Aareal Bank AG — Call Transcript 2022

Nov 10, 2022

Analyst Conference Call Q3 2022 results

November 10, 2022 Jochen Klösges (CEO) Marc Hess (CFO)

Agenda

• Highlights
• Group results
• Segments
• Funding & Capital
• Outlook
• Appendix

Highlights

Ongoing strong operating performance in Q3 despite LLP on Russian exposure

1

Q3 operating profit increased by 32% to € 66 mn, despite additional LLP of € 43 mn on remaining Russian exposure

Strong earnings momentum: Q3 NII increased by 19% (yoy), NCI up by 20%

2

Strict cost discipline, strategy of growth at low marginal cost successfully executed, CIR of banking business further reduced to 39%

5

2022 capital market funding plan already fulfilled CET1 ratio (19.4%) remains at a comfortable level

Operating profit outlook 2022 confirmed1) , despite 9M-LLP on Russian exposure and negative impact of ECB's decision on TLTRO in Q4

6 Investors expect completion of qualifying holding procedure in spring 2023

1) Developments in the macroeconomic environment remain uncertain

Agenda

• Highlights
• Group results
• Segments
• Funding & Capital
• Outlook
• Appendix

Group Results

Strong earnings momentum offsetting additional LLP on remaining Russian exposure

€ mn	Q3 '21	Q4 '21	Q1 '22	Q2 '22	Q3 '22	9M '21	9M '22	9M Comments
Net interest income	155	162	159	171	184	435	514	Significant increase of 18% mainly driven by portfolio growth and first positive effects of higher interest rates
Loss allowance	39	54	49	58	63	79	170	LLP dominated by additional provision on remaining Russian exposure (9M: € 126 mn)
Net commission income	56	71	64	68	67	174	199	Both Aareon and BDS contribute to 14% increase
Derecognition result	7	8	9	13	2	15	24	Includes positive effects of elevated
FV- / hedge-result	-5	-24	2	9	5	-11	16	market volatility
Admin expenses	125	135	153	142	128	393	423	Reflects investments in Aareon growth. Bank largely stable despite PTO one-offs
Others	1	4	-2	0	-1	-18	-3
Operating profit (EBT)	50	32	30	61	66	123	157	Strong earnings momentum offsetting add. LLP on remaining Russian exposure
Income taxes	27	20	11	22	24	67	57
Minorities	0	-1	1	0	-1	2	0
AT1	3	4	3	4	4	10	11
Consolidated net income allocated to ord. shareholders	20	9	15	35	39	44	89
Earnings per share (€)	0.33	0,16	0.25	0.59	0.65	0.73	1,49
after taxes (%)1) 2) RoE						2.3	4.3
Cost/income ratio (%)3)	45	52	43	39	35	50	39	Successful execution of growth at low marginal cost strategy

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) Annualized

3) Structured Property Financing and Banking & Digital Solutions (excl. bank levy and contributions to the deposit guarantee scheme)

Net interest income (NII) / Net commission income (NCI)

Q1 Q2 Q3 Q4

Strong earnings momentum

59 64

2021 2022

Significant increase of 18% mainly driven by portfolio growth and first positive effects of higher interest rates

▪ RSF

Strong new business generation focusing on attractive return profiles while strictly adhering to unchanged conservative risk standards

▪ BDS

Rising interest rates generated significant increase in NII

• Q3 up from € 11 mn to € 26 mn (yoy)
• 9M up from € 33 mn to € 49 mn

Both Aareon and BDS contribute to 14% increase

• Aareon
• 9M NCI increased by € 23 mn to € 180 mn (+15% yoy)
• Shift from license to SaaS/Subscription making further progress - SaaS shows strong growth of >20% in 9M (yoy), supported by strong organic performance
• BDS
• 9M NCI increased by € 3 mn to € 23 mn (+15% yoy)

0

Admin expenses / Loan loss provisions (LLP)

High cost discipline, LLP dominated by provisions on remaining Russian exposure

Admin expenses Reflects investments in Aareon growth, bank largely stable despite PTO one-offs Bank1):

• 9M € 245 mn (vs. € 237 mn yoy); incl. € 12 mn PTO one-offs
• Growing at low marginal costs; CIR2) beating own target
• Improved CIR at 39% demonstrates very efficient operations based on high cost discipline

Aareon:

• Increase driven by M&A related costs
• 9M: € 178 mn (vs. € 156 mn yoy)

Dominated by additional provision on remaining Russian exposure

• Additional € 43 mn provision on Russian exposure due to the worsening prospects of a rapid de-escalation in Ukraine
• Total of € 126 mn Russian LLP represents 60% of gross exposure of € ~210 mn2)
• Post provision net exposure is ~30% of 10/21 appraisal value
• 9M LLP ex Russia of only € 44 mn is evidence of high quality portfolio and strong recovery after Covid-crisis

1) Structured Property Financing and Banking & Digital Solutions

2021 2022 thereof RUS

33 49

7

39

2) Structured Property Financing and Banking & Digital Solutions (excl. bank levy and contributions to the deposit guarantee scheme) 3) Incl. interest

