DEMIRE Deutsche Mittelstand Real Estate AG

Quarterly Report • May 15, 2019

Highlights Q1 2019

8.9

EUR Millions

FFO I (after taxes, before minorities) in Q1 2019, +68.9% versus Q1 2018

Forecast for FFO I (after taxes, before minorities) of EUR 27-29 million for full-year 2019 confirmed

7.1

EUR Millions

EBT in Q1 2019 without valuation effect, Q1 2018 EUR 30.5 million, adjusted (excluding valuation effect) EUR -1.6 million

38.6

per cent

Net loan-to-value ratio (net LTV) stable following 38.7 % at year-end 2018

3.0

percent p. a.

Average interest costs stable compared to same period in prior year

5.56

EUR

EPRA NAV (diluted) – an increase of EUR 0.06 per share compared to the end of 2018

KEY EARNINGS FIGURES KEY FINANCIAL RATIOS PORTFOLIO DEVELOPMENT

18.2

EUR Millions

Rental income – successful management of rentals more than compensates for minor rise in vacancies

8.3

percent

Slight increase of 80 basis points in EPRA vacancy rate compared to yearend 2018

4.3

years WALT

Slight decline compared to a WALT of 4.5 years at the end of 2018

TABLE OF CONTENTS

Foreword from the Executive Board

• 004 Management report
• Portfolio highlights
• Results of operations
• Development of FFO
• Net assets
• Financial position

016 INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Foreword from the Executive Board

After successfully completing the 2018 financial year, we continued to implement our strategy in the first quarter of 2019. Equipped with a comfortable liquidity position following the EUR 150 million capital increase in November 2018, we actively searched the market in the first quarter in an effort to come closer to meeting our goal of expanding DEMIRE into a leading listed commercial real estate platform in Germany with a portfolio size of more than EUR 2 billion.

We will maintain this focus in the current financial year and concentrate on expanding the real estate portfolio and optimising our Group structure. With this in mind, we completed the purchase of four office buildings after the reporting date based on agreements we had signed at the end of 2018.

In addition, we are developing DEMIRE's organisation through a number of smaller and larger measures in order to become leaner and more efficient. The initial success of these measures is already beginning to emerge and will be gradually reflected in our results.

Our key operating and financial indicators in the first quarter of 2019 developed as follows:

• • Funds from operations (FFO I, after taxes and before minorities) increased by 73.5 % to EUR 8.9 million, above all as a result of lower administrative expenses
• • Rental income reached EUR 18.2 million as planned, recording an increase of 1.5 % on a like-for-like basis compared to the first quarter of 2018
• • The EPRA vacancy rate increased slightly to 8.3 % following a level of 7.5 % at the end of 2018 as a result of the expiry of lease agreements at the end of 2018
• • Profit before taxes amounted to EUR 7.1 million and does not include any valuation effects, following a level of EUR 30.5 million in the same period of the prior year (EUR – 1.6 million excluding valuation effects)

We are confirming our forecast for FFO I (after taxes and minorities) of EUR 27 to 29 million for the 2019 financial year. Based on our current real estate portfolio, we anticipate rental income of around EUR 77 to 79 million.

Frankfurt am Main, 15 May 2019

Ingo Hartlief FRICS Chief Executive Officer (CEO)

Tim Brückner Chief Financial Officer (CFO)

The Executive Board of DEMIRE Deutsche Mittelstand Real Estate AG: Ingo Hartlief FRICS, CEO (right) and Tim Brückner, CFO (left)

Portfolio highlights

REAL ESTATE HOLDINGS AND CORPORATE LOCATIONS

DEMIRE holds commercial real estate in mid-sized cities and in up-and-coming peripheral areas of metropolitan areas throughout Germany. It focuses its investment on so-called "secondary locations", which offer more attractive and more stable investment parameters than the Top 7 locations. DEMIRE has real estate investments in 15 of the 16 federal states.

Property type/ Use

MARKET VALUE OF THE PORTFOLIO AND DISTRIBUTION OF RENTAL SPACE USE BY REGION (share in %)

The diagrams show the percentage distribution of the lettable space by use.

TOP 10 TENANTS (AS AT 31/03/2019)

NO. TENANT		TYPE OF USE	CONTRACTUA L RENT P. A.*
			in EUR millions	in % of total
1	GMG (Telekom)	Office	22.5	30.7
2	BImA Bundesanstalt für Immobilienaufgaben	Office	2.0	2.7
3	Sparkasse Südholstein	Office	1.7	2.4
4	RIMC	Hotel	1.5	2.0
5	HPI Germany	Hotel	1.5	2.0
6	AXA Konzern AG	Office	1.2	1.7
7	comdirect bank AG	Office	1.2	1.7
8	Barmer	Office	1.2	1.7
9	Momox GmbH	Logistics	1.2	1.6
10	BWI GmbH	Office	1.0	1.4
Subtotal			35.1	48.0
Other			38.2	52.0
	Grand total		73.3	100.0

*According to annualised contractual rent, excluding service charges.

KEY PORT FOLIO INDICATOR S	OFFICE	RETAI L	LOGISTICS	OTHER	TOTA L 31/03/2019	TOTA L 31/12/2018	CHANGE
Properties (number of)	61	16	1	6	84	84	—
Gross asset value (in EUR millions)	785.5	263.3	65.5	26.6	1.140.8	1.139.9	0.9
Contractual rents p.a. (in EUR millions)	49.7	17.4	4.2	2.0	73.3	73.2	0.1
Rent per m²	8.2	10.4	2.3	4.4	7.3	7.2	0.1
Rental yield (in %)	6.5	6.6	6.5	5.6	6.5	6.5	—
EPRA vacancy rate (in %) *	7.8	8.0	16.0	0.2	8.3	7.5	–80 bp
WALT (in years)	3.9	5.9	1.4	5.4	4.3	4.5	–0.2 Jahre

*Excluding properties held for sale.

