (previously included in net commission income).

The previous year's figures were adjusted accordingly

Aareal Bank Group Results – quarter by quarter

		Structured Property	Financing			Consulting / Services				Consolidation / Reconciliation				Aareal Bank Group
	Q3	Q2 2019	Q1	Q4 2018	Q3	Q3	Q2 2019	Q1	Q4 2018	Q3	Q3	Q2 2019	Q1	Q4 2018	Q3	Q3	Q2 2019	Q1	Q4 2018	Q3
€ mn
Net interest income1)	138	138	138	138	134	-4	-4	-3	-3	-3	0	0	0	0	0	134	134	135	135	131
Loss allowance	27	23	5	40	14	0	0	0	-1	0						27	23	5	39	14
Net commission income1)	2	2	2	3	2	54	57	52	62	51	-2	-2	-1	-2	-2	54	57	53	63	51
Net derecognition gain or loss	15	11	16	8	5											15	11	16	8	5
Net gain or loss from financial instruments (fvpl)	5	-6	6	-1	0				0							5	-6	6	-1	0
Net gain or loss on hedge	-3	-1	0	0	1											-3	-1	0	0	1
accounting
Net gain or loss from
investments accounted for using				0				0								0		0	0
the equity method
Administrative expenses	55	53	87	59	53	61	61	58	61	56	-2	-2	-1	-2	-2	114	112	144	118	107
Net other operating income /	-1	1	0	12	2	1	0	0	2	1	0	0	0	0	0	0	1	0	14	3
expenses
Negative goodwill from				55															55
acquisitions
Operating profit	74	69	70	116	77	-10	-8	-9	1	-7	0	0	0	0	0	64	61	61	117	70
Income taxes	27	23	24	22	27	-3	-3	-3	0	-3						24	20	21	22	24
Consolidated net income	47	46	46	94	50	-7	-5	-6	1	-4	0	0	0	0	0	40	41	40	95	46
Cons. net income attributable to non-controlling interests	0	0	0	0	0	1	0	1	0	1						1	0	1	0	1
Cons. net income attributable to shareholders of Aareal Bank AG	47	46	46	94	50	-8	-5	-7	1	-5	0	0	0	0	0	39	41	39	95	45

1) As of this reporting year, interest on deposits from the housing industry is shown under the net interest income of the Consulting/Services segment (previously included in net commission income).

The previous year's figures were adjusted accordingly

Appendix Commercial real estate finance portfolio

Development commercial real estate finance portfolio By region

Development commercial real estate finance portfolio By property type

Western Europe (ex Germany) CREF portfolio Total volume outstanding as at 30.09.2019: € 9.1 bn

1) Incl. Student housing (UK only)

Southern Europe CREF portfolio Total volume outstanding as at 30.09.2019: € 3.9 bn

German CREF portfolio Total volume outstanding as at 30.09.2019: € 2.7 bn

Northern Europe CREF portfolio

Total volume outstanding as at 30.09.2019: € 1.2 bn

Eastern Europe CREF portfolio

Total volume outstanding as at 30.09.2019: € 1.1 bn

Spotlight: Russian CREF portfolio € 0.4 bn (~2% of total CREF portfolio)

North America CREF portfolio Total volume outstanding as at 30.09.2019: € 7.9 bn

Asia / Pacific CREF portfolio Total volume outstanding as at 30.09.2019: € 0.6 bn

1) Incl. Student housing (Australia only)

Appendix Strategic outlook

Aareal 2020 Well on track

Actuals Targets

48

2) 2018 EBIT excl. one offs (reported EBIT € 36 mn)

3) Incl. € 13 mn additional expenses after Aareon M&A,

€ 19 mn transformation costs and € 19 mn reversal of provisions

5) Reported and excl. one-offs / negative goodwill, targets before employment of excess capital

Preface: Outlook 2019

Environmental change due to new uncertainties and increasing volatility

	Outlook 2018 (last year)	Outlook 2019 (today)
GDP dynamics		Slowdown of growth in key regions
Interest rates		Rather stable interest environment
Funding costs		Secondary trading on higher credit spreads
Brexit	"One year ahead"	? "Hard Brexit" as relevant option
Italy		? High political and fiscal uncertainty
Regulatory requirements (Aareal)	Basel IV anticipated	TRIM, EBA, NPL-Guidelines anticipated

CRE: Continuing selective new business focus Strong transaction volumes losing momentum in 2019 – slowing business cycle A

Economy still supportive – CRE cycle plateauing on high level

• Economic growth moderating
• CRE cycle plateauing
• Transaction volumes strong in 2018, expecting decrease in 2019

Peaking CRE cycle amid economic slowdown

• Economic growth slows down
• CRE cycle start to peak
• Downward trend in transaction volumes after four exceptional years
• Cross-border investment high

Economic and CRE slowdown – cross-border investment strong

• Economic growth slows down
• Rental growth stagnating
• Transaction volumes down in 2019
• Cross-border upward trend, especially US

Aareal positioning

▪ Having capabilities to rotate the portfolio composition to geographies and asset classes considered most attractive; managing the new business volumes reflecting regulatory capital and NPL environment.

