Aareal Bank AG

Investor Presentation • Nov 13, 2018

Analyst Conference Call Q3 2018 results

November 13, 2018 Hermann J. Merkens, CEO Marc Hess, CFO

Agenda

• Highlights
• Group results at a glance
• Segment performance
• Group results
• B/S structure, capital & funding position
• Asset quality
• Outlook 2018
• Appendix
• Definitions and contacts

Highlights Good operating profit despite challenging environment

Robust economic environment but high uncertainties ahead

Good operating profit of € 70 mn (Q2/2018: € 62 mn). EpS of 0.70 € (Q2/2018: 0.62 €)

Strong new business origination - Raising FY target to € 8 - 9 bn (from € 7 - 8 bn)

Agreement on the acquisition of DHB signed. Positive one-off (neg. goodwill) of ~€ 52 mn expected1)

Confirming raised operating profit guidance1)

1) Assuming that closing of acquisition of DHB will take place in 2018 as planned

Group results at a glance

Group results at a glance Good operating profit

€ mn	Q3 '17	Q4 '17	Q1'18	Q2'18	Q3'18	Comments
Net interest income	144	135	133	136	131	Solid quarters in line with expectations (€ 130-135 mn)
Derecognition result	20	12	6	5	5	Significantly below PY level and estimate
Loss allowance	26	29	0	19	14	Within expected range
Net commission income	48	61	50	51	51	Stable q-on-q, continuously above PY-level
FV- / hedge-result	11	-1	1	-5	1
Admin expenses	120	123	128	109	107	Slightly down q-on-q, including one-off effects
Others	5	10	5	3	3
Operating profit	82	66	67	62	70	Confirming raised operating profit guidance1)
Income taxes	31	18	23	21	24	FY 2018 tax ratio of ~34% assumed (excl. DHB)
Minorities / AT1	4	4	5	4	5
Consolidated net income allocated to ord. shareholders	47	44	39	37	41
Earnings per share [€]	0.78	0.74	0.65	0.62	0.70

1) Assuming that closing of acquisition of DHB will take place in 2018 as planned

Segment performance

Structured Property Financing Strong new business origination

• Strong new business volume while retaining conservative risk policy: "Quality over Quantity"
• Newly acquired business:
• Stable gross margins after FX: Q3 ~170 bps (vs. Q2 ~170 bps)
• Pre-FX margins reflecting lower US share: Q3 ~180 bps (vs. Q2 ~190 bps)
• Confirming FY margin- and portfolio target

1) Incl. renewals

2) REF-portfolio incl. private client business (€ 0.6 bn) and WIB's public sector loans (€ 0.5 bn)

Consulting / Services Aareon on track

P&L C/S Segment	Q3 '17	Q4 '17	Q1 '18	Q2 '18	Q3 '18
€ mn
Sales revenue	53	64	56	57	58
Own work capitalised	1	2	1	2	2
Other operating income	1	4	1	1	1
Cost material purchased	8	9	9	11	10
Staff expenses	38	42	37	39	40
D, A, impairment losses	3	4	4	3	4
Other operat. expenses	13	18	16	15	14
Others	0	0	0	0	0
Operating profit	-7	-4	-8	-8	-7

• Further growth of Aareon sales revenue to € 56 mn (Q3 2017: € 51 mn), EBT of € 7 mn, EBT margin ~13%
• Deposit volume on a high level (Ø of € 10.4 bn in Q3)
• Focussing on further shift into sustainable deposits
• Deposit margins still burdening segment result by interest rate environment

Group results Q3 2018

Net interest income / Derecognition result NII: Solid quarters in line with expectations / DR: Significantly below PY level and estimate

