Proposed REIT Conversion

Highcroft Investments PLC
25 February 2008


              HIGHCROFT INVESTMENTS PLC ('Highcroft Investments')

             Proposed Conversion to a Real Estate Investment Trust

Introduction

The Highcroft directors were disappointed that the proposal to amend the
Articles to permit conversion to a REIT was not successful at the EGM held on 13
December 2007. The Board remains convinced of the merits of a REIT conversion as
announced after the EGM on 13 December 2007. Accordingly, the Company is today
posting a new circular to shareholders providing details, inter alia, on the
background to and reasons for the proposed conversion. Shareholder approval is
required for the proposed conversion and the circular also contains details of
an Extraordinary General Meeting that will be held on 19 March 2008.

Background to our proposed REIT conversion

The history of our announcements on this proposal is:

•        21 March 2007: The Board was researching the practical steps needed to
switch our status to a REIT.

•        23 May 2007: The Board had been notified that Kingerlee Holdings
Limited had received advice, on which it intended to act, which enabled
Highcroft to convert to a REIT notwithstanding the fact that ownership of more
than 10 per cent. of the company's share capital would ordinarily be an obstacle
to REITs conversion.

•        13 November 2007: The Board sent a circular to Shareholders proposing
amendments to the Articles that would allow the Company to convert to a REIT and
stating why the Board believes the conversion of the Company to a REIT was in
the best interests of Shareholders as a whole.

•        13 December 2007: The Board announced that the conversion to a REIT was
not possible at that time. Having previously encouraged the proposed conversion
to a REIT, Mr DG and MB Conn and associates, representing 18 per cent. of those
entitled to vote at a general meeting of the Company voted against the
resolution proposed at the EGM held on 13 December 2007. Therefore the Articles
of the Company could not be amended preventing the proposed conversion of the
Company to a REIT from 1 January 2008.

The Board is now proposing to convert the Group into a REIT with effect from 1
April 2008 in order to benefit from the provisions contained in Part 4 of the
Finance Act 2006 and the related regulations made thereunder (the ''REIT
Regime''). The Company has again received confirmation from HMRC that, on the
basis of information supplied, the Group will be able to convert to REIT status,
subject only to Shareholders' approval of the Resolution.

The amendments proposed to be made to the Articles are required for the Group to
be confident that it will not incur a special charge to tax that can arise under
the REIT Regime. If these amendments are not approved by Shareholders, the Board
will not be able to convert the Group into a REIT. Your attention is drawn to
the description of the proposed amendments to the Company's Articles set out in
Part 4 of this circular and to the resolution in the Notice convening the EGM.

By converting to a REIT, the Group will no longer pay UK direct tax on the
profits and gains from its qualifying property rental businesses in the UK
provided that it meets certain conditions. Non-qualifying profits and gains of
the Group will continue to be subject to corporation tax.

Kingerlee Holdings Limited ('Kingerlee') currently holds 25.32 per cent. of the
issued share capital of Highcroft Investments Plc. Highcroft Investments Plc has
received a notification from Kingerlee that it will support the conversion of
the Group to a REIT and take action to facilitate its progress. However, it must
be noted that were Kingerlee to vote against the proposed amendments to the
Articles the conversion of the Group to a REIT would be blocked, resulting in
Highcroft Investments continuing its current legal and taxation status.

On entering the REIT Regime, each UK resident company that is a member of the
Group and carries on a qualifying property rental business in the UK or overseas
and any non-UK resident member of the Group that carries on a qualifying
property rental business in the UK will be subject to an entry tax charge equal
to 2 per cent. of the market value of the gross assets of the property rental
business immediately prior to entry into the REIT Regime. Although the exact
amount of this charge cannot be known until the gross asset value of the Group's
property rental business immediately prior to entry into the REIT Regime is
established, the Board estimate (based on the unaudited consolidated interim
results of the Group for the six months ended 30 June 2007) that the charge
could be approximately £800,000.

If the Group converts to a REIT it will be required to distribute to
Shareholders (by way of dividend) at least 90 per cent. of the income profits of
the UK-resident members of the Group in respect of their Tax-Exempt Business (as
defined in Part 2 of this circular) and of the non-UK resident members of the
Group in respect of their UK qualifying property rental business. The
distribution must be made on or before the filing date for the REITs tax return
for the accounting period in question. Income profits for those purposes are to
be calculated, broadly, in accordance with normal tax rules.

