Aareal Bank AG — Call Transcript 2019

May 9, 2019

Analyst Conference Call Q1 2019 results

May 09, 2019 Marc Hess, CFO

Agenda

• Highlights
• Segment performance
• Group results Q1 2019
• Capital, Funding & B/S structure
• Asset quality
• Outlook 2019
• Appendix

Highlights Good start in 2019

Highlights
Q1 operating profit of € 61 mn (Q1/2018: € 67 mn) in line with expectations
▪ Strong new business margins in the structured property financing segment ▪ Aareon's sales revenues further increased
Integration of DHB as planned; ~2/3 of the expected integration costs already booked in Q1
Targets 2019 confirmed

Segment performance

Structured Property Financing

New business focused 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 revenues further increased

P&L C/S Segment	Q1 '18	Q2 '18	Q3 '18	Q4 '18	Q1 '19
€ mn
Net interest income	-3	-3	-3	-3	-3
Loss allowance	0	0	0	-1	0
▪ Thereof Aareon	0	0	0	-1	0
Net commission income	50	49	51	62	52
▪ Thereof Aareon	46	47	47	57	49
− Sales revenues	55	57	56	69	59
− Material costs	9	10	9	12	10
Admin expenses	55	55	56	61	58
▪ Thereof Aareon	40	41	41	43	41
Net other op. income	0	1	1	2	0
▪ Thereof Aareon	1	1	1	0	0
Operating profit	-8	-8	-7	1	-9
▪ Thereof Aareon	6	8	7	15	8

▪ Aareon

• Sales revenue 7% up to € 59 mn (Q1 2018: € 55 mn)
• Stronger sales revenue resulting from growth in all product lines, digital with highest rates (~ 25% yoy)
• € 8 mn EBT within targeted range, EBT margin ~14%
• Deposits
  • Volume remains on high level of Ø € 10.6 bn
  • Focusing on further shift into sustainable deposits
  • Deposit Protection Guarantee Schemes (ESF) fully booked in Q1 while accrued in 2018 (segment view)

Group results Q1 2019

Group results Q1 2019 Good start in 2019: results in line with expectations

€ mn	Q1 '18	Q2 '18	Q3 '18	Q4 '18	Q1 '19	Comments
Net interest income	133	136	131	135	135	Reflecting stable portfolio, slightly up y-o-y
Derecognition result	6	5	5	8	16	€ 12 mn effect from treasury portfolio adjustments
Loss allowance	0	19	14	39	5	Within expected range, Q1 regularly below average due to seasonal effects
Net commission income	50	51	51	63	53	Aareon's sales revenues further increased
FV- / hedge-result	1	-5	1	-1	6
Admin expenses	128	109	107	118	144	Incl. DHB integration, ESF, European banking levy
Negative goodwill				55
Others	5	3	3	14	0
Operating profit	67	62	70	117	61	In line with expectations
Income taxes	23	21	24	22	21	FY 2019 tax ratio of ~34% assumed
Minorities / AT1	5	4	5	4	5
Consolidated net income allocated to ord. shareholders	39	37	41	91	35
Earnings per share [€]	0.65	0.62	0.70	1.51	0.59

Net interest income / Derecognition result (DR) NII reflecting stable portfolio size, slightly up y-o-y DR significantly pushed by treasury portfolio adjustments

• Newly acquired business margins of > 250 bps in Q1 2019 pushed by high US and Asia / Pacific share
• Derecognition result:
  • € 4 mn effects from early repayments
  • € 12 mn from treasury portfolio adjustments

Loss allowance (LLP) Within expected range

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

Net commission income Aareon's sales revenues further increased

Aareon

• Sales revenues of € 59 mn (Q1 2018: € 55 mn)
• Digital products with highest growth rates
• Q4 regularly includes positive seasonal effects

Admin expenses

Approx. 2/3 of expected DHB integration costs already booked in Q1

• € 9 mn costs from DHB integration (incl. European bank levy and ESF)
• € 21 mn for the European bank levy and ESF (fully expensed in Q1, Q1/18: € 20 mn)
• € 4 mn transformation costs (FY 2019 plan: € 20 mn)
• Q1/18 incl. reversals of provisions (€ 3 mn)

Capital, Funding & B/S structure

Capital Strong capital ratios already incl. TRIM effects

• 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)
• B4 target ratio of 12.5%
• 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

2) Expected relevant TRIM effects on CREF portfolio and SREP recommendations with respect to NPL guidelines (NPL stock) from ECB

Funding Diversified funding position

• Sustainable and strong deposit base counts for more than 40% of the well diversified funding mix
• Successful Pfandbrief issuances in Q1:
  • EUR 750 mn Pfandbrief, 5 years
  • EUR 250 mn Pfandbrief Tap, 4 years
• Senior unsecured funding based on well established private placement business:
  • EUR 100 mn Senior Unsecured
• MREL is not a limiting factor due to large amount of outstanding long term senior funding
• NSFR/ LCR well above 100% due to comfortable liquidity position