• Slight NII decrease vs. Q2 due to
• Repayments of high-yield loans (e.g. Turkey)
• Favourable market environment used for increased funding activities
• Slightly reduced US-share in RSF portfolio
• Derecognition result significantly below PY level and estimate
• Newly acquired business:
• Gross margins stable after FX: Q3: ~170 bps (vs. Q2 ~170 bps)
• Pre-FX reflecting lower US share: Q3: ~180 bps (vs. Q2 ~190 bps)
• Confirming FY margin- and portfolio target

Net interest income

Derecognition result - to be reported separately under IFRS 9 starting Q1/2018 (mainly effects from early repayments)

Loss allowance (LLP) Within expected range

• LLP significantly below last years' figures
• Confirming FY-guidance

Net commission income Stable q-on-q, continuously above PY-level

• Further growth of Aareon sales revenue to € 56 mn (Q3 2017: € 51 mn), EBT of € 7 mn, EBT margin ~13%
• Aareon revenues resulting from growth in all product lines, digital products with highest growth rates
• Q4 regularly includes positive seasonal effects

Admin expenses

Admin expenses down q-on-q, including one-off effects

• High likelihood to end up slightly better than guided range
• Transformation costs (FY 2018 plan: € 25 mn):
• € 4 mn in Q3
• € 4 mn in Q2
• € 4 mn in Q1
• Reversal of provisions:
• € 6 mn in Q3
• € 4 mn in Q2
• € 3 mn in Q1
• Admin expenses in Q1 2018 include
• € 20 mn for the European bank levy and for the Deposit Protection Guarantee Schemes (both expensed in Q1)

B/S structure, capital & funding position

B/S structure according to IFRS As at 30.09.2018: € 40.3 bn (31.12.2017: € 41.9 bn)

1) CREF-portfolio only, private client business (€ 0.6 bn) and WIB's public sector loans (€ 0.5 bn) not included

2) Other assets includes € 0.6 bn private client portfolio and WIB's € 0.5 bn public sector loans

Capital position Strong capital ratios

• Fulfilling Basel IV from day 1
• Remaining regulatory uncertainties well buffered (e.g. Hard test, CRR II)
• Capital ratios significantly above SREP requirements
• T1-Leverage ratio : 6.1%

1) Underlying RWA estimate, given a 72.5 % output floor based on the final Basel Committee framework dated 7 December 2017; Calculation of material impact for Aareal Bank, subject to outstanding EU implementation as well as the implementation of further regulatory requirements (CRR II, EBA requirements, TRIM, etc.)

16 2) No interim profit recognition in CET 1 capital in 2018

3) Fully loaded

4) Acc. COREP

Funding position Favourable market environment used for increased funding activities

• 9M 2018 funding activities include:
• Successful placement of four Pfandbrief benchmark transactions
  • EUR 500 mn 6.3Y
  • EUR 500 mn 7Y
  • EUR 500 mn 5Y
  • GBP 250 mn 4Y
• Well diversified private placement activities
  • ~ € 200 mn Senior non pref.
  • ~ € 300 mn Senior preferred
  • ~ € 200 mn Pfandbriefe
• 21st July 2018: Introduction of new asset class "Senior preferred", private placements successfully executed
• Fulfilling liquidity KPI's
• NSFR > 1
• LCR >> 1

Asset quality

Commercial real estate finance portfolio € 25.1 bn highly diversified and sound

1) Incl. Student housing (UK only)

Commercial real estate finance portfolio Portfolio details by country

20

NPL portfolio NPL volume and NPL ratio decreased vs. 12/17, stable q-on-q

NPL/Total CREF-portfolio

NPL ratio ex signed Italian restructured loans

NPL ratio acc. Reg. Disclosure Report

Considering collaterals, NPL's fully covered

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

Outlook 2018

Outlook 2018 Confirming raised operating profit guidance

Net interest income	NII confirmed within range of € 520 mn - € 540 mn
Derecognition result	Clearly below estimate
Net interest income incl. derecognition result	Guided range of € 570 mn - € 610 mn will be difficult to achieve
Loss allowance1)	€ 50 mn - € 80 mn
Net commission income	€ 215 mn - € 235 mn
Admin expenses	€ 470 mn - € 500 mn: High likelihood to end up slightly better than guided range
Operating profit	352 mn2) € 312 mn - €
Pre-tax RoE	13.02) 11.5% - (9.5% - 11.0% - ex DHB acquisition)
EpS	3.872) € 3.47 - €
Target portfolio size	€ 25 bn - € 28 bn
New business origination3)	€ 8 bn - € 9 bn (Raised from original guidance of € 7 bn - € 8 bn)