Office 67.7% Retail 23.3% Logistics 5.8% Other 3.2% FOCUS ON THREE ASSET CLASSES in % of portfolio market value (As at 31 /03 / 2019)

• • As at the 31 March 2019 reporting date, the real estate portfolio of the DEMIRE Group still comprised 84 commercial properties with total lettable floor space of around 926,000 m² and a total value of EUR 1,140.8 million (31 December 2018: EUR 1,139.9 million). As at the reporting date, three properties or partial properties valued at around EUR 12.3 million were held for sale.
• • Annualised contractual rent increased slightly from EUR 73.2 million as at 31 December 2018 to EUR 73.3 million as at 31 March 2019 as a result of periodic adjustments and successful rental increases, despite a slight increase in vacancy to 8.3 % as at the reporting date compared to 7.5 % as at December 31, 2018. On a like-for-like basis, taking into account the sale of two properties in the course of 2018, annualised rental income increased by 1.5 % over the yearon-year.

RESULTS OF OPERATIONS

Consolidated statement of Income (Selected information in EUR thousands)	01/01/2019 –31/03/2019	01/01/2018 –31/03/2018	CHANGE	in %
Rental income	18,239	18,256	–17	–0.1%
Income from utility and service charges	7,217	5,742	1,475	25.7%
Operating expenses to generate rental income	–8,375	–10,843	2,468	–22.8%
Profit/loss from the rental of real estate	17,081	13,155	3,926	29.8%
Income from the sale of real estate and real estate companies	0	3	–3	–100.0%
Expenses relating to the sale of real estate and real estate companies	–71	–5	–66	>100.0%
Profit/loss from the sale of real estate and real estate companies	–71	–2	–69	>100.0%
Profit/loss from fair value adjustments in investment properties	0	32,078	–32,078	–100.0%
Impairment of receivables	–61	–80	19	–24.6%
Other operating income	48	1,313	–1,265	–96.3%
General and administrative expenses	–2,931	–3,137	206	–6.6%
Other operating expenses	–492	–1,191	699	–58.7%
Earnings before interest and taxes	13,575	42,136	–28,561	–67.8%
Financial result *	–6,449	–11,657	5,208	–44.7%
Profit/loss before taxes	7,126	30,479	–23,353	–76.6%
Current income taxes	–42	–151	109	–72.2%
Deferred taxes	–441	–9,502	9,061	–95.4%
Net profit/loss for the period	6,643	20,826	–14,183	–68.1%
Thereof attributable to parent company shareholders	5,828	18,173	–12,345	–67.9%
Basic earnings per share (EUR)	0.05	0.33	–0.28	–84.8%
Weighted number of shares outstanding (in thousands)	107,777	54,277
Diluted earnings per share (EUR)	0.05	0.27	0.22	-81.5%
Weighted diluted number of shares outstanding (in thousands)	108,297	68,433

*Prior-year figures have been adjusted due to changes in classification.

• • Due to new lettings and despite the sale of two properties in 2018, the DEMIRE Group achieved rental income of EUR 18.2 million in the first quarter of 2019, which was stable compared to the level in Q1 2018 of EUR 18.3 million.
• • General and administrative expenses of EUR 2.9 million were EUR 0.2 million lower year-on-year as a result of lower consulting fees.
• • Other operating expenses declined significantly by around 59 % to EUR 0.5 million in comparison to the same period of the previous year, which had included one-off effects.
• • As no real estate valuations were required in the first quarter of 2019, earnings before interest and taxes fell by a total of EUR 28.6 million to EUR 13.6 million due to the non-recurrence of fair value adjustments in investment properties (EUR 32.1 million in the previous year).

Development of FFO

FFO CALCULATION (Selected information in EUR thousands)	01/01/2019 –31/03/2019	01/01/2018 –31/03/2018	CHANGE	IN %
Profit/loss before taxes	7,126	30,479	–23,353	–76.6%
Minority interests	849	5,723	–4,874	–85.2%
Earnings before taxes (EBT)	7,975	36,202	–28,227	–78.0%
± Profit/loss from the sale of real estate	71	2	69	>100.0%
± Profit/loss for investments accounted for using the equity method	0	–54	54	–100.0%
± Profit/loss from fair value adjustments in investment properties	0	–32,078	32,078	–100.0%
± Other adjustments*	927	1,241	–314	–25.3%
FFO I before taxes	8,974	5,313	3,661	68.9%
± (Current) income taxes	–32	–160	128	–80.2%
FFO I after taxes	8,942	5,153	3,789	73.5%
Thereof attributable to parent company shareholders	7,274	3,915	3,359	85,8%
Thereof attributable to non-controlling interests	1,668	1,238	430	34.7%
± Profit/loss from the sale of real estate and real estate companies (after taxes)	–83	–2	–81	>100.0%
FFO II after taxes	8,859	5,151	3,708	72.0%
Thereof attributable to parent company shareholders	7,187	3,913	3,274	83.7%
Thereof attributable to non-controlling interests	1,672	1,238	434	35.0%
FFO I after taxes per share
Basic FFO I per share (in EUR)	0.08	0.09	–0.01	–7.8%
Weighted number of shares outstanding (in thousands)	107,777	54,277	53,500	98.6%
Diluted FFO I per share (in EUR)	0.08	0.08	0.00	3.2%
Weighted diluted number of shares outstanding (in thousands)	108,287	68,433	39,854	58.2%
FFO II after taxes per share
Basic FFO II per share (in EUR)	0.08	0.09	–0.01	–8.7%
Weighted number of shares outstanding (in thousands)	107,777	54,277	53,500	98.6%
Diluted FFO II per share (in EUR)	0.08	0.08	0.00	2.3%
Weighted diluted number of shares outstanding (in thousands)	108,287	68,433	39,854	58.2%

* Other adjustments contain the following:

• Adjusted effective interest payments (EUR 0.9 million; previous year: EUR 0.8 million)

• One-time transaction, legal and consulting fees (EUR -0.1 million; previous year: EUR 0.3 million)

• One-time administrative costs (EUR 0.1 million; previous year: EUR 0.2 million)

• Non-period expenses/income (EUR 0 million; previous year: EUR -0.1 million)

The DEMIRE Group's operating result is measured in terms of funds from operations (FFO), which is adjusted for valuation effects (if any), other disposals and one-off effects and non-periodic income and expenses. Funds from operations (FFO I, after taxes, before minorities) reached EUR 8.9 million in the period under review (Q1 2018: EUR 5.2 million) due to lower interest and administrative expenses. After minorities and taxes, FFO I amounted to EUR 7.3 million (Q1 2018: EUR 3.9 million). In accordance with the total planned capital expenditure for full-year 2019, funds from operations in the first quarter were still influenced by a low level of capital expenditure.

