Aareal Bank AG — Call Transcript 2020

Jul 13, 2020

Analyst Conference Call Q2 2020 results

August 13, 2020 Hermann J. Merkens, CEO – Marc Hess, CFO

Agenda

• Business development in times of Covid-19 and Highlights Q2/2020
• Asset Quality
• Segments
• Group results Q2 2020
• Capital, B/S, Funding/Liquidity
• Outlook 2020
• Appendix

Business development in times of Covid-19 and Highlights Q2/2020

Business development in times of Covid-19

Staying on course: Managing Covid-19 challenges and pursue strategic initiatives consistently

Q1/2020 / May 2020		Q2/2020 / August 2020
What we see: The perfect storm Covid-19 caused the sharpest global recession in post war history - with dramatic effects on all sectors of the economy	…	What we see: First signs of gradual recovery… … but more pronounced (than expected) dip and still high Covid-19 risks and uncertainties How we maneuver through the crisis:
How we entered into this crisis: Robust and resilient ▪ Conservative risk profile ▪ Strong capital base ▪ Solid liquidity position ▪ Well-diversified business	…	Staying on course ▪ As a reliable partner being in close contact with our clients finding solutions, supporting where necessary ▪ Precautionary model based risk provisioning and value adjustments ▪ Pursue strategic initiatives consistently ▪ Continue de-risking when opportunities arise
What we expect: Gradual recovery Continuous normalisation from mid 2020 onwards, followed by a significant recovery ("swoosh" shaped) in 2021	…	What we expect: Gradual recovery continuous Sticking to "swoosh scenario" with more pronounced dip considering slightly slower recovery

Highlights Q2/2020

Slightly positive result in the lock down quarter despite Covid-19 impacts and further successful accelerated de-risking activities

	Solid Group Financials	▪ Q2 operating profit of € 2 mn considering precautionary risk provisioning and value adjustments as well as further successful accelerated de-risking activities ▪ Strong capital, funding and liquidity position
Aareal Bank Group	Resilient Segment Performance	▪ SPF:	- New business: low LTVs and strong, significantly above plan margins partly mitigated by higher funding spreads - Precautionary model based risk provisioning and value adjustments - Italian NPLs significantly reduced (07/20)
		▪ C/S Bank:	- As expected, housing industry deposits proven stable - Commission income increased in line with guidance
		▪ Aareon:	- Remaining on track, Covid-19 seen as mid-term catalyst for digitisation - Strong sales of digital products
	Outlook1)	From today's point of view, Aareal Bank Group remains confident that it can achieve a substantially positive consolidated operating profit for the 2020 financial year, i.e. in the mid- to upper double-digit euro million range. Further effects from potential accelerated de-risking measures are not included.

1) Naturally, in the current environment, this forecast is subject to significant uncertainty, especially with regard to the assumed duration and intensity of the crisis, the pace of recovery and the associated effects on our clients, as well as prevailing unclear regulatory and accounting provisions, and the possibility that individual loan defaults cannot be reliably predicted

Asset quality

Asset quality Actively managing Covid-19 implications

▪		Normal loan servicing by vast majority of our clients
---	--	-------------------------------------------------------	--	--	--

• In close contact with our clients
  • Review business plans
  • Loan agreements / covenants realigned where necessary
  • Primarily hotel and retail in focus
• Debt service
  • Significant liquidity injections by clients / sponsors, keeping substantial liquidity reserves
  • Governmental programs providing additional support
  • So far, only minor amortisation holidays (€ 76 mn) and credit / liquidity lines (€ 84 mn) granted by Aareal Bank
• Property values
  • As external appraisals were not possible / realisable, LTVs1) and RWAs2) are hardly affected so far, Ø portfolio LTV of 57% with little variance reflects good entry level however
• P/L
  • Precautionary model based risks provisioning (management overlays) anticipating possible changes in property value
  • Covid-19 related impact of € 44 mn (LLP and fvpl-results) in Q2 (H1/20: € 94 mn), thereof management overlays of € 33 mn (H1/20: € 50 mn); additionally scenario based value adjustments of € 13 mn for own assets (Other expenses)

Uncertainties continue, but Aareal has comfortable headroom due to conservative risk parameters and a solid capital position

1) LTV pre Covid-19, as at 30.06.2020

2) Ratings not yet reflecting potential changes from management overlays

Covid-19 implications

Asset quality: Hotel Portfolio

Actively managing Covid-19 implications

	▪ Hotel of € 8.7 bn focussing on 4-5 star properties within city centres ▪ Well diversified portfolio with respect to region and demand sources ▪ Based on current market research it is expected that ▫ The leisure segment will recover first, which has already been witnessed by strong bookings in drive-to holiday and city locations ▫ The corporate segment will follow thereafter and the speed of recovery will be more visible after the summer holidays as of September
	▫ The MICE segment will take the longest to recover, and will depend on local regulations regarding permitted size of events as well as on the configuration of the meeting facilities within the individual hotels
Hotel	▪ Only appr. 10% of our portfolio with expected prolonged recovery period, e.g. luxury, airport hotels, convention ▪ Ø YoD from 9.6% (in Q1 2020) to 4.5% as a consequence of the crises, however still positive
	▪ Over 90% of the total volume based on management contracts
	▪ Over 90% with large international hotel brands
	▪ Pre-crisis, as the hotel industry has gone through 10 consecutive years of RevPAR (revenue per available room) growth in all major markets a large share of our hotel owners have been able to build substantial reserves
	▪ Investment finance only, no developments
	with LTV1) ▪ Good entry LTV of 56% on total hotel portfolio, only € 37 mn > 70% only € 37 mn
	▪ Defaulted exposure: € 178 mn (€ 152 mn as at 07/2020, NPL ratio of hotel portfolio: 1.8% vs. total NPL ratio of 3.7%)
1) LTV pre Covid-19, as at 30.06.2020