Q1 Q2 Q3 Q4

Russia

6

Non performing loans (NPL) NPLs further reduced

• NPLs include € ~210 mn remaining Russian exposure
• One new NPL in Q3, office in New York
• Reduction predominantly in the hotel segment, in Q4 all US-hotels back to performing
• ➢ End of October 2022: Underlying NPL portfolio ex Russia significantly reduced by € ~390 mn (-25%) in 2022 witnessing post Covid-19 recovery

Agenda

• Highlights
• Group results
• Segments
• Funding & Capital
• Outlook
• Appendix

Segment Highlights

Growth in all three segments continued

Structured Property Financing

• Strong new business generation of € 6.9 bn in 9M strictly adhering to unchanged, conservative risk standards
• Portfolio increased to € 31.9 bn (12/2021: € 30.0 bn) above original target partly FX driven, continuously growing green loans portfolio
• Strong loan margins mitigate the temporarily elevated funding spreads
• Fast recovery of KPIs to pre-Covid crisis levels is evidence of high overall portfolio resilience

Banking & Digital Solutions

• NCI increased by 15% to € 23 mn in 9M (€ 20 mn in 9M 2021)
• Rising interest rates generate significant increase in NII
• Ø-deposit volume at € 13.5 bn (from € 12.4 bn in Q4 '21)

Aareon

• Switch of revenue model from license to SaaS/Subscription underpins healthy recurring revenue growth
• Share of recurring revenues above 70%
• New management focus on execution of Aareon's growth plan and efficiency of product portfolio

New business generation strictly adhering to unchanged conservative risk standards

Newly acquired business

• 9M Ø-margin1) of 227 bps (FY plan 2022: ~205 bps)
• Conservative 9M Ø-LtV of 56% (54% in Q3)
• 9M shows logistics with largest share
• Green loans2):

€ ~600 mn new business in 9M, additional € ~800 mn existing loans qualifying after clients' application

1) Pre FX

2) Governed by "Green Finance Framework"

Portfolio volume further increased, healthy KPIs at pre-Covid levels

KPIs continue to improve with the Covid-19 pandemic subsiding, overall portfolio-LtV and YoD back on pre-crisis levels

Overall LtVs are declining on improvements in all segment

• Hotel LtVs at 58% (62% at 12/20)
• Retail LtVs at 57% (61% at 12/20)
• Office LtVs at 57% (58% at 12/20)
• Logistic LtVs at 53% (55% at 12/20)

Overall YoDs are increasing on improvements in the hotel and retail segment, YoD in office segment down

• Hotel YoD at 8.1% (3.0% at 12/20)
• Retail YoD at 9.7% (8.8% at 12/20)
• Office YoD at to 6.8% (8.1% at 12/20)
• Logistic YoD at 8.6% (8.7% at 12/20)

Segment: Banking & Digital Solutions

NII benefitting from rising interest rates

NCI Positive development in NCI as planned

• CollectAI contributing to NCI development
• Growth on recurring revenues on banking-, software fees

Deposit volume increased significantly above target level of € ~12 bn supporting CREF portfolio growth

• Rising interest rates generating significant increase in NII at segment and group level
• Limited outflow of deposits expected due to
• Rising energy prices
• ESF1) reform in 2023

1) ESF: Deposit Protection Fund of the Association of German Banks (Einlagensicherungsfonds des Bundesverbandes deutscher Banken e.V.)

Segment: Aareon

Ongoing revenue growth, management focus on execution of Aareon's growth plan and efficiency of product portfolio

Note: Numbers not adding up refer to rounding 1) PS (Professional Services) = Consulting business

• Switch of revenue model from license to SaaS/ Subscription underpins healthy recurring revenue growth
• SaaS growth accelerated to > 20% yoy, supported by strong organic performance
• Run-rate recurring revenues is expected significantly above 70% going forward
• Sales revenues increased by € 27 mn to € 221 mn (+14% yoy); PS1) continues to be challenging
• Digital revenues up 22%, thereof 13% organically
• ERP revenues up 11%, thereof 4% organically
• Adj. EBITDA increased by € 5 mn to € 47 mn (+12% yoy)
• Integration of Swedish Momentum Software Group AB well underway
• New management focus on
• Implementation / Execution of Aareon's growth plan, organically and M&A
• Efficiency of product portfolio
• Improving Aareon in an evolutionary transition to a rule of 40 SaaS company

Agenda

• Highlights
• Group results
• Segments
• Funding & Capital
• Outlook
• Appendix

Funding & Capital Conservative line-up

Funding

• Funding mix further diversified
• Successful 9M funding activities
• 2022 funding plan already fulfilled despite PTO-related uncertainties and very challenging environment

Capital

• Comfortable capital ratios supporting controlled portfolio growth, strictly adhering to unchanged conservative risk standards
• Capital ratios significantly above regulatory requirements

Funding

2022 funding plan already fulfilled in Q3; funding mix further diversified

Funding mix further diversified

• Cooperation with Raisin/Deutsche Bank started in Q2 extended to include Weltsparen in Q3 to access retail deposits as additional funding source
• Commercial Paper Program successfully launched, offering ECPs in Green format and EUR, GBP & USD. Outstanding volume of € ~800 mn
• Second issue Rating from Moody's (A3) launched in Q2

