DGAP-News: Aareal Bank Group posts a solid result for the third quarter

2019. november 12., kedd, 07:00







DGAP-News: Aareal Bank AG


/ Key word(s): Quarter Results/9 Month figures






Aareal Bank Group posts a solid result for the third quarter







12.11.2019 / 07:00




The issuer is solely responsible for the content of this announcement.



Aareal Bank Group posts a solid result for the third quarter



- Consolidated operating profit of EUR 64 million for the third quarter (Q2 2019: EUR 61 million; Q3 2018: EUR 70 million)



- Net interest income stable at EUR 134 million, in spite of the extreme low interest rate environment - further increase in net commission income thanks to revenue growth at IT subsidiary Aareon



- Strong new business in the Structured Property Financing segment



- Higher loss allowance due to accelerated de-risking



- Annual guidance specified: consolidated operating profit expected at the lower end of the EUR 240 million to EUR 280 million communicated range



- Chairman of the Management Board, Hermann J. Merkens: "A key reason for Aareal Bank Group"s robustness is our unique structure - with two successful segments that we purposefully develop in line with our strategy"



 



Wiesbaden, 12 November 2019 - Aareal Bank Group continued with its positive business development in the third quarter of the current year. In what continues to be a challenging market and competitive environment, consolidated operating profit reached EUR 64 million after EUR 70 million in the third quarter of the previous year and EUR 61 million in each of the two previous quarters. Aareal Bank Group"s consolidated operating profit for the first nine months of 2019 has therefore totalled EUR 186 million; taking the costs for integrating former Düsseldorfer Hypothekenbank (DHB) into account, the figure was roughly in line with the previous year (9m 2018: EUR 199 million). Consolidated net income allocated to ordinary shareholders of Aareal Bank amounted to EUR 35 million for the third quarter (Q3 2018: EUR 41 million), and EUR 107 million for the first nine months of the year (9m 2018: EUR 117 million). Earnings per share amounted to EUR 0.60 for the third quarter and EUR 1.80 for the first nine months (Q3 2018: EUR 0.70; 9m 2018: EUR 1.97).



At EUR 134 million in the third quarter (Q3 2018: EUR 131 million), net interest income remained stable on a level with the previous quarters, despite the extremely low interest rate environment. Third-quarter loss allowance was EUR 27 million, compared to EUR 23 million in the previous quarter, and EUR 14 million in the same quarter of the previous year. The higher figure is predominantly attributable to the announced acceleratedde-risking, which accounted for approximately EUR 20 million in the third quarter alone. Aareal Bank"s motivations for this include the Bank"s determination to reduce its portfolio of non-performing loans (NPLs) - especially in Italy - as announced. The NPL volume in the third quarter fell by around EUR 350 million, or around 20 per cent, compared to the preceding quarter.



Net commission income continued to develop favourably. At EUR 54 million in the third quarter, it exceeded the comparative figure for the previous year, as it had done in the first two quarters of this year. This once again reflects the positive performance of the IT subsidiary Aareon, which was able to increase its sales revenue considerably in the third quarter. Sales revenue in the traditional ERP business increased by 5 % year-on-year during the first nine months, while the business with digital products and solutions continued to prove very dynamic - as expected - with an increase of 21 %. Aareon also continued to consistently drive its strategic growth initiative forward in the quarter under review, with market entries in Switzerland and Austria, an extended range of offerings within the scope of the newly-developed, integrated "Aareon Smart Platform" and, as announced, commencement of the investment programme for tapping new digital growth opportunities.



