Aareal Bank AG resolves on capital increase

The Management Board of Aareal Bank AG, with the approval of the Supervisory Board, resolved today to increase the Company's share capital via a rights issue against cash contributions.

  • Syndicate banks guarantee gross proceeds of around € 269 million
  • Proceeds to be used for supporting future growth in the Structured Property Financing segment, and for strengthening the bank's equity base / Aareal Bank also considers repaying a further tranche of approximately € 75 million of the silent participation of the German Financial Markets Stabilisation Fund (SoFFin)
  • New business target 2011 increased to between € 7 billion and € 8 billion
  • Return on equity target in normalised markets raised to between 12 and 13 per cent before taxes
  • Aareal Bank intends early redemption of the € 2 billion SoFFin-guaranteed bond maturing in June 2013, which has been held on the bank's own books
  • CEO Dr Wolf Schumacher: "We want to expand our new business and to further improve profitability."

Wiesbaden, 14 April 2011 – The Management Board of Aareal Bank AG, with the approval of the Supervisory Board, resolved today to increase the Company's share capital via a rights issue against cash contributions. Aareal Bank will issue 17,102,062 new ordinary bearer shares with a proportionate share in the nominal share capital of € 3.00 per share. As a result, the Company's share capital will increase from € 128,265,477 to € 179,571,663. The subscription price amounts to € 15.75. On this basis the gross proceeds are expected to amount to around € 269 million. The Offer is subject to approval of the securities prospectus by the German Federal Financial Supervisory Authority (BaFin), which is expected during the course of today.

The net proceeds from the capital increase are intended to support the future growth of Aareal Bank AG’s Structured Property Financing segment, consistent with its current credit risk strategy. At the same time, the proceeds are intended to strengthen Aareal Bank Group's regulatory capital base. In addition, Aareal Bank AG considers using approximately € 75 million of the proceeds to partially repay the silent participation of the German Financial Markets Stabilisation Fund (SoFFin), subject to approval by BaFin and a corresponding agreement with SoFFin.

"With the capital increase, we want to increasingly exploit opportunities for high-margin new business, which are available in the current market and competitive environment. Considering the significant potential available in our markets, we have raised our target for new business origination to between € 7 billion and € 8 billion for the current year", CEO Schumacher explained. "The capital increase is a key achievement in the continued expansion of our market position, and will further enhance profitability. Hence, from today's perspective, we anticipate an increase in the bank's return on equity before taxes, to between 12 and 13 per cent in normalised markets, thus exceeding our target to date", Schumacher summarised.

At the same time, the capital increase will further strengthen Aareal Bank's equity base. Aareal Bank's pro-forma Tier 1 ratio as at 31 December 2010, calculated in accordance with the Advanced Internal Ratings-Based Approach (Advanced IRB Approach or "A-IRBA") and including the effect of the capital increase (before appropriation of proceeds), will increase to 14.4 per cent; taking into account the partial repayment of the SoFFin silent participation, in the amount of approximately € 75 million, the pro-forma Tier 1 ratio will increase to 14.0 per cent. The pro-forma Tier 1 ratio in accordance with the A-IRBA, excluding hybrid capital and the remaining SoFFin silent participation, will increase to 9.6 per cent as at 31 December 2010.

Aareal Holding will remain an anchor shareholder following the capital increase

The capital increase will be carried out in the form of an indirect subscription offer to Aareal Bank's existing shareholders, whereby the subscription rights conveyed by 5 existing shares will give the right to subscribe to 2 new shares. The subscription period during which the Company's shareholders may exercise their subscription rights is expected to begin on 16 April 2011 and is expected to end on 29 April 2011. Deutsche Bank and HSBC have undertaken to subscribe to the new shares and to acquire them at the subscription price and to offer the shares to Aareal Bank's shareholders for subscription, pursuant to the terms and conditions of the subscription offer, which is expected to be published on 15 April 2011.