1) As in 2017, the bank cannot rule out additional loss allowance

2) Incl. expected ~ € 52 mn negative goodwill from DHB acquisition, assuming closing will take place in 2018 as planned

3) Incl. renewals

24 4) After segment adjustments

Conclusion Aareal Bank stays on track

Key takeaways

Aareal Bank Group continues to perform well in a challenging environment. Our operating performance continues to be very robust, and we are willing and able to exploit attractive, value-increasing opportunities at any time.

We are making good progress with the transformation we have initiated with 'Aareal 2020'.

We therefore remain on track not only to meet our raised earnings target for the current year, but also to safeguard a sustainable, positive long-term performance for Aareal Bank Group.

Appendix Group results

Aareal Bank Group Results Q3 2018

	01.07.- 30.09.2018	01.07.- 30.09.20171)	Change
	€ mn	€ mn
Profit and loss account
Net interest income	131	144	-9%
Loss allowance	14	26	-46%
Net commission income	51	48	6%
Net derecognition gain or loss	5	20	-75%
Net gain or loss from financial instruments (fvpl)	0	10
Net gain or loss on hedge accounting	1	1	0%
Net gain or loss from investments accounted for using the equity method
Administrative expenses	107	120	-11%
Net other operating income / expenses	3	5	-40%
Operating Profit	70	82	-15%
Income taxes	24	31	-23%
Consolidated net income	46	51	-10%
Consolidated net income attributable to non-controlling interests	1	0
Consolidated net income attributable to shareholders of Aareal Bank AG	45	51	-12%
Earnings per share (EpS)
Consolidated net income attributable to shareholders of Aareal Bank AG2)	45	51	-12%
of which: allocated to ordinary shareholders	41	47	-13%
of which: allocated to AT1 investors	4	4	0%
Earnings per ordinary share (in €)3)	0.70	0.78	-9%
Earnings per ordinary AT1 unit (in €)4)	0.04	0.04	0%

• 1) Comparative amounts reclassified according to the new classification format
• 2) The allocation of earnings is based on the assumption that net interest payable on the AT1 bond is recognised on an accrual basis.
• 3) 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.
• 4) 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 2018 by segments

	Financing	Structured Property		Consulting / Services	Consolidation/ Reconciliation		Aareal Bank Group
	01.07.- 30.09. 2018	01.07- 30.09. 20171)	01.07.- 30.09. 2018	01.07- 30.09. 20171)	01.07.- 30.09. 2018	01.07- 30.09. 20171)	01.07.- 30.09. 2018	01.07- 30.09. 20171)
€ mn
Net interest income	134	147	0	0	-3	-3	131	144
Loss allowance	14	26	0				14	26
Net commission income	2	1	48	45	1	2	51	48
Net derecognition gain or loss	5	20					5	20
Net gain or loss from financial instruments (fvpl)	0	10					0	10
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	68	56	53	-2	-1	107	120
Net other operating income / expenses	2	4	1	1	0	0	3	5
Operating profit	77	89	-7	-7	0	0	70	82
Income taxes	27	34	-3	-3			24	31
Consolidated net income	50	55	-4	-4	0	0	46	51
Allocation of results
Cons. net income attributable to non-controlling interests	0	0	1	0			1	0
Cons. net income attributable to shareholders of Aareal Bank AG	50	55	-5	-4	0	0	45	51

