Aareal Bank AG

Agenda covers our results for 2025, our outlook for '26 and an update on our strategic plan, Aareal Ambition. I'm joined today by our Management Board, our CEO, Christian Ricken; Nina Babic, our CRO; CFO, Andrew Halford; and Chief Market Officer, Christof Winkelmann.

Christian and Andy will take you through our presentation, which will be followed by a question-and-answer session. Now I'm pleased to hand over to Christian.

Christian, the floor is yours.

Yes. Thank you very much, Jurgen.

Good morning to everyone, and thank you very much for attending today's call. Before turning to today's presentation, I would like to refer briefly to the recent events in the Middle East.

There is no doubt that geopolitical uncertainties have increased, tensions have escalated, there is heightened caution across most business areas. We are aware of that.

As a result, investment activity in many sectors may slow or become less predictable for some time. So far, Aareal has not been directly affected by the events of the last week nor more broadly by geopolitical events over the last year.

However, we are, of course, monitoring the situation very closely. Now let me turn to our results for 2025 and our outlook for 2026.

And I will also provide you an update on our strategic plan, Aareal Ambition. Starting with Slide 3.

First, our results for 2025. And as you can imagine, this slide, this chart has become my actual favorite chart because it's a very well reflection of the delivery of the bank.

We target an adjusted profit for the year of over EUR 375 million, which we comfortably achieved. On the basis of this good result, the management took action incurring an additional charge of EUR 55 million to support the repositioning of our U.S.

business. The adjusted operating profit after the additional EUR 55 million charge was EUR 326 million, which is very similar to the equivalent profit in 2024.

Turning to our 2 business segments, both achieved strong results for 2025. Banking & Digital Solutions made a significant contribution to group profits and Q4 average deposits, including retail rose to EUR 17.8 billion.

New business in Structured Property Financing reached EUR 12.4 billion for the year, which was a record result. Much of this volume came from Europe, and I will say more about our regional approach later.

By the end of 2025, we had reduced nonperforming loans to EUR 1.1 billion. We are planning to bring this balance below EUR 1 billion in the current year, and we are confident we can achieve this in the first half of the year.

Our capital ratio continues to be solid with our CET1 fully-phased ratio at 15.5% at the end of 2025. At this conference last year, we introduced our new strategic plan, Aareal Ambition, and I'm pleased to report that we are well on track.

As a result, we are well placed to reach our target of around 13% adjusted post-tax return on equity in 2027 still. Our increased focus on Banking & Digital Solutions and our repositioning in the U.S.

in Structured Property Financing underpin this progress. I will further -- I will provide further comments on our Aareal Ambition plan later in this presentation.

Before moving into the details of our results, I wanted to illustrate the importance of both of our business segments to the overall results. I'm on Slide 4 now.

As you can see, Banking & Digital Solutions has contributed significantly to the group's operating profit in each of the last 3 years since the return of, as I would call it, normal interest rates. BDS deposits, including retail rose to an average of EUR 17.8 billion in the fourth quarter of 2025.

The business has around 4,300 clients and currently executes payments transactions amounting to EUR 167 billion every year. I would like to thank the staff in this business for their efforts in 2025 and their continued commitment.

In Structured Property Financing, the loan volume is over EUR 34 billion, spread across over more than 20 countries and 5 property types. I also would like to thank the staff in this business for their diligence and care as we have grown by taking a conservative approach to risk.

I will now hand over to Andy, who will provide further details on our results for 2025. Andy, over to you.

Thank you very much, Christian, and good morning to everybody. So Slide 6, let me just pick up some of the high-level numbers.

So net interest income was down 12% to EUR 934 million, which was mainly the expected impact of lower interest rates. Loan impairment charges are down by 19% to EUR 322 million.

As Christian just mentioned, this includes the additional charge of EUR 55 million to support the repositioning of the U.S. business, which includes a faster reduction in U.S.

office loans. The efficiency measures that we put in place led to a reduction of 8% in adjusted administrative expenses, which fell to EUR 317 million.