Successful 9M funding activities

• Pfandbrief and Senior totalling € ~4.5 bn incl.
• 2 Green Senior Benchmarks (€ 1 bn)
• 4 Pfandbrief Benchmarks (€ 2.6 bn)
• € 1.2 bn ECP incl.
• € 700 mn conventional ECPs in EUR, USD and GBP (€ ~400 mn outstanding)
• € ~500 mn additional Green ECPs (€ ~400 mn outstanding)
• Strong and proven access to the institutional private placement market with unsecured and mortgage backed products of € >800 mn

Capital Maintaining robust capital base

CET1 ratio

• Very solid throughout Covid-19 crisis
• 9M increase mainly due to retention of originally announced dividend pay-out (1.60 € per share), retained profits for the current year and reduced pension liabilities
• Solid T1-Leverage ratio at 5.4%

RWA

▪ Increase from CREF portfolio growth compensated by portfolio quality improvements

1) Underlying RWA estimate based on the revised CRSA (phase-in) output floor, resulting from a "higher of" comparison with the RWA estimate based on the CRR in its current version plus revised AIRBA requirements for commercial property finance in line with the draft version dated 27 October 2021 of the European implementation of Basel IV by the European Commission which officially enter into force as of 1 January 2025

Agenda

• Highlights
• Group results
• Segments
• Funding & Capital
• Outlook
• Appendix

Outlook 2022

Operating profit guidance confirmed despite 9M-LLP on Russian exposure and negative impact of ECB's decision on TLTRO in Q4

	METRIC	2021	OUTLOOK 2022
	▪ Net interest income	€ 597 mn	€ 660 - 690 mn (€ 600 - 630 mn)
	▪ Net commission income	€ 245 mn	€ 270 - 290 mn
p u	LLP1) ▪	€ 169 mn	€ 140 - 180 mn upper end incl. € 126 mn Russia (€ 100 - 140 mn)
o Gr	▪ Admin expenses	€ 528 mn	€ 550 - 580 mn (€ 540 - 570 mn)
	▪ Operating profit Net income2) ▪ ▪ Earnings per share (EPS)	€ 155 mn € 53 mn € 0.89	€210-250mn lower end (€210-250mn) €120-150 mn3) lower end (€120-150mn) €2.00-2.503) lower end (€2.00-2.50)

Outlook 2022: Developments in the macroeconomic environment remain uncertain

		METRIC	2021	OUTLOOK 2022
s	Structured Property Financing	▪ REF Portfolio ▪ New business	€ 30.0 bn € 8.5 bn	32 bn4) € 31 - (€ ~31 bn) € 7.5 - 8.5 bn (€ 7 - 8 bn)
nt e m g e S	Banking & Digital Solutions	▪ Deposit volume ▪ NCI	€ 12.4 bn € 28 mn	€ >12 bn (€ ~12 bn) ~13% CAGR
	Aareon	▪ Revenues ▪ Adj. EBITDA	€ 269 mn € 67 mn	€ 305 - 325 mn € 73 - 78 mn

Note: ( ) = original guidance Feb. 2022

1) Incl. value adjustments from NPL fvpl

2) Net income attributable to ordinary shareholder

3) Based on expected FY-tax ratio of ~36%

4) Subject to FX development

20

Key takeaways

Aareal's next level strategy pays off

Ongoing strong operating performance even in a difficult environment; operational profitability and efficiency sustainably strengthened

Outlook confirmed

Aareal Bank confirms its 2022 outlook despite 9M-LLP on Russian exposure, PTO-related one offs and negative impact of ECB's decision on TLTRO in Q4

Well prepared…

…for the challenges ahead, thanks to Aareal Bank's earnings power and financial strength

Group Results

Aareal Bank Group Results Q3 2022

	01.07.- 30.09.2022	01.07.- 30.09.2021	Change
	€ mn	€ mn
Profit and loss account
Net interest income	184	155	19%
Loss allowance	6 3	3 9	62%
Net commission income	6 7	5 6	20%
Net derecognition gain or loss	2	7	-71%
Net gain or loss from financial instruments (fvpl)	4	-3
Net gain or loss on hedge accounting	1	-2
Net gain or loss from investments accounted for using the equity method	0	0	0 %
Administrative expenses	128	125	2 %
Net other operating income / expenses	-1	1
Operating Profit	6 6	5 0	32%
Income taxes	2 4	2 7	-11%
Consolidated net income	4 2	2 3	83%
Consolidated net income attributable to non-controlling interests	-1	0
Consolidated net income attributable to shareholders of Aareal Bank AG	4 3	2 3	87%
Earnings per share (EpS)
Consolidated net income attributable to shareholders of Aareal Bank AG1)	4 3	2 3	87%
of which: allocated to ordinary shareholders	3 9	2 0	95%
of which: allocated to AT1 investors	4	3	33%
Earnings per ordinary share (in €)2)	0.65	0.33	97%
Earnings per ordinary AT1 unit (in €)3)	0.04	0.03	33%

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.

23 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.

