INTERIM REPORT AAREAL BANK GROUP AS AT 30 JUNE June 1 JANUARY TO 30 JUNE 2007

Transcription

1 June 1 JANUARY TO 30 JUNE 2007 INTERIM REPORT AAREAL BANK GROUP AS AT 30 JUNE 2007

2 SHAREHOLDER STRUCTURE Aareal Holding Verwaltungsgesellschaft mbh 8.94 % Bayerische Beamten- Lebensversicherung a.g % % 8.94 % Schweizerische Lebensversicherungsund Rentenanstalt 6.68 % Versorgungsanstalt des Bundes und der Länder 6.06 % Bankhaus Lampe KG 5.25 % Deutscher Ring Gruppe 1.36 % Condor Lebensversicherungs-AG Free float Aareal Holding Verwaltungsgesellschaft mbh Imprint Contents: Aareal Bank AG Konzernstab, Corporate Communications Cover picture: Architecture s photography Barbara Staubach, Wiesbaden, Germany Design/Layout: s/company, Fulda-Künzell, Germany Production: Druckerei Chmielorz GmbH, Wiesbaden-Nordenstadt, Germany

3 KEY GROUP FIGURES 3 KEY GROUP FIGURES 01 Jan-30 Jun Jan-30 Jun 2006 Change Consolidated Income Statement mn Operating profit Group net income after minority interest income Indicators Cost / income ratio (%) 1) Earnings per share ( ) RoE after taxes (%) 2) Jun Dec 2006 Change Change Portfolio Data mn % Property financing 21,470 20, of which: international 15,262 14, Property financing under Management 23,145 22, of which: international 15,262 14, Shareholder s equity 1,500 1, Total assets 41,466 38,279 3,187 8 Regulatory indicators % % Core capital ratio (BIS rules) 3) Total capital ratio (BIS rules) 3) Jun Dec 2006 Rating Fitch Ratings, London Long-term A- A- Short-term F2 F2 1) only in the Structured Property Financing segment; 2) on an annualised basis 3) The ratios were calculated in accordance with the definitions by the Basel Committee. No agreement regarding the determination of the ratios has been concluded with the German Federal Financial Supervisory Authority (BaFin).

4 CONTENTS CONTENT 4 CONTENTS Shareholder Structure Key Group Figures Overview Contents Letter to Shareholders Consolidated Income Statement of Aareal Bank Group Consolidated Income Statement (Quarterly Development) Segment Reporting by operating unit Segment Reporting (Quarterly Development) by operating unit Consolidated Balance Sheet of Aareal Bank Group Consolidated Statement of Changes in Shareholders Equity Consolidated Statement of Cash Flows Basis of Accounting Notes to the Consolidated Income Statement (1) Net interest income (2) Provision for loan losses (3) Net commission income (4) Net trading income (5) Results from non-trading assets (6) Administrative expenses (7) Net other operating income / expenses Notes to the Consolidated Balance Sheet (8) Loans and advances to banks (9) Loans and advances to customers (10) Trading assets (11) Non-trading assets

5 S 5 (12) Intangible assets (13) Property and equipment (14) Other assets (15) Liabilities to banks (16) Liabilities to customers (17) Certificated liabilities (18) Trading liabilities (19) Provisions (20) Subordinated equity (21) Treasury shares (22) Dividends Sonstige Erläuterungen (23) Property financing Portfolio breakdown by country (24) Property financing Portfolio breakdown by type of loan (25) New property financing (26) Number of employees (27) Events since the end of the interim reporting period Responsibility Statement Executive Bodies Our Offices Financial Calendar Aareal Bank Group Locations

6 LETTER TO SHAREHOLDERS LETTER TO SHAR 6 LETTER TO SHAREHOLDERS Dear shareholders, business associates and Aareal Bank staff, Aareal Bank has had a successful first half of 2007: during the past six months we have consistently exploited the opportunities offered by our Structured Property Financing and Consulting/Services segments, and have further stepped up the growth process in our bank. The successful realignment of Aareal Bank over the last eighteen months formed the basis for this success. We launched our FUTURE 2009 growth programme at the end of the first quarter of 2007 earlier than planned to promote the development of Aareal Bank in the best interests of our shareholders, clients and staff. Structured Property Financing Expanding the international presence We expanded our international presence we are now represented in three continents, with offices in 17 countries and employees from 31 different nations to strengthen the direct contact to our clients. Our strategy is to focus on the combination of local market expertise provided by our network of offices, together with the industry experience of our teams of experts for the financing of hotels, logistics properties and shopping centres at head office. We opened an additional representative office in Scandinavia during the first half of the year, and we have now been represented by our own team in Helsinki since May. We now not only command a strong presence in the Nordic region, but are also in a position to better leverage the potential of the Finnish market. In recent months we have also been preparing to expand our presence further, with additional offices in North America and in Asia. Finally, we plan to open an office in Shanghai during the fourth quarter of Diversifying the loan portfolio Our regional diversification is also reflected in our property financing portfolio, which we are gradually structuring even further across international markets. Our efforts have been successful: at the end of June 2007, 66 % of our entire loan portfolio under management, with a total volume of 23.1 billion, was attributable to international business. By comparison, this share was only just under 56 % one year ago, at the end of June We have also continuously expanded our refinancing base on a national and international level, which also contributes to the sustained growth of Aareal Bank. We raised a total of 3.6 billion in long-term funds in the first half of the year. This included Aareal s second jumbo Pfandbrief, issued at the end of March with a volume of 1 billion; 40 % of allocated orders were attributable to international investors from twelve countries. New business development well on schedule The continued high level of liquidity in the capital markets prompted high turnover also