Strong investor demand for fixed income products result in high issuance activities and decreasing funding spreads for Pfandbriefe and senior unsecured transactions

B/S structure according to IFRS As at 31.03.2019: € 42.7 bn (31.12.2018: € 42.7 bn)

• Stable CREF-portfolio

• Treasury portfolio reduction by active de-risking

• 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) € 26.3 bn highly diversified and sound

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

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

Defaulted exposure

Defaulted exposure / Total CREF portfolio

Defaulted exposure

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

Comments

• Performing:
  • Share of developments financed ~ 5%
  • ~ 50% of total portfolio in Greater Rome or Milan area
  • € 227 mn with LTV > 60%
  • Theoretical stress on property values (-20%): would lead to portfolio LTV of approx. 86%
• Defaulted exposure: € 1,106 mn

Treasury portfolio € 8.0 bn of high quality and highly liquid assets

by asset class Q1 2019 (vs. Q4 2018) by rating1) Q1 2019 (vs. Q4 2018)

As at 31.03.2019 – all figures are nominal amounts 1) Composite Rating

Outlook 2019

Outlook 2019 Confirmed

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
Operating profit Aareon3)	▪ ~ € 35 mn (~ € 41 mn before strategic investments)

Expected 2019 results on good 2018 (clean) level despite strategic investments, DHB integration costs and the lack of positive 2018 effects from reversal of provisions

• 1) As in 2018, the bank cannot rule out additional allowances for credit losses
• 2) Incl. renewals
• 3) After segment adjustments

Conclusion Robust business, confirmed targets, successful strategy

Key takeaways

In a challenging environment, Aareal Bank Group started well into the financial year 2019. This shows that our operating business continues to be very robust and our strategy works well.

After a successful start into 2019, Aareal Bank Group confirms its FY targets. We remain confident that we will achieve an operating result on the previous year's level (adjusted for one-off effects).

Aareal Bank Group consistently continues implementing its "Aareal 2020" strategy by focussing on particularly attractive opportunities in the CRE lending business and starting a major digital initiative at its subsidiary Aareon.

Appendix Group results

Aareal Bank Group Results Q1 2019

	01.01.- 31.03.2019	01.01.- 31.03.2018	Change
	€ mn	€ mn
Profit and loss account
Net interest income	135	133	2%
Loss allowance	5	0
Net commission income	53	50	6%
Net derecognition gain or loss	16	6	167%
Net gain or loss from financial instruments (fvpl)	6	3	100%
Net gain or loss on hedge accounting	0	-2	-100%
Net gain or loss from investments accounted for using the equity method	0
Administrative expenses	144	128	13%
Net other operating income / expenses	0	5	-100%
Negative goodwill from acquisitions
Operating Profit	61	67	-9%
Income taxes	21	23	-9%
Consolidated net income	40	44	-9%
Consolidated net income attributable to non-controlling interests	1	1
Consolidated net income attributable to shareholders of Aareal Bank AG	39	43	-9%
Earnings per share (EpS)
Consolidated net income attributable to shareholders of Aareal Bank AG1)	39	43	-9%
of which: allocated to ordinary shareholders	35	39	-10%
of which: allocated to AT1 investors	4	4
Earnings per ordinary share (in €)2)	0.59	0.65	-9%
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 Q1 2019 by segments

	Structured Property Financing		Consulting / Services		Consolidation/ Reconciliation		Aareal Bank Group
	01.01.-	01.01-	01.01.-	01.01-	01.01.-	01.01-	01.01.-	01.01-
	31.03.	31.03.	31.03.	31.03.	31.03.	31.03.	31.03.	31.03.
	2019	2018	2019	2018	2019	2018	2019	2018
€ mn
Net interest income1)	138	136	-3	-3	0	0	135	133
Loss allowance	5	0	0	0			5	0
Net commission income1)	2	1	52	50	-1	-1	53	50
Net derecognition gain or loss	16	6					16	6
Net gain or loss from financial instruments (fvpl)	6	3					6	3
Net gain or loss on hedge accounting	0	-2					0	-2
Net gain or loss from investments			0				0
accounted for using the equity method
Administrative expenses	87	74	58	55	-1	-1	144	128
Net other operating income / expenses	0	5	0	0	0	0	0	5
Negative goodwill from acquisitions
Operating profit	70	75	-9	-8	0	0	61	67
Income taxes	24	26	-3	-3			21	23
Consolidated net income	46	49	-6	-5	0	0	40	44
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	46	49	-7	-6	0	0	39	43