Results Q3 2022 by segments

	Structured Property Financing			Banking & Digital Solutions	A a r e	Aareon		Consolidation/ Reconciliation	Aareal Bank Group
	01.07.- 30.09. 2022	01.07.- 30.09. 2021	01.07.- 30.09. 2022	01.07.- 30.09. 2021	01.07.- 30.09. 2022	01.07.- 30.09. 2021	01.07.- 30.09. 2022	01.07.- 30.09. 2021	01.07.- 30.09. 2022	01.07.- 30.09. 2021
€ mn
Net interest income	162	146	2 6	1 1	-4	-2	0	0	184	155
Loss allowance	6 3	3 9	0		0	0			6 3	3 9
Net commission income	1	2	8	7	6 1	5 0	-3	-3	6 7	5 6
Net derecognition gain or loss	2	7							2	7
Net gain or loss from financial instruments (fvpl)	4	-3	0						4	-3
Net gain or loss on hedge accounting	1	-2							1	-2
Net gain or loss from investments					0	0			0	0
accounted for using the equity method
Administrative expenses	5 4	5 9	1 7	1 7	6 0	5 2	-3	-3	128	125
Net other operating income / expenses	-2	-1	0	0	1	2	0	0	-1	1
Operating profit	5 1	5 1	1 7	1	-2	-2	0	0	6 6	5 0
Income taxes	1 8	2 8	6	0	0	-1			2 4	2 7
Consolidated net income	3 3	2 3	1 1	1	-2	-1	0	0	4 2	2 3
Allocation of results
Cons. net income attributable to non-controlling interests	0	0	0	0	-1	0			-1	0
Cons. net income attributable to shareholders of Aareal Bank AG	3 3	2 3	1 1	1	-1	-1	0	0	4 3	2 3

Results 9M 2022

	01.01.- 30.09.2022	01.01.- 30.09.2021	Change
	€ mn	€ mn
Profit and loss account
Net interest income	514	435	18%
Loss allowance	170	7 9	115%
Net commission income	199	174	14%
Net derecognition gain or loss	2 4	1 5	60%
Net gain or loss from financial instruments (fvpl)	2 2	-7
Net gain or loss on hedge accounting	-6	-4	50%
Net gain or loss from investments accounted for using the equity method	-2	-1	100%
Administrative expenses	423	393	8 %
Net other operating income / expenses	-1	-17	-94%
Operating Profit	157	123	28%
Income taxes	5 7	6 7	-15%
Consolidated net income	100	5 6	79%
Consolidated net income attributable to non-controlling interests	0	2	-100%
Consolidated net income attributable to shareholders of Aareal Bank AG	100	5 4	85%
Earnings per share (EpS)
Consolidated net income attributable to shareholders of Aareal Bank AG1)	100	5 4	85%
of which: allocated to ordinary shareholders	8 9	4 4	102%
of which: allocated to AT1 investors	1 1	1 0	10%
Earnings per ordinary share (in €)2)	1.49	0.73	104%
Earnings per ordinary AT1 unit (in €)3)	0.11	0.10	10%

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.

25 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.

Results 9M 2022 by segments

	Structured Property Financing			Banking & Digital Solutions	A a Aareon r e			Consolidation/ Reconciliation	Aareal Bank Group
	01.01.- 30.09. 2022	01.01.- 30.09. 2021	01.01.- 30.09. 2022	01.01.- 30.09. 2021	01.01.- 30.09. 2022	01.01.- 30.09. 2021	01.01.- 30.09. 2022	01.01.- 30.09. 2021	01.01.- 30.09. 2022	01.01.- 30.09. 2021
€ mn
Net interest income	475	406	4 9	3 3	-10	-4	0	0	514	435
Loss allowance	170	7 9	0		0	0			170	7 9
Net commission income	5	6	2 3	2 0	180	157	-9	-9	199	174
Net derecognition gain or loss	2 4	1 5							2 4	1 5
Net gain or loss from financial instruments (fvpl)	2 2	-7	0		0				2 2	-7
Net gain or loss on hedge accounting	-6	-4							-6	-4
Net gain or loss from investments accounted for using the equity method	0		-1	-1	-1	0			-2	-1
Administrative expenses	200	193	5 4	5 3	178	156	-9	-9	423	393
Net other operating income / expenses	-4	-21	-1	0	4	4	0	0	-1	-17
Operating profit	146	123	1 6	-1	-5	1	0	0	157	123
Income taxes	5 2	6 8	6	-2	-1	0			5 7	6 7
Consolidated net income	9 4	5 5	1 0	0	-4	1	0	0	100	5 6
Allocation of results
Cons. net income attributable to non-controlling interests	0	0	0	0	0	2			0	2
Cons. net income attributable to shareholders of Aareal Bank AG	9 4	5 5	1 0	0	-4	-1	0	0	100	5 4

