Specialist Investment Properties : SIPP - Final Resultsof the year ended 31 December 26 05 2017

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 ("MAR"). With the publication of this announcement via a Regulatory Information Service ("RIS"), this inside information is now considered to be in the public domain. 26 May 2017 Specialist Investment Properties plc

(the "Company" or "SIPP")

Final Results for the year ended 31 December 2016

Specialist Investment Properties plc is pleased to announce its final results for the year to 31 December 2016.

For further information: Specialist Investment Properties plc

John Le Poidevin / Lynn Bruce / Simon Clements

[phone]

Allenby Capital Limited (Nomad and Broker to the Company)

David Worlidge / James Thomas / Liz Kirchner

[phone]

Strategic Report

We take pleasure in reporting our first set of consolidated annual results since Specialist Investment

Properties plc ("SIPP" or "the Group") began to implement its new investing policy.

The Group completed its initial fundraise in February 2016 and has spent the remainder of the year deploying the capital raised into its three identified asset classes of children's homes, supported living accommodation and short term accommodation for local authorities. Debt funding was secured during the year to increase the pool of available capital for acquisition opportunities. By the end of the year, we are pleased to report that SIPP had reached a stabilised portfolio of high yielding and profit generative assets.

It is evident that the sectors in which SIPP has chosen to operate offer strong income returns as well as the potential for future capital growth, and our Investment Adviser has identified a number of investment opportunities available in the market. The Group has, however, now used the majority of its available capital and will not be able to achieve the critical mass it could do without further raising and deployment of funds. Accordingly, SIPP sought some months ago to raise additional equity capital. This did not proceed because the small size of the company and the extent of its

investment pipeline limited the market capitalisation of the company post fund-raising which diminished the attractiveness for institutional investors (who were generally positive about the investment strategy but were looking for a larger market capitalisation).

As a suitable fundraising was not possible, the Board is now considering the best options to realise value in the Group which may include seeking shareholder approval for the cancellation of the Company's ordinary shares from trading on AIM in order to preserve shareholder value and/or a sale of the Group's assets. Details regarding the assignment of two supported living properties can be found below.

Financial Review

Following the adoption of the Group's new investing policy, SIPP conducted a placing and open offer

which raised £2.1m before costs on 23 February 2016.

The Group made its first acquisitions of two properties on 1 March 2016 and continued to add to its portfolio throughout the year. As a result, the revenue for the Group for the year does not give a steady state picture. Total annualised rent for the properties now held by the Group is £623,000.

As a consequence of the limited amount of time that the properties acquired had been held for during the year and the low yield on cash balances held for property purchases in the pipeline, the Group incurred a loss before and after taxation of £136,000 for the year. The Group had reached monthly profitability by December 2016.

The Group's balance sheet shows net assets of £2.2m, including £6.2m gross value of investment properties, £0.4m of cash and £4.3m of borrowings.

The key performance indicators of the business are considered to be investment property valuations, net assets, rental yields and profit.

Portfolio Summary

The Group's portfolio of £6.2m of investment properties at 31 December 2016 consisted of six former residential properties operating as children's homes; two supported living homes comprising twelve self-contained apartments and one three-bedroom house; and sixteen residential units providing short term accommodation to local authorities to allow them to meet their statutory obligations. The children's homes and supported living homes are leased to care operators and housing associations on long term full repairing and insuring leases with inflation adjustment for rent over the life of the lease.

The Group has acquired two further properties in its short-term accommodation portfolio subsequent to the year end at attractive indicative gross yields.

Units	Purchase price excl costs (£000s)	Passing rent (£000s)	Gross yield %
Acquired during the year
Children's homes	6	2,160	213	9.9%
Supported Living homes	15	1,468	136	9.2%
Short term accommodation	16	2,163	241	11.2%
As at 31 December 2016	37	5,791	590	10.2%

Acquired subsequent to the year end
Short term accommodation	2	262	33	12.6%
Current portfolio	39	6,053	623	10.3%

The gross rental yield for the current portfolio on purchase costs after taking account of stamp duty, legal costs and fees is 9.5% p.a.