7 EHOLDERS 7 in the investment markets for commercial property. Additionally, overall positive economic development ensured that demand for floor space remained at a high level. This impacted accordingly on our new business, which we increased in the first half of the current business year to 5.9 billion. This equates to an increase of 37.2 % over the previous year s figure of 4.3 billion. International business accounted for approx. 90 % of all new commitments. We are also well on schedule with regard to our projections for the current business year: we aim to generate approx. 10 billion in new business by the end of 2007, and further enhance our position as one of the leading property specialists on the market. Consulting / Services Trade meeting at the 17th Aareon Congress Our subsidiary Aareon AG held its seventeenth annual Aareon Congress in the spring of this year. The three-day event held in Garmisch-Partenkirchen, Bavaria, is renowned across the industry: some 900 executives and entrepreneurs operating in the commercial housing sector took this opportunity to inform themselves about current trends and developments in the sector. Our multi-product strategy launched last year, comprising the four enterprise resource planning (ERP) systems Blue Eagle, GES, Wohndata and Wodis, met with a very positive response. Regardless of whether a standardised or customised solution is required, Aareon s systems provide property management solutions that are designed to suit the needs of its customers. The advantage lies in the high degree of integration and automation of the systems. They create the requirements for our customers for efficient data management, as well as offering the possibility of linking up integrated services. Expanding the sales unit covering West Germany Owing to strategic changes within its sales force, Aareon started to expand its own distribution network in North Rhine-Westphalia during the first half of the year, covering customers throughout the western part of Germany from the Dortmund office. Fixed individual contacts, who are entirely familiar with the structures and processes of the companies and who therefore offer the best possible technical support and individual advisory service, provide the complete service from a single source. At the same time, we successfully expanded our market position in the banking business, acquiring additional residential accounts for payments and deposit-taking.

8 LETTER TO SHAR 8 Group profitability During the period under review, Aareal Bank Group achieved consolidated net income after minority interests of 89 million. This represents an increase of 74.5 % over the same period of the previous year. The results are attributable to enhanced operating performance, and to non-recurring effects that were already outlined in the interim report as at 31 March After 98 million in the first quarter, net interest income rose to 104 million in the second quarter. Net loan loss provisions of 44 million in the first half of the year were in line with last year s level, and within the target corridor of 80 to 90 million set for the year 2007 as a whole. Net commission income for the first half of 2007 was 73 million, which was down on the same period of the previous year ( 76 million). However, last year s figure included a non-recurring item: a 7 million asset sale by a fund managed by our subsidiary Deutsche Structured Finance. Adjusted for this effect, we increased net commission income by 5.8 % compared to the same period of the previous year. The net result on hedge accounting ( 5 million; H1 2006: 2 million) and net trading income ( 7 million; H1 2006: 1 million) were attributable mainly to positive market assessment of derivatives, and to reduced expenditure from outstanding securitisations. The result from non-trading assets as at 30 June 2007 amounted to 26 million after 24 million in the same period of the previous year. The result from non-trading assets was determined by non-recurring events in both periods under review: the results for the first half of the 2006 financial year included profit of 2 million realised from the deconsolidation of Aareal Hypotheken-Management GmbH. Profit of 6 million from the sale of our asset management activities has been recognised in the results for the first half of the 2007 financial year. The net result from investments accounted for at equity includes the pro-rata profit for the 2006 business year from the interest held in Immobilien Scout GmbH. Planned investments in our business model, accompanied at the same time by strict cost management, resulted in a slight increase in administrative expenditure from 179 million to 180 million during the first half of However, this item includes a special payment of approx. 3 million made to our staff at the beginning of 2007, as a measure of thanks and appreciation for the successful realignment of Aareal Bank.

9 EHOLDERS 9 Net other operating income and expenses rose from -3 million in the corresponding period of the previous year to 37 million in the first half of In addition to a compensation payment of 37 million received from DEPFA in the first quarter of 2007, this result is also defined by a 2 million profit from the interest held in Interhotel. Operating profit for the first half of the year has therefore recorded a 67.1% increase, from 79 million to 132 million. Adjusted for non-recurring factors, operating income in the first half of 2006 and 2007 amounted to 70 million and 87 million respectively. This corresponds to an increase of 24.3 % over the same period of last year. After deduction of 34 million in income taxes and 9 million in income attributable to minority interests, consolidated net income after minority interests amounted to 89 million. This corresponds to a return on equity after taxes of 16.8 %. Segment reporting Structured Property Financing This segment brings together the property finance and treasury activities of Aareal Bank. Business development We increased the volume of new business during the first six months of 2007 by 37.4 % over the corresponding period of 2006, to 5.9 billion. International markets accounted for roughly 90 % of lending volume, and the German business for around 10 %. Europe Scandinavia claimed the top spot in the first half of 2007 with new financings of 1.1 billion. This volume corresponds to 19 % of our total new business. We are forecasting continued high financing requirements from the Nordic countries, especially for office buildings and commercial property. The volume of new financing business generated in Italy also remained at a high level: staff in our Rome and Milan offices disbursed loans of 631 million, thus contributing 12 % to new business.