Preliminary results – quarter by quarter

			Structured Property Financing					Banking & Digital Solutions					Aareon			Consolidation / Reconciliation					Aareal Bank Group
	Q3	Q2 2022	Q1	Q4 2021	Q3	Q3	Q2 2022	Q1	Q4 2021	Q3	Q3	Q2 2022	Q1	Q4 2021	Q3	Q3	Q2 2022	Q1	Q4 2021	Q3	Q3	Q2 2022	Q1	Q4 2021	Q3
€ mn
Net interest income	162	163	150	154	146	26	11	12	10	11	- 4	- 3	- 3	- 2	- 2	0	0	0	0	0	184	171	159	162	155
Loss allow ance	63	58	49	54	39	0		0			0	0	0	0	0						63	58	49	54	39
Net commission income	1	2	2	2	2	8	8	7	8	7	61	61	58	64	50	- 3	- 3	- 3	- 3	- 3	67	68	64	71	56
Net derecognition gain or loss	2	13	9	8	7																2	13	9	8	7
Net gain / loss from fin. instruments (fvpl)	4	12	6	-23	- 3	0	0		0			0									4	12	6	-23	- 3
Net gain or loss on hedge accounting	1	- 3	- 4	- 1	- 2																1	- 3	- 4	- 1	- 2
Net gain / loss from investments acc. for using the equity method				0			- 1	0	0		0	- 1	0	- 1	0						0	- 2	0	- 1	0
Administrative expenses	54	61	85	63	59	17	19	18	20	17	60	65	53	55	52	- 3	- 3	- 3	- 3	- 3	128	142	153	135	125
Net other operating income / expenses	- 2	1	- 3	8	- 1	0	- 1	0	- 1	0	1	2	1	- 2	2	0	0	0	0	0	- 1	2	- 2	5	1
Operating profit	51	69	26	31	51	17	- 2	1	- 3	1	- 2	- 6	3	4	- 2	0	0	0	0	0	66	61	30	32	50
Income taxes	18	24	10	14	28	6	0	0	0	0	0	- 2	1	6	- 1						24	22	11	20	27
Consolidated net income	33	45	16	17	23	11	- 2	1	- 3	1	- 2	- 4	2	- 2	- 1	0	0	0	0	0	42	39	19	12	23
Cons. net income attributable to non controlling interests	0	0	0	0	0	0	0	0	0	0	- 1	0	1	- 1	0						- 1	0	1	- 1	0
Cons. net income attributable to ARL shareholders	33	45	16	17	23	11	- 2	1	- 3	1	- 1	- 4	1	- 1	- 1	0	0	0	0	0	43	39	18	13	23

Asset quality

CREF portfolio by country

€ 31.4 bn highly diversified

1) Performing CREF-portfolio only (exposure)

CREF portfolio by property types

€ 31.4 bn highly diversified

30

Non performing loans (NPL)

Deep dive

• NPL classification depends on a variety of triggers (e.g. arrears, NOI, DSCR, LtVs, yields, prices, marketability, …)
• NPL classification might be triggered even if no nominal loss will be made but contractual payments are or potentially will not be received in line with the agreement (timing / amounts)
• Current NPL portfolio:
• 27% of NPL portfolio with LtV <100%
• 32% of NPL portfolio with DSCR >100%1)
• ➔ Only 50% of NPL portfolio with LtV >100% and DSCR <100%

➔ Meaningful share of NPLs with decent risk parameters

Implications of the Russian war against Ukraine

New Russian NPL ~60% provisioned; No exposure in Ukraine

Russian operations

• Rep office with 2 employees in Moscow
• Russia defined as non-core market about a decade ago
• Last newly acquired business in 2012
• From more than € 1 bn in 2010 portfolio significantly reduced to a net exposure of around € ~200 mn (YE 2021)

Russian exposure

• Two financings with a net exposure of € 212 mn as of 30.09.2022, EURO denominated; one financing almost written off
• The second financing has been classified as NPL in Q1 as loan due in Q4 2022 and as of today on-time payback is uncertain
• In 9M 2022 € 126 mn LLP booked (Stage 3); remaining net exposure of € 86 mn
• Remaining net exposure equals ~30% of 10/2021 market value
• Property characteristics:
• Office complex in Moscow
• Nearly fully let to international and Russian tenants
• Client able and willing to pay (DSCR >> 100%)
• Currently Russian sanctions hinder cash transfer out of Russia

As of today impacts from geopolitical and macroeconomic environment are not predictable. However the markdown reflects volatility seen in other crisis in the past.

Spotlight: Inflation impact on real estate markets

General

• Various protection mechanisms installed between bank and client as well as between client and tenant
• Various mitigating factors depending on property type (eg. Structural changes, Corona recovery, Higher construction costs / material shortage supporting existing properties)
• Cap Rates: stable so far, still high spreads compared to alternative investments

Protection mechanism
Property type	Relationship Bank – Client (loan contract)	Relationship Client – Tenant
Office	+ Generally DSCR/ICR covenants	+ Rents in many cases index-linked + Mix of various tenants + Rental agreements with different maturities
Retail	+ NOI 12M forward looking + Interest: Hedged rate (eg contractually agreed cap) or fixed rate	+ Rent includes sales revenue based component → inflation caused sales revenue increase supporting rent + Mix of various tenants + Rental agreements with different maturities
Logistic	+ Cash sweep in case of covenants breach	+ In many cases portfolio transactions → mix of various tenants + Tenants regularly with group support + Rents in many cases index-linked
Hotel	+ Various covenants (eg DSCR/ICR, YoD, LtV) + NOI 12M retrospectively1) + Interest: Hedged rate or fixed rate + Cash sweep in case of covenants breach	+ Rent per room changeable short-term
		Well protected against "normal" inflation. Stagflation could trigger challenges

