Specialist Investment Properties : Announcement of Interim Results

2 August 2016 Specialist Investment Properties Plc

("SIPP", the "Group", or the "Company")

Interim results for the six months ended 30 June 2016 Highlights

• SIPP has started implementing its new strategy of investing in properties in the social care sector generating attractive yields;

• An initial equity fund-raising of £2.1m completed in February 2016;

• Five properties acquired before 30 June 2016 for a total cost of £1.6m, a further one following the period end;

• Initial gross rental yield of portfolio to date is 9.1% p.a.;

• All completed and pipeline acquisitions are in the social care sector, which offers high yields and rents indirectly funded by the public purse, making them defensive investments with good prospects of growth;

• Loan facilities were put in place which, with the initial equity, gave finance for property acquisitions of up to c£6.5m;

• The Board has approved in principle further purchases for which exclusivity agreements have been agreed which would commit all of SIPP's remaining available funding;

• Further acquisitions beyond the resources available to the Company at the period end have been identified and additional borrowing facilities of £5.7m have therefore been agreed to enable these to be funded pending a further equity fund-raising.

John Le Poidevin, Director of SIPP, said:

"Having established a solid platform for executing its initial investment strategy, the Board believes that the Company has made very good progress to date. Completing the pipeline it has in legal process and the additional deals identified will transform SIPP's outlook and make it a high yielding investment for its shareholders with both strong defensive characteristics and good prospects for capital growth".

For further information:

Specialist Investment Properties plc Lynn Bruce

[phone]

1

Puma Investment Management Limited (Investment Adviser to the Company) David Kaye

[phone]

Allenby Capital Limited (Nomad and Broker to the Company) David Worlidge / James Thomas / Liz Kirchner

[phone]

Notes to Editors

The Company's shares are admitted to trading on AIM and it is registered in the Isle of Man with company number 111066C.

In September 2015 the Company adopted a new investing policy to become an investment property company acquiring and holding freehold properties (and, in rare cases, long lease- hold properties) in specialised sectors of the property market. The initial focus is investing in residential properties to accommodate children and young people requiring extensive support from social services, and purpose-built homes for adults with learning difficulties requiring support from carers (for example adults with autism). More recently the Company is considering investment in residential properties that provide short term accommodation to local authorities to meet their obligations. The new Investing Policy for the Company also allows it to invest in other specialist areas such as wedding and conference centres, other leisure facilities and, if sufficiently non-mainstream, residential or commercial property.

Introduction

We take pleasure in reporting our first set of interim results since the Company began to implement its new strategy. We are pleased to report very good progress in building a portfolio of social care properties, a sector offering high yields with rents supported by the public purse. This should enable us to offer our shareholders a sustainable income stream and prospects of capital growth.

Financial Results

Following the adoption of the Company's new strategy, SIPP conducted a placing and open offer which raised £2.1m before costs on 23 February 2016.

The Company made its first acquisitions of two properties on 1 March 2016 and a further three properties were acquired later in the period. As a result, the revenue for the Company for the six months ended 30 June 2016 does not give a steady state picture. Total annualised rent for the six properties now held is £184,500.

As a consequence of the limited amount of time that the properties acquired have been held for and the low yield on cash balances held for property purchases in the pipeline, the Company incurred a loss before and after taxation of £57,000 for the six months to 30 June 2016. The Company's balance sheet shows net assets of £2.3m, of which some £1.7m was held in cash at the balance sheet date. Borrowings taken out to fund property purchases were £1.0m at 30 June 2016.

The Company held £1.7m of investment properties at 30 June 2016, consisting of four former residential properties operating as children's homes and one as a supported living home. These are leased to care operators on long term full repairing and insuring leases with inflation adjustment for rent over the life of the lease.

Property Acquisitions

The Company acquired five properties in the period between completing its fundraising and 30 June 2016. It acquired a sixth property on 8 July 2016. All of the properties are let on full repairing and insuring leases with a term of 25 years. Rent increases are indexed to inflation.

Two of the properties, both acquired on 1 March 2016, are in the North West of England, one in the Manchester area and one in Rochdale. The other four properties are in the West Midlands, mostly in the suburbs of Birmingham.

The following table gives details of the purchase prices and initial yields:

Property Acquisitions to Date

Purchase price £000s	Annual Rent £000s	Initial gross rental yield on purchase %
Acquired by 30 June 2016
4 children's homes and 1 supported living home	1,503	147	9.7
Acquired in July 2016
1 children's home	385	38	9.9
Total purchases to date	1,888	185	9.8

The initial gross rental yield for the six properties on purchase costs after taking account of stamp duty, legal costs and fees is 9.1% p.a.

Property Acquisitions Pipeline

The Company's Investment Adviser, Puma Investment Management Limited ("Puma Investments"), has identified a number of properties for acquisition which the Board has approved for purchase subject to satisfactory due diligence. Exclusivity arrangements have been entered into with the vendors and the acquisitions are now in legal process.

These potential acquisitions are mostly of larger buildings divided into individual flats primarily for those with physical or mental difficulties. Some are completed, others are in construction. The intention is to acquire these properties with a long term full repairing and insuring lease in place to a care operator or housing association. If the potential acquisitions in the pipeline are all acquired, it would commit the entire residual funding currently available to the Company after allowing for a modest working capital buffer.

The Investment Adviser has also identified further acquisitions which are available to be made but which would require more finance than the Company currently has available. The Board has discussed these opportunities and considers that it would be advantageous also to proceed with these additional investments, The Board has therefore discussed with its lender, Heritage Square Limited ("Heritage Square"), a new framework agreement under which the Company can draw down additional bridging loans, up to a maximum of £2.5m, to enable the Company to borrow up to 90% of the lower of the acquisition price and the market value of a property ("the new framework agreement"). Further details of this facility are set out below.

The additional projects are currently in construction or about to begin construction and would not be completed before the end of 2016 at the earliest. The extra facility from Heritage Square would enable SIPP to exchange contracts to buy these projects on full completion of construction as attested by an independent monitoring surveyor. Simultaneously at exchange, an agreement for lease would be signed with an appropriate tenant, typically a housing association. The new framework agreement would give the Board confidence that it has the finance to buy the projects at practical completion in 2017. The Company is currently reviewing its options for raising additional equity finance prior to