Asset quality: Hotel Portfolio

Hotel portfolio well positioned to master Covid-19 crisis

3) MICE (Meetings Incentives Conventions Exhibitions/Events)

Asset quality: Retail Portfolio

Actively managing Covid-19 implications

	▪ Retail portfolio of € 5.9 bn, thereof ~80% of total portfolio located in Europe
	▪ Largest portfolio share in UK (~€ 1.1 bn), US (~€ 1.1 bn), DE and ES (~€ 0.8 bn each) and IT (~€ 0.7 bn) with substantial state support programs for tenants in place
Retail	▪ All major markets already lifted lock down measures but retail activities partially still limited by safety requirements
	▪ Footfall still below pre-crisis level, but first sign from re-openings indicate positive signals to get back to normality. In many centres sales revenue per customer increased
	▪ Covid-19 related Ø YoD decrease so far limited from 9.6% in Q1 2020 to 8.6% in Q2 2020
	▪ Based on current market research it is expected that
	▫ Malls: Accelerated transformation of the retail concepts is expected such that the dominant assets which fulfill omnichannel requirements will recover faster
	▫ Retail parks are less impacted and seem to be more compatible with the safety and health requirements due to Covid-19. Supermarkets hardly effected by lock-down due to the importance in the daily supply
	▫ Prime- / Luxury-High-Street segments seem to recover faster in some markets (e.g. Asia) although still travel prohibitions in place
	▪ Highly committed and professional sponsors with high quality assets
	▪ Good entry LTV1) of 59% - on total retail portfolio only € 182 mn > 70% / € 103 mn > 80% / € 60 mn > 90%
	▪ Investment finance only, no developments
	▪ Defaulted exposure: € 369 mn

1) LTV pre Covid-19, as at 30.06.2020

10

Asset quality: Retail Portfolio

2) Estimate only due to hybrid character of some assets

Retail portfolio well positioned to weather Covid-19

Commercial real estate finance portfolio (CREF) € 25.6 bn highly diversified

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

Commercial real estate finance portfolio (CREF) by country € 25.6 bn highly diversified

Commercial real estate finance portfolio (CREF) by property types € 25.6 bn highly diversified

Defaulted exposure

NPL portfolio further reduced by successful acc. de-risking activities

Defaulted exposure Defaulted exposure / Total CREF portfolio

• Successful accelerated de-risking activities in July 2020 (LLP already booked in Q2)
  • Total NPL portfolio below € 1 bn
  • Italian NPLs down to < 500 mn
• Opportunities for further accelerated de-risking will be assessed if they emerge

Segments

Segment: Structure Property Financing

Strong new business margins, significantly above plan

Segment: Consulting/Services Bank

Housing industry deposits proven stable, NCI in line with guidance

€ mn	Q2 '19	Q3 '19	Q4 '19	Q1 '20	Q2 '20
Net interest income	-3	-4	-5	10	10
Net commission income	6	7	6	5	7
Admin expenses	19	20	16	18	17
Net other operating income	-1	0	1	0	0
Operating profit	-17	-17	-14	-3	0

• Despite Covid-19 deposit volume increased to € 10.9 bn (from € 10.7 bn in Q2 2019)
• Structure further improved, sticky rental guarantee deposits grown up to ~ € 2 bn
• Q2 NII stable at € 10 mn / H1 '20 at € 20 mn (Q2 '19: € -3 mn / H1 '19: € -6 mn) Improvement in current year mainly due to adjusted modelling and transfer pricing, reflecting value of stable funding source
• Net commission income further improved; H1 result in line with guidance of +13% CAGR
• Due to higher short term interest rates and Covid-19 related underspend segment FY-EBT now expected at ~ € -10 mn (original guidance ~ € -20 mn)
• Unlocking further business opportunities, e.g. joint-venture with ista ("objego")

Segment: Aareon

Potential partners' supporting Aareon's strategy and value creation levers

Strategic evolution of Aareon… … and current positioning

Announcement "Aareal 2020" in Feb. 2016

• Drive ERP adoption and international expansion
• Focusing on delivering sustainable growth
• Develop first digital solutions

Aareon Investor Seminar in May 2019

• Embark next chapter with accelerating the growth program on an organic basis
• Drive digital solutions business and foster innovation

Announcement "Aareal Next Level" in Jan. 2020

▪ Accelerate the organic growth program as well as expedite inorganic initiatives through systematic and institutionalized M&A activities to drive RPU, Units and recurring revenues

Launch minority sales process in May 2020

▪ Join forces with a potential partner, in order to further strengthen Aareon's organic and inorganic growth prospects

Unlock potential and elevate growth opportunities

European leader for real estate software, serving c.3,000 customers and 10m+ units in DACH, Netherlands, France, Nordics and the UK

- 11-	a

Business-critical ERP Solutions and a broad suite of modular Digital Solutions including a cloud-native PaaS platform and enabling new technologies, e.g. Artificial Intelligence based Virtual Assistant

Sustainable and resilient business model with robust downside protection through high level of recurring revenue and low churn, delivering decades of consistent, profitable growth

Experienced leadership team combining deep software and real estate expertise, poised to ramp up inorganic growth by building on a successful M&A track record

Segment: Aareon

Remaining on track, Covid-19 seen as mid-term catalyst for digitisation

P&L Aareon segment - Industry format1) € mn	H1 '19	H2 '19	H1 '20	∆ H1 '20 / '19
Sales revenue ▪ Thereof ERP revenue ▪ Thereof Digital revenue	122 99 23	130 102 28	126 96 30	3% -3% 27%
Costs2) ▪ Thereof material costs	-94 -21	-97 -23	-102 -23	9% 11%
EBITDA	28	33	24	-17%
New products / Inorganic3)	0	-2	-3	>100%
One-offs	0	0	0
Adj. EBITDA	29	35	26	-8%
EBITDA	28	33	24	-17%
D&A / Financial result	-12	-12	-13	14%
EBT / Operating profit	17	20	10	-38%