1) For risk assessment also considering forward looking NOI

Segments

Segment: Aareon Q3 2022 P&L and other KPIs

P&L Aareon segment - Industry format1) € mn	Q3'21	9M'21	Q3'22	9M'22	∆ Q3 '22/'21	∆ 9M '22/'21
Sales revenue ▪ Thereof ERP ▪ Thereof Digital	62 46 16	195 145 49	75 54 20	221 161 60	21% 19% 26%	14% 11% 22%
Costs2) ▪ Thereof material	-54 -12	-169 -38	-64 -14	-190 -41	18% 15%	12% 9%
EBITDA	8	25	11	32	42%	25%
Adjustments2)	-5	-16	-4	-15	-19%	-7%
Adj. EBITDA	13	42	15	47	17%	12%
EBITDA	8	25	11	32	42%	25%
D&A / Financial result	-9	-24	-13	-37	45%	51%
EBT / Operating profit	-2	1	-3	-5	62%	<-100%

R&D, RPU and operating cashflow
Revenue per unit (RPU) – LTM (€)	22
R&D spend as % of software revenue – YTD	26%
YTD Operating Cash Flow (€ mn)	19

• RPU (last 12 months) at 22 €. With cross-selling opportunities to be harvested
• R&D spend slightly above 25%, but expected to stay in line with communicated pattern of 25% threshold

• Operating Cash Flow at € 19 mn (9m'21: € 16 mn) higher – better operational result

• 1) Calculation refers to unrounded numbers

• 2) Incl. New product, VCP, Ventures, M&A and one-offs

Segment: Aareon

Aareon is now the clear leader in Europe – with expansion potential and a total addressable market > € 2 bn

Growth of units3) from ~10 mn (2019) to more than 13 mn (H1/2022)

• 1) Acquisition of Momentum Software Group AB as of 27 June 2022
• 2) Combining Private SMB and Social Housing markets
• 3) Unit growth taken into account on a pro rata temporis basis; Additionally, Aareon has also expanded other related business models

ESG in our daily business

Putting sustainability at the core of our decisions

Aareal Bank "Green Finance Framework – Lending" put into place

• Aareal Bank's Green Finance Framework Lending confirmed through a Second Party Opinion (SPO) by Sustainalytics
• Ambition to incorporate an ESG assessment into our day-to-day lending activities
• Explicit customer demand in Aareal Bank's green lending approach internationally identified and interest is high for the new product
• First green lending within the new framework provided since Q2 2021

ESG in our lending business ESG in our financing activity

Aareal Bank "Green Finance Framework – Liabilities" to form basis for inaugural Green Bond

• In addition to the lending framework, Aareal Bank has implemented an accompanying liability-side/use-ofproceeds framework that allows issuance of green financing instruments (GFF - Liabilities)
• The Green Finance Framework Liabilities is intended to not only reflect our sustainable lending activities but also our strategic approach towards sustainability
• Bond issuances under this framework invite open discussion and engagement with investors on the progress we have made and on the path forward

Continue to enlarge climate transparency in the portfolio

• Portfolio transparency and data accumulation significantly improved in 2021 and improvement of transparency for both the existing and the new lending to be continued
• Aareal Bank involved in international initiatives to calculate financed emissions (PCAF)
• Additional disclosure will be made available following the issuance of a green financing instrument as Aareal Bank intends to issue an allocation and impact report in connection to outstanding green financing instruments

More than 21% of the portfolio fulfills Aareal's demanding Green Finance Framework

	Aareal Green Finance Framework (GFF) in place
Green Property Financing: ▪ Meets EU Taxonomy criteria and / or ▪ and / or ▪ defined in Aareal GFF	Requirements to qualify as green property Certified with an above-average ratings Classified as nearly zero-energy building (nZEB) / thresholds as	+	Green Loan Rider: Customer agrees to Maintaining "Aareal Green Finance Framework" requirements during the term of the loan		Green Loan: Combination of ▪ Green property1) and ▪ Agreement
Eligibility category		Eligibility	criteria (alternatives)
Green Buildings	1. EU taxonomy compliant: Buildings meet the EU Taxonomy criteria according to the EU Commission Delegated Regulation, Chapter 7.7 "Acquisition and ownership of existing buildings"	▪ ▪ ▪ ▪ ▪ ▪	2. Green building certification: BREEAM: "Very Good" and above LEED: "Gold" and above DGNB: "Gold" and above Green Star: "5 Stars" and above NABERS: "4 Stars" and above HQE: "Excellent" and above	falls below 75 kWh/m² p.a. 140 kWh/m² p.a. 65 kWh/m² p.a.	3. Energy efficiency: Classified as a nearly zero-energy building (nZEB) and / or property the maximum energy reference values Residential Office, Hotel, Retail Logistics
Energy efficiency upgrades	1. EU taxonomy compliant: Modernisation measures meet the EU Taxonomy criteria acc. EU Commission Delegated Regulation3)		2. Upgrade to Green Building: Completion of the measure brings the property up to the green building standard defined above.	at least 30%.	3. Energy efficiency improvement: Completion of the measure results in an energy efficiency improvement of

1) All buildings within a financing have to qualify as green buildings according to Aareal GFF