Assignment of two supported living properties

During the year, the Group exchanged contracts for the purchase of two further supported living properties in St Helens, Merseyside and Workington, Cumbria, details of which were announced on 2 and 15 September 2016 respectively. Both of these properties were under construction at the year end. Subsequent to the year end, one of these properties has now reached practical completion, with the second expected to achieve this later this month.

In order to complete the purchases, the Group would be required to either raise additional equity as part of a larger capital raise or to draw down substantially on its debt facilities, including the bridging facility in place with Heritage Square Limited. As stated above, the Board has not been able to effect an equity raise. If the Group were to draw down solely against the available debt facilities the Board has concluded that the cost of additional debt would mean that acquiring these properties would be earnings dilutive for the Group and as such the Board has been investigating alternative options. The Board is pleased to announce that it has agreed terms for the assignment of these property purchases to Puma Social Care Investments Limited ("PSCI") in a process that will reimburse all of the Group's costs to date in relation to the two prospective purchases and reflect any increase in value since the exchange of contracts. An independent valuation of the properties was obtained by the Board which indicated that the open market value of the two properties, once developed, operating and with the agreed lease in place, net of costs, was £3,335,000. The cash consideration payable by PSCI is £121,100, which will result in the Group achieving a profit on reassignment of

£26,858 after adjusting for construction monitoring fees of £31,950 and the reimbursement of

£62,292 of legal expenses incurred by the Group.

PSCI is deemed to be a related party under Rule 13 of the AIM Rules as it is one-third owned by Shore Capital Group Limited, the majority shareholder of the Group's Investment Adviser, Puma Investment Management Limited. Another member of the Shore Capital group of companies is also a substantial shareholder in SIPP. Lynn Bruce, a director the Group, is also a director of PSCI. As a consequence, the assignment of the property purchases to PSCI is deemed to be a related party transaction under Rule 13 of the AIM Rules.

John Le Poidevin and Simon Clements, the independent directors of the Group, having consulted with the Group's nominated adviser, Allenby Capital Limited, consider that the terms of the assignment are fair and reasonable insofar as shareholders are concerned.

Principal Risks and Uncertainties

The principal risks and uncertainties of the Group, together with consideration of their management and mitigation, are presented in note 14 to the financial information.

Outlook

Having established a stabilised and cash generative portfolio, the Board is now considering the best options to realise value in the Group.

Results and dividends

The results for the financial year are set out on page 10. The Directors do not propose a final dividend.

Principal activities

The principal activity of the Group is that of owning and renting out properties in the social care sector.

Consolidated Statement of Comprehensive Income For the year ended 31 December 2016

2016	2015
Notes	£'000	£'000
Revenue	3	174	-
Administrative expenditure	(229)	(168)
Operating loss	4	(55)	(168)
Interest income	1	2
Finance costs	5	(82)	-
Loss before taxation	(136)	(166)
Taxation	6	-	-
Loss for the year and total comprehensive expense	(136)	(166)
Attributable to:
Equity holders of the parent	(136)	(166)

Non-controlling interests	-	-
(136)	(166)
Loss per share
Basic and diluted (pence)	7	(1.16)	(6.66)

All items in the above statement derive from continuing operations.

2016	2015
Notes	£'000	£'000
Non-current assets
Investment Properties	10	6,223	-
Intangible assets	2	-
6,225	-
Current assets
Trade and other receivables	11	159	8
Cash and cash equivalents	365	333
524	341
Total assets	6,749	341
Current liabilities
Trade and other payables	12	(192)	(23)
Non-current liabilities
Loans due in over one year	13	(4,295)	-
Other payables	12	(31)	-

Consolidated Statement of Financial Position As at 31 December 2016

(4,326)	-
Total liabilities	(4,518)	( 23)
Net Assets	2,231	318
Equity
Capital and Reserves
Share capital	16	2,599	2,491
Share premium	16	12,940	11,015
Retained earnings	(13,324)	(13,188)
Equity attributable to equity holders of the parent	2,215	318
Non-controlling interest	17	16	-
Total equity	2,231	318
Net Asset Value per share (restated for 2015)	18	16.62p	12.77p