Regulatory capital B

What is known today: Future implications on capital anticipated…

Regulation on capital…	…in regulatory figures reflected	…considered in strategic planning
Basel IV (estimated) ▪ AIRBA ▪ CRSA
TRIM-effects (estimated) ▪ Basel III ▪ Basel IV
Prudential provisioning (NPL-Guideline) ▪ Stock ▪ Future NPL	(pro rata) (not effective in 2018)
IFRS 9
	Strong capital position	Strong capital position but slower (excess) capital growth

Regulatory capital What may come: future NPL regulatory provisioning B

How:	: Modelling an (unrealistic) theoretical case of 100% 1 loan volume migrating to stage 2
	2 : Additional shift of 1-2 rating classes
Impact:	Recognition in P/L
	Dimension: Even in the absolute extreme scenario "only" € 150 – 200 mn additional LLPs would be required, hence all potential macro downturn scenarios digestible by Aareal's strong profit generation capacity

LLP dimension depending on rating development

C

1) For the institutional housing industry

2) EBIT pre and after impact from new Digital Business

Aareon Pushing digital business to accelerate growth – self-funded from underlying operational growth

Phase 1

▪ European No. 1 ERP provider building on a stable client base, migration from GES to Wodis Sigma completed

Phase 2

▪ Implementing ERP-near digital solutions to support the housing industry in their digitization strategy

Phase 3

• Push digital business by increased R&D budget and opportunistic M&A
• Keep ERP as a stable anchor
• Increase consulting efficiency

Areas of growth	Revenue growth potential	Expected CAGR
Accelerated growth by pushing Digital Business ▪ Further development of ERP-near digital solutions ▪ Business driven by new technologies (VR, AR, IoT) ▪ Innovation from ventures ▪ SaaS, licence, consulting		20-25%
ERP Business ▪ Strong and stable client base ▪ Slower but steady growth ▪ Stable margin ▪ SaaS, licence, consulting		1-2%
Consulting (mainly for Digital and ERP Business) ▪ Extension strictly linked to growth areas ▪ Expand green consulting service and web-based solutions ▪ Continuous focus on profitability		5%

Key parameters

• Aareon will build on:
  • Home Market Digital business with our current ERP client base
  • Corresponding Markets Digital services for clients from industries with potential beyond housing / with similar processes
  • Start-ups and Ventures Creating new digital solutions
• R&D spend up temporarily from 16% to ~25% of Aareon revenues (excl. Consulting) to support Phase 3
• Digital initiative will be self-funded from Aareon's underlying operational growth
• EBIT expected to remain above levels higher than € 30 mn throughout investment period
• First digital initiatives already started, leveraging the ERP client base
• Parallel to digital initiatives Aareon will maintain its unterlying growth plan

Conclusion

Strategy 2020 remains valid; business model provides for inherent optionalities to achieve mid-term ≥ 12% RoE target

- ✓ Strong market position in our business segments

• ✓ Strong capital and funding base…
• ✓ …and P&L power to support growth in relevant areas

We react adequately on environmental changes – hence focus in 2019 will be on

• Safeguarding our backbone SPF →

• Self-funded growth of digital business…
• ↗
• …thereby increasing share of equity-light commission income…

… preparing to achieve our mid-term ("2020 plus") ≥ 12% RoE target even in a continuously low interest rate environment

We will continue reviewing our strategy and optionalities – and react if and when we deem appropriate

Appendix Dividend policy

Dividend policy1) Confirmed

Base dividend

We intend to distribute approx. 50% of the earnings per ordinary share (EpS) as base dividend

Supplementary dividend

In addition, we plan to distribute supplementary dividends, started in 2016 with 10% increasing up to 20-30% of the EpS

Prerequisites:

• No material deterioration of the environment (with longer-term and sustainably negative effects)
• Neither attractive investment opportunities nor positive growth environment

1) The future dividend policy applies provided that the dividend payments resulting from it are consistent with a long-term and sustained business development of Aareal Bank AG. In addition, the dividend payments are subject to the proviso that corresponding dividend proposals have been made by the Management Board and the Supervisory Board for the respective year.