Aareal Bank Group Results 9M 2018

	01.01.- 30.09.2018	01.01.- 30.09.20171)	Change
	€ mn	€ mn
Profit and loss account
Net interest income	400	449	-11%
Loss allowance	33	53	-38%
Net commission income	152	145	5%
Net derecognition gain or loss	16	37	-57%
Net gain or loss from financial instruments (fvpl)	-1	13
Net gain or loss on hedge accounting	-2	-5
Net gain or loss from investments accounted for using the equity method
Administrative expenses	344	388	-11%
Net other operating income / expenses	11	64	-83%
Operating Profit	199	262	-24%
Income taxes	68	97	-30%
Consolidated net income	131	165	-21%
Consolidated net income attributable to non-controlling interests	2	6	-67%
Consolidated net income attributable to shareholders of Aareal Bank AG	129	159	-19%
Earnings per share (EpS)
Consolidated net income attributable to shareholders of Aareal Bank AG2)	129	159	-19%
of which: allocated to ordinary shareholders	117	147	-20%
of which: allocated to AT1 investors	12	12	0%
Earnings per ordinary share (in €)3)	1.97	2.46	-20%
Earnings per ordinary AT1 unit (in €)4)	0.12	0.12	0%

• 1) Comparative amounts reclassified according to the new classification format
• 2) The allocation of earnings is based on the assumption that net interest payable on the AT1 bond is recognised on an accrual basis.
• 3) 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.
• 4) 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 9M 2018 by segments

	Financing	Structured Property		Consulting / Services	Consolidation/ Reconciliation		Aareal Bank Group
	01.01.- 30.09. 2018	01.01.- 30.09. 20171)	01.01.- 30.09. 2018	01.01.- 30.09. 20171)	01.01.- 30.09. 2018	01.01.- 30.09. 20171)	01.01.- 30.09. 2018	01.01.- 30.09. 20171)
€ mn
Net interest income	409	457	0	0	-9	-8	400	449
Loss allowance	33	53	0				33	53
Net commission income	6	4	141	136	5	5	152	145
Net derecognition gain or loss	16	37					16	37
Gains / losses from financial instruments (fvpl)	-1	13					-1	13
Net result on hedge accounting	-2	-5					-2	-5
Results from investments accounted for at equity
Administrative expenses	182	234	166	157	-4	-3	344	388
Net other operating income / expenses	9	62	2	2	0	0	11	64
Operating profit	222	281	-23	-19	0	0	199	262
Income taxes	77	104	-9	-7			68	97
Consolidated net income	145	177	-14	-12	0	0	131	165
Allocation of results
Cons. net income attributable to non-controlling interests	0	4	2	2			2	6
Cons. net income attributable to shareholders of Aareal Bank AG	145	173	-16	-14	0	0	129	159

Aareal Bank Group Results – quarter by quarter

	Structured Property Financing					Consulting / Services					Consolidation / Reconciliation					Aareal Bank Group
	Q3	Q2	Q1	Q4 20171)	Q3	Q3	Q2	Q1	Q4 20171)	Q3	Q3	Q2	Q1	Q4 20171)	Q3	Q3	Q2	Q1	Q4 20171)	Q3
€ mn		2018					2018					2018					2018
Net interest income	134	139	136	139	147	0	0	0	0	0	-3	-3	-3	-4	-3	131	136	133	135	144
Loss allowance	14	19	0	29	26	0	0	0								14	19	0	29	26
Net commission income	2	3	1	3	1	48	46	47	55	45	1	2	2	3	2	51	51	50	61	48
Net derecognition gain or loss	5	5	6	13	20											5	5	6	13	20
Net gain or loss from financial instruments (fvpl)	0	-4	3	1	10											0	-4	3	1	10
Net gain or loss on hedge accounting	1	-1	-2	-2	1											1	-1	-2	-2	1
Net gain or loss from investments accounted for using the equity method
Administrative expenses	53	55	74	62	68	56	55	55	63	53	-2	-1	-1	-2	-1	107	109	128	123	120
Net other operating income / expenses	2	2	5	7	4	1	1	0	4	1	0	0	0	-1	0	3	3	5	10	5
Operating profit	77	70	75	70	89	-7	-8	-8	-4	-7	0	0	0	0	0	70	62	67	66	82
Income taxes	27	24	26	19	34	-3	-3	-3	-1	-3						24	21	23	18	31
Consolidated net income	50	46	49	51	55	-4	-5	-5	-3	-4	0	0	0	0	0	46	41	44	48	51
Cons. net income attributable to non-controlling interests	0	0	0	0	0	1	0	1	0	0						1	0	1	0	0
Cons. net income attributable to shareholders of Aareal Bank AG	50	46	49	51	55	-5	-5	-6	-3	-4	0	0	0	0	0	45	41	43	48	51