Consolidated Statement of Cash Flows For the year ended 31 December 2016

2016	2015
£'000	£'000
Cash flows from operating activities
Operating loss for the year	(55)	(168)
Increase in receivables	(151)	-
Increase/(decrease) in payables	130	(2)

Net cash flows used in operating activities	(76)	(170)
Investing activities
Purchase of investment properties	(6,223)	-
Purchase of intangible assets	(2)	-
Net cash used in investing activities	(6,225)	-
Financing activities
Interest income	1	2
Finance costs	(43)	-
Net proceeds from issue of share capital	2,033	-
Issue of preference shares	47	-
New loans received	4,295	-
Net cash from financing activities	6,333	2
Net increase/(decrease) in cash and cash equivalents during the year	32	(168)
Cash and cash equivalents at beginning of period	333	501
Cash and cash equivalents at end of period	365	333

Consolidated Statement of Changes in Equity For the year ended 31 December 2016

Share capital	Share premium account	Retained earnings	Non- controlling interest	Total
£'000	£'000	£'000	£'000	£'000
At 1 January 2016	2,491	11,015	(13,188)	-	318
Total comprehensive loss for the year	-	-	(136)	-	(136)

Issue of preference shares	-	-	-	16	16
Issue of share capital	108	1,925	-	-	2,033
At 31 December 2016	2,599	12,940	(13,324)	16	2,231

Share capital	Share premium account	Retained earnings	Non- controlling interest	Total
£'000	£'000	£'000	£'000	£'000
At 1 January 2015	2,491	11,015	(13,022)	-	484
Total comprehensive loss for the year	-	-	(166)	-	(166)
At 31 December 2015	2,491	11,015	(13,188)	-	318

Notes to the accounts For the year ended 31 December 2016

1. General Information

   Specialist Investment Properties plc is incorporated in the Isle of Man under the Companies Acts 1931 to 2004. The nature of its principal activities is set out in the Directors' Report. This financial information is presented in pounds sterling because that is the currency of the primary economic environment in which the Group operates and is rounded to the nearest thousand pounds.

   The financial information set out in the announcement does not constitute the company's statutory accounts for the years ended 31 December 2016 or 2015. The annual report and financial statements for the year ended 31 December 2016 were approved by the Board of Directors on 26 May 2017 along with this preliminary announcement. The auditor's report for on the statutory accounts for the year ended 31 December 2016 and the previous auditor's report on the statutory accounts for the year ended 31 December 2015 were both unqualified.

2. Accounting Policies Basis of preparation

   This financial information is prepared in accordance with International Financial Reporting Standards as adopted by the European Union.

   Basis of accounting

   The financial information has been prepared on the historical cost basis, except for investment properties which are held at fair value. The principal accounting policies adopted in the preparation of the financial information are set out below.

   Basis of consolidation

   The consolidated financial information incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 December each year. Where the Company has control over an investee, it is classified as a subsidiary. The Company controls an investee if all three of the following elements are present; power over the subsidiary; exposure, or rights to, the variable returns from its involvement with the subsidiary; and the ability to affect those returns through its power over the subsidiary.

   Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group's equity therein. Non-controlling interests consist of the amount of those interests at the date of the original business combination and the non-controlling interest's share of changes in equity since the date of the combination.

   Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation.

   Adoption of new and revised standards

   In the current year, there were no new and revised Standards and Interpretations that were adopted.

   Standards in issue but not yet effective

   New standards and interpretations currently in issue but not effective, based on EU mandatory effective dates, for accounting periods commencing on 1 January 2016 are:

   • IFRS 15 Revenue from Contracts with Customers (EU effective date 1 January 2018)

   • IFRS 9 Financial Instruments (EU effective date 1 January 2018)

   • IFRS 16 Leases

     The directors have assessed the impact of these standards, and do not consider that there will be a material impact on the financial information.

     Going Concern

     The Group continues to adopt the going concern basis in preparing the financial information. Cash flow forecasts indicate that the Group will have sufficient resources to continue for at least twelve months from the date of signing this financial information.