The cost-income ratio for 2025 was, therefore, 33%. The other components line includes a EUR 20 million positive one-off, which arose in the second quarter from the successful restructuring of a former legacy nonperforming loan.

Overall, adjusted operating profit was EUR 381 million, excluding the additional EUR 55 million charge and EUR 326 million, including the charge. Nonrecurring items amounted to EUR 30 million compared to EUR 34 million the previous year and related to efficiency measures, IT infrastructure investments and other material nonrecurring items.

The effective tax rate for the year was higher at 40%, which includes charges arising from the repositioning of the U.S. business.

AT1 costs are up by EUR 8 million compared to 2024. This is because our new AT1 issue overlapped with the previous AT1 for about 3 months.

Taken together, the adjusted post-tax return on equity was 7.5%, excluding the additional loan impairment and tax charges arising from the actions taken to support the repositioning of the U.S. business.

Our solid CET1 ratio fully-phased increased to 15.5% at the end of the year compared to 15.2% at the end of the previous year. Now let's move to Slide 8 and the key profit and loss account items for Banking & Digital Solutions.

As Christian has highlighted, BDS continues to make a significant contribution to the bank's overall profitability. In 2025, BDS contributed an adjusted operating profit of EUR 152 million, which is down by 7% compared to the previous year, but this is more than accounted for by the decrease in net interest income, which is down 9% to EUR 246 million.

The impact of lower rates is fully in line with our expectations. However, it was offset in part by the strong growth in the housing industry deposits.

In BDS, the customer base and share of wallet is constantly growing. Admin expenses are down by 4%, benefiting from tight control of costs and nonrecurring items reflects the investment in digitization that we are making to provide a seamless customer journey.

On Slide 9, we look further into Banking & Digital Solutions' net interest income and admin expenses. Net interest income, although down compared with 2024, was above expectations.

As I just explained, the impact of lower interest rates was as expected, but was partially offset by the growth in deposits. This growth was continuous during 2025, and therefore, net interest income increased throughout the year.

I'll come back to deposits on the next slide. Admin expenses were tightly controlled with strict cost discipline maintained.

Turning to Slide 10, which focuses on deposits. Our strong deposit franchise continues to reduce our dependence on the capital markets.

As I've mentioned, deposits grew throughout the year. Housing industry and retail deposits in total rose to an average of EUR 17.8 billion in the fourth quarter of 2025.

This is an increase of 4% since the fourth quarter of 2024 and an increase of 7% since the first quarter of 2025. Retail deposits have structurally improved and now have an average initial lifetime of around 4 years.

The steady increase in housing industry deposits in 2025 reflects our successful sales efforts. These deposit volumes have gradually increased in recent years and reached an average of EUR 14.7 billion in the fourth quarter of 2025.

Rental guarantee deposits and maintenance reserves have grown continuously. Sight and term deposits are largely stable.

When interest rates returned in 2022, there was a shift from sight to term deposits as depositors sought to capture income. This transaction -- transition has now ceased and today's sight deposits only reflect clients' operating cash and therefore, are expected to be very sticky.

Now let's turn to Structured Property Financing and to Slide 11. Net interest income is down 13%, reflecting the impact of lower interest rates and is in line with expectations.

Loan impairment charges are significantly down, including the additional charges, admin costs are down benefiting from the efficiency measures that we have introduced. Overall, SPF contributed EUR 174 million to the group's adjusted operating profit.

As noted earlier, the other components line includes the positive one-off effects of the restructuring of the former legacy nonperforming loan and the tax charge includes charges arising from the repositioning of the U.S. business.

Turning to Slide 12. Let's look further at net interest income from SPF.

As I've just said, net interest income was in line with expectations. The result was impacted by lower interest rates.

For example, the euro short-term rate decreased from 3.8% at the end of 2024 to 2.3% at the end of 2025, a significant reduction. Net interest income was also affected by proactive strengthening of our subordinated funding and by the weakness of the U.S.

dollar. Those factors were partially offset by the growth of our loan book.