CEO Hermann J. Merkens explained: "We are maintaining our very solid performance this year. Once again, we have demonstrated the robustness of our business in a challenging environment. A key reason for this is Aareal Bank Group"s unique structure, with two successful segments that we purposefully develop in line with our strategy. As an integral component of the Group, Aareon plays a significant role thanks to its excellent growth prospects and the cross-relationships with our banking business at numerous levels. Against this background, we continue to have no intention of selling a majority stake in our subsidiary, nor do we plan a full disposal - in line with the strategy we have pursued to date. Rather, we are concentrating instead on successfully implementing the growth programme for Aareon, which was presented in May, and - in our role as responsible owners - to use all sensible options to allow Aareon to realise its full potential in the interest of our shareholders.



Structured Property Financing segment: strong new business, margins remain above the full-year target



Aareal Bank continued to originate strong new business during the third quarter in its Structured Property Financing segment, whilst maintaining its conservative lending policy. The volume of new business reached EUR 2.8 billion and was thus significantly higher than in the same quarter of the previous year (Q3 2018: EUR 1.9 billion). The new business activities were focused on Europe. After nine months, new business totalled EUR 6.0 billion, in line with the previous year"s level (EUR 6.1 billion). New business volume for the current year is expected at the upper end of the EUR 7 billion to EUR 8 billion communicated range.



Thanks to the strong new business, at EUR 28 billion the portfolio volume as at 30 September 2019 was at the upper end of the EUR 26 to EUR 28 billion range targeted for the year 2019 as a whole. At around 195 basis points, the average gross margin on newly-originated business (excluding currency effects) for the first nine months of the year continued to exceed the projected full-year range of 180 to 190 basis points.



Consulting/Services segment: Aareon continues to post significant growth in sales revenue



Operating profit in the Consulting/Services segment totalled EUR -10 million in the third quarter of 2019 (Q3 2018: EUR -7 million). Subsidiary Aareon"s profit contribution was stable, at EUR 7 million (Q3 2018: EUR 7 million), despite the investment in growth. Its contribution for the first nine months was therefore EUR 24 million (9m 2018: EUR 21 million). Aareon"s sales revenue rose by 7 per cent to EUR 60 million in the third quarter (Q3 2018: EUR 56 million), and by 8 per cent to EUR 182 million in the first nine months of the year (9m 2018: EUR 168 million). Digital products recorded the highest growth rates this year so far, with a 21 per cent increase in sales over the same period of the previous year.



Averaging EUR 10.6 billion, the volume of deposits from the housing industry remained at a high level during the third quarter of 2019 (2018 average: 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. 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 and a solid capital base



Aareal Bank continued to be very well-funded during the third quarter of 2019, maintaining its long-term funding inventory at a comfortable level. No new Mortgage Pfandbrief issues or benchmark bonds were placed in the third quarter, as Aareal Bank had already taken advantage of the good market conditions in the first half-year, thereby largely meeting its funding requirements for the full year.



Aareal Bank continues to have a very solid capital base. As at 30 September 2019, the Bank"s Common Equity Tier 1 (CET 1) ratio was 17.1 %, which is comfortable on an international level, and the Total Capital Ratio was 26.7 %. 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 12.6 %.



Notes to Group financial performance



Net interest income for the third quarter of 2019 was EUR 134 million (Q3 2018: EUR 131 million). It therefore totalled EUR 403 million (9m 2018: EUR 400 million) for the first nine months of the financial year.



Loss allowance amounted to EUR 27 million for the third quarter (Q3 2018: EUR 14 million) and EUR 55 million for the first nine months (9m 2018: EUR 33 million).



Net commission income increased over the same period of the previous year, to EUR 54 million (Q3 2018: EUR 51 million), driven once again by Aareon"s strong performance. Net commission income totalled EUR 164 million for the first nine months of the financial year, a significant increase on the same period last year (9m 2018: EUR 152 million).



Net derecognition gain amounted to EUR 15 million for the third quarter (Q3 2018: EUR 5 million) and EUR 42 million for the first nine months of the year (9m 2018: EUR 16 million). In particular, this reflected adjustments to the Treasury portfolio (in connection with de-risking and the integration of DHB) as well as market-driven effects from early loan repayments.