Taking into account the profit / loss from the sale of real estate, funds from operations (FFO II) after taxes and before minorities amounted to EUR 8.9 million (Q1 2018: EUR 5.2 million), after taxes and after minorities to EUR 7.2 million (Q1 2018: EUR 3.9 million).

Net assets

BALANCE SHEET – ASSETS (Selected information in EUR thousands)	31/03/2019	31/12/2018	CHANGE	IN %
Assets
Total non-current assets	1,151,991	1,150,944	1,047	0.1%
Total current assets	216,979	215,487	1,492	0.7%
Assets held for sale	12,262	12,262	0	–
TOTA L ASSETS	1,381,232	1,378,692	2,540	0.2%
BALANCE SHEET – EQUITY AND LIABILITIES (Selected information in EUR thousands)	31/03/2019	31/12/2018	CHANGE	IN %
Equity and liabilities
Equity
Equity attributable to parent company shareholders	543,745	537,913	5,832	1.1%
Non-controlling interests	45,241	44,425	816	1.8%
Total equity	588,985	582,338	6,647	1.1%
Liabilities
Total non-current liabilities	715,604	742,696	–27,092	–3.6%
Total current liabilities	76,643	53,658	22,985	42.8%
Total liabilities	792,247	796,354	–4,107	–0.5%
TOTA L EQUITY AND LIABILITIES	1,381,232	1,378,692	2,540	0.2%

As at 31 March 2019, total assets increased by EUR 2.5 million compared to yearend 2018 to around EUR 1.38 billion.

Investment properties in the reporting period were not subject to re-valuation as a result of only minor market changes and amounted to a value of around EUR 1,140.8 million as at 31 March 2019, which was almost unchanged compared to their level as at 31 December 2018.

Group equity amounted to EUR 589.0 million as at 31 March 2019, which was slightly higher than its level on 31 December 2018 (EUR 582.3 million). The equity ratio was 42.6 % (31 December 2018: 42.2 %). It should be noted that, under IFRS, the non-controlling minority interests in the amount of EUR 73.9 million are reported under non-current liabilities and not in equity due to the legal form of Fair Value REIT AG's fund participations as a partnership.

Basic EPRA-NAV per share as at reporting date was EUR 5.58 (+ 1.1 %) and EUR 5.56 (+ 1.1 %) on a diluted basis. Both were above their levels at the end of 2018 (EUR 5.52 and EUR 5.50, respectively).

Financial position

CON SOLIDATED STATEMENT OF CASH FLOWS (Selected information in EUR thousands)	01/01/2019 –31/03/2019	01/01/2018 –31/03/2018	CHANGE	IN %
Cash flow from operating activities	7,500	7,374	126	1.7%
Cash flow from investing activities	–1,100	–149	–951	>100.0%
Cash flow from financing activities	–9,610	–11,567	1,957	–16.9%
Net change in cash and cash equivalents	–3,210	–4,342	1,132	–26.1%
Cash and cash equivalents at the end of the period	187,231	69,532	117,699	>100.0%

Non-current financial liabilities as at 31 March 2019 amounted to EUR 578.1 million and were lower than the level as at 31 December 2018 (EUR 606.4 million).

The financial result in the first quarter of 2019 was EUR – 6.4 million (Q1 2018: EUR – 11.7 million). The sharp decline resulted mainly from the valuation effects for partnerships held as minority interests of around EUR – 0.8 million (Q1 2018: EUR – 5.7 million), while financial income and financial expenses each saw a slight improvement. The nominal interest for financial liabilities as at 31 March 2019 averaged 3.0 % and was unchanged compared to 31 December 2018.

The net loan-to-value ratio (LTV) of 38.6 % as at 31 March 2019 was slightly better than at year-end 2018 (38.7 %).

Cash flow from operating activities amounted to EUR 7.5 million in the first quarter of 2019 (Q1 2018: EUR 7.4 million).

Cash flow from investing activities in the first quarter increased by around EUR 1.0 million compared to the low prior-year level, mainly as a result of investment in investment properties.

Cash flow from financing activities improved by around EUR 2.0 million to EUR – 9.6 million.

Cash and cash equivalents amounted to EUR 187.2 million as at the 31 March 2019 reporting date (31 December 2018: EUR 190.4 million).

8.9 FFO I

in EURmillions in the first quarter of 2019

INTERIM CONSOLI-DATED FINANCIAL STATEMENTS

Consolidated statement of income Consolidated statement of comprehensive income Consolidated balance sheet Consolidated statement of cash flows Consolidated statement of changes in equity

Notes to the consolidated financial statements

• A. General information
• B. Scope and principles of consolidation
• C. Accounting policies
• D. Notes to the consolidated statement of income
• E. Notes to the consolidated balance sheet
• F. Group segment reporting
• G. Other disclosures
• Appendices to the consolidated financial statements
• Disclaimer and imprint

Consolidated statement of income

CONSOLIDATED STATEMENT OF INCOME

For the reporting period from 1 January to 31 March 2019

in EUR thousands	01/01/2019 –31/03/2019	01/01/2018 –31/03/2018
Rental income	18,239	18,256
Income from utility and service charges	7,217	5,742
Operating expenses to generate rental income	–8,375	–10,843
Profit/loss from the rental of real estate	17,081	13,155
Income from the sale of real estate and real estate companies	0	3
Expenses relating to the sale of real estate and real estate companies	-71	–5
Profit/loss from the sale of real estate and real estate companies	-71	–2
Profit/loss from fair value adjustments in investment properties	0	32,078
Impairment of receivables	-61	–80
Other operating income	48	1,313
General and administrative expenses	-2,931	–3,137
Other operating expenses	-492	–1,191
Earnings before interest and taxes	13,575	42,136
Financial income*	262	113
Financial expenses	-5,861	–6,047
Interests of minority shareholders	-849	–5,723
Financial result	-6,449	–11,657
Profit/loss before taxes	7,126	30,479
Current income taxes	-42	–151
Deferred taxes	-441	–9,502
Net profit/loss for the period	6,643	20,826
Thereof, attributable to:
Non-controlling interests	816	2,654
Parent company shareholders	5,828	18,173
Basic earnings per share	0.05	0.33
Diluted earnings per share	0.05	0.27

* Prior-year figures have been adjusted due to changes in classification.