10 LETTER TO SHAR 10 New business by region 01 January - 30 June 2007: 5.9 bn between January and June This corresponds to 10% of total new commitments. Asia / Pacific (2 %) Switzerland (3 %) Turkey (4 %) Spain (5 %) CEE (5 %) Scandinavia (19 %) North America (18 %) North America Our core expertise in the North American market is in the property finance business for large institutional clients. We have no direct or indirect exposure to the sub-prime market. United Kingdom (5 %) Benelux (6 %) Germany (10 %) France (11 %) Italy (12 %) The North American region accounted for 1 billion in new business in the first half-year this equates to 18 % of our new business as a whole. Asia / Pacific In France, we succeeded in increasing the volume of new business to 631 million, due above all to the continued high demand for commercial property in the greater Paris region. The French market accounted for 11% of new business in the first half-year. Commercial property markets in our German home market benefited from the strength of the German economy, together with a recovery in rents which has helped stabilise rental yields. We expect property prices to rise slightly over the medium term. Liquidity in the German property market has improved significantly, reflecting the strongly international focus adopted by investors. This is reflected in our new business: we disbursed loans in the amount of 612 million Although at 2 %, new business in the Asia / Pacific region as at 30 June 2007 accounted for a relatively small share of the overall volume of new business, there was evidence of significant growth here: at the end of the first half of the year, our volume of new business ( 145 million) had trebled over the corresponding period of the previous year. We service the markets in China, Japan, Macao, Singapore and the Maldives from our regional hub in Singapore. Our activities also involve the preparation of comprehensive market analyses for India, Malaysia and South Korea, to determine possible market entry strategies for these countries. We are already preparing to extend our activities in China and to open an office in Shanghai.

11 EHOLDERS 11 Segment result Net interest income generated in the Structured Property Financing segment amounted to 173 million for the first six months of This represents a decline of 2.8 % over the figure of 178 million for the same period of the previous year. Net loan loss provisions amounted to 44 million and are in line with the target corridor of 80 to 90 million set for Net commission income for the first half of the year was 16 million, down 3 million on the same period of the previous year. Nonetheless, net commission income in the first half of 2006 was defined by a nonrecurring event, and included 7 million from an asset sale by a fund managed by our subsidiary Deutsche Structured Management. Adjusted for this special item, net commission income amounted to 12 million during the same period of the year before. The result for the first half of 2007 therefore equates to an increase of 4 million, or roughly 33 %. The segment s administrative expenditure was 109 million (H1 2006: 101 million) and reflects expenditure upon international expansion and development of new markets. Net other operating income and expenses for the segment was up from -1 million in the 2006 reporting period to 39 million in The figure included a com- pensation payment of 37 million received from DEPFA, and 2 million in income from the interest held in Interhotel Group. Operating profit was increased by 38 million to 113 million. Consulting / Services This segment offers a comprehensive range of services for managing residential property portfolios and processing payment flows for institutional housing sector clients. Business development IT Solutions Our wholly-owned subsidiary Aareon AG extended its market position as a leading consultancy and IT systems house for the property management sector during the first half of the year. 50 companies in Germany now use the SAP-based Blue Eagle system offered by Aareon, which confirms the high customer s benefit of our new software. Besides Blue Eagle, Aareon s multi-product strategy offers the GES and WohnData property systems as well as Wodis, the solution for SMEs acquired last year from Techem AG. The synergies generated from the differentiated product range are used to the benefit of Aareon s customers: if, for

12 LETTER TO SHAR 12 example, changes in the market situation place new demands on the systems, we prepare a concept to adjust the systems which we then assign to all four products. Payments and deposit-taking Our Institutional Housing Business offers the BK 01 system to the institutional housing sector. Developed by our subsidiary Aareal First Financial Solutions AG, this is a mass payments system with a high integration capability that facilitates a significant degree of process automation in the customer s systems. Considerable synergies are generated with Aareon AG s IT systems: 80 % of Aareon s customers also maintain a business relationship with Aareal Bank. The cooperation is enhanced through the targeted acquisition of customers that use the new Wodis IT system. Our customers benefit from our ability to provide one-stop solutions. Aside from Aareon s success in migrating customers IT systems, this also represents regular cash flows boosting our deposit base. The average deposit volume from the institutional housing sector amounted to 4.5 billion during the first half of the year. Majority stake held in Immobilien Scout GmbH opportunity to increase our interest in Immobilien Scout GmbH on 30 June 2007, to %, enhancing our strategic options. At the same time, this will enable us to participate in additional increases in Immobilien Scout s company value to an even greater extent. Segment result Operating profit in the Consulting / Services segment climbed from 4 million in the corresponding period of the previous year to 19 million in the first half of This reflects the success of the measures we implemented to enhance efficiency and reduce costs. Administrative expenditure was reduced by 9 million compared with the first half of 2006, to 72 million (down 11.1%). Net commission income developed very favourably, rising from 81 million in the first half of 2006 to 87 million in the first six months of 2007; this equates to an increase of 7.4 %. The pro rata result 2006 of 5 million from the stake in Immobilien Scout GmbH has also been recognised in the second quarter. We clearly focus on creating value in managing our portfolio of financial investments. In keeping with this principle, we took the