Aareal Holding Verwaltungsgesellschaft mbH ("Aareal Holding"), which currently holds a 37.23 per cent stake in the Company's issued share capital, will support the rights issue within the scope of a so-called 'opération blanche'. In this context, the syndicate of underwriting banks will offer a part of the new shares that Aareal Holding is entitled to as a private placement solely to qualified investors in Germany and Luxembourg, as well as in other countries outside the USA. This pre-placement will take the form of an accelerated bookbuilding procedure, which is expected to take place on or around 14 April 2011. Aareal Holding will use the net proceeds obtained from this placement to subscribe to new shares itself, without investing additional funds. Aareal Holding will continue holding more than 26 per cent of Aareal Bank AG's issued share capital after completion of the Offer.  

The subscription rights for the new shares (which will carry full dividend rights for the 2010 financial year) will be traded during the period from 18 April 2011 up to and including 27 April 2011 on the Regulated Market of the Frankfurt Stock Exchange, under ISIN DE000A1KRLB4 and German Securities ID WKN A1K RLB. No compensation will be awarded for any subscription rights remaining unexercised. The admission of the new shares to the Regulated Market segment (regulierter Markt) of the Frankfurt Stock Exchange, and to the Prime Standard sub-segment of the Frankfurt Stock Exchange, is expected to be granted on or around 19 April 2011. Commencement of trading is expected on or around
20 April 2011. It is intended that the new shares be included in the existing listing of the Company’s shares.

Following BaFin approval, the securities prospectus will be available for download on www.aareal-bank.com.

Results boosted further by the early redemption of guarantees

In addition to the capital increase, the Management Board intends early redemption of the SoFFin-guaranteed € 2 billion bond maturing on 5 June 2013, which the bank holds on its own books. This early redemption is intended to go ahead shortly, in agreement with SoFFin. The three-year bond was issued in June 2010 as a precautionary measure; however, in view of a gradually stabilising market environment, the issue was not subsequently placed on the market and hence was not used for funding purposes. The cancellation of this bond would result in a reduction of the guarantee fees payable by Aareal Bank to SoFFin of around € 19 million p.a. before taxes, and in a pro rata reduction for the years 2011 and 2013. Overall, this would have an accumulated positive effect of around € 41 million before taxes.

"Having already repaid a significant part of SoFFin's silent participation last year, returning government guarantees was thus the logical next step to take: it reflects our assessment of the market environment, as well as Aareal Bank's sound refinancing situation", Schumacher explained.

Forecasts raised for key financial indicators

Taking the expected positive effects of the capital increase as well as the partial redemption of guarantee fees into account, Aareal Bank has adjusted its outlook for the financial year 2011 as a whole, as follows: anticipating moderately higher interest rate levels, and considering the expected income generated on additional new business, the Management Board expects net interest income to increase compared to 2010. Due to the fact that relief from lower guarantee fees will occur earlier than expected, net commission income will show a more pronounced increase than previously forecast.

Given the positive factors influencing net interest income and net commission income, as outlined above, Aareal Bank expects consolidated net operating profit to increase clearly in 2011 compared to 2010.

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.

Disclaimer:

This press release does not contain or constitute an offer of, or the solicitation of an offer to buy or subscribe for, securities to any person in Australia, Canada, Japan, or the United States of America (the “United States”) or in any jurisdiction to whom or in which such offer or solicitation is unlawful. The securities referred to herein may not be offered or sold in the United States absent registration under the U.S. Securities Act of 1933, as amended (the “Securities Act”) except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. Subject to certain exceptions, the securities referred to herein may not be offered or sold in Australia, Canada or Japan or to, or for the account or benefit of, any national, resident or citizen of Australia, Canada or Japan. The offer and sale of the securities referred to herein has not been and will not be registered under the Securities Act or under the applicable securities laws of Australia, Canada or Japan. There will be no public offer of the securities in the United States.

This press release is an advertisement and not a prospectus. Investors should not purchase or subscribe for any shares referred to in this press release except on the basis of information in the prospectus to be issued by the company in connection with the offering of such shares. Copies of the prospectus will, following publication, be available free of charge from Aareal Bank AG at Paulinenstraße 15, 65189 Wiesbaden, Germany or on Aareal-Bank AG’s website (www.aareal-bank.com).

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