Aareal 2020

Aareal 2020 – Adjust. Advance. Achieve. Our way ahead

Adjust

Safeguard strong base in a changing environment

• Enhance efficiency
• Optimise funding
• Anticipate regulation

Achieve

Create sustainable value for all stakeholders

• Realise strategic objectives for the Group and the segments
• Consistently implement required measures
• Achieve ambitious financial targets

Adjust

Aareal 2020 – Adjust. Advance. Achieve Our growth program is well on track – we have successfully

adjusted our organisational structure…

Achievements so far: (extract) Targets: (extract)

• Alignment of structures and processes successfully implemented to increase efficiency
• Further development of the future IT-infrastructure
• Balance sheet structure / funding optimised: new investor groups made accessible
• Housing industry deposits stabilised as a crisis proven refinancing source – volume on forecasted high level (~ € 10 bn)

• Fulfilment of Basel IV requirements from day 1, capital ratios significantly increased, IFRS 9 implemented

• Continued alignment of structures and processes, further digitisation and ongoing optimisation of the IT-infrastructure

• Further increase of flexibility and efficiency, reduction of complexity
• Retention of broadly diversified funding sources
• Efficient use of capital
• Continuous screening of the regulatory environment and early anticipation of possible changes

Aareal 2020 – Adjust. Advance. Achieve.

…for the strengthening of our basis to ensure an accelerated and successful implementation in both segments

	Achievements so far: (extract)	Targets: (extract)
Advance: Structured property financing	 Attractive markets further enhanced (e.g. USA)  Existing exit channels enlarged, additional opportunities identified and cooperations gained  NCA portfolio significantly reduced  Digitisation of internal credit processes as well as clients' interface on track  Mount Street cooperation established, expansion of servicing business	 Continuation of successful business development despite challenging environment with a focus on flexible allocation in the most attractive markets  Expansion of existing and developing of new exit strategies  Ongoing reduction of NCA-portfolio  Tapping new (digital) business opportunities along the value added chain  Identification and making use of additional potentials of the Mount Street cooperation
Advance: Consulting/ Services	 Position within the environment of the housing industry further strengthened  Utility market successfully tapped  Successful CRE-growth strategy, e.g. two acquisitions in 2017  Cross-selling activities of digital products in Europe launched, e.g. via digital platform  Cooperations with start-ups intensified	 Further development of digital solutions portfolio  Ongoing penetration of relevant eco systems and tapping into neighbouring markets  Developing of new markets in cooperation with the housing industry (B2B2C; B2C)  Intensifying cooperations focussing on start-ups, development of Aareon Ventures

Outlook Main takeaways for upcoming years

CET1:

Currently, management sees Basel IV CET1 target ratio of ~12.5% adequate

Excess capital:

• Partial use in lending business to keep portfolio stable at ~ € 26.5 bn
• Further review in 2018

Performance:

• Plan to stabilise NII on current level
• Future growth of total income mainly driven by NCI
• Operating profit will benefit from total income growth, successful transformation incl. efficiency improvements

