SGM.L Regulatory News (SGM)

AIM: SGM

Sigma Capital Group plc

("Sigma" or the "Company")

Proposed £20 million Placing

for own PRS portfolio

and

Notice of General Meeting

Sigma, the PRS, residential and urban regeneration specialist, is pleased to announce that it has raised £20 million before expenses through a placing of ordinary shares by N+1 Singer (the "Placing").

The Placing is intended to allow Sigma to build its own substantial portfolio of PRS assets, leveraging the existing PRS infrastructure and relationships the Company has established over the last three years. The establishment of the Company's own portfolio of PRS assets is expected to significantly enhance returns and generate additional material long-term recurring income for the Company. The initiative complements the Company's existing PRS joint venture agreements with Gatehouse Bank plc and Grainger plc.

Sigma expects to deliver approximately £50 million of gross development cost in the first 18-24 months following the deployment of funds from the Placing (supplemented by the Company's existing and generated cash resources), utilising moderate leverage of approximately 55 percent loan to value on completed income generating assets. The initial focus will be on the development of family homes across up to eight sites, with the first sites to be delivered in the Greater Manchester and Liverpool regions. The commencement of construction is targeted for early 2016. These new rental homes are expected to produce net income in excess of £2 million per annum and an indicative £13 million of capital uplift. At the end of the development phase of these assets, the Directors intend to recycle capital and income for further development opportunities.

The Placing is conditional on shareholder approval and will be effected by the issue of 26,666,666 new ordinary shares of 1p each ("the Placing Shares") conditionally placed with existing and new institutional investors at a price of 75p per Placing Share, a discount of 6.8% to the closing price of 80.5 pence on 11 August 2015.

Graham Barnet, Chief Executive of Sigma said:

"I am delighted to announce this successful fundraising, which has been supported by new as well as existing investors. It will enable us to build our own substantial PRS portfolio, capitalising on the infrastructure and relationships we have spent the last three years putting in place for large scale PRS. We are already deploying this platform successfully with Gatehouse with the first phase of 927 PRS homes well underway. The development of our own portfolio will significantly enhance returns and generate additional material long-term recurring income.

This has been a long term aim for Sigma and the Placing marks an important step in the ongoing development of Sigma. There is an urgent need for new housing in the UK and we look forward to developing our own PRS assets as well as continuing to deliver new rental homes under our partnership model."

A circular containing a Notice of General Meeting of the Company (the "Circular"), convened for 10.00 a.m. on 2 September 2015, will today be sent to Shareholders of the Company outlining the terms of the Placing and seeking Shareholder approval to enable the Directors to allot the Placing Shares in connection with the Placing.

Enquiries

Company website: www.sigmacapital.co.uk

DISCLAIMER

N+1 Singer Advisory LLP, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting as nominated adviser and broker to the Company in connection with the matters described in this announcement. Persons receiving this announcement should note that N+1 Singer Advisory LLP will not be responsible to anyone other than the Group for providing the protections afforded to clients of N+1 Singer Advisory LLP or for advising any other person on the arrangements described in this announcement. N+1 Singer Advisory LLP has not authorised the contents of, or any part of, this announcement and no liability whatsoever is accepted by N+1 Singer Advisory LLP for the accuracy of any information or opinions contained in this announcement or for the omission of any information.

The Placing Shares will not be registered under the United States Securities Act of 1933 (as amended) or under the securities laws of any state of the United States or qualify for distribution under any of the relevant securities laws of Canada, Australia or Japan nor has any prospectus in relation to the New Ordinary Shares been lodged with or registered by the Australian Securities and Investments Commission. Accordingly, subject to certain exceptions, the New Ordinary Shares may not be, directly or indirectly, offered, sold, taken up, delivered or transferred in or into the United States, Canada, Australia or Japan. This announcement is directed and issued only to the shareholders of Sigma and their representatives and shall not be distributed to or used by any other person. Overseas shareholders and any person (including, without limitation, nominees and trustees) who have a contractual or other legal obligation to forward this announcement to a jurisdiction outside the United Kingdom should seek appropriate advice before taking any action.