     Judgements and key sources of estimation uncertainty

     In preparing this financial information, the directors have made the following judgements:

   • They have determined the fair value of the investment properties as at 31 December 2016. In reaching this fair value, they have considered the economic viability and expected future financial performance of the assets.

   • They have estimated the level of provision required for both current and deferred tax.

     Revenue recognition

     Rental income arising from operating leases on investment properties is accounted for on a straight line basis over the lease term. For leases which contain fixed or minimum deemed uplifts, the rental income is recognised on a straight line basis over the lease term. Incentives for lessees to enter into lease agreements are spread evenly over the lease terms, even if the payments are not made on such a basis. Rental income is measured at the fair value of the consideration receivable, excluding discounts, rebates, VAT and other sales taxes or duty.

     Finance Costs

     Transaction costs associated with loans are set off against the total loan balance and amortised over the term of the loan facility. Other finance costs are expensed in the period in which they occur.

     Taxation

     Income tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the Statement of Financial Position date.

     Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial information and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the Statement of Financial Position liability method. Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilized. Such assets and liabilities are not recognized if the temporary difference arises from goodwill or from the initial

     recognition of other assets and liabilities in a transaction that is not a business combination and affects neither the taxable profit nor the accounting profit.

     The carrying amount of deferred tax assets is reviewed at each Statement of Financial Position date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

     Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realized. Deferred tax is charged or credited in profit or loss for the period except when it relates to items charged or credited in other comprehensive income or directly to equity, in which case the deferred tax is also dealt with in other comprehensive income or directly in equity.

     Deferred tax arising as a consequence of investment property carried at fair value is calculated on the basis that the property will be recovered through a sale of the property in line with the Group's business model which is to generate value in the form of capital appreciation.

     Investment properties

     The Group's investment properties are held for long term investment. Investment properties are initially measured at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at fair value based on market data and a valuation made as of each reporting date. The fair value of investment property does not reflect future capital expenditure that will improve or enhance the property and does not reflect future benefits from this future expenditure.

     Gains or losses arising from changes in the fair value of investment properties are included in profit or loss in the year in which they arise.

     Investment properties are recognised for accounting purposes upon completion of contract, when the risks and rewards of ownership are transferred to the Group. Investment properties cease to be recognised when they have been disposed of. Any gains and losses arising are recognised in profit or loss during the year of disposal.

     Intangible assets

     Intangible assets purchased are measured initially at purchase cost, and then amortised on a straight line basis over their estimated useful lives.

     Financial instruments

     Financial assets and financial liabilities are recognised in the Group's Statement of Financial Position when the Group becomes a party to the contractual provisions of the instrument. The classification of the Group's financial assets and liabilities depends on their nature and purpose and is determined at the time of initial recognition.

     Financial assets

     Financial assets of the Group are all classified as 'loans and receivables'.

     Financial liabilities

     Financial liabilities are classified as 'other financial liabilities'.

     Loans and receivables

     Trade and other receivables which have fixed or determinable payments which are not quoted in an active market are classified as loans and receivables. Financial assets in this category are measured at amortised cost using the effective interest method, less any impairment.

     Other financial liabilities

     Other financial liabilities comprise bank loans, trade payables, preference shares and other short- term monetary liabilities, which are initially recognised at fair value and are subsequently carried at amortised cost using the effective interest method.

     Cash and Cash Equivalents

     Cash comprises cash in hand which may be accessed without penalty.

     Equity

     The following describes the nature and purpose of each reserve within equity:

     • 'Share capital' represents the nominal value of equity shares;

     • 'Share premium' represents the excess over nominal value of the fair value of consideration received for equity shares, net of expenses of the share issue;

     • 'Retained earnings' represents retained profits.

     • 'Non-controlling interest' represents the equity element of the B preference shares.

3. Turnover

2016	2015
£'000	£'000
Rental income	174	-

All turnover has arisen in the United Kingdom.

Certain of the Group's tenants individually contribute more than 10% of the Group's revenue. Tenants meeting this criteria contributed £104,023 and £29,491 to revenue respectively during the year.

4. Loss for the year

Loss for the year has been arrived at after charging:

2016	2015
£'000	£'000
Audit fees	28	19
Taxation services	18	-
46	19