Consolidated statement of Comprehensive Income

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the reporting period from 1 January to 31 March 2019

in EUR thousands	01/01/2019 –31/03/2019	01/01/2018 –31/03/2018
Net profit/loss for the period	6,643	20,826
Items that will be reclassified to profit and loss:
Currency translation differences	0	0
Other comprehensive income	0	0
Total comprehensive income	6,643	20,826
Thereof, attributable to:
Non-controlling interests	816	2,654
Parent company shareholders	5,828	18,173

Consolidated balance sheet

Consolidated balance sheet

As at 31 March 2019

ASSETS	31/03/2019	31/12/2018
in EUR thousands
ASSETS
Non-current assets
Intangible assets	6,882	6,884
Property, plant and equipment	477	465
Investment properties	1,140,785	1,139,869
Other assets	3,847	3,725
Total non-current assets	1,151,991	1,150,944
Current assets
Trade accounts receivable and other receivables	20,426	15,835
Financial receivables and other financial assets	6,440	6,326
Tax refund claims	2,882	2,884
Cash and cash equivalents	187,231	190,442
Total current assets	216,979	215,487
Non-current assets held for sale	12,262	12,262

TOTAL ASSETS	1,381,232	1,378,692

Consolidated balance sheet

EQUITY AND LIABILITIES in EUR thousands	31/03/2019	31/12/2018
EQUITY AND LIABILITIES
EQUITY
Subscribed capital	107,777	107,777
Reserves	435,967	430,136
Equity attributable to parent company shareholders	543,745	537,913
Non-controlling interests	45,241	44,425
TOTAL EQUITY	588,985	582,338
LIABILITIES
Non-current liabilities
Deferred tax liabilities	62,491	62,050
Minority interests	73,909	73,085
Financial liabilities	578,129	606,404
Other liabilities	1,075	1,157
Total non-current liabilities	715,604	742,696
Current liabilities
Provisions	1,800	1,302
Trade payables and other liabilities	17,867	19,703
Tax liabilities	2,486	2,486
Financial liabilities	54,490	30,168
Total current liabilities	76,643	53,658
TOTAL LIABILITIES	792,247	796,354
TOTAL EQUITY AND LIABILITIES	1,381,232	1,378,692

Consolidated statement of cash flows

CONSOLIDATED STATEMENT OF CASH FLOWS

For the reporting period from 1 January to 31 March 2019

in EUR thousands	01/01/2019 –31/03/2019	01/01/2018 –31/03/2018
Group profit/loss before taxes	7,126	30,479
Financial expenses	5,861	6,047
Financial income	–262	–59
Interests of minority shareholders	849	5,723
Change in trade accounts receivable and other receivables	–4,592	–5,052
Change in financial receivables and other financial assets	–235	–225
Change in provisions	498	1,957
Change in trade payables and other liabilities	–1,959	646
Profit/loss from fair value adjustments in investment properties	0	–32,078
Expenses relating to the sale of real estate and real estate companies	71	2
Income taxes paid	–36	–225
Change in reserves	3	–13
Depreciation and amortisation and impairment	98	127
Other non-cash items	76	45
Cash flow from operating activities	7,500	7,374
Payments for investments in investment properties and property, plant and equipment	–1,100	–134
Payments for the acquisition of investment properties and interests in fully consolidated companies, less net cash equivalents acquired	0	–15
Cash flow from investing activities	–1,100	–149
Proceeds from the issuance of financial liabilities	6,671	0
Interest paid on financial liabilities	–7,443	–7,873
Payments for the redemption of financial liabilities	–8,838	–3,694
Cash flow from financing activities	–9,610	–11,567
Net change in cash and cash equivalents	–3,210	–4,342
Cash and cash equivalents at the start of the period	190,442	73,874
Cash and cash equivalents at the end of the period Thereof restricted cash (EUR 0 thousand; 31 March 2018: EUR 594 thousand)	187,231	69,532

Consolidated statement of changes in equity

Consolidated statement of changes in equity

For the reporting period from 1 January to 31 March 2019

in EUR thousands	SHARE CAPITAL				RESERVES
	SUBSCRIBED CAPITAL	CAPITAL RESERVES	RETAINED EARNINGS INCL. GROUP PROFIT/LOSS	RESERVES FOR TREASURY SHARES	CURRENCY TRANSLATION	EQUITY AT TRIBUTABLE TO PARENT COMPANY SHARE HOLDERS	NON- CONTROLLING INTERESTS	TOTAL EQUITY
01/01/2019	107,777	129,848	300,288	0	0	537,914	44,425	582,338
Net profit/loss for the period	0	0	5,828	0	0	5,828	816	6,643
Other comprehensive income	0	0	0	0	0	0	0	0
Total comprehensive income	0	0	5,828	0	0	5,828	816	6,643
Capital increases	0	0	0	0	0	0	0	0
Stock option programme	0	4	0	0	0	4	0	4
Convertible bonds	0	0	0	0	0	0	0	0
Dividend payments /distributions	0	0	0	0	0	0	0	0
Increase in shareholdings in subsidiaries	0	0	0	0	0	0	0	0
Other changes	0	0	–1	0	0	–1	0	–1
31/03/2019	107,777	129,852	306,115	0	0	543,744	45,241	588,985
01/01/2018	54,271	0	231,433	–310	22	285,417	40,052	325,469
First-time application of IFRS 9*	0	0	6,597	0	0	6,597	421	7,018
Net profit/loss for the period	0	0	18,173	0	0	18,173	2,654	20,827
Other comprehensive income	0	0	0	0	0	0	0	0
Total comprehensive income	0	0	18,173	0	0	18,173	2,654	20,827
Capital increases	18	0	0	0	0	18	0	18
Stock option programme	0	13	0	0	0	13	0	13
Mandatory convertible bond	0	0	0	0	0	0	0	0
Dividend payments /distributions	0	0	0	0	0	0	0	0
Other changes*	0	0	–23	0	–22	–45	–107	–151
31/03/2018	54,289	13	256,179	–310	0	310,173	43,020	353,193

*Prior-year figures have been adjusted due to changes in classification.

