Aareal posts strong 2007 results, postpones profitability goal

German commercial property lender Aareal Bank said it posted its best year ever in 2007, but added that difficult market conditions meant that it should reach its profitability target a year later than originally expected.

Wiesbaden-based Aareal said it now foresees reaching after-tax return on equity of 13% in 2010 assuming a return to normal market conditions by 2009 at the latest. ‘Barring any further major distortions on financial markets this year, in 2008 we will be able to repeat the strong results we delivered in the previous year - with a positive market environment we should be able to even exceed them,’ the lender said in a statement.

In 2007, Aareal said consolidated net income soared 171% to EUR 290 mln while consolidated operating profit jumped 138% to EUR 221 mln. New business originating in the structured property financing segment amounted to EUR 11.7 bn, above the target of EUR 10 bn while operating profit in its consulting/services business rose about fourfold to EUR 30 mln, above a projected target range of EUR 22 mln to EUR 28 mln. Aareal said it had made provisions for loan losses of EUR 77 mln.

Aareal noted securitisation and syndication are unlikely to be feasible exit options in property finance, it said it had adjusted its ‘buy-manage-sell’ model into a 'buy-manage-hold' approach and would make required changes to its organisation structure. The company said it planned to grow its structured financing business abroad, and would develop offices in Singapore and Warsaw into distribution hubs for the high-growth regions of the Asia Pacific and Central and Eastern Europe. And while current market uncertainty holds risks, the lender also highlighted what it sees as significant opportunities. Aareal said it would continue with a selective new business origination policy, with strict requirements in terms of quality and returns in order to exploit available market opportunities.