• Sales revenues increased by € 4 mn to € 126 mn (+3%); Q1 was mostly unaffected by Corona whereas Q2 is expected to bear the brunt of the Covid-19 impact (€ -5 mn adj. EBITDA against initial outlook)
• As of now, Aareon confirms Q1 guided crisis impact with an adjusted EBITDA effect in FY 20 of approx. € -10 mn
• Crisis seen as a catalyst for digitisation creating future business opportunities for Aareon
• Mid term 2025 targets and commitments remain in place
• Digital revenues grew by 27% yoy based on higher penetration with existing digital products and CalCon
• Recurring revenues share (LTM) of 65% (last year 63%) increased from high level underpinning the downside protected business model

• Costs increased as expected to € 102 mn mainly driven by higher number of FTEs (CalCon acquisition) as well as additional € 3 mn investments supporting Aareon's growth strategy

• 1) Calculation refers to unrounded numbers

• 2) Incl. capitalised software and other income

3) Incl. strategic investments, venture and M&A related costs

Group results Q2 2020

Q2 results 2020

Considering precautionary risk provisioning and value adjustments as well as further successful acc. de-risking activities

€ mn	Q2 '19	Q3 '19	Q4 '19	Q1 '20	Q2 '20	Q2 2020-Comments
Net interest income	134	134	130	123	122	Stable on Q1, increase in H2 expected
Derecognition result	11	15	22	7	9	€ 5 mn from pre-payments, € 4 mn liability buy-backs
Loss allowance	23	27	35	58	48	Incl. precautionary model based risks provisioning and effects from further acc. de-risking
Net commission income	57	54	65	57	54	Aareon with strong sales of digital products
FV- / hedge-result	-7	2	-4	11	-16	Incl. precautionary model based value adjustments of NPL (fvpl)
Admin expenses	112	114	118	129	109	Reflecting cost management during Covid-19 crises, incl. investments in Aareon growth
Others	1	0	2	0	-10	Incl. Covid-19 scenario based internal value adjustments of own assets
Operating profit (EBT)	61	64	62	11	2	Considering precautionary risk provisioning and value adjustments as well as further successful de-risking activities
Income taxes	20	24	20	4	-7	DTA from unused loss carryforwards
Minorities / AT1	4	5	4	5	4
Consolidated net income allocated to ord. shareholders	37	35	38	2	5
Earnings per share (€)	0.61	0.60	0.62	0.04	0.07

Net interest income (NII)

Stable on Q1, increase in H2 expected

• Successful de-risking activities in 2019 led to a lower CREF- and TR portfolio
• Market transaction volume dropped sharply in Q2 due to Covid-19 related lock down - prevented portfolio growth
• NII increase in H2 expected by using attractive business opportunities unfolded in the crisis. YE-portfolio size in the upper half of guided range expected (€ 26 - 28 mn)
• In H2, NII expected to benefit from TLTRO bonus (over 12 month, € 20 mn max., likely to be partially shared with creditors)

Loss allowance (LLP) / Others

Incl. precautionary model based risks provisioning and effects from further acc. de-risking

• Q1-LLP with
  • € 8 mn normalised provisioning
  • € 50 mn Covid-19 related provisioning (thereof € 17 mn management overlay)
• Q2-LLP as a combination of
  • € 17 mn normalised provisioning (thereof € 9 mn further de-risking activities in 07/20)
  • € 31 mn Covid-19 related provisioning (thereof € 20 mn management overlay)
• LLP in Q2 not diluted by new NPL
• H1 incl. € 26 mn (net) Stage 1/2 related LLP, LLP stock related to Stage 1/2 increased by 64% from € 39 mn to € 64 mn

• Covid-19 (asset quality) related impact of € 107 mn in H1, thereof € 50 mn management overlay
• € 107 mn in H1 reflected in the following P/L positions
  • € 81 mn LLP (thereof € 37 mn management overlay)
  • € 13 mn fvpl result (thereof € 13 mn management overlay)
  • € 13 mn other expenses (scenario based value adjustments for own assets)

Net commission income

Aareon with strong sales of digital products

• despite Covid-19 related impact
• Aareon's sales revenue slightly diluted by lock down related lower consultancy revenues
  • Digital revenues grew by 27% in H1 2020 (vs. H1 2019) based on higher penetration with existing digital products and CalCon
• C/S Bank increased contribution to € 7 mn in Q2 (€ 5 mn in Q1) in line with guidance

Admin expenses

Reflecting cost management during Covid-19 crises, incl. Aareon growth

Decrease of admin expenses in Q2 2020 vs.

• Q1 2020: € -20 mn mainly € 18 mn European bank levy and ESF
• Q2 2019: € -3 mn
  • Aareon: € 3 mn, thereof
    • − € 2 mn strategic investments
    • − € 2 mn CalCon
    • − € -1 mn growth vs. Covid-19 related underspend
  • Bank: € -6 mn, thereof
    • − € -2 mn DHB integration
    • − € -4 mn Covid-19 related underspend

Capital, B/S, Funding/Liquidity

Capital Solid capital ratios

• Capital ratios significant above SREP requirements
• Slight B3-RWA increase in Q2 due to slightly higher portfolio and first Covid-19 effects
• Additional Covid-19 impact on B3-RWA in H2 expected mitigated by CRR3 Quick-Fix
• B4-RWA less exposed to Covid-19 volatility due to floor
• Significant CET1, AT1 and T2 buffers; continuously reviewed regarding optimisation potential in the context of the total capital management and group strategy
• T1-Leverage ratio still 5.8% despite TLTRO participation
• Remaining regulatory uncertainties (models, ICAAP, ILAAP, B4 etc.): modelled RWA's may further inflate

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

2) Ratings not yet reflecting potential changes from management overlays

3) When calculating own funds as at 30 June 2020, 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.