Proposed Placing to raise £20 million and Notice of General Meeting

The Company today announces that it has conditionally raised £20 million by way of a placing of 26,666,666 Placing Shares at 75 pence per share.

The Placing is subject to certain conditions, as set out below, including Shareholder approval through the passing of the Resolutions at the General Meeting of the Company, to be held on 2 September 2015.

Background to and reasons for the Placing

The Company has successfully launched the first phase of its PRS joint venture with Gatehouse Bank plc. This will deliver 927 new PRS homes, with delivery currently ahead of schedule and tenant demand very strong. The Company spent three years creating the information and delivery model to support the roll-out of large scale PRS development and the extension of its deal with Gatehouse Bank plc, which is now targeting a PRS portfolio of up to 10,000 new homes with a development cost of approximately £1 billion, as announced on 3 June 2015, is expected to enable the Company to accelerate a large scale roll-out.

It has always been part of the Company's strategy to build a proprietary portfolio of PRS assets thereby capitalising on the substantial existing infrastructure and partnerships which the Company has put in place for large scale PRS delivery.

The Company's PRS model is expected to bring predictable, long-term income to the business and provide access to an asset class where the Company can develop assets at a discount to current values. This is as a consequence of the speed of delivery of assets through the infrastructure for large scale PRS which Sigma has created, and its relationships with Local Authorities and house builders which it has put in place over the last few years. Sigma will also benefit from the ability to operate sites under its own parameters and be able to respond rapidly to opportunities alongside its national house builder and letting partners.

The Placing is expected to enable the Company to create a substantial and secure asset base which will significantly enhance returns and generate material, long-term recurring income.

The Directors believe that the deployment of the net proceeds from the Placing (supplemented by the Company's existing and generated cash resources) could generate an equity levered IRR of over 20 percent and an underlying stabilised return on equity in the low to mid-teens.

Sigma's PRS approach also contains a number of risk mitigation initiatives intended to enhance the long term success of the PRS model and support the development of the Company's own assets. These include the construction of properties at a discount to open market value and initial rents which are similar to nearby second hand properties. The Directors believe that the construction of the Company's own portfolio is complementary to the much larger scale of developments that it will construct and manage for its partners.

Use of proceeds

The Directors intend that the net proceeds of the Placing of approximately £19.1 million (supplemented by the Company's existing and generated cash resources) will be used to fund the building of the Company's own PRS assets.

The Company expects to deliver approximately £50 million of GDC in the first 18-24 months following the deployment of funds, utilising moderate leverage of approximately 55 percent loan to value on completed income generating assets. The initial focus will be on the development of family homes across up to eight sites, with the first sites to be delivered in the Greater Manchester and Liverpool regions. The commencement of construction is targeted for early 2016. These new rental homes are expected to produce net income in excess of £2 million per annum and an indicative £13 million of capital uplift.

Furthermore, at the end of the development phase for these assets, the Directors intend to recycle capital and income for further development opportunities.

Current Trading and Prospects

On 12 August 2015 the Company announced its interim report for the six months ended 30 June 2015.

Financial Highlights:

Revenue generated in the six months to 30 June 2015 was £1.0 million (2014: £1.8 million including £0.61 million from the North Arran Way Development).

Gross profit for the period was £1.0 million (2014: £1.2 million).

The loss before tax for the period was £0.4 million (2014: loss of £0.2 million) and the loss per share was 0.67p (2014: 0.38p).

Net assets per share at 30 June 2015 stood at 16.7p (2014: 16.8p). Cash balances at the same date were £5.0 million (2014: £9.2 million).