The net gain or loss from financial instruments (fvpl) and from hedge accounting totalled EUR 2 million (Q3 2018: EUR 1 million). The net figure for the first nine months of the year was EUR 1 million (9m 2018: EUR -3 million), and resulted largely from the measurement changes of other derivatives (fvpl) used to hedge interest rate and currency risks.



Consolidated administrative expenses totalled EUR 114 million for the third quarter (Q3 2018: EUR 107 million) and EUR 370 million for the first nine months of the year (9m 2018: EUR 344 million). The increase - which was in line with expectations - was attributable in particular to the running costs and integration expenses incurred in conjunction with the integration of former Düsseldorfer Hypothekenbank, as well as to Aareon"s business expansion.



Consolidated operating profit totalled EUR 64 million for the quarter under review (Q3 2018: EUR 70 million). Taking into consideration tax expenses of EUR 24 million and non-controlling interest income of EUR 1 million, consolidated net income attributable to shareholders of Aareal Bank AG amounted to EUR 39 million (Q3 2018: EUR 45 million). Assuming the pro-rata temporis accrual of net interest payable on the AT1 bond, consolidated net income allocated to ordinary shareholders amounted to EUR 35 million (Q3 2018: EUR 41million).



Aareal Bank Group"s consolidated operating profit for the first nine months of the financial year totalled EUR 186 million (9m 2018: EUR 199 million). Taking tax deductions of EUR 65 million into account and after deducting EUR 2 million in non-controlling interest income, and assumed pro-rata net interest payable on the AT1 bond of EUR 12 million, consolidated net income allocated to ordinary shareholders of Aareal Bank AG amounted to EUR 107 million (9m 2018: EUR 117 million).



Group targets specified for the 2019 financial year



Following the solid performance overall in the first three quarters - and in spite of additional burdens from the extreme low interest rate environment - Aareal Bank Group continues to expect net interest income (excluding the net derecognition gain) in a range of EUR 530 million to EUR 560 million for the full year 2019. Aareal Bank has actively pursued the accelerated de-risking announced with the presentation of second-quarter results, recognising loss allowance of around EUR 30 million in this respect. Accordingly, the anticipated range for full-year loss allowance has been increased to between EUR 80 million and EUR 110 million. At the same time, Aareal Bank now expects a net derecognition gain of EUR 40 million to EUR 60 million, which is about EUR 20 million higher than the original estimate.



Net commission income, which continues to gain importance for the Group due to the strategic expansion of business in the Consulting/Services segment, is anticipated to rise further year-on-year, to between EUR 225 million and EUR 245 million. Administrative expenses - including Aareon"s additional investments for accelerated growth, as well as costs for the integration of Düsseldorfer Hypothekenbank (DHB), which has now been concluded - are expected to range between EUR 470 million and EUR 510 million, in line with the previous guidance.



Despite the burdens from accelerated de-risking and further deterioration in the interest rate environment (which were not accounted for in the original guidance), Aareal Bank continues to anticipate consolidated operating profit for the current year in the communicated range between EUR 240 million and EUR 260 million, albeit at the lower end of this range. Accordingly, RoE before taxes and earnings per share (EpS) are likely to be at the lower end of the communicated ranges of 8.5% to 10% and of around EUR 2.40 to EUR 2.80. Opportunities for further accelerated de-risking will be assessed if they emerge, additional burdens cannot be excluded.



Overall, Aareal Bank Group"s property financing portfolio in the Structured Financing Segment is expected to range in size between EUR 26 billion and EUR 28 billion, subject to exchange rate fluctuations. From today"s perspective, the volume of new business is likely to be at the upper end of the EUR 7 billion to EUR 8 billion communicated range. Aareal Bank continues to expect 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 as at 30 September 2019 is available at www.aareal-bank.com/financial-reports.