28

0% 5% 10% 15% 20% 25% 30% 35%

SREP (CET 1) requirements

Demonstrating conservative and sustainable business model

• P2R relief by using possibility of partially fulfilling requirements with AT1 and T2 capital
• Total capital requirement 2020 (Overall Capital Requirement (OCR)) amounts to 12.8% compared to 29.5% total capital ratio
• All ratios already include TRIM effects as well as prudential provisioning

B/S structure according to IFRS

As at 30.06.2020: € 45.3 bn (31.12.2019: € 41.1 bn)

• Well balanced B/S structure
• Temporary significant increase of total assets due to participation in ECBs' TLTRO (> € 4 bn) currently reflected in money market positions

1) CREF-portfolio only, private client business (€ 0.4 bn) and WIB's public sector loans (€ 0.3 bn) not included

2) Other assets includes € 0.4 bn private client portfolio and WIB's € 0.3 bn public sector loans

Funding / Liquidity

Diversified funding sources and distribution channels

• Sustainable and strong housing industry deposit base stays at a high level of well diversified funding mix
• Successful issuance of several senior unsecured private placements during the first 6 months with a total volume of close to € 500 mn (H1 2019: € 143 mn)
• Liability buy-backs to improve secondary market liquidity driven by investor demand
• Participation in the latest TLTRO III with a volume of more than € 4 bn
  • TLTRO offers attractive refinancing costs1) for a maximum of three years
  • Additional option for bonus of 50 bps for one year, if the relevant loan portfolio stays at least at the same level
• Liquidity ratios significantly over fulfilled:
  • NSFR > 100%
  • LCR >> 100%

Treasury portfolio

€ 7.2 bn (2019: € 7.3 bn) of high quality and highly liquid assets

As at 30.06.2020 – all figures are nominal amounts 1) Composite Rating

▪ Asset quality slightly further improved

Outlook 2020

Outlook 2020 confirmed

We had qualified our annual forecast published in the 2019 Annual Report, noting that the impact of the COVID-19 pandemic cannot be reliably estimated and that it is thus impossible to anticipate the consequences for business and earnings development.

In the remaining course of the year and in addition to our strategic initiatives as part of "Aareal Next Level" we focus to overcome the challenges and impacts from the Covid-19 pandemic together with our clients.

Crucial Question:	When will the economic recovery kick-in? With what momentum?
Our assumption:	We assume a continuous normalisation of the global economy from mid 2020 onwards followed by a significant recovery ("Swoosh" shaped) in 2021 / 2022
Our Outlook:	From today's point of view, Aareal Bank Group remains confident that it can achieve a substantially positive consolidated operating profit for the 2020 financial year, i.e. in the mid- to upper double-digit euro million range. Further effects from potential accelerated de-risking measures are not included.

Naturally, in the current environment, this forecast is subject to significant uncertainty, especially with regard to the assumed duration and intensity of the crisis, the pace of recovery and the associated effects on our clients, as well as prevailing unclear regulatory and accounting provisions, and the possibility that individual loan defaults cannot be reliably predicted.

Key Takeaways

Key takeaways

	Resilient performance	Aareal Group stays positive on operating profit and EpS-level despite significant Covid-19 related burdens, thanks to its strong business performance
	Manageable risks	Precautionary model based risk provisioning and value adjustments, combined with a highly intense monitoring of the credit portfolio to keep Covid-19 impact under control
Robust business in tough times	Strong capital and liquidity position	Aareal Group is well-equipped to weather burdens from Covid-19
	Confirmed guidance	Despite continuous high level of uncertainty, Aareal Group confirms its earnings outlook for FY-2020
	Compelling strategy	Regardless of high attention to manage through the crisis, Aareal Group continues to execute on its strategy with full speed

Group Results

Aareal Bank Group Results Q2 2020

	01.04.- 30.06.2020	01.04.- 30.06.2019	Change
	€ mn	€ mn
Profit and loss account
Net interest income	122	134	-9%
Loss allowance	4 8	2 3
Net commission income	5 4	5 7	-5%
Net derecognition gain or loss	9	1 1	-18%
Net gain or loss from financial instruments (fvpl)	-17	-6	183%
Net gain or loss on hedge accounting	1	-1	-200%
Net gain or loss from investments accounted for using the equity method	0
Administrative expenses	109	112	-3%
Net other operating income / expenses	-10	1
Operating Profit	2	6 1	-97%
Income taxes	-7	2 0	-135%
Consolidated net income	9	4 1	-78%
Consolidated net income attributable to non-controlling interests	0	0
Consolidated net income attributable to shareholders of Aareal Bank AG	9	4 1	-78%
Earnings per share (EpS)
Consolidated net income attributable to shareholders of Aareal Bank AG1)	9	4 1	-78%
of which: allocated to ordinary shareholders	5	3 7	-86%
of which: allocated to AT1 investors	4	4
Earnings per ordinary share (in €)2)	0.07	0.61	-89%
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.

38 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 2020 by segments

	Structured Property Financing		Services Bank	Consulting /	A a Aareon r e			Consolidation/ Reconciliation	Aareal Bank Group
	01.04.- 30.06. 2020	01.04- 30.06. 2019	01.04.- 30.06. 2020	01.04- 30.06. 2019	01.04.- 30.06. 2020	01.04- 30.06. 2019	01.04.- 30.06. 2020	01.04- 30.06. 2019	01.04.- 30.06. 2020	01.04- 30.06. 2019
€ mn
Net interest income	113	138	1 0	-3	-1	-1	0	0	122	134
Loss allowance	4 8	2 3			0	0			4 8	2 3
Net commission income	1	2	7	6	4 9	5 2	-3	-3	5 4	5 7
Net derecognition gain or loss	9	1 1							9	1 1
Net gain or loss from financial instruments (fvpl)	-17	-6	0		0				-17	-6
Net gain or loss on hedge accounting	1	-1							1	-1
Net gain or loss from investments					0				0
accounted for using the equity method
Administrative expenses	4 9	5 3	1 7	1 9	4 6	4 3	-3	-3	109	112
Net other operating income / expenses	-11	1	0	-1	1	1	0	0	-10	1
Operating profit	-1	6 9	0	-17	3	9	0	0	2	6 1
Income taxes	-8	2 3	0	-6	1	3			-7	2 0
Consolidated net income	7	4 6	0	-11	2	6	0	0	9	4 1
Allocation of results
Cons. net income attributable to non-controlling interests	0	0	0	0	0	0			0	0
Cons. net income attributable to shareholders of Aareal Bank AG	7	4 6	0	-11	2	6	0	0	9	4 1

