Aareal Bank AG: Aareal Bank Group remains on course in the 2019 financial year

DGAP-News: Aareal Bank AG / Key word(s): Quarter Results Aareal Bank AG: Aareal Bank Group remains on course in the 2019 financial year 09.05.2019 / 07:00 The issuer is solely responsible for the content of this announcement. Aareal Bank Group remains on course in the 2019 financial year - First-quarter consolidated operating profit of EUR 61 million (Q1 2018: EUR 67 million) fully in line with projections - Net interest income slightly higher year-on-year - net commission income increased further, thanks to good development of sales revenue at Aareon - New business in the Structured Property Financing segment focussed on high-margin opportunities, given stable portfolio volume - once again, very low loss allowance, in line with seasonal trends - Administrative expenses up year-on-year, as expected, also due to the integration of Düsseldorfer Hypothekenbank - Full-year projections affirmed: Aareal Bank anticipates consolidated operating profit of between EUR 240 million and EUR 280 million Wiesbaden, 9 May 2019 - Aareal Bank Group has enjoyed a good start into the 2019 financial year, and affirms its full-year forecasts. The Bank generated consolidated operating profit of EUR 61 million during the first quarter (Q1 2018: EUR 67 million) - fully in line with projections. Consolidated net income allocated to ordinary shareholders amounted to EUR 35 million (Q1 2018: EUR 39 million); earnings per share amounted to EUR 0.59 (Q1 2018: EUR 0.65). First-quarter income was characterised by a continuation of key trends seen in the previous year. At EUR 135 million, first-quarter net interest income was slightly higher than in the same quarter of the previous year (Q1 2018: EUR 133 million). Net interest income has been stabilising at this level for several quarters now - following a projected reduction for a protracted period of time, due to the reduction of non-strategic portfolios, where the Bank has made considerable progress. Net derecognition gain of EUR 16 million included positive effects from adjustments to the Treasury portfolio (Q1 2018: EUR 6 million). Loss allowance of EUR 5 million (Q1 2018: EUR 0 million) was once again very low during the first quarter, thanks to seasonal factors. Aareal Bank continues to forecast loss allowance in a range of EUR 50 million to EUR 80 million for the full year. The positive trend in net commission income prevailed at the outset of the year: the figure rose to EUR 53 million in the first quarter (Q1 2018: EUR 50 million), driven in particular by higher sales revenue at Aareon. This means that net commission income consistently continues to gain importance for Aareal Bank Group - as set out in its "Aareal 2020" programme for the future. Consolidated administrative expenses amounted to EUR 144 million during the first quarter (Q1 2018: EUR 128 million). As expected, factors behind the increase included integration expenses for Düsseldorfer Hypothekenbank (DHB), which Aareal Bank acquired at the end of 2018. In addition, administrative expenses for the first quarter of 2018 benefited from a release of provisions. As in the previous year, first-quarter administrative expenses already include anticipated full-year expenses for the bank levy and the deposit guarantee scheme, totalling EUR 21 million (Q1 2018: EUR 20 million). "Following the successful start into the year, we are making good progress towards achieving our targets for the full year, in a challenging market environment. Once again, first-quarter results have shown that our operating business is very robust indeed, and that our strategy is viable", said CEO Hermann J. Merkens. Structured Property Financing segment: Good margins on new business - portfolio volume in line with projections Following a very strong fourth quarter of 2018, new business in the Structured Property Financing segment amounted to EUR 0.8 billion (Q1 2018: EUR 1.5 billion) during the first quarter of 2019, with a particular focus on the US and the Asia/Pacific region. Portfolio volume - the key metric for new business - remained almost unchanged compared to the end of 2018: at EUR 27.3 billion, it remains comfortably within the projected range of between EUR 26 billion and EUR 28 billion for the full year 2019. The rather quiet start into the new year in terms of new business reflected this development. On a very positive note, average gross margins on new business originated during the first quarter exceeded 250 basis points (before currency effects) - a level which, however, will not be possible to maintain over the course of the year. Aareal Bank continues to target a range between 180 and 190 basis points for the full year. Consulting/Services segment: net commission income continues to increase