13 EHOLDERS 13 Property financing under management portfolio by region as at 30 June 2007 (%) United Kingdom (5 %) Other* (5 %) Spain (4 %) Germany (34 %) end At the same time, we continued to further diversify the loan portfolio under management. We thus reduced the German business by 7.1% to 7.9 billion in line with our targets and expanded the international business by 6.8 % to 15.3 billion. The international share now accounts for around two-thirds of the overall portfolio. France (6 %) North America (6 %) Benelux (6 %) CEE (7 %) Scandinavia (13 %) Italy (14 %) Portfolio management and exit strategies Following the successful reduction in the bank s non-performing loan portfolio, the residual volume of non-performing loans still stands at below 500 million. We consider this to be a normal and satisfactory level. * Asia / Pacific, Austria, Ireland, Portugal, Switzerland and Turkey Financial situation Total assets Consolidated total assets as at 30 June 2007 amounted to 41.5 billion, after 38.3 billion as at 31 December Portfolio development Property finance We increased the property financing portfolio under Management to 23.1 billion on aggregate in the first half of This corresponds to a 1.6 % increase over year- Aareal Bank will increasingly look for further exit strategies for the targeted placement of loans on the capital market. The successful reduction of our NPL portfolio leaves us with sufficient capacity to pursue such plans. Refinancing and Shareholders Equity Refinancing strategy and own issues Aareal Bank successfully expanded its scope for refinancing on the capital markets during the first half of 2007, having expanded its investor base both nationally and internationally.

14 LETTER TO SHAR 14 We raised 3.6 billion in long-term funds during the period under review. This included 500 million in public bearer bonds issued, as well as 450 million of private placements in the form of bearer instruments. Additionally, registered securities in the amount of 1.6 billion were placed on the capital market. We followed the successful debut placement of our jumbo Pfandbrief in 2006 with a second issue, with a volume of 1 billion, at the end of March The jumbo strategy represents a key component of the increased expansion and globalisation of Aareal Bank s investor base. 40 % of the allocated orders for the second Jumbo issue were accounted for by international investors in twelve different countries. Strong demand permitted a comparatively short book-building phase. We improved the original price indication from 5 basis points below mid-swaps to minus 5.5 basis points. In the secondary market, the new three-year jumbo performed consistently versus swap returns throughout the period under review, as did the outstanding jumbo with a remaining lifetime of four years. Our private placements denominated in pound sterling, Japanese yen and Swiss franc in the aggregate equivalent amount of 130 million illustrate the strategy of internationalisation we pursue in relation to our capital market activities. The rating upgrade by Fitch Ratings in November 2006, the increased proportion of Pfandbrief issues in our funding mix, and demand-driven structured issues allowed us to further reduce our refinancing costs. Equity capital/regulatory indicators Regulatory indicators (BIS) 1) 30 Jun Dec 2006 Core capital 1,453 1,406 Total capital 2,402 2,365 1) The ratio was calculated in accordance with the definitions by the Basel Committee. No agreement regarding the determination of the ratios has been concluded with the German Federal Financial Supervisory Authority (BaFin). Risk-weighted assets (incl. market risk) 21,236 19,477 % % Core capital ratio Total capital ratio

15 EHOLDERS 15 Report on material events after the reporting date profit before taxes of 50 to 60 million in the Consulting / Services segment; net RoE of around 13 % for the Aareal Bank Group; and The resolution reached within the framework of the corporate tax reform in Germany to reduce income tax rates as of 01 January 2008 requires us to revalue the deferred tax assets and liabilities recognised on the balance sheet. This should result in a oneoff charge of million in the third quarter. However, we will clearly benefit from the new tax environment in the long term. In July 2007, Aareal Bank has further increased its stake held in Immobilien Scout GmbH from % (as at 30 June 2007) to %. Outlook Within the scope of FUTURE 2009, we are consistently working on enhancing the profitable growth in the Structured Property Financing and Consulting / Services segments. We aim to achieve the following objectives by the year 2009: a cost/income ratio of % in the Structured Property Financing segment; average risk-weighted assets of 24 to 25 billion. We are targeting a return on equity after taxes in excess of 13% for the current financial year. These projections are based on new business of around 10 billion in the Structured Property Financing segment. The projections also include investment for planned expansion in both North America and Asia. We are constantly working on enhancing profitability in the Consulting /Services segment; we are targeting a contribution of 22 to 28 million to profit before taxes for Besides the improved performance in our operative business, results for the current financial year are also influenced by special effects. The key factors to influence RoE after taxes for the year 2007 are attributable to the successful disposals within the Interhotel Group, the compensation payment received from DEPFA, as well as additional proceeds from the final settlement of the consideration received for the sale of our asset management business.