Turning to Slide 13 and to SPF's admin and loan impairment charges. The efficiency measures adopted across the group are also reflected in the admin expenses of this business segment, which are down 9% to EUR 222 million in 2025.

Including the additional EUR 55 million charge, loan impairment charges are significantly down by 19% compared to 2024. Excluding this charge, the decrease would be 33%.

Loan impairment charges are heavily biased towards the U.S. and U.S.

office loans in particular. Risk costs for the rest of the business are at or below normal levels.

At this point in the cycle, we are, therefore, freeing up capacity primarily from U.S. office to redeploy it into the European markets where the returns are presently very strong.

I'd now like to hand back to Christian, who will talk about business developments in more detail.

Thank you, Andy. Now let's turn to Structured Property Financing's new business on Slide 14.

We achieved record new business, as I already said, of EUR 12.4 billion in 2025, which was well ahead of our target of EUR 9 billion to EUR 10 billion for the year. Newly acquired business amounted to EUR 8.1 billion, which was up EUR 1.8 billion compared to 2024.

The average loan-to-value ratio for newly acquired business was still a conservative 57%, which provides a comfortable risk profile. Gross margins were also good, averaging 234 basis points.

Renewals were around similar levels to the previous year. Those figures continue to demonstrate that we are actively identifying attractive market opportunities.

Sustainability has been and continues to be an integral part of lending decisions. In 2025, we again supported the green transformation of commercial properties with EUR 5.1 billion of green loans included in our new business numbers.

Looking at the geographical distribution of new business, 78% was in Europe, 15% in the U.S., 4% in Canada and 3% was in the Asia Pacific region. As planned, we have increased our focus on Europe and reduced activity in the U.S., concentrating on premium assets and long-standing trusted partners.

Our strategy on asset classes has also evolved. Hotel finance continues to be our largest area of new business.

However, we are currently taking a more selective approach to new office financing while maintaining our increasing conservative financing of Logistics and Residential, especially Alternative Living properties. Let's now turn to the next slide, which shows our current portfolio.

We are at Slide 15. The portfolio totaled EUR 34.3 billion at the end of 2025.

This is within the targeted range of EUR 34 billion to EUR 35 billion. As you can see from the 2 pie charts at the bottom of the slide, we are still highly diversified, both by region and property type.

We continue to have a clear focus on properties in the major metropolitan areas. We are not financing new construction.

Have exposure of only 10% in Germany and no exposure at all to Russia, China or the Middle East. In the U.S., we are focusing on our core strengths.

For example, hospitality-related asset classes. We have significantly reduced the U.S.

office portfolio, which is down by 1/3 compared to the balance at the end of 2024 and want to reduce this portfolio further. Green loans stood at EUR 11.3 billion at the end of 2025, representing around 1/3 of our total loan book.

These loans include the financing of refurbishments as we continue to support commercial properties green transition. Turning to Slide 16 and to nonperforming loans.

We are continuing a very active management of nonperforming loans and the balance stood at EUR 1.1 billion at the end of 2025. This is down by 29% compared to the balance at the end of 2023.

U.S. office nonperforming loans are down by around 40% over the same period.

The Stage 2 coverage ratio stood at 3.1% with the ratio -- sorry, with the Stage 3 ratio at 29% at the end of 2025. The nonperforming loan ratio stood at 3.2%.

The U.S. office market remains challenging and U.S.

office loans continue to represent over half of total nonperforming loans. More than 25% of the U.S.

office loans is nonperforming compared to less than 2% for all other categories. Business outside the U.S.

is performing significantly below our long-run average cost of risk. As we have explained, management has taken action to support the repositioning of U.S.

loans. We are, therefore, confident that we can reduce total nonperforming loan balance below EUR 1 billion during the first half of 2026 already.

Now let me hand over back to Andy for an update on our funding, liquidity and capital positions.

Thank you, Christian. So on to funding, liquidity and capital.

