- Consolidated operating profit rises to € 50 million in the third quarter (Q3 2020: € 11 million), and to € 123 million for the first nine months (9m 2020: € 24 million)
- Net interest income rose significantly, despite the low interest rate environment – up 21 per cent compared to the same quarter of the previous year, up 9 per cent against the previous quarter
- Strong new business in commercial property financing – full-year target for portfolio volume now at approximately € 30 billion
- Chief Executive Officer Jochen Klösges: “The encouraging results for the first nine months show that Aareal Bank Group is on the right path, and that the growth initiatives taken are making an impact. With regard to the further development of the pandemic during the current winter quarter, we will nonetheless remain vigilant.”
- Chief Financial Officer Marc Hess: “Aareal Bank is consistently implementing its strategy. Thanks to the increased portfolio volume and good margins, the Bank has posted the highest net interest income in four years. At the same time, loan-to-value ratios in newly acquired business have remained at a comfortable level, with sound risk profiles.”
Wiesbaden, 11 November 2021 – Aareal Bank Group has continued its growth path and increased its consolidated operating profit for the third quarter to € 50 million. Despite the low interest rate environment, net interest income increased by 21 per cent compared to the same quarter of the previous year, owing to the successful portfolio growth and the exploitation of market opportunities that have arisen – and Aareal Bank is still on course for further controlled, risk-aware growth. Loss allowance was down year-on-year, yet remained above the average pre-crisis levels on account of the pandemic.
Jochen Klösges, Chief Executive Officer of Aareal Bank since 15 September 2021, commented: “The encouraging results for the first nine months show that Aareal Bank Group is on the right path, and that the growth initiatives taken are making an impact. With regard to the further development of the pandemic during the current winter quarter, we will nonetheless remain vigilant.”
Chief Financial Officer Marc Hess commented: “Aareal Bank is consistently implementing its strategy. Thanks to the increased portfolio volume and good margins, the Bank has posted the highest net interest income in four years. At the same time, loan-to-value ratios in newly acquired business have remained at a comfortable level, with sound risk profiles.”
Consolidated operating profit rose to € 50 million in the third quarter (Q3 2020: € 11 million, Q2 2021: € 41 million), and to € 123 million for the first nine months of the current financial year (9m 2020: € 24 million). Major revenue components developed positively:
Net interest income for the third quarter rose significantly – by 21 per cent year-on-year – to € 155 million (Q3 2020: € 128 million, Q2 2021: € 142 million), thus reaching another new peak for the last four years. The increase was driven by the expansion of the portfolio volume – in line with the strategy – and hence, of the interest-bearing business, as well as by the healthy margins for new business originated during the past quarters. The TLTRO interest rate benefit remained unchanged from the previous quarter, at approximately € 7 million.
Net commission income amounted to € 56 million and was thus stable (Q3 2020: € 57 million). In the first nine months of the financial year, it rose to € 174 million (9m 2020: € 168 million), thanks to revenue growth at IT subsidiary Aareon and in the Banking & Digital Solutions segment.
At € 39 million, loss allowance during the third quarter again remained significantly lower than in the same period of the previous year (Q3 2020: € 61 million), totalling € 79 million for the first nine months of the year (9m 2020: € 167 million). Nevertheless, Aareal Bank remains cautious with regard to the further development of the Covid-19 pandemic during the current winter quarter, with case numbers recently on the rise again in many countries. The Bank therefore maintains the previously projected and communicated loss allowance range of between € 125 million and € 200 million for the full year (including the net result from financial instruments (fvpl)).
Administrative expenses rose slightly to € 125 million compared to the same quarter of the previous year (€ 114 million), totalling € 393 million for the first nine months of the year (9m 2020: € 352 million). The increase was driven, in particular, by growth-related costs and investments at Aareon. The lower figure for the previous year was also due to reduced costs on the back of the pandemic.
Taking into consideration tax expenses of € 27 million, consolidated net income attributable to shareholders of Aareal Bank AG amounted to € 23 million (Q3 2020: € 0 million). Assuming the pro rata temporis accrual of net interest payments on the AT1 bond (€ 3 million), consolidated net income allocated to ordinary shareholders stood at € 20 million (Q3 2020: € -4 million).
