KFM Deutsche Mittelstand AG: KFM SME Bond Barometer - The "6.50%-VERIANOS Real Estate AG Bond" (update)

6.50%-VERIANOS Real Estate AG bond still rated as "attractive (positive outlook)"

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Düsseldorf (pta015/26.02.2020/11:20 UTC+1) In its current KFM SME Bond Barometer on the 6.50% VERIANOS Bond (WKN A2G8VP) KFM Deutsche Mittelstand AG concludes that it continues to rate the bond as "attractive (positive outlook)" (4.5 of 5 possible stars).

VERIANOS Real Estate AG, founded in 2011 and headquartered in Cologne with offices in Frankfurt/Main, Madrid, Milan and Valencia, is a listed real estate investment and consulting company focusing on real estate assets in the small and mid cap segment (EUR 2 to 30 million per asset). VERIANOS essentially initiates and manages real estate funds with a co-investment of approx. 20%. The funds are distributed by the in-house VERIANOS Capital Partners GmbH as an approved BaFin-regulated "large" alternative investment fund management company (KVG/AIFM). In addition to management and letting, it is also responsible for property selection and investment decisions of the funds. As a value investor, the target is to acquire properties with potential for value creation, to optimise them through repositioning and transformation with its in-house interdisciplinary team of experts, and then to realise the added value through sale, so that an IRR of 15% in the "base scenario" is achieved without speculating on market developments. Most of the real estate funds, which have terms of 7 to 12 years, may reinvest the released funds. Partial distributions of realised profits during the term of the funds are made regularly. With its business model, VERIANOS generates not only ongoing investment management fees but also additional fees in connection with the acquisition, disposal and refurbishment of assets. A particular strength lies in the combination of analysis, structuring, and implementation expertise in complex real estate projects such as district developments (e.g. a residential area in the former fishing district "El Cabanyal" in Valencia). In addition, VERIANOS through one of its subsidiaries also advises family offices and other institutional investors on individual transactions and restructurings. In the near future, VERIANOS will act less as an arranger of club deals. Since being regulated by the BaFin as a "large" KVG/AIFM, the focus is increasingly on the management of larger funds in order to generate increasing profit contributions and steady cash flows due to higher economies of scale. The investor base is planned to further expand internationally. The renowned Swiss private bank Banca del Ceresio SA (Lugano) participated in the recently completed capital increase as a new strategic investor (6% stake). The proceeds will be used to finance future growth of the company. The company is to be converted into the legal form of a Societas Europaea (SE) in 2020 in order to obtain an international management structure to reflect the increased operational requirements as a fully regulated "AIF Manager" with a monistic board of directors.

Unchanged high equity ratio and solid key figures
For the first half of 2019, the company achieved a consolidated net loss of EUR -1.78 million (previous year period: EUR -1.85 million) after taking into account the costs for strategic developments. The negative operating results in the transition years 2018 and 2019 were influenced by an increased allocation of resources in the context of the future BaFin regulatory requirements due to the approval as a "large" KVG/AIFM and the resulting need to create corresponding internal structures, processes and procedures. In addition, fundraising took longer than initially planned due to more complex fund strategies. As a result, equity decreased to EUR 15.3 million (previous year: EUR 17.1 million) but the equity ratio is still comfortably equipped with 53.6% as of June 30, 2019. It should also be noted that VERIANOS prepares its financial statements on the basis of the German Commercial Code (HGB) and that hidden reserves are not visible. For 2019, the company is planning to realise earnings after tax (EAT) of EUR 0.8 to 1.2 million.

In addition to investments in Germany, the company is increasingly focusing on the Spanish real estate market, as in the company's opinion this market still has sufficient price potential after years of decline and a much more heterogeneous market development compared to Germany. Here, the portfolio of residential properties in Valencia is being further expanded and investments in residential and commercial real estate are being examined. A capital increase in the final closing of EUR 25 million increased the Valencia Fund's target real estate volume to approximately EUR 120 million. Annual real estate prices rose by more than six percent in Spain in the third quarter of 2019. In particular, properties in major cities such as Madrid, Valencia or in tourism regions such as the Balearic Islands have seen up to double-digit price increases. Following approval by the BaFin, the Rheinland Fund (SMC 3) with a target real estate volume of approx. EUR 70 million is also characterized by residential property and is currently in the investment phase.

With BaFin's approval as a so-called "large alternative investment fund management company (KVG/AIFM)" pursuant to § 22 KAGB in October 2018, the company can now offer structured real estate products of any size. The "VERIANOS European Real Estate Opportunities Fund (VEREOF)" with a target real estate volume of up to EUR 200 million is waiting in the wings. With an equity volume of approx. EUR 25 million it is expected to start the first call in the first quarter of 2020. The approval of the company's "VERIANOS Real Estate Mezzanine Fund I (VREMF1)" by the Luxembourg Financial Supervisory Authority (CSSF) with a target volume of EUR 100 million and an expected closing this year have created the conditions for the sale of this "Debt Fund" in which the company hopes to achieve synergies in transaction acquisition with existing funds. A large German insurance group has already been obtained as an anchor investor. After the successful implementation of the strategic development, VERIANOS plans to achieve with existing and new investment products from 2020 onwards a significantly higher transaction volume and thus increasing profits. This would allow the existing tax loss carryforwards from the reverse IPO with Real^2 Immobilien AG to be used to reduce tax liabilities. In addition, existing investment vehicles in the Cologne/Bonn area are scheduled to realise divestments in the coming months which should also lead to increased earnings.