16 LETTER TO SHAR 16 We have already successfully completed the first stage of our growth path during the first half of 2007, and will continue to pursue Aareal Bank s development in the second half of the year. At this point, we would like to express our thanks for the confidence you have placed in Aareal Bank, and at the same time invite you to accompany us as we continue to grow in the future. Yours sincerely, The Management Board Dr. Wolf Schumacher Norbert Kickum Hermann J. Merkens Thomas Ortmanns

17 EHOLDERS 17

18 CONSOLIDATED INCOME STATEMENT INCOME ST 18 CONSOLIDATED INCOME STATEMENT OF AAREAL BANK GROUP Note 01 Jan- 30 Jun Jan- 30 Jun 2006 Interest income Interest expenses Net interest income Provision for loan losses Net interest income after net loan loss provisions Commission income Commission expenses Net commission income Net result on hedge accounting 5 2 Net trading income / expenses Results from non-trading assets Results from companies accounted for at equity 5 3 Results from investment properties 1-1 Administrative expenses Net other operating income / expenses Impairment of goodwill 0 0 Operating profit Income taxes Results from discontinued operations 0 Consolidated net income / loss Allocation of results Consolidated net income / loss attributable to minority interests 9 10 Consolidated net income / loss attributable to shareholders of Aareal Bank AG Earnings per share Diluted earnings per share Earnings per share are determined by dividing the earnings attributable to ordinary shareholders of Aareal Bank AG by the weighted average of ordinary shares outstanding in the financial year.

19 ATEMENT 19 CONSOLIDATED INCOME STATEMENT (QUARTERLY DEVELOPMENT) Quarter Quarter Quarter Quarter Quarter mn Interest income Interest expenses Net interest income Provision for loan losses Net interest income after net loan loss provisions Commission income Commission expenses Net commission income Net result on hedge accounting Net trading income / expenses Results from non-trading assets Results from companies accounted for at equity Results from investment properties Administrative expenses Net other operating income / expenses Impairment of goodwill Operating profit Income taxes Results from discontinued operations Consolidated net income / loss Allocation of results Consolidated net income / loss attributable to minority interests Consolidated net income / loss attributable to shareholders of Aareal Bank AG

20 SEGMENT REPORTING SEGMENT 20 SEGMENT REPORTING BY OPERATING UNIT Structured Property Financing Consulting / Services Consolidation / Reconciliation / Other Aareal Bank Group 30 Jun 30 Jun Jun 30 Jun Jun 30 Jun Jun 30 Jun Net interest income Provision for loan losses Net interest income after net loan loss provisions Net commission income Net result on hedge accounting Net trading income / expenses Results from non-trading assets Results from companies accounted for at equity Results from investment properties Administrative expenses Net other operating income / expenses Impairment of goodwill 0 0 Operating profit Income taxes Results from discontinued operations 0 0 Consolidated net income / loss Allocation of results Consolidated net income / loss attributable to minority interests Consolidated net income / loss attributable to shareholders of Aareal Bank AG Allocated equity , Cost / income ratio (%) RoE after taxes (%)

21 REPORTING 21 SEGMENT REPORTING (QUARTERLY DEVELOPMENT) BY OPERATING UNIT Structured Property Financing Consulting / Services Consolidation / Reconciliation / Other Aareal Bank Group Quarter 2 Quarter Quarter 2 Quarter Quarter 2 Quarter Quarter 2 Quarter Net interest income Provision for loan losses Net interest income after net loan loss provisions Net commission income Net result on hedge accounting Net trading income / expenses Results from non-trading assets Results from companies accounted for at equity 5 5 Results from investment properties Administrative expenses Net other operating income / expenses Impairment of goodwill 0 0 Operating profit Income taxes Results from discontinued operations 0 0 Consolidated net income / loss Allocation of results Consolidated net income / loss attributable to minority interests Consolidated net income / loss attributable to shareholders of Aareal Bank AG Allocated equity , Cost / income ratio (%) RoE after taxes (%)

22 CONSOLIDATED BALANCE SHEET BALANCE SH 22 CONSOLIDATED BALANCE SHEET OF AAREAL BANK GROUP Note 30 Jun Dec 2006 Assets Cash Funds 1,889 1,331 Loans and advances to banks 8 4,599 2,691 Loans and advances to customers 9 23,128 23,341 Provision for loan losses Positive market value of derivative hedging instruments 1, Trading assets 10 1, Non-current assets held for sale and discontinued operations Non-trading assets 11 8,655 8,510 Interests in companies accounted for at equity Investment properties Intangible assets Property and equipment Income tax assets Deferred tax assets Other assets Total 41,466 38,279 Shareholders equity and liabilities Liabilities to banks 15 4,557 5,212 Liabilities to customers 16 22,658 21,346 Certificated liabilities 17 7,985 7,078 Negative market value of derivative hedging instruments 1, Trading liabilities 18 1, Obligations from disposal groups and discontinued operations 2 3 Provisions Income tax liabilities Deferred tax liabilities Other liabilities Subordinated equity 20 1,328 1,391 Shareholders equity 21, 22 Subscribed capital Capital reserves Retained earnings Reserves from transactions under common control Revaluation surplus Minority interest Group retained income Total shareholders equity 1,500 1,372 Total 41,466 38,279

23 EET CONSOLIDATED STATEMENTS 23 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY Consolidated shareholders equity as at 01 January 1,372 1,241 Subscribed capital Capital reserves Retained earnings Reserves from transactions under common control 23 Revaluation surplus 39-4 Minority interest 23 1 Dividends paid -21 Consolidated net income / loss attributable to shareholders of Aareal Bank AG Consolidated shareholders equity as at 30 June 1,500 1,289 CONSOLIDATED STATEMENT OF CASH FLOWS Cash and cash equivalents as at 01 January 1,331 1,494 Cash flow from operating activities Cash flow from investing activities Cash flow from financing activities Total cash flow Effect of changes in exchange rates 0 0 Cash and cash equivalents as at 30 June 1,889 2,028