Notes to the consolidated financial statements for the reporting period from 1 January to 31 March 2019

A. GENERAL INFORMATION

1. BASIS OF PREPARATION

DEMIRE Deutsche Mittelstand Real Estate AG ("DEMIRE AG") is recorded in the commercial register in Frankfurt / Main, Germany, the location of the Company's headquarters, under the number HRB 89041. The Company's business address is Robert-Bosch-Straße 11, Langen, Germany. The subject of these condensed interim consolidated financial statements as at 31 March 2019 is DEMIRE AG and its subsidiaries ("DEMIRE").

The DEMIRE AG shares are listed in the regulated market segment of the Frankfurt Stock Exchange (Prime Standard).

Investments in real estate and real estate projects are generally processed through real estate companies. Interests in these real estate companies are either directly or indirectly held by DEMIRE (through intermediate holding companies). DEMIRE AG does not have direct ownership in any real estate. DEMIRE focuses on the German commercial real estate market and is active as an investor in and portfolio manager of secondary locations. DEMIRE itself carries out the acquisition, management and leasing of commercial properties. Value appreciation is to be achieved through active real estate management. This may also include the targeted sale of properties when they are no longer a strategic fit or have exhausted their potential for value appreciation.

The condensed interim consolidated financial statements for the period 1 January through 31 March 2019 were prepared in accordance with the requirements of IAS 34 "Interim Financial Reporting" ("IAS 34").

The condensed interim consolidated financial statements of DEMIRE AG were prepared in accordance with the International Financial Reporting Standards (IFRS) published by the International Accounting Standards Board (IASB), as applicable in the European Union (EU), pursuant to Section 315e of the German Commercial Code (HGB). All International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), interpretations of the IFRS Interpretations Committee (IFRS IC) – formerly the International Financial Reporting Interpretations Committee (IFRIC) and the Standing Interpretations Committee (SIC) – that were mandatory for the 2019 fiscal year have been taken into consideration. Furthermore, all disclosure and explanation requirements under German law above and beyond the provisions of the IASB have been fulfilled.

Under IAS 34, the condensed interim consolidated financial statements shall represent an update of the last financial year financial statements and, therefore, do not contain all of the information and disclosures required for consolidated financial statements but rather concentrate on new activities, events and circumstances so as not to repeat information that has already been reported. The condensed interim consolidated financial statements of DEMIRE AG as at 31 March 2019 should therefore be viewed in conjunction with the consolidated financial statements prepared as at 31 December 2018.

The euro (EUR) is the reporting currency of the DEMIRE AG condensed interim consolidated financial statements. Unless otherwise stated, all amounts are expressed in thousands of euros (EUR thousands). For computational reasons, rounding differences of +/- one unit (EUR, % etc.) may occur in the information presented in these financial statements.

These DEMIRE AG condensed interim consolidated financial statements were approved for publication by a resolution of the Executive Board on 15 May 2019.

Scope and principles of consolidation Accounting policies Notes to the consolidated statement of income

B. Scope and principles of consolidation

There were no changes to the scope of consolidation in the interim reporting period.

C. Accounting policies

The accounting policies applied to the interim consolidated financial statements presented are the same as those applied to the consolidated financial statements as at 31 December 2018. There were no material changes in estimates compared to those in the consolidated financial statements as at 31 December 2018.

The mandatory first-time application of IFRIC 23, amendments to IFRS 9 and IAS 28 have no material impact on the consolidated financial statements of DEMIRE.

D. Notes to the consolidated statement of income

1. EARNINGS BEFORE INTEREST AND TAXES

in EUR thousands	01/01/2019 –31/03/2019	01/01/2018 –31/03/2018
Net rents	18,239	18,256
Income from utility and service charges	7,217	5,742
Rental revenue	25,456	23,998
Allocable operating expenses to generate rental income	–8,240	–6,106
Non-allocable operating expenses to generate rental income	–135	–4,737
Operating expenses to generate rental income	–8,375	–10,843
Profit/loss from the rental of real estate	17,081	13,155

Rental revenue in the interim reporting period resulted exclusively from the rental of commercial real estate and is free from seasonal effects.

The increase in profit / loss from the rental of real estate to EUR 17,081 thousand (Q1 2018: EUR 13.155 thousand) primarily resulted from lower operating expenses to generate rental income which resulted from lower maintenance expenses and capitalisation of construction activities in the amount of EUR 916 thousand (Q1 2018: EUR 89 thousand). Furthermore, lower one-time implementation costs for the new property manager occurred which led to a reversal of payables in the amount of EUR 321 thousand.

Earnings before interest and taxes of EUR 13,575 thousand (Q1 2018: EUR 42,190 thousand) declined substantially due to the absence of the profit / loss from fair value adjustments in investment properties. As no changes in the valuation parameters occurred during the first quarter of 2019, no re-measurement was carried out (Q1 2018: EUR 32,078 thousand).

Compared to the first quarter of 2018, both the financial result of EUR – 6,449 thousand (Q1 2018: EUR – 11,657 thousand) and the general and administrative expenses of EUR 2,931 thousand (Q1 2018: EUR 3,137 thousand) were lower.

