Aareal Bank AG

Investor Presentation • Aug 13, 2019

Analyst Conference Call Q2 2019 results

August 13, 2019 Marc Hess, CFO

Agenda

• Highlights
• Segment performance
• Group results Q2 2019
• Capital, Funding & B/S structure
• Asset quality
• Outlook 2019
• Appendix

Highlights Solid development

Highlights
	Robust Q2 results of € 61 mn (Q1/2019: € 61 mn; Q2/2018: € 62 mn)
	▪ New business volume in line with FY-target of € 7-8 bn - confirming REF portfolio target of € 26-28 bn ▪ Continued focus on very attractive risk-return
	DHB integration successfully completed
	Aareon with strong development – continuously positive trend in sales revenue
	Solid capital base
	FY-outlook 2019 confirmed: Operating profit in a range of € 240 mn and € 280 mn expected

Segment performance

Structured Property Financing

Continued focus on very attractive risk-return

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

Consulting / Services Aareon's sales revenue further increased

P&L C/S Segment	Q2 '18	Q3 '18	Q4 '18	Q1 '19	Q2 '19
€ mn
Net interest income	-3	-3	-3	-3	-4
Loss allowance	0	0	-1	0	0
▪ Thereof Aareon	0	0	-1	0	0
Net commission income	49	51	62	52	57
▪ Thereof Aareon	47	47	57	49	52
− Sales revenue	57	56	69	59	63
− Material costs	10	9	12	10	11
Admin expenses	55	56	61	58	61
▪ Thereof Aareon	41	41	43	41	44
Net other op. income	1	1	2	0	0
▪ Thereof Aareon	1	1	0	0	1
Operating profit	-8	-7	1	-9	-8
▪ Thereof Aareon	8	7	15	8	9

▪ Aareon

• Q2 sales revenue +11% to € 63 mn (Q2 '18: € 57 mn)
• Stronger Q2 sales revenue resulting from growth in all product lines, digital with highest rates (+22% yoy)
• € 9 mn EBT within targeted range, EBT margin ~14%
• Strategic investments to start in H2 as planned
• Deposit volume remains on high level of Ø € 10.7 bn
• Segment operating profit continuously burdened by interest rate environment

Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019

-20

Group results Q2 2019

Group results Q2 2019 Robust result in line with FY-target

€ mn	Q2 '18	Q3 '18	Q4 '18	Q1 '19	Q2 '19	Comments
Net interest income	136	131	135	135	134	Stable development
Derecognition result	5	5	8	16	11	Higher effects from early CRE-repayments
Loss allowance	19	14	39	5	23	Within expectations
Net commission income	51	51	63	53	57	Aareon's sales revenue further increased
FV- / hedge-result	-5	1	-1	6	-7	Reversal of positive Q1 result by fvpl-loans
Admin expenses	109	107	118	144	112	Incl. final DHB integration costs
Negative goodwill			55
Others	3	3	14	0	1
Operating profit	62	70	117	61	61	Robust result in line with FY-target
Income taxes	21	24	22	21	20	FY 2019 tax ratio of ~34% assumed
Minorities / AT1	4	5	4	5	4
Consolidated net income allocated to ord. shareholders	37	41	91	35	37
Earnings per share [€]	0.62	0.70	1.51	0.59	0.61

Net interest income (NII) / Derecognition result (DR) Stable NII & higher effects from early CRE-repayments

• NII on previous quarters level
• Pre-FX margins of ~205 / ~225 bps in Q2 / H1 vs. FY-target margins of 180-190 bps
• H1 DR from early CRE-repayments (€ 15 mn) fully in line with estimations
• Additional € 12 mn DR effect from treasury portfolio adjustments in Q1

Loss allowance (LLP) Within expectations

• Q1 regularly below average due to seasonal effects
• Q2 in line with FY guidance, however remaining volatile throughout the year

Net commission income

Continuously positive trend in Aareon's sales revenue

Aareon

• Q2 sales revenue of € 63 mn (Q2 2018: € 57 mn)
• Digital products with highest growth rates
• Q4 regularly includes positive seasonal effects

Admin expenses Incl. final DHB integration costs

• Adjusted admin expenses stable despite strong Aareon growth (with high CIR)
• Q2 included
  • € 2 mn costs from finalising DHB integration
  • € 4 mn transformation costs (FY 2019 plan: € 20 mn)
  • € 5 mn reversals of provisions
• Q1 included
  • € 9 mn costs from DHB integration (incl. European bank levy and ESF)
  • € 21 mn for the European bank levy and ESF
  • € 4 mn transformation costs

Capital, Funding & B/S structure

Capital

Strong capital ratios already incl. TRIM effects & prudential provisioning

• Fulfilling Basel IV from day 1
• Capital ratios since 12/2018 incl. relevant TRIM effects and prudential provisioning2)
• Remaining regulatory uncertainties well buffered (e.g. Hard test, CRR II, further implementation of countercyclical buffer)
• Expecting to stay above 12.5% B4 CET1 target ratio even in the light of an expected higher year-end portfolio size
• B3 capital ratios significantly above SREP requirements
• T1-Leverage ratio: 6.0%

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

14 2) When calculating own funds as at 30 June 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.