24 BASIS OF ACCOUNTING BASIS OF ACCO 24 BASIS OF ACCOUNTING Legal framework and reporting entity structure Aareal Bank AG is a listed public limited company incorporated under German law, with its registered office in Wiesbaden, Germany. It is the parent company of an international property finance and services group. Aareal Bank AG prepares its consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) applicable within the European Union (EU), in connection with the provisions pursuant to section 315 a (1) of the German Commercial Code (Handelsgesetzbuch HGB ). The present interim financial statements comply with IAS 34 and the requirements of German Accounting Standard (GAS) No. 6 for interim reports as laid down by the German Accounting Standards Board (GASB). Neither a review pursuant to section 37w (5) of the WpHG nor an audit pursuant to section 317 of the HGB have been carried out. Aareal Bank AG acquired an additional % of the capital of Immobilien Scout GmbH, Berlin, during the second quarter of This involved several steps with an aggregate consideration of 128 million. The bank s total shareholding thus increased from % to %. Following transaction approval by the German Federal Cartel Office in May 2007, the company (which was previously accounted for at equity) has been fully consolidated since 31 May In accordance with IFRS 3.62, the fair values to be assigned to the acquired assets, liabilities or contingent liabilities were recognised using provisional values. The following table shows the assets and liabilities attributable to Immobilien Scout GmbH in the consolidated balance sheet of Aareal Bank Group: Carrying Carrying amount amount prior following to con- remeasurement solidation in accordance mn with IFRS 3.36 Intangible assets Other assets Deferred tax liabilities 29 Other liabilities Goodwill of 114 million has been recognised as a result of full consolidation. The consolidated results of Aareal Bank Group as at 30 June 2007 do not include the results of Immobilien Scout GmbH for the current financial year. A figure of 5 million representing the pro-rata results for 2006 of the shareholding was recognised in the results for investments accounted for at equity. There were no other material changes to the scope of consolidation. Accounting policies The accounting policies applied in the preparation of the Consolidated Financial Statements 2006 were also applied for this interim financial statements, including the calculation of comparative figures.

25 UNTING NOTES 25 NOTES TO THE CONSOLIDATED INCOME STATEMENT (1) Net interest income 01 Jan- 30 Jun Jan- 30 Jun 2006 Interest income from financing business and money market transactions Interest income from fixed-income securities and debt register claims Other interest income 6 6 Total interest income Total interest expenses of which: interest expenses for hybrid capital Total (2) Provision for loan losses Provisions for loan losses amounted to 44 million during the first half of 2007 (H1 2006: 44 million). The amount recognised is determined as a proportion of the amounts projected for the year as a whole. (3) Net commission income 01 Jan- 30 Jun Jan- 30 Jun 2006 Net commission income from banking transactions Net commission income from non-banking transactions Total 73 76

26 NOTES 26 (4) Net trading income 01 Jan- 30 Jun Jan- 30 Jun 2006 Measurement of derivative financial instruments 7 0 Currency translation 0 0 Net income / expenses from other positions held for trading 0 1 Total 7 1 (5) Results from non-trading assets 01 Jan- 30 Jun Jan- 30 Jun 2006 Results from securities sales Results from the measurement of securities 0 0 Results from the disposal of participating interests 10 5 Results from the measurement of participating interests 0 0 Total (6) Administrative expenses 01 Jan- 30 Jun Jan- 30 Jun 2006 Staff expenses of which: for pensions 9 8 Other general administrative expenses Depreciation and amortisation of property and equipment and intangible assets Total

27 27 (7) Net other operating income /expenses 01 Jan- 30 Jun Jan- 30 Jun 2006 Income from properties 8 17 Income from the release of provisions 4 3 Income from goods and services 1 1 Other 51 9 Total other operating income Expenses for properties 7 19 Expenses for services used 0 0 Write-downs of trade receivables 2 Expenses for other taxes 1 1 Other Total other operating expenses Total 37-3 An agreement was reached with DEPFA Deutsche Pfandbriefbank AG with regard to offsetting the effects arising from the completed tax audit of a subsidiary. The equity investment in this company was transferred to Aareal Bank within the scope of the split of the former DEPFA Group. A compensation payment of 37 million made under said agreement was recognised in the first quarter as other operating income, and reported under Other.

28 NOTES 28 NOTES TO THE CONSOLIDATED BALANCE SHEET (8) Loans and advances to banks 30 Jun Dec 2006 Term deposits and current account balances Public-sector loans Other loans and advances 3,362 1,678 Total 4,599 2,691 (9) Loans and advances to customers 30 Jun Dec 2006 Property loans 21,470 20,682 Public-sector loans 1,634 1,735 Other loans and advances Total 23,128 23,341 (10) Trading assets 30 Jun Dec 2006 Debt and other fixed-income securities Positive market value of derivative financial instruments Other assets held for trading Total 1,

29 29 (11) Non-trading assets 30 Jun Dec 2006 Debt and other fixed-income securities 8,017 8,027 Equities and other non-fixed-income securities Interests in affiliated companies Other participations 5 5 Total 8,655 8,510 (12) Intangible assets 30 Jun Dec 2006 Goodwill Proprietary software Other intangible assets Total (13) Property and equipment 30 Jun Dec 2006 Land and buildings Office furniture and equipment Total 97 93