Aareal Bank Group Results H1 2020

	01.01.- 30.06.2020	01.01.- 30.06.2019	Change
	€ mn	€ mn
Profit and loss account
Net interest income	245	269	-9%
Loss allowance	106	2 8	279%
Net commission income	111	110	1 %
Net derecognition gain or loss	1 6	2 7	-41%
Net gain or loss from financial instruments (fvpl)	-7	0
Net gain or loss on hedge accounting	2	-1	-300%
Net gain or loss from investments accounted for using the equity method	0	0
Administrative expenses	238	256	-7%
Net other operating income / expenses	-10	1
Operating Profit	1 3	122	-89%
Income taxes	-3	4 1	-107%
Consolidated net income	1 6	8 1	-80%
Consolidated net income attributable to non-controlling interests	1	1	0 %
Consolidated net income attributable to shareholders of Aareal Bank AG	1 5	8 0	-81%
Earnings per share (EpS)
Consolidated net income attributable to shareholders of Aareal Bank AG1)	1 5	8 0	-81%
of which: allocated to ordinary shareholders	7	7 2	-90%
of which: allocated to AT1 investors	8	8
Earnings per ordinary share (in €)2)	0.11	1.20	-91%
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.

40 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 2020 by segments

	Financing	Structured Property	Services Bank	Consulting /	A a Aareon r e		Consolidation/ Reconciliation		Aareal Bank Group
	01.01.- 30.06. 2020	01.01- 30.06. 2019	01.01.- 30.06. 2020	01.01- 30.06. 2019	01.01.- 30.06. 2020	01.01- 30.06. 2019	01.01.- 30.06. 2020	01.01- 30.06. 2019	01.01.- 30.06. 2020	01.01- 30.06. 2019
€ mn
Net interest income	226	276	2 0	-6	-1	-1	0	0	245	269
Loss allowance	106	2 8			0	0			106	2 8
Net commission income	3	4	1 2	1 0	102	101	-6	-5	111	110
Net derecognition gain or loss	1 6	2 7							1 6	2 7
Net gain or loss from financial instruments (fvpl)	-7	0	0		0				-7	0
Net gain or loss on hedge accounting	2	-1							2	-1
Net gain or loss from investments accounted for using the equity method					0	0			0	0
Administrative expenses	117	140	3 5	3 7	9 2	8 4	-6	-5	238	256
Net other operating income / expenses	-11	1	0	-1	1	1	0	0	-10	1
Operating profit	6	139	-3	-34	1 0	1 7	0	0	1 3	122
Income taxes	-5	4 7	-1	-11	3	5			-3	4 1
Consolidated net income	1 1	9 2	-2	-23	7	1 2	0	0	1 6	8 1
Allocation of results
Cons. net income attributable to non-controlling interests	0	0	0	0	1	1			1	1
Cons. net income attributable to shareholders of Aareal Bank AG	1 1	9 2	-2	-23	6	1 1	0	0	1 5	8 0

Aareal Bank Group

Results – quarter by quarter

	Structured Property Financing			Consulting / Services Bank			Aareon				Consolidation / Reconciliation					Aareal Bank Group
	Q2 2020	Q1	Q4	Q3 2019	Q2	Q2 2020	Q1	Q4	Q3 2019	Q2	Q2 2020	Q1	Q4	Q3 2019	Q2	Q2	Q1 2020	Q4	Q3 2019	Q2	Q2 2020	Q1	Q4	Q3 2019	Q2
€ mn
Net interest income	113	113	135	138	138	10	10	- 5	- 4	- 3	- 1	0	0	0	- 1	0	0	0	0	0	122	123	130	134	134
Loss allow ance	48	58	35	27	23			0			0	0	0	0	0						48	58	35	27	23
Net commission income	1	2	4	2	2	7	5	6	7	6	49	53	58	49	52	- 3	- 3	- 3	- 4	- 3	54	57	65	54	57
Net derecognition gain or loss	9	7	22	15	11																9	7	22	15	11
Net gain / loss from fin. instruments (fvpl)	-17	10	- 4	5	- 6	0					0	0	0								-17	10	- 4	5	- 6
Net gain or loss on hedge accounting	1	1	0	- 3	- 1																1	1	0	- 3	- 1
Net gain / loss from investments acc. for using the equity method			1								0	0	0	0							0	0	1	0
Administrative expenses	49	68	59	55	53	17	18	16	20	19	46	46	46	43	43	- 3	- 3	- 3	- 4	- 3	109	129	118	114	112
Net other operating income / expenses	-11	0	- 1	- 1	1	0	0	1	0	- 1	1	0	1	1	1	0	0	0	0	0	-10	0	1	0	1
Operating profit	- 1	7	63	74	69	0	- 3	-14	-17	-17	3	7	13	7	9	0	0	0	0	0	2	11	62	64	61
Income taxes	- 8	3	21	27	23	0	- 1	- 4	- 6	- 6	1	2	3	3	3						- 7	4	20	24	20
Consolidated net income	7	4	42	47	46	0	- 2	-10	-11	-11	2	5	10	4	6	0	0	0	0	0	9	7	42	40	41
Cons. net income attributable to non controlling interests	0	0	0	0	0	0	0	0	0	0	0	1	0	1	0						0	1	0	1	0
Cons. net income attributable to ARL shareholders	7	4	42	47	46	0	- 2	-10	-11	-11	2	4	10	3	6	0	0	0	0	0	9	6	42	39	41