Slide 18 shows our broadly diversified funding mix, solid liquidity ratios and capital markets activity. Following a very active year, liability terms have been successfully extended.

Deposits represent around 45% of our total funding volume. The largest part comes from the housing industry with an additional EUR 3 billion from retail deposits.

As I mentioned earlier, these retail deposits now have an average initial lifetime of around 4 years. Our liquidity ratios are solid with a net stable funding ratio at 113% at the end of the year and the average liquidity coverage ratio at 209% for the fourth quarter.

We're pleased to report that during the year, Fitch revised Aareal Bank's outlook to positive from stable and confirmed its senior preferred rating at BBB+. We demonstrated our full access to the capital markets during 2025.

We increased our AT1 capacity by approximately EUR 100 million by replacing the former outstanding EUR 300 million issue with a new issue of USD 425 million, and we issued EUR 100 million of Tier 2 capital. In addition, we completed 3 benchmark Pfandbriefe transactions totaling EUR 2 billion and private placements totaling SEK 1.85 billion.

Those were Aareal's first Swedish currency issues since 2006. We also completed our first Significant Risk Transfer or SRT transaction in the fourth quarter.

Investors assumed a portion of the credit risk attached to a EUR 2 billion portfolio of European commercial real estate loans in return for a risk premium. This transaction strengthened our capital efficiency.

Next, let's look at the Treasury portfolio, which is shown on Slide 19. The Treasury portfolio stood at EUR 9 billion at the end of 2025, up from EUR 8.2 billion the year previous.

In terms of asset classes, the portfolio comprises public sector borrowers and covered bonds. It, therefore, has a strong liquidity profile.

High credit quality requirements are reflected in the ratings breakdown. 100% of the portfolio has an investment-grade rating with 87% having a rating of AA or higher.

Asset-swap purchases ensure that there is low-interest rate risk exposure. The portfolio is almost exclusively in euros and has a well-balanced maturity profile.

Turning now to capital on Slide 20. Our ratios continue to be solid.

Our CET1 ratio was up from 15.2% a year ago to 15.5% at the end of 2025 on the Basel IV fully-phased basis. Growth in the loan portfolio increased risk-weighted assets but was overcompensated by the reduction in risk-weighted assets that came from our first SRT transaction that I just referred to.

This transaction had a total positive CET1 effect of around 0.5 percentage points. Both the Tier 1 ratio of 17.6% and the total capital ratio of 21.1% were further strengthened by the additions to our AT1 and Tier 2 capital during the year.

Our leverage ratio at 7.2% at the end of the year is well above regulatory requirements. Now I'll hand back to Christian, who will cover our outlook for 2026 and provide an update on our strategic plan Aareal Ambition.

Yes. Thank you, Andy.

I'm turning now to the outlook on Slide 22. Macroeconomic and geopolitical uncertainty factors are, of course, difficult to predict, and we are monitoring developments closely.

However, let me repeat that so far, we have not been affected by current geopolitical events. We are successfully reducing our exposure to U.S.

offices. And more broadly, we see a slight improvement in sentiment towards the entire commercial property sector.

As a result, Aareal has moved forward into 2026 with confidence. For 2026, we are targeting an adjusted operating profit approaching EUR 400 million.

This level of adjusted operating profit would result in an increased adjusted post-tax ROE approaching 8%. In the Banking & Digital Solutions business segment, we expect total deposits to increase further to an annual average of around EUR 17.5 billion.

In Structured Property Financing, we aim to keep the credit portfolio at around EUR 34 billion and reduce nonperforming loans below EUR 1 billion in the first half of 2026. Now moving on to Slide 24.

I will provide an update on our strategic plan, the Aareal Ambition. We launched Aareal Ambition very successfully in 2025.

Let me briefly remind you of the targets we showed you last year. We have 4 strategic targets.

They are, first, to strengthen our core businesses; second, to expand our activities; third, to enhance efficiency; and fourth, to maintain a disciplined approach. We are applying these targets across the group.