Under the REIT Regime, a tax charge may be levied if the Company makes a
distribution to a company which:

•        is beneficially entitled (directly or indirectly) to 10 per cent. or
more of the shares or dividends of the Company; or

•        controls (directly or indirectly) 10 per cent. or more of the voting
rights of the Company

unless the Company has taken ''reasonable steps'' to avoid such a distribution
being paid. Under the REIT Regime, a tax charge may be levied on the Company if
it makes a distribution to a person (which is, broadly, defined as a company)
which is beneficially entitled (directly or indirectly) to 10 per cent. or more
of the Shares or dividends of Highcroft Investments or controls (directly or
indirectly) 10 per cent. or more of the voting rights of Highcroft Investments.
If, however, the Company has taken 'reasonable steps' to prevent the possibility
of such a distribution being made, then this tax charge should not arise.

Proposed amendments to the Articles

The proposed amendments to the Articles are intended to give the Board the
powers it needs to demonstrate to HMRC that such 'reasonable steps' have been
taken. The Board considers these proposals to be consistent with the current
draft HMRC guidance on what constitutes 'reasonable steps'.

If adopted the amendments to the Articles

•        provide the Directors with power to identify Substantial Shareholders
(that is a holder of Shares which entitle the holder, directly or indirectly, to
10 per cent. or more of the Shares, dividends or voting control of the Company).
This is necessary as a Substantial Shareholder could cause a member of the Group
to be liable to pay tax under regulation 10 of the Real Estate Investment Trusts
(Breach of Conditions) Regulations 2006.

•        prohibit the payment of dividends on Shares that form part of a
Substantial Shareholding, unless the Board is satisfied that the Substantial
Shareholder is not beneficially entitled to the dividends. A dividend payment
withheld in these circumstances will be paid subsequently if the Board is
satisfied that, at the time it is paid

-        the Substantial Shareholder concerned is not beneficially entitled to
the dividend, or

-        the shareholding is not part of a Substantial Shareholding, or

-        all or some of the Shares (and the right to the dividends) have been
transferred to a person who is not (and does not become) a Substantial
Shareholder, or

-        sufficient Shares have been transferred (together with the right to the
dividends) such that the Shares retained are no longer part of a Substantial
Shareholding (in which case the dividend will be paid on the retained Shares),
or

•        allow payment of a dividend on Shares that form part of a Substantial
Shareholding if the Board is satisfied (having received a certificate containing
appropriate confirmations and assurances from the Substantial Shareholder) that
the Shareholder has disposed of his rights to dividends on such Shares to a
person who is not (and does not become) a Substantial Shareholder, or

•        seek to ensure that, if a dividend is paid on Shares that form part of
a Substantial Shareholding and that arrangements for the disposal of such rights
to a dividends on such Shares to a person who is not (and does not become) a
Substantial Shareholder are not in place, the Substantial Shareholder does not
become beneficially entitled to the dividend.

The proposed Resolution at the EGM if passed as a Special Resolution will amend
the Articles by the insertion of the following as new Articles 180-186
immediately following Article 179. Subject to approval at the EGM of the changes
to the Articles the Company will give notice to HMRC under section 109 of the
Finance Act 2006 and will convert into a REIT with effect from 1 April 2008. A
description of the proposed amendments to the Articles can be found in Part 4 of
this circular and the text of the proposed amendments to the Articles is set out
in the Notice of EGM.

Implications of REIT status for the Group

The principal implications for the Group of conversion into a REIT are:

•        Provided the conditions for being a REIT continue to be met, Group
companies with a qualifying property rental business will no longer pay UK
direct taxes on their income and capital gains from their qualifying property
rental business.

•        Each company in the Group that carries on a qualifying property rental
business will become liable to pay the entry charge, as described below.

•        It will be necessary to manage the Group and its businesses so as to
ensure that it will continue to meet the specified conditions for the REIT
Regime, in particular:

-    the 90 per cent. distribution test

-    the ''balance of business'' tests, being

•        the 75 per cent. profits test, and

•        the 75 per cent. assets test.

Each of these tests is discussed below and in Part 2 of this circular.

The Board believes that the Group currently meets the conditions for conversion
to a REIT. The Board also believes that compliance with the continuing
conditions and the other conditions described in Part 2 of this circular will
not materially affect the management, operations or financing of the Group in
the future.

Impact on net assets

Conversion to REIT status will have an impact on the balance sheet and net
assets of the Group. The principal impact arising on conversion to a REIT will
be:

•        the liability to pay the 2 per cent. entry charge; and

•        the release of deferred tax provided in respect of the Tax-Exempt
Business of the Group, including that provided on portfolio revaluations.

The actual entry charge, which will be payable by instalments on 14 July 2008,
14 October 2008, 14 January 2009 and 14 April 2009 (if conversion occurs on 1
April 2008), will depend on the market value of qualifying property rental
assets at the date of conversion. For the purpose of calculating the entry
charge, the Board intends to undertake a valuation of the relevant Group assets
as at 31 March 2008, being the last day of the Group's current financial year.