30 NOTES 30 (14) Other assets 30 Jun Dec 2006 Properties Trade receivables Other Total (15) Liabilities to banks 30 Jun Dec 2006 Payable on demand Term deposits 1,784 1,116 Promissory note loans borrowed 1,522 2,124 Liabilities from securities repurchase agreements 155 1,004 Registered mortgage bonds Other Total 4,557 5,212 (16) Liabilities to customers 30 Jun Dec 2006 Payable on demand 4,869 5,129 Term deposits 5,655 4,578 Promissory note loans borrowed 8,306 7,784 Registered mortgage bonds 3,802 3,819 Other Total 22,658 21,346

31 31 (17) Certificated liabilities 30 Jun Dec 2006 Medium-term notes 3,233 2,151 Bearer mortgage bonds 2,891 1,830 Other debt securities 1,861 3,097 Total 7,985 7,078 (18) Trading liabilities 30 Jun Dec 2006 Negative market values of derivative financial instruments Other liabilities held for trading 1,084 Total 1, (19) Provisions 30 Jun Dec 2006 Provisions for pensions and similar obligations Other provisions Other

32 NOTES 32 (20) Subordinated equity 30 Jun Dec 2006 Subordinated liabilities Profit-participation certificates Contributions by silent partners Total 1,328 1,391 (21) Treasury shares No treasury shares were held during the period under review. (22) Dividends The Ordinary Shareholders Meeting of Aareal Bank AG on 30 May 2007 resolved that a dividend of 0.50 per share be paid (equivalent to a total payout of 21 million), from net retained profit 2006 of Aareal Bank AG.

33 33 OTHER NOTES (22) Property financing Portfolio breakdown by country 1) 30 Jun Dec 2006 Germany 6,208 6,393 Italy 3,250 2,843 Sweden 1,648 1,932 France 1,395 1,354 United Kingdom 1,178 1,025 Poland Spain Netherlands Denmark USA Belgium Turkey Finland Czech Republic Other 1,318 1,171 Total 21,470 20,682 (23) Property financing Portfolio breakdown by type of loan 1) 30 Jun Dec 2006 Commercial property financing 16,291 15,693 of which: international 14,198 13,383 Property financing for commercial housing 5,179 4,989 of which: international 1, Total 21,470 20,682 1) including securitised receivables

34 NOTES 34 (25) New property financing 01 Jan- 30 Jun Jan- 30 Jun 2006 Commercial property financing 5,241 3,350 of which: international 4,921 3,005 Property financing for commercial housing of which: international Total 5,902 4,295 (26) Number of employees 01 Jan- 30 Jun Jan- 31 Dec 2006 Number of employees in the banking business 1,143 1,180 Number of employees in other businesses 1,412 1,532 Total 2,555 2,712 of which: part-time employees (27) Events since the end of the interim reporting period The Bundesrat, the Upper House of German Parliament, approved the corporate tax reform 2008 in its session on 06 July The new tax rules coming into effect from 01 January 2008 will include a lower corporation tax rate. As a result of this change, Aareal Bank Group will face a single additional tax burden in the region of million; this charge has not yet been taken into account in the present financial statements. In July 2007, Aareal Bank has further increased its stake held in Immobilien Scout GmbH from % (as at 30 June 2007) to %.

35 RESPONSIBILITY STATEMENT 35 RESPONSIBILITY STATEMENT PURSUANT TO SECTION 37Y OF THE GERMAN SECURITIES TRADING ACT (WPHG) IN CONJUNCTION WITH SECTION 37W (2) NO.3 OF THE WPHG To the best of our knowledge, and in accordance with the applicable reporting principles for interim financial reporting, the interim consolidated financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the group, and the interim management report of the group includes a fair review of the development and performance of the business and the position of the group, together with a description of the principal opportunities and risks associated with the expected development of the group for the remaining months of the financial year. Wiesbaden, 10 August 2007 The Management Board Dr. Wolf Schumacher Norbert Kickum Hermann J. Merkens Thomas Ortmanns

36 EXECUTIVE BODIES EXECUTIVE BOD 36 EXECUTIVE BODIES 1) Member of the Executive Committee 2) Member of the Accounts and Audit Committee 3) Member of the Credit and Market Risk Committee 4) Member of the Committee for Urgent Decisions 5) Employee representative Supervisory Board Hans W. Reich 1) 2) 3) 4), Kronberg Chairman of the Supervisory Board Chairman Public Sector Group Europe, Middle East, Africa of Citigroup Global Markets Deutschland AG & Co. KGaA York-Detlef Bülow 1) 2) 5), Katzenelnbogen Deputy Chairman of the Supervisory Board Aareal Bank AG Erwin Flieger 1) 3) 4), Geretsried Deputy Chairman of the Supervisory Board Chairman of the Management Boards of Bayerische Beamten Lebensversicherung a.g., of BBV Holding AG and of Bayerische Beamten Versicherung AG (until 13 July 2007) Chairman of the Supervisory Board of BBV Group (as of 13 July 2007) Christian Graf von Bassewitz 2) 3) 4), Düsseldorf Banker ret d. Manfred Behrens, München Managing Director of Schweizerische Lebensversicherungs- und Rentenanstalt (Swiss Life), German branch office Tamara Birke 3) 5), Wiesbaden Aareal Bank AG Thomas Hawel 5), Saulheim Aareon Deutschland GmbH 3) 4) Dr. Herbert Lohneiß, Munich Chief Executive Officer of Siemens Financial Services GmbH Joachim Neupel 2) 3) 4), Meerbusch Tax advisor Prof. Dr. Stephan Schüller 1) 2), Hamburg Spokesman of the General Partners of Bankhaus Lampe KG Wolf R. Thiel 1), Marxzell-Schielberg President and Chairman of the Management Board of Versorgungsanstalt des Bundes und der Länder Helmut Wagner 5), Hahnheim Aareon Deutschland GmbH Management Board Dr. Wolf Schumacher Chairman Norbert Kickum Member of the Management Board Hermann Josef Merkens Member of the Management Board Thomas Ortmanns Member of the Management Board Christof M. Schörnig Member of the Management Board (until 08 August 2007)