This means that we are continuing to grow our Structured Property Financing activities selectively. In Banking & Digital Solutions, we are targeting growth from existing housing market clients and by further -- by moving further to adjacent markets, for example, the Netherlands.

We are also optimizing the scalability of our infrastructure. And on the risk, capital and funding side, we are maintaining discipline over our capital and liquidity ratios.

So let's now look at each of these objectives in a little bit more detail. Moving on to Slide 25.

The group is now positioned with 2 growth engines within one bank, and this is how we will move forward. In Structured Property Financing, we are sharpening our focus and emphasizing our key areas of competitive strength.

This means that we are mainly concentrating on Europe and on hospitality-related asset types. In the U.S., we are actively adjusting the mix and size of our business.

In Banking & Digital Solutions, we are accelerating growth. We are targeting an increase in deposit volumes by both nationally and internationally and introducing lending to the housing industry or I would better say, reintroducing lending to the housing industry.

In addition, we are building an integrated deposit management platform to serve both our corporate and retail clients. On the risk funding -- sorry, risk, capital and fundings, our objective is strong capital generation and continuation of our solid capital ratios.

We also intend to further reduce nonperforming assets. Our infrastructure objectives center on AI and cloud-led technology to create a resilient, efficient and modern platform for the group.

In parallel, we will continue to execute our cost efficiency program. Turning to Slide 26 on Structured Property Financing.

As I have said, we will grow our areas of competitive strength. And as always, we will continue to adopt a conservative approach to risk while seeking attractive returns.

There will be greater emphasis on Europe and greater focus globally on hospitality-related asset types. In the U.S., business will continue to reduce office loans.

As a result of these actions, we expect loan volumes to remain stable at around EUR 34 billion. We are also continuously leveraging and broadening our off-balance sheet financing business.

We expect to continue to have a portfolio of around EUR 7 billion in these capital-light activities. Moving on to Slide 27 and to Banking & Digital Solutions.

We are accelerating deposit growth and expanding our product range. We are currently focused on housing industry customers in Germany.

Our first objective is to add new customers, new markets and new channels. We plan to add new groups, for example, small property managers.

We plan to add new markets, for example, the Netherlands, France and Spain. And we plan to add a new channel for retail deposits, we plan to have our own platform in addition to the existing option of platforms like Raisin.

We also aim to add new ERP partners. Our second objective is to expand beyond the housing industry and into other B2B segments and to do so in Germany and internationally.

And thirdly, we are introducing lending services to the housing industry where we have a strong relationship, knowledge and expertise. To support these initiatives, we will continue to invest in digitized end-to-end bank processes and digital product offerings.

As a result of these initiatives, we are now targeting combined housing industry and retail deposit volume of more than EUR 18 billion in 2027 compared to an annual average of around EUR 17 billion in 2025. We will also be targeting lending to the housing industry of around EUR 1 billion by 2027.

Next, risk, funding and capital on Slide 28. Here, we continue to have 2 major KPIs.

We are targeting a Basel IV CET1 fully-phased ratio of at least 13.5%, unchanged on the objective, which we introduced last year. Secondly, we aim to reduce nonperforming loans as a percentage of the loan portfolio to under 3%.

To achieve this, we will continue with strong capital generation supported by capital management. We will also continue to optimize funding sources and the risk return from our treasury portfolio.

We will, of course, maintain Aareal's conservative approach to risk, proactive credit risk management and our solid balance sheet. Turning now to Slide 29 and to infrastructure.

Our objective is an AI and cloud-led transformation along with continued execution of our efficiency program. We aim to create a state-of-the-art platform to support the group's business in the future.

As I said, our objective is a modern, resilient and efficient platform. We are also actively driving a technology and efficiency mindset across the bank while streamlining operations and digitizing processes as part of our efficiency program.

Our new infrastructure-related KPIs are to achieve gross savings of an additional EUR 40 million in total and a cost-to-income ratio of around 30% by 2027. Moving on to Slide 30.