If the Group had converted into a REIT on 1 July 2007, the estimated impact on
the balance sheet and net assets of the Group as at that date would have been as
set out in the table below. The table is based on the unaudited consolidated
balance sheet and net asset position of Highcroft Investments as at 30 June 2007
and is set out to illustrate the effect on the Group of converting into a REIT
as if conversion had occurred as at 1 July 2007. It has been prepared for
illustrative purposes only and does not represent the actual effect on the
financial position of the Group that conversion to a REIT on 1 April 2008 will
have.


                                                                      Net assets attributable to
                                                                             Shareholders

                                                                            Total      per share
                                                                            £'000          (p)

Net assets as at 30 June 2007(1)                                           43,785              847
Estimated Entry Charge(2)                                                   (801)             (16)
                                                                           42,984              831
Release of deferred tax attributable to Tax-Exempt Business(3)              1,954               38

Pro forma net                                                              44,938              869
assets post-REIT conversion



Notes

1.         Net assets as at 30 June 2007 have been extracted without adjustment
from the unaudited consolidated interim results of the Group for the six months
ended 30 June 2007 (as announced on 6 August 2007).

2.         The actual entry charge payable on conversion will depend, inter
alia, on the market value of the Group's property rental assets immediately
before conversion.

3.         The actual deferred tax released will depend on the computation of
that liability as at conversion.

Balance of business tests

Based on the Group's financial results for the financial year ended 31 December
2006 and the six months ended 30 June 2007, had the relevant 75 per cent.
profits test and the 75 per cent. assets test as at, and for the periods ended
on, those dates, been performed the result of those tests for the Group would
have been approximately as set out in the tables below. The tables are based on
the unaudited consolidated interim results of the Group for the six months ended
30 June 2007, the unaudited consolidated balance sheet of the Group as at 30
June 2007, the consolidated financial statements of the Group for the year ended
31 December 2006 and the consolidated balance sheet of the Group as at 31
December 2006. They have been prepared for illustrative purposes only and,
because of their nature, address a hypothetical situation and therefore do not
represent the actual financial position or results of the Group.


                       Six months ended 30 June  2007 (1)                 Year ended 31 December 2006(1)
75% Profit Test

                     Tax Exempt        Residual       Total      Tax Exempt        Residual       Total
                 Business £'000        Business       £'000        Business        Business       £'000
                                          £'000                       £'000           £'000

Group Revenue             1,055             168       1,223           2,038             489       2,527
Costs                       111              71         182             263             121         384

Operating Profit            944              97       1,041           1,775             368       2,143
Interest Expense            185               2         187             278               1         279
Interest Income               2              50          52               3              89          92

Profit before tax           761             145         906           1,500             456       1,956

Balance of               84.00%          16.00%     100.00%          76.69%          23.31%     100.00%
business - 75%
Profits test (3)


1.         Revenue, costs and other figures set out above have been extracted
without adjustment from (i) the unaudited consolidated interim results of the
Group for the six months ended 30 June 2007 (as announced on 6 August 2007), and
(ii) the consolidated financial statements of the Group for the year ended 31
December 2006.

2.         Group interest expense has been allocated across the Tax-Exempt
Business and the Residual Business in line with the REIT regulations.

3.         The proportion of the Group's Tax-Exempt Business and Residual
Business has been estimated based on the results and financial statements
referred to in footnote 1 above in accordance with the provisions of the REIT
regulations. It should be noted that the Group did not prepare its financial
statements as at the relevant dates for the purpose of assessing its Tax-Exempt
Business and Residual Businesses. The figures therefore represent an estimate of
the balance of business of the Group and the actual balance of business as at
those dates may have differed from those shown in the table.


                      Tax Exempt       Residual       Total     Tax Exempt       Residual        Total
                        Business       Business       £'000       Business       Business        £'000
                           £'000          £'000                      £'000          £'000
Total Assets(1)           40,051         11,953      52,004         42,057         11,994       54,051
Balance of business       77.02%         22.98%     100.00%         77.81%         22.19%      100.00%
- 75% assets test (2)


Notes

1.         Total assets have been extracted without adjustment from (i) the
unaudited consolidated balance sheet of the Group as at 30 June 2007 (as
announced on 6 August 2007) and (ii) the consolidated balance sheet of the Group
as at 31 December 2006.

2.         The proportion of the Group's Tax-Exempt Business and Residual
Business has been estimated based on the results and financial statements
referred to in footnote 1 above in accordance with the provisions of the REIT
regulations. It should be noted that the Group did not prepare its financial
statements as at the relevant dates for the purpose of assessing its Tax-Exempt
Business and Residual Business. The figures therefore represent an estimate of
the balance of business of the Group and the actual balance of business as at
those dates may have differed from those shown in the table.