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 30.06.2020: € 8.4 bn

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

Spotlight: UK CREF portfolio € 3.7 bn (~15% of total CREF-portfolio)

1) Performing CREF-portfolio only, LTV pre Covid-19, exposure as at 30.06.2020

52% 67% 55% 57% 60% 0% 20% 40% 60% 80% 100% Hotel Retail Logistic Office Student housing Average LTV by property type1) Ø LTV: 57%

Comments (vs. 2019)

• Performing:
  • Investment finance only, no developments
  • ~ 60% of total portfolio in Greater London area, emphasising on hotels
  • € 155 mn with LTV > 60%
  • LtV on average CREF-portfolio
  • Significant drop in YoD due to high hotel share of portfolio strongly effected by Covid-19
• Defaulted exposure: € 165 mn (€ 182 mn)

Southern Europe CREF portfolio

Total volume outstanding as at 30.06.2020: € 3.2 bn

Spotlight: Italian CREF portfolio (€ 1.9 bn)

Successful de-risking led to further significant NPL reduction

German CREF portfolio

Total volume outstanding as at 30.06.2020: € 3.0 bn

Northern Europe CREF portfolio

Total volume outstanding as at 30.06.2020: € 1.3 bn

Eastern Europe CREF portfolio

Total volume outstanding as at 30.06.2020: € 0.9 bn

North America CREF portfolio

Total volume outstanding as at 30.06.2020: € 8.1 bn

Asia / Pacific CREF portfolio

Total volume outstanding as at 30.06.2020: € 0.7 bn

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

Commercial real estate finance portfolio1) (CREF)

Conservative risk parameters

LTV
Exposure							70% bis 75% 75% bis 80% 80% bis 85% 85% bis 90% 90% bis 95% 95% bis 100% über 100%
	100%	250		132		71
	95%
Probability	90%
	85%
	80%
	75%
	70%
	60%
	40%
	20%

Density

Current average LTV of 57%

Layered LTVs:

• 70% LTV exposure: € 250 mn

• 80% LTV exposure: € 132 mn

• 90% LTV exposure: € 71 mn

• High portfolio concentration at 57% LTV
• Fairly small tail risk

1) Performing CREF-portfolio only, LTV / YoD pre Covid-19, exposure (excl. commitments) as at 31.03.2020

Accelerated de-risking

1.9 Non performing loans, H1 2019 – H1 2020 € bn

Accelerated de-risking

• Program with focus on Italian portfolio, continued in Q4 with Italian credit risk further down by approx. € 0.6 bn (thereof € 0.3 bn NPL, € 0.3 bn single borrower risk)
• Total effect from accelerated de-risking of approx. € 1.2 bn1) Italian credit risk in 2019
• P&L burden 2019 of approx. € 50 mn (€ ~15 mn in Q4)

NPL reduction

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

1) thereof € 350 mn NPL (in FY 2019, of which € 310 mn in H2 2019), € 350 mn single borrower risk, € 410 mn BTPs, € 80 mn NPL provisioned for future reduction

2

Commercial real estate finance portfolio (CREF)

Dimension of (theoretical) Stage migration effects have benefit from successful de-risking executed in 2019 and Covid-19 related provisions already considered in Q1/20 LLP

Sustainability Performance

Aareal Bank Group

Stands for solidity, reliability and predictability

Doing business sustainably

Development of Return on Equity1) demonstrates financial strength

19.8% Common Equity Tier 1 ratio2), significantly exceeding the statutory requirements

€ 26.3 bn Valuable Real Estate Finance Portfolio3)

Digital solutions boost our client's sustainability records

Above average results in sustainability ratings

Covered Bonds4) with best possible ratings – also attractive from an ESG point of view5)

Aareal Bank awarded as top employer for the 13th time in succession

Preparations for future disclosure requirements (EU Action Plan)

1) Pre-tax RoE of 8.7% as at 31.12.2019

2) Basel 3, as at 30.06.2020

3) REF-portfolio includes private client business (€ 0.4 bn) and WIB's public sector loans (€ 0.3 bn)

4) Mortgage Pfandbriefe rated Aaa by Moody's

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

59

Doing business sustainably

Above average ESG-Ratings confirm the company's performance

Environment Social Governance

• Environmental financing criteria within property valuation (e.g. asbestos, energy efficiency, etc.)
• Transparency initiatives on portfolio level (e.g. Climate VaR for new business 2018 & 2019 reg extreme weather events, future policy risk costs and 2°Ccompatibility; additional CMS-fields for energy efficiency, green building labels)

• Set-up of ESG-opportunity & risk management (e.g. we currently work on an Aareal-Green Lending Definition and climate reporting (TCFD¹ )

• Strong economic performance (e.g. contribution to the stability of the property banking sector/financial markets and to restoring trust in the banking industry)

• Contribution to affordable housing (e.g. with our software solution clients benefit from time, cost and efficiency savings)

• Failsafe information security (e.g. we undergo voluntary external audits and certification processes)

• Transparent reporting on remuneration model/details

• High quality ESG-disclosure (e.g. based on Global Reporting Initiative (GRI), assured by PwC, anticipating regulatory developments (ICAAP), ESGfacts incorporated in analyst presentation)
• Structure, composition and diversity of governing bodies (Supervisory Board established five committees in order to perform its supervisory duties in an efficient manner)

• Governance Roadshow

• Environmental disclosure (e.g. Aareal's ecological footprint, environmental KPIs (datasheet on website), CDP reporting, etc.)