at Aareon - volume of deposits remains on a high level Operating profit in the Consulting/Services segment totalled EUR -9 million during the first quarter of 2019 (Q1 2018: EUR -8 million). The earnings contribution of subsidiary Aareon AG improved to EUR8 million in the first quarter (Q1 2018: EUR 6 million). Driven by higher sales revenue, Aareon's net commission income continued to rise, reaching EUR 49 million (Q1 2018: EUR 46 million). Aareon's digital business showed a particularly positive development, generating the highest growth rate (of around 25 per cent) compared to the same quarter of the previous year. Averaging EUR 10.6 billion, the volume of deposits from the housing industry remained on a high level during the first quarter of 2019 (31 December 2018: EUR 10.4 billion). The persistently low interest rate environment continued to burden income generated from the deposit-taking business, and therefore the segment result, at the beginning of the financial year. Nonetheless, the importance of this business goes way beyond the interest margin generated from deposits - which is under pressure in the current market environment. Deposits from the housing industry are a strategically important additional source of funding for Aareal Bank. Comfortable funding situation - solid capitalisation Aareal Bank remained very well-funded during the first quarter of 2019, maintaining its long-term funding inventory at a comfortable level. It raised a total of EUR 1.1 billion on the capital markets during the first quarter: especially worth noting was the very successful placement of a benchmark EUR 750 million Mortgage Pfandbrief issue in January 2019. Aareal Bank continues to have a very solid capital base. As at 31 March 2019, the Bank's Common Equity Tier 1 (CET1) ratio was 16.7 %, which is comfortable on an international level, and the Total Capital Ratio was 25.7 %. The CET1 ratio determined on the basis of the Basel Committee's final framework - the estimated so-called 'Basel IV' ratio, which is relevant for capital planning - was 13.1 %. Notes to Group financial performance At EUR 135 million, net interest income was slightly higher than in the previous year (Q1 2018: EUR 133 million), due to the higher volume of the loan portfolio. Due to seasonal effects, loss allowance amounted to a modest EUR 5 million (Q1 2018: EUR 0 million). Net commission income increased to EUR 53 million (Q1 2018: EUR 50 million), mainly due to higher sales revenue at Aareon. Net derecognition gain of EUR 16 million for the first quarter (Q1 2018: EUR 6 million) resulted mainly from adjustments to the Treasury portfolio, as well as market-driven effects from early loan repayments. The net gain from financial assets (fvpl) and on hedge accounting in the aggregate amount of EUR 6 million (Q1 2018: EUR 1 million) reflected changes in the measurement of derivatives used to hedge interest rate and currency risks. Administrative expenses increased as expected, to EUR 144 million (Q1 2018: EUR 128 million), in particular due to integration expenses incurred for DHB. In addition, the previous year's figure included positive effects from the reversal of provisions. Consolidated operating profit totalled EUR 61 million for the quarter under review (Q1 2018: EUR 67 million). Taxes were incurred in a total amount of EUR 21 million. Taking non-controlling interest income of EUR 1 million into consideration, consolidated net income attributable to shareholders of Aareal Bank AG amounted to EUR 39 million (Q1 2018: EUR 43 million). Assuming the pro rata temporis accrual of net interest payments on the AT1 bond, consolidated net income allocated to ordinary shareholders stood at EUR 35 million (Q1 2018: EUR 39 million). Outlook for 2019 affirmed Aareal Bank Group continues to anticipate a challenging business environment during the current year. Against this background, the Bank will adhere to its business policy with a strict focus on risks and returns. It will also continue to accelerate strategic development within the "Aareal 2020" programme for the future, with a particular focus on the expedited digital initiative in the Consulting/Services segment, as announced in February 2019. Aareal Bank fully affirms its forecasts communicated for the full year 2019: consolidated net interest income (excluding net derecognition gain) is expected in a range of EUR 530 million to EUR 560 million. Net derecognition gain is anticipated to amount to EUR 20 million to EUR 40 million. Loss allowance is expected in a range between EUR 50 million and EUR 80 million. Net commission income, whose importance for the Group is continuously rising due to the strategic expansion of business activities in the Consulting/Services segment, is anticipated to rise further year-on-year, to between EUR 225 