Earnings before interest and taxes also include other operating expenses of EUR 492 thousand (Q1 2018: EUR 1,191 thousand) mainly consisting of incidental costs of EUR 105 thousand (Q1 2018: EUR 29 thousand) for monetary transactions, non-deductible input taxes of EUR 60 thousand (Q1 2018: EUR 125 thousand) and insurance costs of EUR 49 thousand (Q1 2018: EUR 11 thousand). The decline in other operating expenses resulted mainly from impairments of EUR 657 thousand on other assets included in the Eastern Europe portfolio (CEE / CIS) recognised in the first quarter of 2018. The lower expense from deferred taxes of EUR 441 thousand (Q1 2018: EUR 9,502 thousand) resulted from the absence of valuation changes as at 31 March 2019 and, consequently, changes to the profit / loss from fair value adjustments in investment properties.

The share of profit / loss of minority shareholders amounting to EUR 849 thousand (Q1 2018: EUR 5,723 thousand) concerns minority shareholder's profits in the Fair Value REIT-AG subsidiaries recorded as liabilities under IFRS. The year-on-year decrease resulted primarily from the absence of valuation gains for the real estate held by these subsidiaries, as no re-measurement was carried out during the first quarter of 2019.

3. EARNINGS PER SHARE

	01/01/2019 –31/03/2019	01/01/2018 –31/03/2018
Net profit/loss for the period (in EUR thousands)	6,643	20,826
profit/loss for the period less non-controlling interests	5,828	18,173
Interest expenses from convertible bonds	0	315
Net profit/loss for the period less non-controlling interests (diluted)	5,828	18,488
Number of shares (in thousand units)
Number of shares outstanding as at the reporting date	107,777	54,289
Weighted average number of shares outstanding	107,777	54,277
Impact of conversion of convertible bonds and exercise under the 2015 Stock Option programme	510	14,156
Weighted average number of shares (diluted)	108,287	68,433
Earnings per share (in EUR)
Basic earnings per share	0.05	0.33
Diluted earnings per share	0.05	0.27

As at 31 March 2019, the Company had potential ordinary shares outstanding from the 2015 stock option programme that entitle the owners to subscribe to 510,000 shares.

There was no change in the number of shares outstanding in the first quarter of 2019 compared to the level as at 31 December 2018.

2. FINANCIAL RESULT

in EUR thousands	01/01/2019 –31/03/2019	01/01/2018 –31/03/2018
Financial income	262	113
Financial expenses	–5,861	–6,047
Interests of minority shareholders	–849	–5,723
Financial result	–6,449	–11,657

The slight decline in financial expenses in the first quarter of 2019 mainly resulted from the reduction of financial liabilities during the 2018 financial year due to the repurchase offer to the bondholders of the 2017 / 2022 corporate bond and the redemption of the 2013 / 2018 convertible bond and 2015 / 2018 mandatory convertible bond.

E. Notes to the consolidated balance sheet

1. INVESTMENT PROPERTIES

Investment properties are measured at fair value. The fair values during the interim reporting period developed as follows:

in EUR thousands	2019	OFFICE	RETAIL	LOGISTICS	OTHER	2018	OFFICE	RETAIL	LOGISTICS	OTHER
Fair value at the beginning of the reporting period	1,139,869	784,686	263,304	65,436	26,442	1,021,847	691,649	245,225	61,700	23,273
Additions	916	849	0	67	0	24,341	23,926	391	24	0
Reclassifications under IFRS 16	0	0	0	0	0	1,592	1,592	0	0	0
Disposals	0	0	0	0	0	–970	–662	–23	0	–285
Unrealised gains from fair value measurement included in item D.3 of the statement of income	0	0	0	0	0	97,956	72,846	17,923	3,713	3,475
Unrealised losses from fair value measurement included in item D.3 of the statement of income	0	0	0	0	0	–4,897	–4,665	–212	0	–20
Fair value as of the end of the reporting period	1,140,785	785,535	263,304	65,503	26,442	1,139,869	784,686	263,304	65,436	26,442

The additions to investment properties in the amount of EUR 916 thousand resulted from subsequent acquisition and production costs.

The valuation of investment properties at fair value is to be allocated to Level 3 of the valuation hierarchy according to IFRS 13 (valuation based on unobservable inputs), which is shown in the Appendix on page 035. DEMIRE determines the fair values in the context of the IAS 40 valuation. No changes in the valuation parameters occurred during the first quarter of 2019.

A sensitivity analysis of the key input parameters revealed the following effect on the fair value of the investment properties:

Notes to the consolidated balance sheet

TOTAL in EUR
DISCOUNT RATE						CAPITALISATION RATE
	+0.50%	in %	±0.00%	in %	+0.50%	in %
+0.50%	–93,230,000	–8%	–41,290,000	–4%	+20,641,000	2%
±0.00%	–54,570,000	–5%	—	0%	+64,670,000	6%
-0.50%	–13,840,000	–1%	+43,490,000	4%	+111,380,000	10%
OFFICE in EUR
DISCOUNT RATE						CAPITALISATION RATE
	+0.50%	in %	±0.00%	in %	+0.50%	in %
+0.50%	–64,980,000	–8%	–28,480,000	–4%	+15,080,000	2%
±0.00%	–38,400,000	–5%	—	0%	+45,610,000	6%
-0.50%	–10,130,000	–1%	+29,970,000	4%	+77,820,000	10%
RETAIL in EUR
DISCOUNT RATE						CAPITALISATION RATE
	+0.50%	in %	±0.00%	in %	+0.50%	in %
+0.50%	–21,070,000	–8%	–9,350,000	–4%	+4,700,000	2%
±0.00%	–12,150,000	–5%	—	0%	+14,630,000	6%
-0.50%	–3,060,000	–1%	+10,020,000	4%	+25,310,000	10%

Notes to the consolidated balance sheet

LOGISTICS in EUR
DISCOUNT RATE						CAPITALISATION RATE
	+0.50%	in %	±0.00%	in %	+0.50%	in %
+0.50%	–5,400,000	–8%	–2,500,000	–4%	+700,000	1%
±0.00%	–3,000,000	–5%	—	0%	+3,400,000	5%
-0.50%	–500,000	–1%	+2,600,000	4%	+6,200,000	9%
OTHER in EUR
DISCOUNT RATE						CAPITALISATION RATE
	+0.50%	in %	±0.00%	in %	+0.50%	in %
+0.50%	–1,770,000	–7%	–960,000	–4%	+130,000	1%
±0.00%	–1,020,000	–4%	—	0%	+1,030,000	4%
-0.50%	–150,000	–1%	+900,000	3%	+2,050,000	8%