Appendix SREP

SREP (CET 1) requirements

Demonstrating conservative and sustainable business model

1) SREP-CET1 Requirements incl. buffers (Capital Conservation and Countercyclical)

Appendix AT1: ADI of Aareal Bank AG

Interest payments and ADI of Aareal Bank AG Available Distributable Items (as of end of the relevant year)

	31.12. 2014	31.12. 2015	31.12. 2016	31.12. 2017	31.12. 2018
€ mn
Net Retained Profit ▪ Net income ▪ Profit carried forward from previous year ▪ Net income attribution to revenue reserves	77 77 - -	99 99 - -	122 122 - -	147 147 - -	126 126 - -
+ Other revenue reserves after net income attribution	715	720	720	720	720
Total dividend potential before amount blocked1) =	792	819	842	870	846
./. Dividend amount blocked under section 268 (8) of the German Commercial Code ./. Dividend amount blocked under section 253 (6) of the German Commercial Code	240 -	287 -	235 28	283 35	268 42
= Available Distributable Items1)	552	532	579	552	536
+ Increase by aggregated amount of interest expenses relating to Distributions on Tier 1 Instruments1)	57	46	46	32	24
= Amount referred to in the relevant paragraphs of the terms and conditions of the respective Notes as being available to cover Interest Payments on the Notes and Distributions on other Tier 1 Instruments1)	609	578	625	584	560

1) Unaudited figures for information purposes only

Appendix Sustainability Performance

Aareal Bank Group Stands for solidity, reliability and predictability

2) Basel 3, as at 30.09.2019

3) REF-portfolio includes private client business (€ 0.5 bn) and WIB's public sector loans (€ 0.4 bn), as at 30.09.2019

4) Mortgage Pfandbriefe rated Aaa by Moody's

5) imug classified mortgage Pfandbriefe as recommendable investments with regard to ESG aspects (BBB), without DHB

Sustainability data Extends the financial depiction of the Group

Key takeaways at a glance

Transparent Reporting – facilitating informed investment decisions

• "COMBINED SEPARATE NON-FINANCIAL REPORT 2018 FOR AAREAL BANK AG" and SUSTAINABILITY REPORT 2018 "SETTING MILESTONES. CREATING PROSPECTS." have been published on March 28, 2019
• PwC performed a limited assurance review

Sustainability Ratings – confirming the company's sustainability performance

• MSCI Aareal Bank Group with "AA Rating" in highest scoring range for all companies assessed relative to global peers reg. Corporate Governance practices [as per 06/2019]
• ISS-ESG Aareal Bank Group holds "prime status" and ranks with a C+ rating among the top 15% within the 'Financials/Mortgage & Public Sector Finance' category [since 2012, re-confirmed 08/2019]
• Sustainalytics Aareal Bank Group was classified as "average performer", ranking among the best 20% of its industry [as per 09/2018]
• CDP Aareal Bank AG has received a score of B- which is within the Management band. This is equal to the general average of B- and equal to the European average of B-. [Report 2018]

imug Aareal Bank was rated "positive B" in the category "Issuer Performance"; rank 6 out of 43 rated banks [as per 07/2019]

Appendix Introduction Aareal Bank

Aareal Bank Group

Key messages

• Aareal is a leading finance and service provider to international property markets offering tailor-made products to a stable customer base within its two pillar business model focusing on
  • Structured Property Financing (SPF): Aareal provides low-risk commercial real estate financing solutions focusing on different property types in Europe, North-America and Asia/Pacific
  • Consulting/Services (C/S):

Within the C/S segment Aareal is #1 provider of ERP solutions to the German and European institutional housing industry and additionally offering transaction banking services to the German housing market and related industries

• Aareal's balance sheet has a sound structure with a high quality and a well diversified credit portfolio, a stable deposit base and a sustainable long-term refinancing mix as well as a solid capital base
• Aareal is an independent publicly listed (MDAX) mid-sized company with high flexibility and adaptability
• The Aareal business model provides stable revenues and a risk management with a positive track record even under in an adverse market environment

Aareal Bank Group One Bank – two segments

Structured Property Financing	Consulting / Services for the property industry
International presence and business activities on three continents: Europe, North America, Asia / Pacific	Market-leading IT systems for the management of residential and commercial properties in Europe
Providing commercial real estate financing solutions in more than 20 countries and different property types (hotel, logistic, office, retail, residential, student housing)	Integrated payment transaction system for the housing industry (market-leading) and the utility sector
Additional industry experts in hotels, logistics and retail properties	More than 10 mn units under management in Europe, thereof ~ 6 mn in the key market Germany
portfolio1): ~ € 28 bn Total real estate finance	International presence: France, the Netherlands, the UK and Scandinavia

1) REF-portfolio incl. private client business (€ 0.5 bn) and WIB's public sector loans (€ 0.4 bn)