2) Partnership for Carbon Accounting Financials

3) Chapter 7.2 "Renovation of existing buildings"

ESG: Our goals

Contributing to green transformation of the economy

	Growing our impact - mitigating climate change and fostering transition
1	Green expansion of financing business		€ 2 bn by 2024 Additional green loan volume
2	Optimisation of funding mix		€ 1 bn in 2022 New allocation of green funding
3	Providing transparency for global CREF portfolio		20% by 2022 Verified green properties
4	Limiting our own Greenhouse Gas emissions		Carbon neutrality by 2023 Of our business operations worldwide
5	Expansion of innovative solutions with ESG impact (BDS and Aareon)		Growth targets by 2025 Identification of enabler products by 2022

Setting the tone at the TOP - ensuring Aareal is run on strong ESG principles

• • 6 ESG governance with enhanced Board's oversight
• ESG integration in business-, credit-, investment-, risk- and refinancing strategies as well as decision making process ⁷

CEO responsibility Regular Board engagement

Major Milestones in Sustainable Finance Strategy achieved

Increasing transparency reveals strong share of green properties

Significant progress1) in ESG transparency and performance:

Verified2) ESG-Transparency for

~45%

of our portfolio through documentation of proof in IT systems

Since the launch in June 2021

€ ~1.9 bn

qualified for Green Loan

Green Property Financings2)

21% 17% YE 2021

Since implementation of Green Finance Framework – Funding

> € 1.5 bn

has been issued via Senior Preferred Green Bonds as well as via the green Commercial Paper Program

of CREF4) portfolio

with more potential subject to ongoing validation

• 1) As at 30.09.2022
• 2) Valid certificate is documented
• 3) Conversions: Existing loans converted into green loans
• 41 4) CREF excl. not directly by properties collateralized business

21% of total CREF portfolio classified as Green Property Financings

€ 6.4 bn1) (21%) of total CREF portfolio fulfilling Aareal Banks Green Finance Framework and are classified as "Green Property Financings", thereof

• € 4.1 bn included in green asset pool for underlying of Green bond issues
• € 2.3 bn green property financings mainly for technical reasons not (yet) included

1) CREF excl. not directly by properties collateralized business Portfolio data as at 30.09.2022 – ESG Data as at 30.09.2022

42 2) Valid certificate is documented

Consistently positive rating results

Rewarding Aareal's ESG performance

Note: Results and Benchmarks as at 21/10/2022

Real Estate is transitioning to a more sustainable, digitised and connected future

Fostering this transition

ESG1) is (and has always been) fundamental to our business	▪ Lasting value of our properties is in our own interest ▪ No financing of controversial industry sites / projects ▪ Environmental quality is a major consideration in business origination and quality deficiencies will have an impact on the structuring of the loan or may reject the transaction
Integration of ESG in decision making initiated group-wide	▪ 2011: Introduction of corporate ESG compliance ▪ 2017: Focus on developing sustainability performance of core business ▪ September 2020: ESG@Aareal initiative initiated - "ESG Integration" throughout the group embedding ESG strongly into the business and decision-making processes
Strategic sustainability management based on five criteria	▪ Measurable contribution to sustainability transformation [AMBITION] ▪ Investable on the asset and liability side [INVEST] ▪ Retain existing customers and attract new ones [CLIENT] ▪ Manage relevant ESG risks [RISK] ▪ Comply with regulatory requirements [REGULATION]
We have impact!	▪ Contributing to the transition to a low carbon economy with every green financing ▪ Enabling customers to improve their sustainability performance with every smart digital solution connecting multiple parties and equipment

1) Environmental, Social, Governance

Treasury Portfolio, Funding & Liquidity

Treasury portfolio

€ 6.5 bn of high rating quality and highly liquid assets operates as collateral or additional liquidity

As at 30.09.2022 – all figures are nominal amounts 1) Composite Rating

Funding Strong Mortgage Cover Pool and Aaa Rating for Pfandbriefe

Pfandbriefe funding cornerstone of wholesale issuance

• Cover pool of € 15.3 bn incl. € 1.0 bn substitute assets diversified over 19 countries
• High quality assets: first-class mortgage loans (mortgage-lending-value 55.8%)
• Mortgage-lending-value with high discount from marketvalue
• Ø LtV of the mortgage cover pool 32.6%
• Moody´s has calculated a 'Aaa' supporting overcollateralisation ratio of 17.0% on a PV basis
• Over-collateralisation on a PV basis as of 9M 2022 22.2%
• High diversification within property types
• No assets in the covered pool from Russia and Ukraine

Funding & Liquidity

Diversified funding sources and distribution channels

Liquidity Well balanced maturity profile

Conservative liquidity management throughout the cycle

• Long-term funds on average have longer maturities than finance portfolio
• Substantial buffer in regulatory liquidity ratios (LCR / NSFR) despite strong growth in portfolio and difficult economic and capital markets environment
• High quality treasury portfolio with continuous efforts to further improve / optimise structure
• NSFR at 122%2)
• LCR at 222%2)

Funding & Capital

MREL ratios far above regulatory requirements

Senior Preferred have significant protection from subordinated liabilities and own funds