• Expansion of green electricity (92% of total electricity consumption as of 12/2019)
• CO² compensation (parts of business travel, print materials)
• Fair, performance-oriented remuneration schemes
• Employee surveys
• Management of social matters (e.g. Code of Conduct for employees, Code of Conduct for business partners, Human Rights policy, Diversity Charta, etc.)
• CEO-responsibility for ESG matters ("tone from the top")
• ESG-targets for Management Board
• Sustainability matters regularly discussed in Board Meetings
• Groupwide Sustainability Committee established in 2012

1) TCFD: Taskforce on Climate-related Financial Dislosures

Within core business

On corporate level

Sustainability data

Extends the financial depiction of the Group

Key takeaways at a glance
Transparent Reporting – facilitating informed investment decisions	▪ "Separate Combined Non-financial Report 2019 for Aareal Bank AG" has been published on March 26, 2020 ▪ PwC issued an unqualified limited assurance opinion
	MSCI	Aareal Bank Group with "AA Rating" in highest scoring range for all companies assessed relative to global peers reg. Corporate Governance practices (as per 06/2019)
Sustainability	ISS-ESG	Aareal Bank Group holds "prime status" and ranks with a C+ rating among the top 15% within the 'Financials/Mortgage & Public Sector Finance' category (since 2012, re-confirmed 08/2019)
Ratings – confirming the company's sustainability performance	Sustainalytics	Aareal Bank AG is with a score of 22.9 at medium risk of experiencing material financial impacts from ESG factors, rank 116 out of 934 rated banks (13th Percentile). (as per 12/2019)
	CDP	Aareal Bank AG received a C which is in the Awareness band1 . This is same as the Europe-regional average of C, and same as the Financial services sector average of C. (Report 2019)
	imug	Aareal Bank was rated "positive B" in the category "Issuer Performance"; rank 6 out of 43 rated banks (as per 07/2019)

1) Downgrade due to average consideration of ESG aspects in governance and corporate processes.

ESG initiatives Investing in the transition to a low-carbon economy

ESG supportive regulation – facilitating energy-efficient modernisation / renovation loans

Aareal supports an ESG-based regulation of refurbishments

"I believe that fundamental renovations aimed at improving the life cycle assessment of a building should be supported by the regulatory authorities and not penalized. Of course, one can subsume renovations under "risky" property development and then attach correspondingly high capital requirements to them. On the other hand, if you don't completely renovate a building you will hardly be able to immediately meet the next climate standard. …

I am not talking about reducing capital adequacy requirements at all. But we would have gained a lot if refurbishment didn't necessarily trigger an increase. …" Hermann J. Merkens, BÖZ, 19. Juni 2020

ESG disclosure – improving transparency at property and portfolio level

Proportion of new business that was accounted for by properties with green building certificates¹based on market value (USD)

1) Other certificates such as HQE, DGNB, Energy Star

Aareal Next Level

Aareal Bank Group The new lineup - THREE segments

Structure Property Financing (SPF) Aareon

Consulting / Services (C/S) Bank

Commercial Real Estate Financing

solutions on three continents: Europe, North America, Asia/Pacific

Diverse property types

(hotel, logistic, office, retail, residential, student housing); additional industry experts in hotels, logistics and retail properties

Investment finance (Single asset, Portfolio, Value add) Integrated payment transaction

system for the housing industry (market-leading) and the utility sector

Financial Solutions:

• Payment processing provider
• Deposit Bank

Software Solutions:

▪ Intelligent solutions to improve connectivity and efficiency for bank and non-bank customers

European leader for real estate

software, 60+ years in the market serving c.3.000 customers and 10m+ units with 40 locations in DACH, Netherlands, France, Nordics and UK

Mission-critical ERP and a broad set of modular Digital Solutions built on a cloud-enabled PaaS platform

Sustainable and resilient business model with strong downside protection delivers decades of consistent profitable growth

Experienced leadership team combining deep software expertise and longstanding real estate experience with a strong M&A roll-up track record (with 675+ Software engineers)

Three strategic pillars, as presented in January 2020

Aareal Next Level Aareon: Our value creation levers

• Aareon organic growth plan as presented in May 2019 well on track
• New classification of Aareon as industrial holding allows additional M&A activities – on our own and / or including partner(s)

1) TAM and RPU figures rough company estimations, describing the expected entire future market potential

Aareal Next Level Our KPIs and targets

	2019	Stabilisation and investment phase (2020 - 2022)	Reaping the rewards phase (Mid-term)
Revenues Group1)	€ 762 mn	Low single digit growth (CAGR)
▪ o/w Aareon	7 - 9% CAGR revenues // 22 - 25% CAGR digital revenues
	€ 64 mn		€ >110 mn
Adj. EBITDA Aareon2)		EBITDA from M&A on top
Capitalisation		~12.5% B4 CET1 ratio
Pre tax RoE	8.7%	Stable (through investment phase)	12% (more supportive environment)
Dividend policy		50% base dividend plus 20-30% supplementary dividend

• Further development and investments into three strong business propositions
• Shift in earnings and value contribution towards capital light and digital business

1) Revenues Group = NII + NCI

2) 2019 + stabilisation and investment phase excl. strategic investments; Reaping the rewards phase incl. strategic investments

Aareal Next Level

Aareal Next Level

Consulting / Services (Bank) - More transparency and additional opportunities

Additional opportunities…

• … sustained growth of NCI: +13% CAGR planned from 2019 to 2022
• … option on increasing NII if rates rise >0%
• … diversification of funding mix, well recognized by rating agencies
• … cross selling between Aareal and Aareon

Summary Aareal Next Level

Highlights

We have clear visions of how to develop further our individual business activities in order to strengthen their respective independent profiles

Regardless of the continuous adverse environment and due to our confidence in the consistency of our strategic measures, we feel comfortable with confirming our highly attractive dividend policy with a payout ratio of 50% base plus 20-30% supplementary dividend

By investing in our businesses, we will significantly increase profitability and further enhance strategic optionalities. In a more supportive environment we aim a 12% pre tax RoE

Aareon

Aareon segment – new products / inorganic initiatives

	Progress on strategic initiatives and the development of products, markets and M&A
Organic initiatives New products, new markets	▪ Aareon Smart Platform: Further roll-out ▪ Neela AI based Virtual Assistant announcement ▪ New growth cases: Ongoing check for potential development partners ▪ First venture OFI Group with platform Ophigo: First end-to-end-transaction successfully realised; pipeline targets achieved
Inorganic initiatives, M&A activities, other cooperations	▪ CalCon Integration is up and running – product integration in Aareon Smart World is ongoing and sales synchronized as well as internal processes started to be set up ▪ M&A activity to grow inorganically: ▫ Institutionalised process of performing extensive market screening and systematically identifying numerous potential targets in accordance with Aareon's sustainable growth strategy ▪ Foresight initiative: Syndicate partner in high level project to create platform for smart living services supported by Federal Ministry of Economics and Energy.

