Aareal Bank Group set for profitable growth

Wiesbaden (ots) -

- Further enhancements to results anticipated, following the
successful financial year 2010
- Business development on schedule during early 2011 - positive
outlook affirmed
- CEO Dr Wolf Schumacher: "We are determined to consistently
exploit our competitive edge, and to further expand our market
position"

Following its successful performance during the 2010 financial
year, during which Aareal Bank achieved good results in a challenging
environment, the bank sees itself in an excellent position for
profitable growth, and for further boosting its market position
during the coming months and years. "Leveraging our sustainable
strategy, we are now determined to consistently exploit our
competitive edge, to further expand our strong position on key
markets", said Dr Wolf Schumacher, Chairman of the Management Board,
presenting the bank's 2010 Annual Report.

Schumacher affirmed that Aareal Bank's outlook for the commercial
property financing business remained generally positive: he observed
that key markets had now concluded their bottom-building process - as
predicted one year ago. According to Schumacher, demand for
financings is picking up markedly in some segments, whilst the number
of competitors has clearly diminished following the financial markets
crisis.

"We are convinced that, as one of the few real estate finance
providers left that maintains a broad international presence, we will
be able to benefit from the ongoing normalisation of the markets we
cover, to a greater extent than our competitors," Schumacher said,
adding: "Our transaction pipeline is very well-stocked indeed - in
the current market environment, a strongly-positioned institution
such as Aareal Bank sees attractive opportunities for generating
high-margin new business, with an adequate risk profile. We are
determined to exploit these opportunities. In the interests of our
shareholders, we will therefore retain all options to boost our
lending business, in line with our strategy, beyond our current
planning - which would permit us to increase new business during the
current year above the previous year's levels", Schumacher
emphasised.

Positive outlook for the 2011 financial year affirmed

Aareal Bank Group started into the current financial year as
planned: notably, the positive development of new business continued
during the first quarter, which is traditionally rather weak for both
of its segments.

Aareal Bank affirms its outlook for the financial year 2011 as a
whole, as published on 22 February 2011. Against the background of
moderately higher interest rate levels, the Management Board expects
net interest income to be stable or slightly higher compared with the
previous year. Due to the gradual normalisation of property markets,
and although there are still various uncertainties, Aareal Bank
expects allowance for credit losses for the 2011 financial year to be
within a range of EUR 110 million to EUR 140 million. (The previous
year's projection was a range of EUR 117 million to EUR 165 million.)
As in the previous year, additional allowance for unexpected credit
losses that may be incurred during 2011 cannot be ruled out.
Administrative expenses will continue to be defined by the unchanged
cost discipline, and the figure for 2011 is expected to be marginally
higher than the previous year, including the burden associated with
the special bank levy.

Overall, Aareal Bank is confident, from today's perspective, that
it will increase the good operating profit achieved during the 2010
financial year, in a challenging market environment. Despite the
additional burdens facing banks as a result of the bank levy, Aareal
Bank considers a return on equity before taxes of at least 12 per
cent to be achievable in a normal market environment.

Significant increase in results for the 2010 financial year

Aareal Bank Group concluded the financial year under review with
one of the best results in its corporate history - despite a
difficult market environment. According to audited figures,
consolidated operating profit amounted to EUR 134 million, up 54 per
cent year-on-year (2009: EUR 87 million). Aareal Bank Group had in
fact already achieved its original target - to beat the previous
year's figure - by the end of the third quarter of 2010.

Looking at full-year results, Aareal Bank Group not only clearly
outperformed its operating profit target, but also exceeded its
projections for other key financial indicators. For instance,
consolidated net interest income of EUR 509 million - up 11 per cent
year-on-year - was markedly higher than the EUR 460-480 million range
projected. At the same time, allowance for credit losses of EUR 105
million was below the EUR 117 to 165 million range budgeted for the
2010 financial year. At EUR 6.7 billion, new business originated in
the Structured Property Financing segment significantly exceeded the
target corridor of EUR 4 billion to EUR 5 billion; compared to 2009,
new business was up by 74 per cent. At EUR 26 million, operating
profit for the Consulting / Services segment was in line with
projections, despite an unfavourable interest rate environment for
the deposit-taking business.

This increase in consolidated net interest income for the full
year 2010, to EUR 509 million (2009: EUR 460 million) was mainly
attributable to higher average margins achieved in the lending
business, reflecting new exposures originated and renewals agreed
upon during 2009 and 2010. Margins from the deposit-taking business
with the institutional housing industry declined, due to lower
interest rate levels - which persisted for longer than anticipated.

At EUR 105 million (2009: EUR 150 million), allowance for credit
losses reflected the high quality of Aareal Bank Group's credit
portfolio.

Net commission income of EUR 123 million (2009: EUR 133 million)
reflected - amongst other things - EUR 30 million (2009: EUR 17
million) in running costs for the guarantee facility extended by
SoFFin. Adjusted for these costs, net commission income exceeded the
previous year's figure.

Net trading income/expenses of EUR 8 million (2009: EUR 44
million) was largely attributable to the valuation of trading
derivatives used to hedge interest rate and currency risk, and to
realised and unrealised changes in value from sold hedging
instruments on selected EU sovereign countries. The result from
non-trading assets of EUR -12 million (2009: EUR -22 million) was
mainly attributable to the sale of fixed-income securities.