37 IES OUR OFFICES 37 OUR OFFICES Wiesbaden Head Office Aareal Bank AG Paulinenstrasse Wiesbaden, Germany Phone: Fax: Structured Property Financing Amsterdam Byzantium Building Stadhouderskade 14e 1054 ES Amsterdam, The Netherlands Phone: Fax: Berlin Kurfürstendamm Berlin, Germany Phone: Fax: Brussels 7, rue Guimard 1040 Brussels, Belgium Phone: Fax: Copenhagen Frederiksgade Copenhagen, Denmark Phone: Fax: Hamburg Pelzerstrasse Hamburg, Germany Phone: Fax: Helsinki Aleksanterinkatu Helsinki, Finland Phone: Istanbul Ebulula Mardin Caddesi Maya Meridyen Iş Merkezi D:2 Blok Kat Akatlar-Istanbul, Turkey Phone: Fax: London 38 Lombard Street London EC3V 9BS, United Kingdom Phone: Fax: Madrid Paseo de la Castellana, 60-4D Madrid, Spain Phone: Fax: Milan Via Paolo Andreani, Milan, Italy Phone: Fax: Munich Richard-Strauss-Strasse Munich, Germany Phone: Fax: New York Aareal Financial Services USA, Inc. 410 Park Avenue Suite 910 New York NY 10022, USA Phone: Fax: Paris Aareal Bank France S.A. 5, rue Scribe Paris, France Phone: Fax: Prague Aareal Financial Service spol. s r.o. FORUM Building Václavské námestí Prague 1, Czech Republic Phone: Fax: Rhine-Main-Ruhr Paulinenstrasse Wiesbaden, Germany Phone: Fax: Rome Via Mercadante, 12/ Rome, Italy Phone: Fax: Singapore Aareal Financial Services (Singapore) Pte. Ltd. 3 Church Street #17-03 Samsung Hub Singapore , Singapore Phone: Fax: Stockholm Hamngatan Stockholm, Sweden Phone: Fax:

38 ADRESSEN 38 Warsaw Aareal Financial Service Polska Sp. z o.o. RONDO 1 Rondo ONZ Warsaw, Poland Phone: Fax: Zurich Rennweg Zurich, Switzerland Phone: Fax: Aareal Estate AG Paulinenstrasse Wiesbaden, Germany Phone: Fax: Aareal Valuation GmbH Paulinenstrasse Wiesbaden, Germany Phone: Fax: Deutsche Structured Finance GmbH Westendstrasse Frankfurt/Main, Germany Phone: Fax: Consulting / Services Aareal Bank AG Institutional Housing unit Paulinenstrasse Wiesbaden, Germany Phone: Fax: Institutional Housing unit Berlin Branch Kurfürstendamm Berlin, Germany Phone: Fax: Institutional Housing unit Essen Branch Huyssenallee Essen, Germany Phone: Fax: Institutional Housing unit Hamburg Branch Pelzerstrasse Hamburg, Germany Phone: Fax: Institutional Housing unit Leipzig Branch Neumarkt Leipzig, Germany Phone: Fax: Institutional Housing unit Munich Branch Richard-Strauss-Strasse Munich, Germany Phone: Fax: Institutional Housing unit Rhine-Main-Ruhr Branch Paulinenstrasse Wiesbaden, Germany Phone-Hotline: Fax: Institutional Housing unit Stuttgart Branch Kriegerstrasse Stuttgart, Germany Phone: Fax: Aareon AG Im Münchfeld Mainz, Germany Phone: Fax: Aareal First Financial Solutions AG Peter-Sander-Strasse Mainz-Kastel, Germany Phone: Fax: Deutsche Bau- und Grundstücks-Aktiengesellschaft Chlodwigplatz Bonn, Germany Phone: Fax: Immobilien Scout GmbH Magazinstrasse 15/ Berlin, Germany Phone: Fax: Deposit-taking Dublin Dublin Exchange Facility Mayor Street IFSC Dublin 1, Ireland Phone: Fax:

39 Locations Real Estate Structured Finance Treasury activities 08 / 2007 Locations Institutional Housing unit Countries with lending operations FINANCIAL CALENDAR 12 November 2007 Presentation of interim report as at 30 September May 2008 Annual General Meeting Kurhaus, Wiesbaden