P&L Aareon segment Quarterly split

P&L Aareon segment - Industry format²	Q1 19	Q2 19	H1 19	Q3 19	Q4 19	H2 19	FY 19	Q1 20	Q2 20	H1 20	∆ Q2 20/19	∆ H1 20/19
€ mn
Sales revenues	59	63	122	60	70	130	252	64	61	126	-3%	3%
thereof ERP revenue	47	51	99	48	55	102	201	49	47	96	-9% -3%
thereof Digital revenue	12	12	23	12	16	28	51	15	15	30	24% 27%
Costs1	-45	-48	-94	-47	-50	-97	-191	-50	-51	-102	6%	9%
thereof material costs	-10	-11	-21	-11	-12	-23	-44	-11	-12	-23	10%	11%
EBITDA	14	15	28	13	20	33	61	14	10	24	-32%	-17%
New Products / Inorganic³	0	0	0	-1	-2	-2	-2	-1	-2	-3	>100%	>100%
One-offs	0	0	0	0	0	0	0	0	0	0
Adj. EBITDA	14	15	29	14	22	35	64	15	12	26	-22%	-8%

P&L Aareon segment - Industry format²	Q1 19	Q2 19	H1 19	Q3 19	Q4 19	H2 19	FY 19	Q1 20	Q2 20	H1 20	Q2 20/19 ∆	H1 20/19 ∆
€ mn
EBITDA	14	15	28	13	20	33	61	14	10	24	-32%	-17%
D&A / Financial result	-6	-6	-12	-6	-6	-12	-24	-7	-7	-13	13%	14%
EBT / operating profit	8	9	17	7	13	20	37	7	3	10	-62%	-38%

1) Incl. capitalised software and other income

2) Calculation refers to unrounded numbers

3) Incl. strategic investments, venture and M&A activities

Dividend Policy

Aareal Next Level

Our Dividend Policy – Confirmed despite significant regulatory burdens

Base Dividend

+

of the earnings per ordinary share (EpS) as base dividend

▪ We intend to distribute approx. 50%

▪ In addition, we plan to distribute supplementary dividends of up to 20-30% of the EpS under the following prerequisites:

▫ No material deterioration of the

environment (with longer-term and sustainably negative effects)

▫ Nor attractive investment opportunities neither positive growth environment

Supplementary Dividend

Payout ratio of up to 80% confirmed Significant book value per share growth incl. dividend

▪ Attractive dividend policy and significant book value growth creating sustainable value for Aareal and hence our shareholders

Regulation

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

1

Normative internal perspective

• Medium-term projections for at least three years:
• Ensure the ongoing fulfillment of OCR plus P2G in the baseline, and TSCR in adverse scenarios
• Takes into account all material risks (not limited to Pillar 1 risks)
• Considers upcoming changes in the legal / regulatory / accounting framework
• Adequate and consistent internal methods to quantifying impacts on Pillar 1 ratios
• Additional management buffers determined by the institutions
• Risks that may cause economic losses are covered by internal
• Capital adequacy concept based on economic value considerations (e.g. net present value approach)
• Internal definition of capital ▪ Point-in-time risk qualification of
• the current situation feeding into medium-term assessment covering future developments
• Adequate and consistent internal risk quantification methods
• Internal indicators, thresholds and management buffers.

Economic ICAAP on SSM priority list 2020

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

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

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

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

Economic ICAAP: Future requirements will be tightened

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

▪ Economic ICAAP to become the new capital constraint for European banks?

1) Different risk categories regarding regulatory capital ratios and economic ICAAP

AT1: ADI of Aareal Bank AG

Interest payments and ADI of Aareal Bank AG

Available Distributable Items (as of end of the relevant year)

€ mn	31.12. 2015	31.12. 2016	31.12. 2017	31.12. 2018	31.12. 2019
Net Retained Profit ▪ Net income ▪ Profit carried forward from previous year ▪ Net income attribution to revenue reserves	99 99 - -	122 122 - -	147 147 - -	126 126 - -	120 120 - -
+ Other revenue reserves after net income attribution	720	720	720	720	720
Total dividend potential before amount blocked1) =	819	842	870	846	840
./. Dividend amount blocked under section 268 (8) of the German Commercial Code ./. Dividend amount blocked under section 253 (6) of the German Commercial Code	287 -	235 28	283 35	268 42	314 40
= Available Distributable Items1)	532	579	552	536	486
+ Increase by aggregated amount of interest expenses relating to Distributions on Tier 1 Instruments1)	46	46	32	24	23
= 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)	578	625	584	560	509

1) Unaudited figures for information purposes only

Definitions and contacts

Definitions

= New Business	Newly acquired business + renewals
Common Equity = Tier 1 ratio	CET 1 Risk weighted assets
= Pre tax RoE	Operating profit/income ./. loss attributable to non-controlling interests ./. AT1 cupon Average IFRS equity excl. non-controlling interests, 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	NOI x 100 (Net operating income, based on 12-months forward looking estimate) Outstanding incl. prior/pari-passu loans (without developments)
= 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

© 2020 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.

Thank you.