A non-recurring expense of EUR 20 million was recognised for the
realignment of an investment property during the financial year under
review. This expense was reflected in the result from investment
properties, which amounted to EUR -17 million during the 2010
financial year (2009: EUR 0 million).

Administrative expenses of EUR 366 million were virtually
unchanged year-on-year (2009: EUR 361 million). This reflects the
strict cost discipline pursued within the Group.

Taking into account net other operating income and expenses of EUR
-9 million (2009: EUR -14 million), consolidated operating profit for
the 2010 financial year totalled EUR 134 million, after EUR 87
million in 2009. Taking into consideration taxes of EUR 40 million
and EUR 18 million in income attributable to non-controlling
interests, net income attributable to shareholders of Aareal Bank AG
amounted to EUR 76 million (2009: EUR 49 million). After deduction of
the net EUR 30 million interest payable on the SoFFin silent
participation, consolidated net income stood at EUR 46 million (2009:
EUR 23 million).

Both of the business segments contributed to Aareal Bank Group's
good results for 2010, in the face of difficult market conditions.

Aareal Bank adhered to its conservative business policy - strictly
focusing on quality - in its Structured Property Financing segment.
Benefiting from economic recovery, and leveraging growing transaction
volumes on the commercial property markets, Aareal Bank increasingly
exploited available opportunities to originate attractive new
business, which increased to EUR 6.7 billion during the 2010
financial year - up from EUR 3.8 billion the year before.

Net interest income posted by the segment for the financial year
under review amounted to EUR 467 million (2009: EUR 410 million).
This increase was mainly attributable to higher average margins
generated on new exposures and renewals during 2009 and 2010.

At EUR 217 million, administrative expenses in the Structured
Property Financing segments exceeded the previous year's figure of
EUR 201 million. One of the factors contributing to this increase was
higher provisions for share-based remuneration, due to the positive
performance of Aareal Bank's share price during the financial year
under review.

Overall, operating profit for the Structured Property Financing
segment was EUR 108 million (2009: EUR 67 million). Taking into
consideration tax expenses of EUR 32 million and EUR 16 million in
non-controlling interest income, the segment result was EUR 60
million (2009: EUR 38 million).

The Consulting/Services segment continued to show a stable
performance during the 2010 financial year. While Aareon's business
continued to develop on schedule, the prevailing low interest rate
environment - which persisted for longer than anticipated - burdened
profitability in the deposit-taking business.

Sales revenue amounted to EUR 199 million in the 2010 financial
year (2009: EUR 209 million). The decline was largely due to the low
interest rate environment, which impacted unfavourably on
profitability of the deposit-taking business with the institutional
housing industry. Nonetheless, the volume of deposits from the
institutional housing industry increased slightly, despite predatory
competition, averaging around EUR 4.1 billion during the 2010
financial year. Sales revenue included EUR 5 million of revenue
generated by SG|automatisering bv, a Dutch subsidiary acquired by
Aareon during the fourth quarter of 2010.

On balance, operating profit for the Consulting / Services segment
was EUR 26 million (2009: EUR 20 million). After deduction of EUR 8
million in taxes and EUR 2 million in non-controlling interest
income, the segment result stood at EUR 16 million (2008: EUR 11
million).

Successful issuance and solid capitalisation

During the 2010 financial year, Aareal Bank successfully
implemented its planned funding activities, in a market environment
that continued to be difficult, especially for unsecured issues.
Overall, Aareal Bank placed EUR 1.5 billion in unsecured issues - a
confirmation of the trust that investors continue to place in Aareal
Bank and its management. The bank also placed Pfandbrief issues
totalling EUR 2.4 billion. Moreover, in June 2010 Aareal Bank
exercised the option of drawing on the remaining EUR 2 billion
available under the guarantee facility provided by the German
Financial Markets Stabilisation Fund (SoFFin). This use of the
guarantee facility was purely precautionary in nature; the bank
continues to hold the guaranteed bond issued on its own books.

Aareal Bank has a solid capital base. The bank has applied the
Advanced Internal Ratings-Based Approach (Advanced IRB Approach,
"A-IRBA") to determine its capital requirements for credit risks,
with retrospective effect from 31 December 2010, instead of the
Credit Risk Standard Approach (CRSA) applied to date. Under the
A-IRBA, Aareal Bank's Tier 1 ratio stood at 12.9 per cent as at 31
December 2010. Calculated according to the CRSA previously
applicable, the bank's Tier 1 ratio would have amounted to 10.5 per
cent on the same record date (30 September 2010: 10.4 per cent). The
Tier 1 ratio according to the A-IRBA, excluding hybrid capital and
the remaining SoFFin silent participation (of which Aareal Bank
repaid an initial EUR 150 million tranche in July 2010), stood at 8.1
per cent as at the year-end. The capital ratios shown are based on
the full reinvestment of profits generated during the 2010 financial
year.

Note to editors:

The full annual report for 2010 is available from Aareal Bank's
website: http://www.aareal-bank.com/financialreports.

Aareal Bank

Aareal Bank AG is one of the leading international specialist
property banks. The Aareal Bank share is included in Deutsche Börse's
mid-cap MDAX index. Aareal Bank operates on three continents:
leveraging its successful European business model, the bank has
established similar platforms in North America and in the
Asia-Pacific region. It provides property financing solutions in more
than 20 countries.

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

Investor Relations

Jürgen Junginger
phone: +49 611 348 2636
juergen.junginger@aareal-bank.com