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 - 30 Sep 2019 1 Jan - 30 Sep 2018
     
Results    
Operating profit (EUR mn) 186 199
Consolidated net income (EUR mn) 121 131
Consolidated net income allocated to ordinary shareholders (EUR mn) 1) 107 117
Cost/income ratio (%) 2) 42.2 41.8
Earnings per ordinary share (EUR) 1) 1.80 1.97
RoE before taxes (%) 1) 3) 8.7 9.7
RoE after taxes (%) 1) 3) 5.6 6.3

 




















































  30 Sep 2019 31 Dec 2018
     
Statement of Financial Position    
Property finance (EUR mn) 4) 27,139 26,395
Equity (EUR mn) 2,817 2,928
Total assets (EUR mn) 43,155 42,687
     
Regulatory Indicators 5)    
Risk-weighted assets (EUR mn) 12,656 13,039
Common Equity Tier 1 ratio (CET1 ratio) (%) 17.1 17.2
Tier 1 ratio (T1 ratio) (%) 19.5 19.5
Total capital ratio (TC ratio) (%) 26.7 26.2
     
Common Equity Tier 1 ratio (CET1 ratio) (%)

- Basel IV (estimated) 6)
12.6 13.2
     
Employees 2,816 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 EUR 0.5 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 as at 30 September 2019, 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.
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 nine months of 2019

(in accordance with IFRSs)



































































































  1 Jan - 30 Sep 2019 1 Jan - 30 Sep 2018 Change
  EUR mn EUR mn %
Net interest income 403 400 1
Loss allowance 55 33 67
Net commission income 164 152 8
Net derecognition gain or loss 42 16 163
Net gain or loss from financial instruments (fvpl) 5 -1 -600
Net gain or loss from hedge accounting -4 -2 100
Net gain or loss from investments in companies

accounted for using the equity method
0 -  
Administrative expenses 370 344 8
Net other operating income/expenses 1 11 -91
Negative goodwill from acquisitions - -  
Operating profit 186 199 -7
Income taxes 65 68 -4
Consolidated net income 121 131 -8
Consolidated net income attributable to non-controlling interests 2 2 0
Consolidated net income attributable to shareholders of Aareal Bank AG 119 129 -8
Earnings per share (EpS)      
Consolidated net income attributable to shareholders of Aareal Bank AG 1) 119 129 -8
of which: allocated to ordinary shareholders 107 117 -9
of which: allocated to AT1 investors 12 12  
Earnings per ordinary share (in EUR) 2) 1.80 1.97 -9
Earnings per AT1 unit (in EUR) 3) 0.12 0.12  
       

 

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.



Consolidated income statement for the third quarter of 2019

(in accordance with IFRSs)



































































































  Q3 2019 Q3 2018 Change
  EUR mn EUR mn %
Net interest income 134 131 2
Loss allowance 27 14 93
Net commission income 54 51 6
Net derecognition gain or loss 15 5 200
Net gain or loss from financial instruments (fvpl) 5 0  
Net gain or loss from hedge accounting -3 1 -400
Net gain or loss from investments in companies

accounted for using the equity method
0 -  
Administrative expenses 114 107 7
Net other operating income/expenses 0 3 -100
Negative goodwill from acquisitions - -  
Operating profit 64 70 -9
Income taxes 24 24 0
Consolidated net income 40 46 -13
Consolidated net income attributable to non-controlling interests 1 1 0
Consolidated net income attributable to shareholders of Aareal Bank AG 39 45 -13
Earnings per share (EpS)      
Consolidated net income attributable to shareholders of Aareal Bank AG 1) 39 45 -13
of which: allocated to ordinary shareholders 35 41 -15
of which: allocated to AT1 investors 4 4  
Earnings per ordinary share (in EUR) 2) 0.60 0.70 -14
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 nine months of 2019

(in accordance with IFRS)
































































































































































































