million and EUR 245 million. Administrative expenses are expected in a range between EUR 470 million and EUR 510 million, including additional investments at Aareon for accelerated growth, as well as costs for integrating DHB. Against this background, Aareal Bank expects consolidated operating profit for the current year to be in a range between EUR 240 million and EUR 280 million; this is in line with the previous year's figure, adjusted for the positive non-recurring effect related to the acquisition of DHB. The Bank expects RoE before taxes of between 8.5 per cent and 10 per cent for the current financial year, with earnings per share of around EUR 2.40 to EUR 2.80. The reduction of non-strategic portfolios in the Structured Property Financing segment will continue during 2019. At the same time, market conditions permitting, the core credit portfolio is planned to grow: overall, subject to exchange rate fluctuations, the volume of Aareal Bank Group's property financing portfolio is expected to range between EUR 26 billion and EUR 28 billion. New business volume is targeted between EUR 7 billion and EUR 8 billion in the current year. Aareal Bank expects its IT subsidiary Aareon to contribute approximately EUR 35 million to consolidated operating profit, taking strategic investments for accelerated growth into account. Excluding strategic investments, the contribution is anticipated at around EUR 41 million. Note to editors: the Interim Financial Information for the first quarter of 2019 is available on http://www.aareal-bank.com/en/financialreports. Aareal Bank Group Aareal Bank Group, headquartered in Wiesbaden, is a leading international property specialist. It provides smart financings, software products, and digital solutions for the property sector and related industries, and is present across three continents: Europe, North America and Asia/Pacific. Aareal Bank AG, whose shares are included in Deutsche Börse's MDAX index, is the Group's parent entity. It manages the various entities organised in the Group's two business segments: Structured Property Financing and Consulting /Services. The Structured Property Financing segment encompasses all of Aareal Bank Group's property financing and funding activities. In this segment, the Bank facilitates property investment projects for its domestic and international clients, within the framework of a three-continent strategy covering Europe, North America and the Asia/Pacific region. In its Consulting/Services segment Aareal Bank Group offers its European clients from the property and energy sectors a unique combination of specialised banking services as well as innovative digital products and services, designed to help clients optimise and enhance the efficiency of their business processes. Aareal Bank Group - Key Indicators     1 Jan-31 Mar 2019 1 Jan-31 Mar 2018         Results       Operating profit (EUR mn)   61 67 Consolidated net income (EUR mn)   40 44 Consolidated net income allocated to ordinary shareholders (EUR mn) 1)   35 39 Cost/income ratio (%) 2)   53.5 49.5 Earnings per ordinary share (EUR) 1)   0.59 0.65 RoE before taxes (%) 1) 3)   8.5 9.7 RoE after taxes (%) 1) 3)   5.5 6.3       31 Mar 2019 31 Dec 2018         Statement of Financial Position       Property finance (EUR mn) 4)   26,288 26,395 Equity (EUR mn)   2,931 2,928 Total assets (EUR mn)   42,686 42,687         Regulatory Indicators 5)       Risk-weighted assets (EUR mn)   13,125 13,039 Common Equity Tier 1 ratio (CET1 ratio) (%)   16.7 17.2 Tier 1 ratio (T1 ratio) (%)   19.0 19.5 Total capital ratio (TC ratio) (%)   25.7 26.2         Common Equity Tier 1 ratio (CET1 ratio) (%) - Basel IV (estimated) 6)   13.1 13.2         Employees   2,790 2,748           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) Structured Property Financing segment only 3) On an annualised basis 4) Excluding EUR0.5 billion in private client business (31 December 2018: EUR 0.6 billion) and EUR 0.4 billion in local authority lending business by the former Westdeutsche ImmobilienBank AG (WestImmo) (31 December 2018: EUR 0.5 billion) 5) When calculating own funds, annual profits were taken into account, based on the Management Board's proposal for appropriation of profits for the 2018 financial year. The appropriation of profits is subject to approval by the Annual General Meeting. The expected relevant impact of the TRIM exercise on commercial property financings, and of the SREP recommendations concerning ECB's NPL guidelines (NPL stock), were taken into account for determining regulatory indicators for 2018. 