Funding Diversified funding position

• Sustainable and strong deposit base counts for more than 40% of the well diversified funding mix
• Refinancing plan for 2019 mostly fulfilled
  • Reflecting a well loaded new business pipeline
  • Taking advantage of very good market conditions for fixed income securities
• Successful issuances in Q2:
  • EUR 500 mn Pfandbrief, 8 years
  • USD 600 mn Pfandbrief, 2 years
  • EUR 500 mn Senior Preferred Benchmark, 5 years
• MREL is not a limiting factor
• NSFR/ LCR well above 100% due to comfortable liquidity position

B/S structure according to IFRS As at 30.06.2019: € 43.3 bn (31.12.2018: € 42.7 bn)

• Treasury portfolio reduction by active de-risking
• Money Market position reflects short term open commitments

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) € 25.7 bn highly diversified and sound

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

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

19

Defaulted exposure Major reduction of NPL portfolio until YE 2019 targeted

Defaulted exposure / Total CREF portfolio

Defaulted exposure

Defaulted exposure by country Q2 2019 (vs. Q4 2018) € mn

• UK: Three former "on-watch" loans (out of a total of four) deteriorated into NPL
• Adjusted NPL strategy:
  • Defaulted exposure targeted at meaningful below YE 2018 level; to be executed in H2/19
  • Targeted reduction within FY-LLP guidance
  • Potential additional reduction opportunities will be assessed if they emerge

Spotlight: Italian CREF portfolio € 2.7 bn (~11% of total portfolio)

1) Performing CREF-portfolio only, exposure as at 30.06.2019

Comments (vs. Q4 2018)

• Performing:
  • Share of developments financed ~ 5%
  • ~ 50% of total portfolio in Greater Rome or Milan area
  • € 230 mn with LTV > 60%
  • Theoretical stress on property values (-20%): would lead to portfolio LTV of approx. 87%
• Defaulted exposure: € 1,064 mn (- € 48 mn)

Spotlight: UK CREF portfolio € 3.8 bn (~15% of total CREF-portfolio)

Comments (vs. Q4 2018)

• Cap-rates already reacted on subdued economic outlook. Entire portfolio revalued on that basis
• Performing:
  • Investment finance only, no developments
  • ~ 60% of total portfolio in Greater London area, emphasising on hotels
  • € 172 mn with LTV > 60%
  • Theoretical stress on property values (-20%): would lead to portfolio LTV of approx. 74%
• Defaulted exposure: € 229 mn (€ 0 mn)

Treasury portfolio € 7.7 bn of high quality and highly liquid assets

by asset class Q2 2019 (vs. Q4 2018) by rating1) Q2 2019 (vs. Q4 2018)

As at 30.06.2019 – all figures are nominal amounts 1) Composite Rating

Outlook 2019

Outlook 2019 Confirmed – well on track to achieve FY-targets

Net interest income	▪ € 530 mn - € 560 mn
Derecognition result	▪ € 20 mn - € 40 mn
Allowance for credit losses1)	▪ € 50 mn - € 80 mn
Net commission income	▪ € 225 mn - € 245 mn
Admin expenses	▪ € 470 mn - € 510 mn
Operating profit	▪ € 240 mn - € 280 mn
Pre-tax RoE	▪ 8.5% - 10%
EpS	▪ ~ € 2.40 - € 2.80
Target portfolio size	▪ € 26 bn - € 28 bn
New business origination2)	▪ € 7 bn - € 8 bn

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

2) Incl. renewals

3) After segment adjustments

Conclusion

Robust business, affirmed targets, successful strategy

Key takeaways

Robust operational performance:

Aareal Bank Group continues to show solid performance in the second quarter, in a overall difficult market and competitive environment

Targets affirmed:

After the first two quarters, the Group is on track to achieve its ambitious profit target for the full year 2019

Successful strategy:

• The Structured Property Financing segment continues to perform well, despite a more difficult environment
• As the cornerstone of the Consulting/Services segment, Aareon gradually realises its potential as a growth driver for the Group (refer to the Aareon Investor Seminar 20191))

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

Appendix Group results

Aareal Bank Group Results Q2 2019

	01.04.- 30.06.2019	01.04.- 30.06.2018	Change
	€ mn	€ mn
Profit and loss account
Net interest income	134	136	-1%
Loss allowance	23	19	21%
Net commission income	57	51	12%
Net derecognition gain or loss	11	5	120%
Net gain or loss from financial instruments (fvpl)	-6	-4	50%
Net gain or loss on hedge accounting	-1	-1	0%
Net gain or loss from investments accounted for using the equity method	-	-
Administrative expenses	112	109	3%
Net other operating income / expenses	1	3	-67%
Negative goodwill from acquisitions	-	-
Operating Profit	61	62	-2%
Income taxes	20	21	-5%
Consolidated net income	41	41	0%
Consolidated net income attributable to non-controlling interests	0	0
Consolidated net income attributable to shareholders of Aareal Bank AG	41	41	0%
Earnings per share (EpS)
Consolidated net income attributable to shareholders of Aareal Bank AG1)	41	41	0%
of which: allocated to ordinary shareholders	37	37	0%
of which: allocated to AT1 investors	4	4
Earnings per ordinary share (in €)2)	0.61	0.62	-2%
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 Q2 2019 by segments

	Structured Property Financing		Consulting / Services		Consolidation/ Reconciliation		Aareal Bank Group
	01.04.- 30.06. 2019	01.04- 30.06. 2018	01.04.- 30.06. 2019	01.04- 30.06. 2018	01.04.- 30.06. 2019	01.04- 30.06. 2018	01.04.- 30.06. 2019	01.04- 30.06. 2018
€ mn
Net interest income1)	138	139	-4	-3	0	0	134	136
Loss allowance	23	19	0	0			23	19
Net commission income1)	2	3	57	49	-2	-1	57	51
Net derecognition gain or loss	11	5					11	5
Net gain or loss from financial instruments (fvpl)	-6	-4					-6	-4
Net gain or loss on hedge accounting	-1	-1					-1	-1
Net gain or loss from investments
accounted for using the equity method
Administrative expenses	53	55	61	55	-2	-1	112	109
Net other operating income / expenses	1	2	0	1	0	0	1	3
Negative goodwill from acquisitions
Operating profit	69	70	-8	-8	0	0	61	62
Income taxes	23	24	-3	-3			20	21
Consolidated net income	46	46	-5	-5	0	0	41	41
Allocation of results
Cons. net income attributable to non-controlling interests	0	0	0	0			0	0
Cons. net income attributable to shareholders of Aareal Bank AG	46	46	-5	-5	0	0	41	41

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 H1 2019

	01.01.- 30.06.2019	01.01.- 30.06.2018	Change
	€ mn	€ mn
Profit and loss account
Net interest income	269	269	0%
Loss allowance	28	19	47%
Net commission income	110	101	9%
Net derecognition gain or loss	27	11	145%
Net gain or loss from financial instruments (fvpl)	0	-1	-100%
Net gain or loss on hedge accounting	-1	-3	-67%
Net gain or loss from investments accounted for using the equity method	0	-
Administrative expenses	256	237	8%
Net other operating income / expenses	1	8	-88%
Negative goodwill from acquisitions	-	-
Operating Profit	122	129	-5%
Income taxes	41	44	-7%
Consolidated net income	81	85	-5%
Consolidated net income attributable to non-controlling interests	1	1
Consolidated net income attributable to shareholders of Aareal Bank AG	80	84	-5%
Earnings per share (EpS)
Consolidated net income attributable to shareholders of Aareal Bank AG1)	80	84	-5%
of which: allocated to ordinary shareholders	72	76	-5%
of which: allocated to AT1 investors	8	8
Earnings per ordinary share (in €)2)	1.20	1.27	-6%
Earnings per ordinary AT1 unit (in €)3)	0.08	0.08

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 H1 2019 by segments

	Financing	Structured Property	Services	Consulting /	Consolidation/	Reconciliation	Aareal Bank Group
	01.01.- 30.06. 2019	01.01- 30.06. 2018	01.01.- 30.06. 2019	01.01- 30.06. 2018	01.01.- 30.06. 2019	01.01- 30.06. 2018	01.01.- 30.06. 2019	01.01- 30.06. 2018
€ mn
Net interest income1)	276	275	- 7	- 6	0	0	269	269
Loss allowance	28	19	0	0			28	19
Net commission income1)	4	4	109	99	- 3	- 2	110	101
Net derecognition gain or loss	27	11					27	11
Net gain or loss from financial instruments (fvpl)	0	- 1					0	- 1
Net gain or loss on hedge accounting		- 3					- 1	- 3
Net gain or loss from investments			0				0
accounted for using the equity method
Administrative expenses	140	129	119	110	- 3	- 2	256	237
Net other operating income / expenses	1	7	0	1	0	0	1	8
Negative goodwill from acquisitions
Operating profit	139	145	-17	-16	0	0	122	129
Income taxes	47	50	- 6	- 6			41	44
Consolidated net income	92	95	-11	-10	0	0	81	85
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	92	95	-12	-11	0	0	80	84

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
	Q2 2019	Q1	Q4	Q3 2018	Q2	Q2 2019	Q1	Q4	Q3 2018	Q2	Q2 2019	Q1	Q4	Q3 2018	Q2	Q2 2019	Q1	Q4	Q3 2018	Q2
€ mn
Net interest income1)	138	138	138	134	139	- 4	- 3	- 3	- 3	- 3	0	0	0	0	0	134	135	135	131	136
Loss allowance	23	5	40	14	19	0	0	- 1	0	0						23	5	39	14	19
Net commission income1)	2	2	3	2	3	57	52	62	51	49	- 2	- 1	- 2	- 2	- 1	57	53	63	51	51
Net derecognition gain or loss	11	16	8	5	5											11	16	8	5	5
Net gain or loss from financial instruments (fvpl)	- 6	6	- 1	0	- 4			0								- 6	6	- 1	0	- 4
Net gain or loss on hedge accounting	- 1	0	0	1	- 1											- 1	0	0	1	- 1
Net gain or loss from
investments accounted for using			0				0										0	0
the equity method
Administrative expenses	53	87	59	53	55	61	58	61	56	55	- 2	- 1	- 2	- 2	- 1	112	144	118	107	109
Net other operating income / expenses	1	0	12	2	2	0	0	2	1	1	0	0	0	0	0	1	0	14	3	3
Negative goodwill from acquisitions			55															55
Operating profit	69	70	116	77	70	- 8	- 9	1	- 7	- 8	0	0	0	0	0	61	61	117	70	62
Income taxes	23	24	22	27	24	- 3	- 3	0	- 3	- 3						20	21	22	24	21
Consolidated net income	46	46	94	50	46	- 5	- 6	1	- 4	- 5	0	0	0	0	0	41	40	95	46	41
Cons. net income attributable to non-controlling interests	0	0	0	0	0	0	1	0	1	0						0	1	0	1	0
Cons. net income attributable to shareholders of Aareal Bank AG	46	46	94	50	46	- 5	- 7	1	- 5	- 5	0	0	0	0	0	41	39	95	45	41

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 30.06.2019: € 8.2 bn

1) Incl. Student housing (UK only)

Southern Europe CREF portfolio Total volume outstanding as at 30.06.2019: € 3.9 bn

German CREF portfolio Total volume outstanding as at 30.06.2019: € 2.7 bn

Northern Europe CREF portfolio

Total volume outstanding as at 30.06.2019: € 1.4 bn

Eastern Europe CREF portfolio

Total volume outstanding as at 30.06.2019: € 1.2 bn

Spotlight: Russian CREF portfolio € 0.5 bn (~2% of total CREF portfolio)

North America CREF portfolio

Total volume outstanding as at 30.06.2019: € 7.9 bn

Asia / Pacific CREF portfolio Total volume outstanding as at 30.06.2019: € 0.5 bn

1) Incl. Student housing (Australia only)

Appendix Strategic outlook

Aareal 2020 Well on track

Actuals Targets

45

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

Modelling theoretical maximum of IFRS 9 Stage 2 sensitivity (CREF business)

What:	IFRS 9 Stage 2 maximum shift, LLP dimension depending on rating development
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

C

2014 2015 2016 2017 2018 2019 2020 2021 mid-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

Pushing Digital Business

2) 20202) 2)

3

• 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

term

• 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 30.06.2019

3) REF-portfolio includes private client business (€ 0.5 bn) and WIB's public sector loans (€ 0.4 bn), as at 30.06.2019

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." has 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 01/2018]
ISS-oekom	Aareal Bank Group holds "prime status", ranking among the leaders in its industry [since 2012]
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 Europe regional average of B-. [Report 2018]
imug	Aareal Bank was rated "positive BB" in the category "Issuer Performance"; the second best result of all 60 rated Banks [as per 05/2018]

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): ~ € 27 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 € 10.7 bn in Q2 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.