  Structured
Property
Financing
Consulting/Services Consolidation/Reconciliation Aareal Bank Group
  1 Jan- 1 Jan- 1 Jan- 1 Jan- 1 Jan- 1 Jan- 1 Jan- 1 Jan-
  30 Sep 30 Sep 30 Sep 30 Sep 30 Sep 30 Sep 30 Sep 30 Sep
  2019 2018 2019 2018 2019 2018 2019 2018
EUR mn                
Net interest income1) 414 409 -11 -9 0 0 403 400
Loss allowance 55 33 0 0     55 33
Net commission income1) 6 6 163 150 -5 -4 164 152
Net derecognition gain or loss 42 16         42 16
Net gain or loss from financial instruments (fvpl) 5 -1         5 -1
Net gain or loss from hedge accounting -4 -2         -4 -2
Net gain or loss from investments accounted for using the equity method     0       0  
Administrative expenses 195 182 180 166 -5 -4 370 344
Net other operating income/expenses 0 9 1 2 0 0 1 11
Negative goodwill from acquisitions                
Operating profit 213 222 -27 -23 0 0 186 199
Income taxes 74 77 -9 -9     65 68
Consolidated net income 139 145 -18 -14 0 0 121 131
Consolidated net income

attributable to non-controlling interests
0 0 2 2     2 2
Consolidated net income attributable to shareholders of Aareal Bank AG 139 145 -20 -16 0 0 119 129
                 
Allocated equity2) 2,131 2,045 205 177 225 263 2,561 2,485
Cost/income ratio (%) 42.2 41.8 117.4 115.3     60.5 59.7
RoE before taxes (%) 2) 3) 4) 12.2 13.3 -18.5 -18.2     8.7 9.7
                 

 

1) As of this reporting year, interest from housing industry deposits is shown in 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.

Segment results for the third quarter of 2019 (in accordance with IFRSs)



















































































































































































  Structured
Property
Financing
Consulting/Services Consolidation / Reconciliation Aareal Bank Group
  3rd quarter 3rd quarter 3rd quarter 3rd quarter 3rd quarter 3rd quarter 3rd quarter 3rd quarter
  2019 2018 2019 2018 2019 2018 2019 2018
EUR mn                
Net interest income1) 138 134 -4 -3 0 0 134 131
Loss allowance 27 14 0 0     27 14
Net commission income1) 2 2 54 51 -2 -2 54 51
Net derecognition gain or loss 15 5         15 5
Net gain or loss from financial instruments (fvpl) 5 0         5 0
Net gain or loss from hedge accounting -3 1         -3 1
Net gain or loss from investments in companies

accounted for using the equity method
    0       0  
Administrative expenses 55 53 61 56 -2 -2 114 107
Net other operating income/expenses -1 2 1 1 0 0 0 3
Negative goodwill from acquisitions                
Operating profit 74 77 -10 -7 0 0 64 70
Income taxes 27 27 -3 -3     24 24
Consolidated net income 47 50 -7 -4 0 0 40 46
Consolidated net income

attributable to non-controlling interests
0 0 1 1     1 1
Consolidated net income attributable to shareholders of Aareal Bank AG 47 50 -8 -5 0 0 39 45
                 

 

1) As of this reporting year, interest from housing industry deposits is shown in net interest income of the Consulting/Services segment (previously included in net commission income). The previous year"s figures were adjusted accordingly.






Contact:

Aareal Bank AG

Corporate Communications


Sven Korndörffer

Phone: +49 611 348 2306

sven.korndoerffer@aareal-bank.com


Christian Feldbrügge

Phone: +49 611 348 2280

christian.feldbruegge@aareal-bank.com



 














12.11.2019 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.

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Language: English
Company: Aareal Bank AG

Paulinenstr. 15

65189 Wiesbaden

Germany
Phone: +49 (0)611 348 - 0
Fax: +49 (0)611 348 - 2332
E-mail: aareal@aareal-bank.com
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: 910299





 
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910299  12.11.2019 



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