Outlook:

The Company has made encouraging progress in the first half, with delivery of the first phase of its Joint Venture with Gatehouse ahead of schedule and a new relationship with Sheffield Housing Company Limited demonstrating the geographic expansion of our model. The planned funding of our own PRS sites marks another significant step in the development of the business, enabling the Company to create a substantial and secure asset base which will significantly enhance returns and generate material long term recurring income. When aligned to the supportive macro-economic and political drivers underpinning the growth of the PRS sector, the Board views the future with confidence.  

A full version of the interim report will be made available on the Company's website, www.sigmacapital.co.uk.

Details of the Placing

The Company has conditionally raised approximately £19.1 million (net of expenses) through the issue of the Placing Shares at the Placing Price, which represents a discount of 6.8 per cent. to the closing middle market price of 80.5p per Ordinary Share on 11 August 2015, being the latest dealing day prior to the publication of the Circular. The Placing Shares will represent approximately 30.1 per cent. of the Company's issued Ordinary Share capital immediately following Admission.

The Placing Agreement

Pursuant to the terms of the Placing Agreement, N+1 Singer has conditionally agreed to use its reasonable endeavours, as agent for the Company, to place the Placing Shares with certain institutional investors. The Placing has not been underwritten by N+1 Singer. The Placing Agreement is conditional upon, inter alia, the Resolutions being duly passed at the General Meeting and Admission becoming effective on or before 8.00 a.m. on 3 September 2015 (or such later time and/or date as the Company and N+1 Singer may agree, but in any event by no later than 8.00 a.m. on 17 September 2015).

The Placing Agreement contains warranties from the Company in favour of N+1 Singer in relation to, inter alia, the accuracy of the information in the Circular and other matters relating to the Company and its business. In addition, the Company has agreed to indemnify N+1 Singer in relation to certain liabilities it may incur in respect of the Placing. N+1 Singer has the right to terminate the Placing Agreement in certain circumstances prior to Admission, in particular, in the event of a material breach of the warranties given to N+1 Singer in the Placing Agreement, the failure of the Company to comply in any material respect with its obligations under the Placing Agreement, the occurrence of a force majeure event or a material adverse change affecting the condition, or the earnings or business affairs or prospects of the Company as a whole, whether or not arising in the usual course of business.

Settlement and dealings

Application will be made to the London Stock Exchange for the Placing Shares to be admitted to trading on AIM. It is expected that Admission will become effective and dealings will commence on 3 September 2015.

The Placing Shares will, when issued, rank pari passu in all respects with the Existing Ordinary Shares including the right to receive dividends and other distributions declared following Admission.

Related Party Transaction

Henderson Global Investors, a substantial shareholder in the Company (as defined by the AIM Rules) is investing £4.0 million in the Placing. Henderson Global Investors' participation in the Placing is deemed to be a related party transaction under the AIM Rules.

The Directors consider, having consulted with the Company's nominated adviser, N+1 Singer, that the terms of Henderson Global Investors' participation in the Placing is fair and reasonable insofar as the Company's Shareholders are concerned.

Resolutions

At the General Meeting the Shareholders will be asked to authorise the allotment of shares in the capital of the Company without the operation or application of the pre-emption provisions contained in the Companies Act 2006, all for the purpose of enabling the Company to place new Ordinary Shares in the capital of the Company pursuant to the Placing.

Recommendation and voting intentions

The Directors consider that the passing of the Resolutions is in the best interests of the Company and Shareholders as a whole. Accordingly, the Directors unanimously recommend Shareholders to vote in favour of the Resolutions, as they intend to do in respect of their own interests amounting to 9,600,460 Ordinary Shares (representing approximately 15.53 per cent., in aggregate, of the Existing Ordinary Shares).

PLACING STATISTICS

EXPECTED TIMETABLE OF PRINCIPAL EVENTS

DEFINITIONS

The following definitions apply throughout this announcement, the Circular and in the Form of Proxy, unless the context requires otherwise: