Aareal Bank is targeting €7 billion – €8 billion of new lending business in 2016 after originating €9.6 billion in 2015, and also plans to step up loan distribution.
The €9.6 billion lent last year is down on 2014’s €10.7 billion, but it was substantially ahead of the bank’s target forecast of €6 billion – €7 billion and achieved in a year that saw it occupied with consolidating the acquisition of WestImmo.
The listed German real estate bank unveiled strong results, with operating profit up to €470 million (2014: €436 million) and net income increasing 12 percent to €374 million (€335 million). Adjusted for one-off costs associated with the May 2015 WestImmo acquisition and of Corealcredit Bank before that, operating profit was €320 million.
Aareal said net interest income of €781 million had been driven by “unexpectedly high income from early loan repayments” which had caused it to step up lending during the course of the year.
In 2016, as part of its five-year plan to 2020, the Wiesbaden-based bank aims to manage the balance sheet proactively and distribute more debt. “Aareal Bank aims at reinforcing its expansion in growing markets that offer an attractive risk-return profile, managing its portfolio more actively and gaining balance sheet relief through increasing placements”, it said.
Other German real estate banks, such as Helaba, have been rebalancing their still-predominantly balance sheet lending models towards more distribution as a way to manage the portfolio and its risks and to go for larger deals.
Aareal lends to all major European commercial property markets and in the US. It said continued pressure on margins meant it was targeting the more attractive markets, such as the US where it had allocated new business in Q4 2015 and carried this strategy over into Q1 2016, adding that “visibility was limited” concerning “economic development of both China and the eurozone” while “the US economy is expected to grow at a relatively healthy rate.”
Subject to currency fluctuations it expects its loan book to be stable at between €25 billion and €27 billion.
Significant deals in Europe last year included underwriting a €630 million loan for US client NorthStar Realty’s circa €1.1 billion acquisition of the pan-European Aqua office portfolio, syndicating €365 million to insurer Allianz. It refinanced Pradera’s European Retail Fund, which has eight shopping centres in Spain and Italy and provided €215 million to Benson Elliot secured on four European hotels and €129 million to Tristan to buy Frankfurt’s Garden Tower.
After riding out the global financial crisis, Aareal resumed paying dividends two years ago. This time the bank is proposing to lift the dividend 38 percent, from €1.2 to €1.65 per share, a distribution ratio of 52 percent, and to target an enhanced policy of 80 percent in the coming years.
The bank’s profits are driven by property lending – after tax profit from property lending was up to €387 million (€347 million) but was offset by the consulting business which once again made a small loss.
Hermann Merkens, chairman of the management board, said: “We will continue to play to our strengths. With structured property financing as a solid foundation, consulting/services as a driver of growth, an optimised organisational and capital structure, together with our innovative strength and our willingness to adapt, we will be able to generate attractive returns, even in difficult times such as those that lie ahead.”