We confirm our 2027 target for the adjusted post-tax return on equity at around 13%. As we have shown on earlier slides, management took action incurring an additional charge of EUR 55 million to support the repositioning of our U.S.

business. Excluding the additional charge and the tax impact of repositioning in the U.S., the 2025 adjusted post-tax return on equity was 7.5%.

Looking to the future, 2 main factors are expected to drive the increase in return. Firstly, an improved risk profile will reduce our cost of risk on an ongoing basis.

And secondly, as I have just described, we are accelerating growth in Banking & Digital Solutions, assuming a normalized CET1 ratio of 13.5%, which takes us to the targeted adjusted post-tax return on equity of around 13%. Turning to Slide 31.

Let me highlight our ambitious 2027 targets. As I have just demonstrated, we aim for an adjusted post-tax return on equity of around 13%, a CET1 fully-phased ratio of at least 13.5%, a cost/income ratio of around 30% and an NPL ratio of around 3%, a lot of 3s, but these are our targets.

And we continue to be on track to meet those. Now moving to our closing slide, I want to round up with a few key takeaways.

Both our business segments achieved a strong operating performance in 2025. We have significantly reduced loan impairment charges and costs.

Management was able to take action to support the repositioning of our U.S. business.

We have successfully launched our strategic plan Aareal Ambition, and we are well on track. We are sharpening our focus in both businesses.

And we are confirming our adjusted post-tax return on equity target of around 13% in 2027. Andy, I and the team will now be pleased to take your questions.

Three from me, please. First one, if you can give us a bit more background on what's happening with margin development.

You've told us what's happening for new, and you said renewals. I think you said renewals were flat margins.

So maybe just a bit more color on what's happening there and guidance on NII going forward. And on the SRT, can you explain the interaction between what's going on in the background in capital?

You had a positive impact from the SRT, but your capital ratio was flat. Obviously, you made a loss, but any other moving parts in there with RWAs, please?

And then last point, if you can give us a bit more background specifically on what the EUR 55 million, and you call it repositioning of the U.S. portfolio.

But does that basically just mean additional provisioning to make assets easier to sell? If you could explain what that means in more detail, please?

Okay. Thank you very much.

So yes, I would like to allocate the question to my dear colleagues. So Christof will take the first one from the market's perspective; Andy, you would talk to the SRT and Nina, you cover the EUR 55 million.

Yes. So also good morning from my side to everybody.

To the question as to how the spread is between new versus existing business or prolongations, they are plus/minus within the average number that we've given you. We don't really publish the individual numbers, but you can take plus/minus 10 basis points from the published figure is where the range is for prolongations and new business for us.

Let me just pick up on the CET1, the SRT question. So simple math, 15.2% a year ago, the SRT gave us about 0.5 percentage point benefit, 15.7%, and we ended the year at 15.5%.

So 0.2% reduction from sort of trading, if you like. That is just primarily the impact of the slightly bigger loan book that we had over the year and hence the slightly higher RWAs.

So that's the pretty simple composition of the movements of that number.

Sorry. I was just going to ask Q-on-Q, I was looking more Q-on-Q.

And is that literally the same, so higher loan book? Or were there other things specifically in Q4?

No, it is exactly the same. There is nothing abnormal.

Cunningham, I will take the question on the EUR 55 million, the management action, which we have taken. So what is behind that?

So in the end, it's a support for us going forward. So it's nothing on the year 2025.

It's as an overlay booked for us, giving us a support on the U.S. repositioning going forward.

It's not allocated on any kind of nonperforming loans, but gives us also leeway going forward to stay cautious and to follow up on our very cautious and conservative approach with regard especially to the U.S., as you have seen also on the NPL book, the main part of it is allocated on U.S. office.

So that's why we want to stay active here and progress on the targets I've just described.

Thank you for joining us this morning. But as always, the IR team is happy to take follow-up calls if you have further questions.

So have a good day, and thank you again for listening. Thanks.

Bye.