6) Underlying estimate, given a 72.5% output floor based on the final Basel Committee framework dated 7 December 2017. The calculation of the material impact upon Aareal Bank is subject to the outstanding EU implementation as well as the implementation of additional regulatory requirements (CRR II, EBA requirements etc.). Consolidated income statement for the first quarter of 2019 (in accordance with IFRSs)     1 Jan-31 Mar 2019 1 Jan-31 Mar 2018 Change     EUR mn EUR mn % Net interest income   135 133 2 Loss allowance   5 0   Net commission income   53 50 6 Net derecognition gain or loss   16 6 167 Net gain or loss from financial instruments (fvpl)   6 3 100 Net gain or loss from hedge accounting   0 -2 -100 Net gain or loss from investments accounted for using the equity method   0 -   Administrative expenses   144 128 13 Net other operating income/expenses   0 5 -100 Negative goodwill from acquisitions   - -   Operating profit   61 67 -9 Income taxes   21 23 -9 Consolidated net income   40 44 -9 Consolidated net income attributable to non-controlling interests   1 1   Consolidated net income attributable to shareholders of Aareal Bank AG   39 43 -9 Earnings per share (EpS)         Consolidated net income attributable to shareholders of Aareal Bank AG 1)   39 43 -9 of which: allocated to ordinary shareholders   35 39 -10 of which: allocated to AT1 investors   4 4   Earnings per ordinary share (in EUR) 2)   0.59 0.65 -9 Earnings per AT1 unit (in EUR) 3)   0.04 0.04               1) The allocation of earnings is based on the assumption that net interest payable on the AT1 bond is recognised on an accrual basis. 2) Earnings per ordinary share are determined by dividing the earnings allocated to ordinary shareholders of Aareal Bank AG by the weighted average of ordinary shares outstanding during the financial year (59,857,221 shares). Basic earnings per ordinary share correspond to diluted earnings per ordinary share. 3) Earnings per AT1 unit (based on 100,000,000 AT1 units with a notional amount of EUR 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. Segment results for the first quarter of 2019 (in accordance with IFRSs)     Structured Property Financing Consulting/ Services Consolidation/ Reconciliation Aareal Bank Group     1 Jan-31 Mar 2019 1 Jan-31 Mar 2018 1 Jan-31 Mar 2019 1 Jan-31 Mar 2018 1 Jan-31 Mar 2019 1 Jan-31 Mar 2018 1 Jan-31 Mar 2019 1 Jan-31 Mar 2018 EUR mn                   Net interest income 1)   138 136 -3 -3 0 0 135 133 Loss allowance   5 0 0 0     5 0 Net commission income 1)   2 1 52 50 -1 -1 53 50 Net derecognition gain or loss   16 6         16 6 Net gain or loss from financial instruments (fvpl)   6 3         6 3 Net gain or loss from hedge accounting   0 -2         0 -2 Net gain or loss from investments accounted for using the equity method       0       0   Administrative expenses   87 74 58 55 -1 -1 144 128 Net other operating income/expenses   0 5 0 0 0 0 0 5 Negative goodwill from acquisitions                   Operating profit   70 75 -9 -8 0 0 61 67 Income taxes   24 26 -3 -3     21 23 Consolidated net income   46 49 -6 -5 0 0 40 44 Consolidated net income attributable to non-controlling interests   0 0 1 1     1 1 Consolidated net income attributable to shareholders of Aareal Bank AG   46 49 -7 -6 0 0 39 43                     Allocated equity 2)   2,115 2,065 195 168 254 252 2,564 2,485 Cost/income ratio (%)   53.5 49.5 119.2 117.9     68.5 65.6 RoE before taxes (%) 2) 3) 4)   12.2 13.5 -20.6 -21.9     8.5 9.7                       1) As of this reporting year, interest on deposits from the housing industry is shown under the net interest income of the Consulting/Services segment (previously included in net commission income). The previous year's figures were adjusted accordingly. 2) Equity allocated to the Structured Property Financing segment for the same period of the previous year was adjusted to bring it into line with Basel IV; RoE before taxes was thus also changed accordingly. 3) On an annualised basis 4) The allocation of earnings is based on the assumption that net interest payable on the AT1 bond is recognised on an accrual basis. Contact: Aareal Bank AG Corporate Communications Sven Korndörffer Phone: [phone] [e-mail] Christian Feldbrügge Phone: [phone] [e-mail]   09.05.2019 Dissemination of a Corporate News, transmitted by DGAP - a service of EQS Group AG. The issuer is solely responsible for the content of this announcement. The DGAP Distribution Services include Regulatory Announcements, Financial/Corporate News and Press Releases. Archive at www.dgap.de

Language:	English
Company:	Aareal Bank AG
	Paulinenstr. 15
	65189 Wiesbaden
	Germany
Phone:	[phone] - 0
Fax:	[phone] - 2332
E-mail:	[e-mail]
Internet:	www.aareal-bank.com
ISIN:	DE0005408116
WKN:	540811
Indices:	MDAX
Listed:	Regulated Market in Frankfurt (Prime Standard); Regulated Unofficial Market in Berlin, Dusseldorf, Hamburg, Munich, Stuttgart, Tradegate Exchange; Stockholm
EQS News ID:	808871

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808871  09.05.2019