• Ample buffer to MREL requirements
• Senior Preferred remains the predominant senior product, though Senior Non-Preferred remains a key element of the funding strategy
• The rundown remains manageable with a number of long-term liabilities providing significant levels of subordination

• 8% TLOF is the bank's upcoming binding MREL requirement, to be met with 100% subordinated liabilities

• 1) 8% TLOF with 100% subordinated debt (i.e. Own Funds and SNP). MREL requirements are only updated once a year

• 2) MREL-eligible Senior Non-Preferred Debt >1Y according to contractual maturities
• 3) Considering regulatory adjustments

50

4) CET1 assumed to be constant over time

5) Senior Preferred, excluding structured unsecured issuances

Regulation

Capital - SREP (CET 1) requirements

Demonstrating conservative and sustainable business model

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.	31.12.	31.12.	31.12.	31.12.	31.12.
	2016	2017	2018	2019	2020	2021
€ mn
Net Retained Profit ▪ Net income ▪ Profit carried forward from previous year ▪ Net income attribution to revenue reserves	122 122 - -	147 147 - -	126 126 - -	120 120 - -	90 90 - -	30 90 66 -
+ Other revenue reserves after net income attribution	720	720	720	720	840	840
Total dividend potential before amount blocked1) =	842	870	846	840	930	936
./. Dividend amount blocked under section 268 (8) of the German Commercial Code	235	283	268	314	320	386
./. Dividend amount blocked under section 253 (6) of the German Commercial Code	28	35	42	40	43	36
= Available Distributable Items1)	579	552	536	486	566	515
+ Increase by aggregated amount of interest expenses relating to Distributions on Tier 1 Instruments1)	46	32	24	23	21	20
= 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)	625	584	560	509	587	535

Public Tender Offer

Public tender offer

Aareal remains committed to a strong reputation in capital markets and will continue to meet highest transparency standards after successful PTO

• Advent, Centerbridge and CPP Investments1), highly regarded investors managing a multi billion USD portfolio globally, are highly supportive of "Aareal Next Level" strategy and existing Aareal Bank Group composition
• Their sector expertise will support Aareal's accelerated growth ambitions
• Aareal continues to be a reliable player in capital markets and a transparent and rated frequent issuer of investment grade instruments
• Fulfilling highest transparency standards regarding our investor's engagement, disclosure content and frequency
• 84% of Aareal Bank shares tendered in June in response to Atlantic BidCo's public tender offer; closing is subject to finalisation of regulatory clearances by Atlantic BidCo. and is expected in Q4/22 or Q1/23

1) CPP Investment Board Europe S.àr.l, a wholly owned subsidiary of Canada Pension Plan Investment Board ("CPP Investments")

• 2) Indirect holding of participation in Atlantic BidCo GmbH
• 3) Minority representation in governance structure

56 4) Closing based on tendered shares of ~84% is subject to finalisation of regulatory clearances by Atlantic BidCo GmbH

Definitions and contacts

Definitions

= New Business	New business = Newly acquired business + renewals
=	CET 1
Common Equity Tier 1 ratio	Risk weighted assets
=	Operating profit/income ./. loss attributable to non-controlling interests ./. AT1 coupon
Pre tax RoE	Average IFRS equity excl. non-controlling interests, AT1 and dividends
=	Admin expenses (excl. bank levy, et al.)
CIR	Net income
= Net income	Net interest income + Net commission income + Net derecognition gain or loss + Net gain or loss from financial instruments (fvpl) + Net gain or loss on hedge accounting + Net gain or loss from investments accounted for using the equity method + Net other operating income / expense
=	Available stable funding
Net stable funding ratio	Required stable funding
=	Total stock of high quality liquid assets
Liquidity coverage ratio	Net cash outflows under stress
=	operating profit ./. income taxes ./. income/loss attributable to non controlling interests ./. net AT1 coupon
Earnings per share	Number of ordinary shares
= Yield on Debt	NOI x 100 (Net operating income, 12-months forward looking) (without developments) Outstanding 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
NPL-ratio	NPL-exposure acc. CRR (excl. exposure in cure period)
=	Total REF Portfolio

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

Leonie Eichhorn

Sustainability Management Phone: +49 611 348 3433 leonie.eichhorn@aareal-bank.com

Robin Weyrich

Sustainability Management Phone: +49 611 348 2335 robin.weyrich@aareal-bank.com

Disclaimer

© 2022 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.

This presentation may contain forward-looking statements. Forward looking statements are statements that are not historical facts; they include statements about Aareal Bank AG's beliefs and expectations and the assumptions underlying them; and they are 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.

This presentation refers to the voluntary public takeover offer published by Atlantic BidCo GmbH on 26 April 2022. These references are provided for general information purposes only and do not constitute an offer to enter into a contract for the provision of advisory services or an offer to purchase securities. Any decision by investors to sell their Aareal Bank shares should be based on the public tender offer documentation published by Atlantic BidCo GmbH.

Information from Atlantic BidCo GmbH or other third parties is considered to be reliable but has merely been compiled without having been verified. Therefore, Aareal Bank AG does not assume any responsibility for the accuracy of the third-party data.

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.

Aareal Bank AG assumes no obligation to update any forward-looking statement or any other information contained herein.

Thank you.