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
	Q1 2019	Q4	Q3 2018	Q2	Q1	Q1 2019	Q4	Q3 2018	Q2	Q1	Q1 2019	Q4	Q3 2018	Q2	Q1	Q1 2019	Q4	Q3 2018	Q2	Q1
€ mn
Net interest income1)	138	138	134	139	136	-3	-3	-3	-3	-3	0	0	0	0	0	135	135	131	136	133
Loss allowance	5	40	14	19	0	0	-1	0	0	0						5	39	14	19	0
Net commission income1)	2	3	2	3	1	52	62	51	49	50	-1	-2	-2	-1	-1	53	63	51	51	50
Net derecognition gain or loss	16	8	5	5	6											16	8	5	5	6
Net gain or loss from financial instruments (fvpl)	6	-1	0	-4	3		0									6	-1	0	-4	3
Net gain or loss on hedge
accounting	0	0	1	-1	-2											0	0	1	-1	-2
Net gain or loss from
investments accounted for using		0				0										0	0
the equity method
Administrative expenses	87	59	53	55	74	58	61	56	55	55	-1	-2	-2	-1	-1	144	118	107	109	128
Net other operating income /	0	12	2	2	5	0	2	1	1	0	0	0	0	0	0	0	14	3	3	5
expenses
Negative goodwill from		55															55
acquisitions
Operating profit	70	116	77	70	75	-9	1	-7	-8	-8	0	0	0	0	0	61	117	70	62	67
Income taxes	24	22	27	24	26	-3	0	-3	-3	-3						21	22	24	21	23
Consolidated net income	46	94	50	46	49	-6	1	-4	-5	-5	0	0	0	0	0	40	95	46	41	44
Cons. net income attributable to	0	0	0	0	0	1	0	1	0	1						1	0	1	0	1
non-controlling interests
Cons. net income attributable to shareholders of Aareal Bank AG	46	94	50	46	49	-7	1	-5	-5	-6	0	0	0	0	0	39	95	45	41	43

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

Western Europe (ex Germany) CREF portfolio Total volume outstanding as at 31.03.2019: € 8.6 bn

1) Incl. Student housing (UK only)

Spotlight: UK CREF portfolio € 4.2 bn (~16% of total CREF-portfolio)

Comments

• Performing:
  • Investment finance only, no developments
  • ~ 60% of total portfolio in Greater London area, emphasising on hotels
  • € 254 mn with LTV > 60%
  • Theoretical stress on property values (-20%): would lead to portfolio LTV of approx. 75%
• No defaulted exposure

Southern Europe CREF portfolio Total volume outstanding as at 31.03.2019: € 3.9 bn

German CREF portfolio Total volume outstanding as at 31.03.2019: € 2.9 bn

Northern Europe CREF portfolio Total volume outstanding as at 31.03.2019: € 1.6 bn

Eastern Europe CREF portfolio

1) Performing CREF-portfolio only, exposure as at 31.03.2019

Total volume outstanding as at 31.03.2019: € 1.3 bn

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

North America CREF portfolio Total volume outstanding as at 31.03.2019: € 7.4 bn

Asia / Pacific CREF portfolio Total volume outstanding as at 31.03.2019: € 0.6 bn

1) Incl. Student housing (Australia only)

Appendix Strategic outlook

Aareal 2020 Well on track

Actuals Targets

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

42

• 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

	Aareal 2020 as of today	▪ ▪ adequately	Aareal 2020 was designed already in 2016 to provide for higher stability, efficiency and flexibility in an increasingly changing environment We have executed – hence our business model today has inherent optionalities enabling us to act
			Three areas of particular focus:
A	CRE	Fine-tuning of our strategic positioning as a result of (i) sluggish growth and transaction volumes, as well as (ii) regulatory changes
B	Regulatory capital	Anticipation and implementation of regulatory changes – coming from a strong basis − Flashlight on future ECB NPL guidelines and IFRS 9 stage 2 sensitivity
C	Aareon	Where we are today Where we will go How we will achieve	Strengthening of capital-light / commission income business: European No 1 ERP provider1); sustainable client base; digital products successfully ▪ established Aareon Investor Seminar ▪ Accelerate growth by pushing the digital business further in 2019 ▪ Increased R&D spend for iterative organic development; supported by selective M&A
	1)	For the institutional housing industry

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

2) 20202) 2)

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	77	99	122	147	126
▪ Net income	77	99	122	147	126
▪ Profit carried forward from previous year	-	-	-	-	-
▪ Net income attribution to revenue reserves	-	-	-	-	-
+ 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)	240	287	235	283	268
of the German Commercial Code
./. Dividend amount blocked under section 253 (6) of the German Commercial Code	-	-	28	35	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 31.03.2019

3) REF-portfolio includes private client business (€ 0.5 bn) and WIB's public sector loans (€ 0.4 bn), as at 31.03.2019

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 "outperformer", ranking among the best 17% of its industry [as per 02/2017]
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

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 ~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 Q1 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 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.