Aareal Bank Group

One Bank – two segments – three continents

Structured Property Finance Specialist for specialists

Aareal Bank Group Structured Property Finance

• Cash-flow driven collateralised business
  • Focus on senior lending
  • Based on first-ranking mortgage loans
• Typical products, e.g.:
  • Single asset investment finance
  • Portfolio finance (local or cross-border /-currency)
  • Value add-finance
• In-depth know-how in local markets and special properties
  • Local expertise at our locations
  • Additional industry expertise (head offices)
• International experience with employees from more than 30 nations

Consulting / Services

High customer overlap with substantial cross-selling effects

Aareal Bank Group Consulting / Services

Aareon Group: IT Services

• Market-leading European IT-system house for the (ERP based) management of residential and commercial property portfolios
• ~ 60% market share in German key market with ~6 mn units under management
• Comprehensive range of integrated services and consulting

Aareal Bank: Transaction banking

• Market-leading integrated payment transaction systems for the housing industry
• Key clients: large size property owners / managers and utility companies
• ~100 mn transactions p.a. (volume: ~€ 50 bn)
• Ø deposit volume of € 10.6 bn in Q3 2019

Definitions and contacts

Definitions

• New Business = Newly acquired business + renewals
• Common Equity Tier 1 ratio = CET1 Risk weighted assets
• Pre tax RoE = Operating profit ./. income/loss attributable to non-controlling interests ./. AT1 cupon Average IFRS equity excl. non-controlling interests, other reserves, AT1 and dividends
• CIR = Admin expenses Net income
• Net income = net interest income + net commission income + net result on hedge accounting + net trading income + results from non-trading assets + results from investments accounted for at equity + results from investment properties + net other operating income
• Net stable funding ratio = Available stable funding Required stable funding
• Liquidity coverage ratio = Total stock of high quality liquid assets Net cash outflows under stress
• Earnings per share = operating profit ./. income taxes ./. income/loss attributable to non controlling interests ./. net AT1 cupon Number of ordinary shares
• Yield on Debt = Net operating income (NOI) x 100 Current commitment incl. prior / pari-passu loans
• CREF-portfolio = Commercial real estate finance portfolio excl. private client business and WIB's public sector loans
• REF-portfolio = Real estate finance portfolio incl. private client business and WIB's public sector loans

Contacts

• Jürgen Junginger Managing Director Investor Relations Phone: +49 611 348 2636 juergen.junginger@aareal-bank.com
• Sebastian Götzken Director Investor Relations Phone: +49 611 348 3337 sebastian.goetzken@aareal-bank.com
• Carsten Schäfer Director Investor Relations Phone: +49 611 348 3616 carsten.schaefer@aareal-bank.com
• Karin Desczka Manager Investor Relations Phone: +49 611 348 3009 karin.desczka@aareal-bank.com
• Julia Taeschner Group Sustainability Officer Director Investor Relations Phone: +49 611 348 3424 julia.taeschner@aareal-bank.com
• Daniela Thyssen Manager Sustainability Management Phone: +49 611 348 3554 daniela.thyssen@aareal-bank.com

Disclaimer

© 2019 Aareal Bank AG. All rights reserved.

• This document has been prepared by Aareal Bank AG, exclusively for the purposes of a corporate presentation by Aareal Bank AG. The presentation is intended for professional and institutional customers only.
• It must not be modified or disclosed to third parties without the explicit permission of Aareal Bank AG. Any persons who may come into possession of this information and these documents must inform themselves of the relevant legal provisions applicable to the receipt and disclosure of such information, and must comply with such provisions. This presentation may not be distributed in or into any jurisdiction where such distribution would be restricted by law.
• This presentation is provided for general information purposes only. It does not constitute an offer to enter into a contract on the provision of advisory services or an offer to purchase securities. Aareal Bank AG has merely compiled the information on which this document is based from sources considered to be reliable – without, however, having verified it. The securities of Aareal Bank AG are not registered in the United States of America and may not be offered or sold except under an exemption from, or pursuant to, registration under the United States Securities Act of 1933, as amended. Therefore, Aareal Bank AG does not give any warranty, and makes no representation as to the completeness or correctness of any information or opinion contained herein. Aareal Bank AG accepts no responsibility or liability whatsoever for any expense, loss or damages arising out of, or in any way connected with, the use of all or any part of this presentation. The securities of Aareal Bank AG are not registered in the United States of America and may not be offered or sold except under an exemption from, or pursuant to, registration under the United States Securities Act of 1933, as amended.
• This presentation may contain forward-looking statements of future expectations and other forward-looking statements or trend information that are based on current plans, views and/or assumptions and subject to known and unknown risks and uncertainties, most of them being difficult to predict and generally beyond Aareal Bank AG´s control. This could lead to material differences between the actual future results, performance and / or events and those expressed or implied by such statements.
• Aareal Bank AG assumes no obligation to update any forward-looking statement or any other information contained herein.