RoE:

Accordingly RoE minimum target level structure lifted from 10% to 11% pre-tax, well on track to achieve our sustainable ~12% pre-tax RoE target

Dividend:

Confirming dividend policy

Achievements:

• Portfolio reduced: lowered NII and freed up equity
• LLP significantly reduced
• Admin expenses reduced
• NCI increased

Way ahead:

• Stabilising NII (but 'quality over quantity' still valid) and risk costs at 25-30 bps
• Continued reduction of admin expenses (lower transformational one-offs from 2020 onwards)
• Further growth of net commission income
• Future excess capital from NCA-run down to be invested in CRE portfolio (depending on market conditions)

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.

Supplementary dividend

We intend to distribute

approx. 50% of the earnings per ordinary share (EpS)

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

Dividend policy1) Confirmed

Base dividend

as base dividend

Appendix Basel 4 / IFRS 9 / Defaulted exposure

Basel IV effect Already fulfilling future Basel IV capital requirements

1) Incl. effects from first-time adoption of IFRS 9

B3 RWA of 11.8 bn with current risk density of 22% would be 13.2 bn (based on 31.12.2016's risk density of 28%) Basel IV:

• New B4-regulation triggers significant RWA-inflation
• Low risk weighted CRE business excessively burdened
• Resulting capital needs precociously anticipated
• Remaining uncertainties:
• EU implementation
• Supervisors' decisions (e.g. on Hard test)

Others:

• 2018 stress test might result in new SREP guidance for 2019 onwards
• Combined efforts on internal models:
• Final EBA requirements: Some parts delivered, QIS announced, some still open
• TRIM exercise still ongoing
• Internal models have to be adjusted / redesigned and approved until mid 2020 to meet EBA deadline

IFRS 9 Remarks

First Time Application

• 1 January 2018
• Transition effects are recognised in equity

Classification and Measurement

• New model for the classification and measurement of financial assets (ac, fvoci or fvpl) based on business models and cash flow characteristics
• Aareal Bank will change B/S structure to measurement categories

Impairment

• Expected loss model:
• Stage 1: LLP based on 12-Month expected credit losses on recognition
• Stage 2: LLP based on lifetime expected credit losses on financial assets with significant increase in credit risk and
• Stage 3: LLP based on lifetime expected credit losses on impaired financial assets
• No LLP for financial assets fvpl, as it is part of gains/losses on the corresponding line item

Financial Statements

• B/S and P/L structure will change, eg. derecognition and modification gains / losses are added
• Extended Notes Disclosures for impairment and hedge accounting

Defaulted exposure

NPL development vs. defaulted exposure acc. Reg. Disc. Report

Defaulted exposure acc. Regulatory Disclosure Report (AIRBA, off-balance) Defaulted exposure KSA

Defaulted Exposure

NPL vs. Stage 3 (IFRS 9) vs. defaulted exposure acc. Reg. Disc. Report

Appendix SREP / stress test

SREP (CET 1) requirements

Demonstrating conservative and sustainable business model

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

• Corresponding total capital requirement 2018 (Overall Capital Requirement (OCR) incl. buffers, phase-in) amounts to 11.718%
• As of 30 September 2018 total capital ratio

Stress Test 2018 (preliminary calculation)

Even in adverse scenario capital ratios remain well above requirements

Appendix Development commercial real estate finance portfolio

Development commercial real estate finance portfolio

Commercial real estate finance portfolio Further declining NPL volume and NPL ratio, stable q-on-q

Western Europe (ex Germany) CRE finance portfolio Total volume outstanding as at 30.09.2018: € 8.3 bn

1) Incl. Student housing (UK only)

Southern Europe CRE finance portfolio Total volume outstanding as at 30.09.2018: € 3.9 bn

German CRE finance portfolio

Total volume outstanding as at 30.09.2018: € 3.2 bn

Eastern Europe CRE finance portfolio Total volume outstanding as at 30.09.2018: € 1.3 bn