TOTAL in EUR
MARKET RENT	VALUE	ABSOLUTE DELTA	DELTA IN %
–10%	1,165	–104	–8%
–5%	1,217	–52	–4%
±0%	1,269	—	—
+5%	1,322	+53	+4%
+10%	1,374	+105	+8%

A change in market rent per square metre results in the following changes:

LOGISTICS in EUR MARKET RENT VALUE ABSOLUTE DELTA DELTA IN % –10% 397 –50 –11% –5% 422 –25 –5% ±0% 447 — — +5% 472 +25 +5% +10% 496 +49 +11%

OFFICE in EUR

MARKET RENT	VALUE	ABSOLUTE DELTA	DELTA IN %
–10%	1,281	–116	–8%
–5%	1,338	–58	–4%
±0%	1,396	—	—
+5%	1,454	+58	+4%
+10%	1,513	+116	+8%

OTHER in EUR

MARKET RENT	VALUE	ABSOLUTE DELTA	DELTA IN %
–10%	743	–57	–7%
–5%	770	–30	–4%
±0%	800	—	—
+5%	828	+27	+3%
+10%	855	+55	+7%

RETAIL in EUR

MARKET RENT	VALUE	ABSOLUTE DELTA	DELTA IN %
–10%	1,570	–126	–7%
–5%	1,633	–63	–4%
±0%	1,696	—	—
+5%	1,761	+65	+4%
+10%	1,824	+128	+8%

A substantial increase in maintenance costs, vacancy rates or property yields would lead to a lower fair value for the properties if the assumptions for the remaining input parameters remained unchanged. The sensitivity analysis is based on the parameters of the appraisal reports as at 31 December 2018, as no changes in the valuation parameters have occurred as at 31 March 2019.

2. Financial liabilities

Financial liabilities as at 31 March 2019 consisted of the following:

FINANCIAL LIABILITIES in EUR thousands	FIXED INTEREST	VARIABLE INTEREST	TOTAL
2017/2022 corporate bond	361,558	0	361,558
Other financial liabilities	226,360	44,701	271,061
Total	587,918	44,701	632,619

The following table shows the nominal value of financial liabilities as at 31 March 2019:

FINANCIAL LIABILITIES in EUR thousands	FIXED INTEREST	VARIABLE INTEREST	TOTAL
2017/2022 corporate bond	366,625	0	366,625
Other financial liabilities	234,004	44,701	278,705
Total	600,629	44,701	645,330

Financial liabilities as at 31 December 2018 consisted of the following:

FINANCIAL LIABILITIES in EUR thousands	FIXED INTEREST	VARIABLE INTEREST	TOTAL
2017/2022 corporate bond	361,208	0	361,208
Other financial liabilities*	229,748	45,616	275,857
Total	590,956	45,616	636,572

* Prior-year figures have been adjusted

The following table shows the nominal value of financial liabilities as at 31 December 2018:

FINANCIAL LIABILITIES in EUR thousands	FIXED INTEREST	VARIABLE INTEREST	TOTAL
2017/2022 corporate bond	366,625	0	366,625
Other financial liabilities*	238,259	45,616	283,875
Total	604,884	45,616	650,500

* Prior-year figures have been adjusted

The interest on variable interest-bearing bank loans is based on EURIBOR plus an appropriate margin.

The nominal interest rate of the 2017 / 2022 corporate bond is 2.875 %. Other financial liabilities mainly include bank liabilities with an average interest rate on financial debt of 3.16 % p. a. as at 31 March 2019 (31 December 2018: 3.16 % p. a.). The average interest rate on all financial liabilities amounted to 3.0 0% p. a. as at 31 March 2019 (31 December 2018: 3.00 % p. a.).

Condensed group segment reporting

F. Condensed group segment reporting

1 JANUARY 2019 – 31 MARCH 2019 in EUR thousands	CORE PORTFOLIO	FAIR VALUE REIT	CORPORATE FUNCTIONS/ OTHERS	GROUP
Total revenues	18,017	7,439	0	25,456
Segment revenues	18,032	7,453	20	25,504
Segment expenses	–6,004	–4,070	–1,856	–11,930
Net profit/loss for the period	9,512	1,787	–4,656	6,643
Additional information
Segment assets	871,136	338,587	171,509	1,381,232
thereof current financial receivables and other financial assets	114	6	6,320	6,440
thereof tax refund claims	12	7	2,863	2,882
thereof non-current assets, held for sale	12,262	0	0	12,262
Segment liabilities	583,253	204,818	4,177	792,247
thereof non-current financial liabilities	515,015	63,115	0	578,129
thereof current financial liabilities	7,001	47,489	0	54,490
thereof tax liabilities	2,283	0	203	2,486

1 JANUARY 2018 – 31 MARCH 2018 in EUR thousands	CORE PORTFOLIO	FAIR VALUE REIT	CORPORATE FUNCTIONS/ OTHERS	GROUP
Total revenues	16,554	7,448	0	24,002
Segment revenues	38,176	19,139	132	57,447
Segment expenses	–8,357	–3,803	–3,097	–15,257
Net profit/loss for the period	20,225	7,165	–6,563	20,826
Additional information
Segment assets	792,562	336,210	51,372	1,180,144
thereof current financial receivables and other financial assets	273	0	5,134	5,407
thereof tax refund claims	879	3	1,880	2,762
thereof non-current assets, held for sale	12,662	0	0	12,662
Segment liabilities	611,702	204,935	23,695	840,332
thereof non-current financial liabilities	555,260	109,254	0	669,514
thereof current financial liabilities	16,638	8,000	0	24,638
thereof tax liabilities	2,461	0	0	2,461

The segmentation of the data in the financial statements is based on the internal alignment according to strategic business segments pursuant to IFRS 8. The segment information provided represents the information to be reported to the Executive Board.