6.50%-VERIANOS Real Estate AG Bond with Security Concept for Bondholders
The VERIANOS Real Estate AG corporate bond issued in May 2018 has a term of five years (until April 30, 2023) and a coupon of 6.50% p.a. (annual interest date on May 1). As part of the issue, up to EUR 6 million with a denomination of EUR 100,000 will be placed. The proceeds from the issue will be used for new real estate projects. The bondholders are secured by collateral and a control of the use of funds. An independent trustee monitors the provision of collateral and the use of funds. The issuer is entitled to cancel the bonds in whole or in part by giving at least 30 days' notice at their nominal value plus accrued interest until the redemption date and an early repayment penalty. In relation to the respective nominal amount to be repaid (subtracting amounts already repaid), the early repayment penalty is 1.00% before May 1, 2020, 0.50% before May 1, 2022 and 0.25% before May 1, 2023. The bond is listed on the open market of the Frankfurt Stock Exchange.

Conclusion: Attractive valuation with positive outlook
With its admission as a "large" alternative investment fund management company, the issuer has taken a significant step towards sustainable growth. With its new fund products and its excellent network, VERIANOS is also expanding its investor network internationally. Combined with the focus on advisory services for transactions of family offices and other third parties, this opens up an interesting future. Last but not least, against the background of the comfortable equity ratio of 53.6% in conjunction with the return of 6.31% p.a. (price basis 100.50% on February 25, 2020) we continue to rate the 6.50% VERIANOS Real Estate Bond 18/23 (WKN A2G8VP) as "attractive (positive outlook)" (4.5 out of 5 possible stars).

About KFM Deutsche Mittelstand AG
KFM Deutsche Mittelstand AG is an expert for SME bonds and initiator of the German SME Bond FONDS (WKN A1W5T2). The fund offers private and institutional investors an attractive return combined with a broad diversification of investments. The fund's investment strategy is based on the results of the KFM-Scoring analysis process developed by KFM Deutsche Mittelstand AG. The Deutsche Mittelstandsanleihen FONDS distributes its income annually to its investors. Since the fund was launched, the annual distribution yield has exceeded 4% p.a. in relation to the respective unit price at the beginning of the year. In the current year, investors will also benefit from the performance of the fund and the associated planned dividend yield in the same amount as in previous years. The fund is rated 5 out of 5 stars by Morningstar. KFM Deutsche Mittelstand AG was awarded the Grand Prize of Medium-sized Companies 2016 for the analysis method KFM-Scoring and the above-average development of the German Mittelstandsanleihen FONDS. According to GBC Research, the German SME Bond FONDS is one of the hidden champions. From a total of 9,000 mutual funds audited by the GBC, the Deutsche Mittelstandsanleihen FONDS occupies one of the 9 top places. KFM was awarded the Transparent Bull 2020 by Rödl & Partner and Finanzen Verlag for its investor-friendly transparency and information policy.

Important Information
This press release is neither an offer nor a request to make an offer but is merely provided as an overview and description of possible business activities. The information contained in this document does not have to be complete and is therefore non-binding. To the extent that this document contains statements on prices, interest rates or other indicators, these refer only to the time of the publication of this document and contain no statement or forecast on future developments, particularly not regarding future profits or losses. This document does moreover not constitute an advice or recommendation. Important advice: dealings in securities are connected with risks, particularly the risk of a total loss of invested capital. You should therefore seek personal advice before taking any investment decision, taking into account your personal asset and investment situation and not base your investment decision solely on this press release. Please contact your bank or financial advisor for this purpose. The permissibility to buy a security can be subject to certain conditions, in particular your nationality. Please also seek respective advice before making an investment decision. Deutscher Mittelstandsanleihen FONDS is at the time of publication of this document invested in the stated security and has subscribed to it within the framework of the current issue. KFM Deutsche Mittelstand AG, the producer of this document or individuals who participated in the production of this document hold units of Deutscher Mittelstandsanleihen FONDS. Changes in the price of the bond can result in financial advantages for KFM Deutsche Mittelstand AG, the producer of this document or individuals who participated in the production of this document. Before participating in a business activity described in this document it is in any case necessary to seek client- and product-specific advice from your advisor. Extensive product related information is contained in our complete prospectus, the essential information for investors and the annual and, if applicable, semi-annual reports. These documents constitute the solely binding basis for the purchase of fund units. They are available free of charge at the administrative company (FINEXIS S.A., 25A, boulevard Royal L-2449 Luxembourg) and the custodian bank (Joh. Berenberg, Gossler & Co. KG Luxembourg branch, 46, Place Guillaume II, L-1648 Luxembourg or Joh. Berenberg, Gossler & Co. KG, Neuer Jungfernstieg 20, 20354 Hamburg or at Erste Bank der österreichischen Sparkassen AG, Graben 21, A-1010 Wien) and on the homepage of Deutscher Mittelstandsanleihen FONDS dma-fonds.de. The administrative company and KFM Deutsche Mittelstand AG assume no liability for damages that result or have resulted from the use and / or distribution of this document.

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The KFM SME Bond Barometer is written in the German language and provided with an English language translation. The German version shall be the only legally binding version. The English translation is for convenience only.

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Emitter:	KFM Deutsche Mittelstand AG Rathausufer 10 40213 Düsseldorf Germany
Contact Person:	Hans-Jürgen Friedrich
Phone:	+49 211 21073741
E-Mail:	hj.friedrich@kfmag.de
Website:	www.kfmag.de
ISIN(s):	LU0974225590 (Fonds)
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