Based on the financial position of the Group as at 30 June 2007, and for the six
month period ended 30 June 2007, and as at 31 December 2006, and for the year
ended 31 December 2006, the Group would have met both the 75 per cent. profits
test and the 75 per cent. assets test for the relevant periods. It should be
noted that the tables above are illustrative only and there is no guarantee that
following conversion into a REIT the Group will continue to meet the 75 per
cent. profits test and the 75 per cent. assets test in future. However, the
Board expects that the Group will continue to be able to meet these tests in the
foreseeable future.

Distribution requirement and impact on Group tax position

Under the 90 per cent. distribution test, the Group will be required to
distribute (by way of dividend) at least 90 per cent. of the income profits of
the Tax-Exempt Business of the Group (as shown in financial statements to be
drawn up on a tax basis by the Group in accordance with the statutory provisions
governing the REIT Regime). These profits may be substantially different from
the Group's reported income profits or the indicative figures presented above
for the 75 per cent. profits test, for example due to the availability of
capital allowances and other tax adjustments. In particular, interest received
by one Group member from another may, in certain circumstances, be treated as
taxable income of the Residual Business for REIT purposes without a
corresponding deduction in the paying company, which could lead to additional
differences.

On the basis of the income analysis set out in the 75 per cent. profits test
table above and assuming that the Group had been a REIT for the year ended 31
December 2006, it is estimated that:

•        the Group would have needed to pay a Property Income Distribution or ''
PID'' of not less than 20.76 pence per share in respect of the year ended 31
December 2006 in order to comply with the 90 per cent. distribution test, which
is more than 50 per cent. greater than the actual dividend paid for the year
ended 31 December 2006 of 13.7 pence per share; and

•        the Group corporation tax charge on income would have reduced by
approximately £396,000 and the Group corporation tax charge on gains would have
reduced by approximately £148,000.

Exit from the REIT regime

The Group can give notice to HMRC that it wants the Group to leave the REIT
Regime at any time. The Board retains the right to decide to exit the REIT
Regime at any time in the future without Shareholder consent, if it considers
this to be in the best interests of the Company, the Group or shareholders as a
whole.

If the Group voluntarily leaves the REIT Regime within ten years of joining and
disposes of any property or other asset that was involved in its qualifying
property rental business within two years of leaving, any uplift in the base
cost of the property as a result of the deemed disposal on entry into the REIT
regime is disregarded in calculating the gain or loss on the disposal. However,
there is no repayment of the entry charge in these circumstances.

It is important to note that the Group cannot guarantee continued compliance
with all of the REIT conditions and that the REIT Regime may cease to apply in
some circumstances. HMRC may require the Group to exit the REIT Regime if:

•        it regards a breach of the conditions, failure to satisfy the
conditions relating to the Tax-Exempt Business, or an attempt by the Group to
avoid tax, as sufficiently serious;

•        if the Group has committed a certain number of minor or inadvertent
breaches in a specified period; or

•        if HMRC has given the Group at least two or more notices in relation to
the avoidance of tax within a ten year period.

In addition, if the conditions for REIT status relating to:

•        the share capital of the Company, or the prohibition on entering into
loans with abnormal returns are breached, or

•        if the Company ceases to be resident solely in the UK for tax purposes,
or

•        becomes an open-ended investment company, or

•        ceases to be listed, or

•        (in certain circumstances) ceases to fulfil the close company condition
(which is described in Part 2 of this Circular),

the Group will automatically lose REIT status. Where the Group is required to
leave the REIT Regime within ten years of joining, HMRC has wide powers to
direct how it is to be taxed, including in relation to the date on which the
Group is treated as exiting the REIT Regime.

Shareholders should note that it is possible that the Group could lose its
status as a REIT as a result of actions by third parties which are outside of
the Group's control (for example, in the event of a successful takeover by a
Group that is not a REIT or due to a breach of the close company condition (as
described in more detail in Part 2 of this circular) which it is unable to
remedy within a specified timeframe).

Extraordinary General Meeting

The EGM to consider the proposed conversion of the Company to a REIT will take
place at 10 a.m. on Wednesday 19 March and will be held at the offices of Grant
Thornton, 1 Westminster Way, Oxford, OX2 0PZ.

Expected Timetable

Latest time and date for receipt of completed Form of Proxy
and CREST proxy instruction                                                           10 am on 17 March 2008

Extraordinary General Meeting                                                         10 am on 19 March 2008

Anticipated date for the UK-REIT notification to HMRC                                           on or before
                                                                                               20 March 2008

Anticipated date of UK-REIT conversion                                                          1 April 2008

Anticipated date for amendments to Articles becoming effective                                  1 April 2008


25 February 2008


Enquiries:

John Hewitt, Chairman                                           01865 840 023
David Bowman, Finance Director
Highcroft Investments plc

Philip Davies / Freddy Crossley                                 020 7149 6000
Charles Stanley Securities


                      This information is provided by RNS
            The company news service from the London Stock Exchange