The DEMIRE Group is divided into the two reportable business segments "Core Portfolio" and "Fair Value REIT".

More than 10 % of total revenue, or EUR 5,582 thousand (Q1 2018: EUR 5,572 thousand), was generated with one customer in the "Core Portfolio" segment in the interim reporting period.

G. Other disclosures

1. RELATED PARTY DISCLOSURES

There have been no material changes to the related party disclosures as compared to 31 December 2018. There have been no business transactions with members in key Company positions during the reporting period, except for the compensation of the Executive Board mentioned in section G.5.

2. FINANCIAL INSTRUMENTS

The carrying amounts of the following financial instruments carried at cost or amortised cost do not correspond to their fair values:

	31/03/2019		31/12/2018
in EUR thousands	FAIR VALUE	CARRYING AMOUNT	FAIR VALUE	CARRYING AMOUNT
Bond	374,385	361,558	358,156	361,208
Other non-current financial liabilities	226,360	218,046	248,393	246,656

3. RISK REPORT

With respect to the risks to future business development, please refer to the disclosures made in the risk report contained in the consolidated financial statements as at 31 December 2018. No material changes to the Group's risk structure were made during the first quarter of 2019.

4. OTHER DISCLOSURES

Real estate purchase agreements concluded in previous years that were still not in effect as at the 31 March 2019 reporting date, resulted in financial obligations of EUR 147,435 thousand. These financial obligations relate to the purchase of the portfolio of office properties in Cologne, Aschheim-Dornach, Bad Vilbel and Essen.

Contractual obligations mainly existed for the modification and expansion of the properties in Eschborn, Kempten, the Gutenberg-Galerie and Logistikpark Leipzig. The scope of these obligations has been defined. The resulting costs amounted to EUR 3,247 thousand as at 31 March 2019.

The purchase order commitment from commissioned maintenance amounted to EUR 517 thousand as at the interim reporting date.

As at the 31 March 2019 interim reporting date, there were no obligations for future lease payments under long-term leasehold agreements.

5. GOVERNING BODIES AND EMPLOYEES

In accordance with the DEMIRE AG Articles of Association, the Executive Board is responsible for managing business activities.

The members of the Executive Board during the reporting quarter were

• • Mr Tim Brückner (since 1 February 2019)
• • Mr Ingo Hartlief (since 20 December 2018)
• • Mr Ralf Kind (until 3 January 2019)

For the interim reporting period, performance-based remuneration of EUR 60 thousand (Q1 2018: EUR 45 thousand), fixed remuneration of EUR 128 thousand (Q1 2018: EUR 99 thousand) and share-based payments of EUR 33 thousand (Q1 2018: EUR 424 thousand) were recognised for the DEMIRE AG Executive Board. In the first quarter of 2018, one Executive Board member had been appointed. The remuneration amount that Mr Ralf Kind may still be entitled to continues to be outstanding as this issue is currently subject to pending legal proceedings.

There were no loans or advances granted to Executive Board members, and no contingencies were assumed for their benefit.

6. EVENTS OCCURRING AFTER THE 31 MARCH 2019 INTERIM REPORTING DATE

After the reporting date, the purchase of four office buildings based on agreements signed at the end of 2018 were contracted.

DEMIRE Deutsche Mittelstand Real Estate AG

Frankfurt am Main, 15 May 2019

Ingo Hartlief FRICS Member of the Executive Board (CEO)

Tim Brückner Member of the Executive Board (CFO)

Appendix: Valuation parameters according to IFRS as at 31 March 2019

APPENDIX: VALUATION PARAMETERS ACCORDING TO IFRS AS AT 31 MARCH 2019

	31/12/2018
Average market rent (in EUR per m² per year)	87.04
Range of market rents (in EUR per m²)	33.20– 220.43
Total lettable space as at reporting date (in m²)	894,718
Vacant space as at reporting date (in m²)	84,974
Value-based vacancy rate according to EPRA (in %)	7.47
Average vacancy rate based on lettable space (in %)	9.50
Range of vacancy rates based on lettable space (in %)	0.00–100
Weighted average lease term – WALT (in years)	4.59

The valuation parameters according to IFRS 13 are based on those as at 31 December 2018 as they have not changed as at 31 March 2019 and an updated valuation has not been carried out.

The basis for rental income planning is the rental payments contractually agreed with the tenants as well as prevailing customary local market rents for unleased space on the valuation date. The contractually agreed monthly rents per m² on the valuation date for the various types of use are shown in the table below:

CONTRACTUAL RENTS in EUR		31/12/2018
Office	Min.	3.32
	Max.	13.22
	Avg.	8.14
Retail	Min.	3.20
	Max.	19.77
	Avg.	10.49
Others	Min.	2.89
	Max.	10.05
	Avg.	3.35
Total	Min.	2.32
	Max.	19.35
	Avg.	7.27

Disclaimer Imprint

This interim statement contains forward-looking statements and information. Such forward-looking statements are based on our current expectations and certain assumptions. They harbour a number of risks and uncertainties as a consequence. A large number of factors, many of which lie outside the scope of DEMIRE's influence, affect DEMIRE's business activities, success, business strategy and results. These factors may result in a significant divergence in the actual results, success, and performance achieved by DEMIRE.

Should one or more of these risks or uncertainties materialise, or should the underlying assumptions prove incorrect, the actual results may significantly diverge both positively and negatively from those results that were stated in the forwardlooking statements as expected, anticipated, intended, planned, believed, projected or estimated results. DEMIRE accepts no obligation and does not intend to update these forward-looking statements or to correct them in the event of developments other than those expected.

COMPANY CONTACT

DEMIRE Deutsche Mittelstand Real Estate AG Robert-Bosch-Straße 11 D–63225 Langen T + 49 (0) 6103 – 372 49 – 0 F + 49 (0) 6103 – 372 49 – 11 ir@demire.ag www.demire.ag

RESPONSIBLE PUBLISHER

The Executive Board of DEMIRE Deutsche Mittelstand Real Estate AG

CONCEPT AND LAYOUT FIRST RABBIT GmbH

STATUS

As at May 2019

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