Northern Europe CRE finance portfolio Total volume outstanding as at 30.09.2018: € 1.3 bn

North America CRE finance portfolio Total volume outstanding as at 30.09.2018: € 6.8 bn

Asia / Pacific CRE finance portfolio Total volume outstanding as at 30.09.2018: € 0.4 bn

Spotlight: UK CRE finance portfolio € 3.9 bn (~16% of total CRE-portfolio)

Comments

• Performing:
• Investment finance only, no developments
• ~ 60% of total portfolio in Greater London area, emphasising on hotels
• € 176 mn with LTV > 60%
• Theoretical stress on property values (-20%): would lead to portfolio LTV of approx. 73%
• No NPL

Spotlight: Italian CRE finance portfolio € 2.8 bn (~11% of total portfolio)

2) Current enforcement period 3-4 years, but improving due to new legislation

Comments

• Performing:
• Share of developments financed below 10%
• ~ 50% of total portfolio in Greater Rome or Milan area
• € 325 mn with LTV > 60%
• Theoretical stress on property values (-20%): would lead to portfolio LTV of approx. 88%
• NPL: € 655 mn of which
• ~ 70% restructured / agreement in place or planned
• ~ 30% enforcement2)

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

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
€ 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 - -
+ Other revenue reserves after net income attribution	715	720	720	720
Total dividend potential before amount blocked1) =	792	819	842	870
./. 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
= Available Distributable Items1)	552	532	579	552
+ Increase by aggregated amount of interest expenses relating to Distributions on Tier 1 Instruments1)	57	46	46	32
= 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

1) Unaudited figures for information purposes only

Appendix RWA-split

From asset to risk weighted asset (RWA)

Effective date 30/09/2018

1) Amounts to € 35 mn

Sustainability Performance

Aareal Bank Group Stands for solidity, reliability and predictability

1) Basel 3, as at 30.09.2018

2) REF-portfolio includes private client business (€ 0.6 bn) and WIB's public sector loans (€ 0.5 bn), as at 30.09.2018

3) Mortgage Pfandbriefe rated Aaa by Moody's

65 4) At our main locations in Wiesbaden and Mainz, selected other German and international sites

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 2017 FOR AAREAL BANK AG"1) and SUSTAINABILITY REPORT 2017 "THINK FUTURE. ACT NOW."2) published on March 28, 2018
• PricewaterhouseCoopers performed a limited assurance engagement and issued an unqualified review opinion

Sustainability Ratings – confirming the company's sustainability performance

• MSCIAareal 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-oekomAareal Bank Group holds "prime status", ranking among the leaders in its industry [since 2012]
• SustainalyticsAareal Bank Group was classified as "outperformer", ranking among the best 17% of its industry [as per 02/20173)]
• GRESBAareal Bank Group scores 35 out of 100 in GRESB Debt Assessment [as per 09/2018]
• imugAareal Bank was rated "positive BB" in the category "Issuer Performance"; the second best result of all 60 rated Banks [as per 05/2018]

1) https://www.aareal-bank.com/fileadmin/05\_Verantwortung/03\_Other\_PDF-files/Nichtfinanzieller\_Bericht\_2017\_en.pdf

2) https://cr.aareal-bank.com/2017

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)	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 ~ 7 mn in the key market Germany
portfolio1): ~ € Total real estate finance 26 bn	International presence: France, the Netherlands, the UK and Scandinavia

1) REF-portfolio incl. private client business (€ 0.6 bn) and WIB's public sector loans (€ 0.5 bn)

Aareal Bank Group One Bank – two segments – three continents

International property financing in more than 20 countries – Europe, North America and Asia / Pacific

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 ~7 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 € 10.4 bn in Q3 2018

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 Sustainability Management Phone: +49 611 348 3554 daniela.thyssen@aareal-bank.com

Disclaimer

© 2018 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.