Aareal Bank continues to enjoy a very solid capital base. As at 30 September 2021, the Bank's Common Equity Tier 1 (CET1) ratio was 21.5 per cent, which is very comfortable even on an international level. The total capital ratio stood at 28.1 per cent. The CET1 ratio determined on the basis of the Basel Committee's final framework – the so-called Basel IV ratio (phase-in), which is relevant for capital planning – was 17.8 per cent.
On 2 November 2021, Aareal Bank convened an Extraordinary General Meeting to be held on 9 December 2021, to allow Aareal Bank’s shareholders to vote on the second dividend tranche – proposed at € 1.10 per share – for the 2020 financial year, as announced in February 2021. However, discussions with potential investors Centerbridge and Advent, which Aareal Bank made public on 7 October, are still ongoing. In the event of an offer being announced, depending on the content of the offer, the dividend proposal to be submitted to the Extraordinary General Meeting might be reassessed.
Developments by business segment
New business in the Structured Property Financing segment remained at a high level. Compared to the same quarter of the previous year, it almost doubled to € 2.8 billion (Q3 2020: € 1.5 billion). New business in the first nine months thus totalled € 6.1 billion, up more than 46 per cent on the previous year (9m 2020: € 4.2 billion). For the year as a whole, Aareal Bank still expects new business of € 7 billion to € 8 billion – from today’s perspective, it anticipates reaching the upper end of this range. Reflecting the high volume of new business, the portfolio volume rose to € 29.6 billion as at 30 September – an increase of 10.7 per cent compared to the same quarter of the previous year. The year-end target has therefore already been exceeded: the Bank now already looks to reach its 2022 target of around € 30 billion by the end of 2021. Aareal Bank continued to maintain its conservative lending policy with a good risk-return profile. At around 225 basis points, average gross margins on newly acquired business in the first nine months were at a very strong level, with comfortable average loan-to-value ratios (LTVs) of 57 per cent.
Aareal Bank continued to successfully pursue its ESG activities in the property financing business in the quarter under review. Under its Green Finance Framework, Aareal Bank concluded its first ‘green’ financings, including a mortgage loan for the Australian Pro-invest Group and for Cerberus Capital Management and Highgate in the UK. Overall, the Bank has extended green financing in the amount of € 275 million since June 2021.
The Banking & Digital Solutions segment, which bundles the Bank's equity-light business, generated net commission income of € 7 million (Q3 2020: € 6 million). Persistent demand for digital products such as Aareal Meter and Aareal Aval is increasingly contributing to the business segment’s positive development. In addition, the Aareal Exchange & Payment Platform was expanded to provide applications for the energy sector, and plusForta, the Group’s specialist for tenant deposit guarantees, launched “heysafe”, a completely digital deposit guarantee solution.
Sales revenue at IT subsidiary Aareon rose to € 195 million in the first nine months of the current financial year, compared to € 188 million for the same period of the previous year. The momentum for digital products remained intact. The increase was due, on the one hand, to the initiatives taken within the framework of the Value Creation Programme (VCP), as well as to the acquisitions executed (Arthur, Twinq, Fixflo, Tilt, wohnungshelden, and GAP Group) on the other hand. Aareon’s most recent takeover of GAP Group, a major provider of ERP software for the housing industry in the German market, has brought the total year-to-date number of acquisitions to six. Despite the ongoing Covid-19 burdens, adjusted EBITDA of € 13 million was roughly in line with the previous year’s level in the third quarter and at € 42 million for the first nine months, slightly above the previous year’s level.
Outlook: Guidance for consolidated operating profit affirmed for the full year 2021
Aareal Bank Group continues to anticipate a “swoosh”-shaped economic trend. However, Covid-19 case numbers have recently risen again in many countries, thus increasing uncertainty regarding the further development of the pandemic during the current winter quarter. Based on these assumptions and current insights, Aareal Bank Group continues to expect a clearly positive consolidated operating profit in a range of between € 100 million and € 175 million for 2021 as a whole, whilst guidance for loss allowance remains unchanged.