Proposed REIT Conversion

Highcroft Investments PLC
13 November 2007



              HIGHCROFT INVESTMENTS PLC ('Highcroft Investments')
             Proposed Conversion to a Real Estate Investment Trust


Introduction

As announced in our annual report on 21 March 2007, and confirmed at our Annual
General Meeting on 23 May 2007, the Board is proposing to convert the Group into
a REIT with effect from 1 January 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 received confirmation from
HMRC that, on the basis of information supplied, the Group will be able to
convert to REIT status with effect from 1 January 2008, subject to Shareholders'
approval of the Resolution.

Accordingly, the Company is today posting a 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 13 December 2007.

The amendments proposed to be made to the Company's 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 convert the Group into a REIT.

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. Highcroft Investments 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 unable to take the necessary actions or were it 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 in value 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 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).

•   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

•   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 in respect of which the Group has given a
valid notice under section 109 of the Finance Act 2006, the Articles will be
amended by the insertion of the following as new Articles 180-186 immediately
following Article 179. Subject to approval at the EGM the changes to the
Articles the Company will convert into a REIT. 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.

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 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
January 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 December 2007, 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 Plc 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 January 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                   
assets post-REIT conversion        44,938                         869



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                  Tax Exempt       Residual    
                     Business        Business      Total         Business       Business        Total
                        £'000           £'000      £'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       
business - 75%
Profits test (3)        84.00%         16.00%     100.00%           76.69%         23.31%      100.00%



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

Total Assets(1)               40,051         11,953         52,004         42,057         11,994         54,051
                       
Balance of business -       
75% assets test (2)           77.02%         22.98%         100.00%         77.81%         22.19%        100.00%
                            _______        _______         _______        _______        _______        _______


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.

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 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 Tuesday 11 December 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 11 December 2007

Extraordinary General Meeting                                             10 am on 13 December 2007

Anticipated date for the UK-REIT notification to HMRC                                  on or before
                                                                                   14 December 2007

Anticipated date of UK-REIT conversion                                               1 January 2008

Anticipated date for amendments to Articles becoming effective                       1 January 2008




13 November 2007




Enquiries:


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


Philip Davies / Freddy Crossley                          020 7149 6000
Charles Stanley Securities





                                                    DEFINITIONS




            'Articles'                    the articles of association of Highcroft Investments
                                          Plc;

            'Board' or 'Directors'        as the context requires, the board of directors of
                                          Highcroft Investments Plc;

            'Close Company'               a close company as defined in section 414 of the Income
                                          and Corporation Taxes Act 1988 as amended by section 106
                                          (6) of the Finance Act 2006;

            'Company' or
            'Highcroft Investments'       Highcroft Investments Plc;

            'CREST'                       the relevant system (as defined in the CREST
                                          Regulations) in respect of which CRESTco Limited is the
                                          Operator (as defined in the CREST Regulations);

            'CREST Regulations'           the Uncertified Securities Regulations 2001;

            'Distribution'                any dividend or other distribution on or in respect of
                                          the shares of the Company including a distribution not
                                          involving a cash payment being made;

            'Distribution Transfer'       a disposal or transfer by a Person of his rights to a
                                          Distribution from the Company such that he is not
                                          beneficially entitled (directly or indirectly) to such a
                                          Distribution and no Person who is so entitled subsequent
                                          to such disposal or transfer is (whether as a result of
                                          the transfer or not) a Substantial Shareholder;

            'Distribution Transfer        a certificate in such form as the Directors may specify
            Certificate'                  from time to time to the effect that the relevant Person
                                          has made a Distribution Transfer, which certificate may
                                          be required by the Directors to satisfy them that a
                                          Substantial Shareholder is not beneficially entitled to
                                          a Distribution;

            'EGM'                         Extraordinary General Meeting of the Company to be held
                                          at 10.00 a.m., 13 December 2007 at the offices of Grant
                                          Thornton, 1 Westminster Way, Oxford, OX2 0PZ;

            'Excess Charge'               in relation to a Distribution which is paid or payable
                                          to a Person, all tax or other amounts which the Director
                                          s consider may become payable by the Company or any
                                          other member of the Group under Regulation 10 of the
                                          Real Estate Investment Trusts (Breach of Conditions)
                                          Regulations 2006 (as such regulation may be modified,
                                          supplemented or replaced from time to time) and any
                                          interest, penalties, fines or surcharge attributable to
                                          such tax as a result of such Distribution being paid to
                                          or in respect of that Person;

            'Group'                       the Company and other companies in its group for the
                                          purposes of section 134 of the Finance Act 2006 (as such
                                          sections may be modified, supplemented or replaced from
                                          time to time);

            'HMRC'                        HM Revenue & Customs;

            'interest in the Company'     includes, without limitation, an interest in a
                                          Distribution made or to be made by the Company;

            'Non-PID Dividend'            any dividend other than a PID received by a shareholder
                                          of a company;

            'Ordinary Shares'             ordinary shares of 25p each in the capital of the
                                          Company having the rights ascribed and being subject to
                                          the restrictions set out in the Articles;

            'Ordinary Shareholders' or
            ' Shareholders'               holders of Ordinary Shares;

            'Person'                      includes a body of Persons, corporate or unincorporated,
                                          wherever domiciled;

            'Property Income Distribution'
            or 'PID'                      a dividend received by a shareholder of a company in
                                          respect of profits and gains of the Tax-Exempt Business
                                          of the UK Resident members of the Group, earned whilst
                                          the Group is a UK-REIT, or in respect of the profits or
                                          gains of a non-UK resident member of the Group insofar
                                          as they derive from its UK qualifying rental business;

            'property rental business'    a schedule A business within the meaning of section 832
                                          (1) of the Income and Corporation Taxes Act 1988 or an
                                          overseas property business within the meaning of section
                                          704(4) of such Act, but in each case, excluding certain
                                          specified types of business;

            'qualifying property rental   a property rental business fulfilling the conditions in
            business'                     section 107 of the Finance Act 2006;

            'REIT'                        Real Estate Investment Trust as defined in Part 4 of the
                                          Finance Act 2006;

            'REIT Regime'                 the provisions contained in Part 4 of the Finance Act
                                          2006;

            'Registrars'                  Capita Registrars;

            'Relevant Registered          a shareholder who holds all or some of the shares in the
            Shareholder'                  Company that comprise a Substantial Shareholding
                                          (whether or not a Substantial Shareholder);

            'Reporting Obligation'        any obligation from time to time of the Company to
                                          provide information or reports to HMRC as a result of or
                                          in connection with the Company's status as a REIT;

            'Residual Business'           the business of the Group other than the qualifying
                                          property rental business;

            'Resolution'                  the resolution proposed to be passed at the EGM in the f
                                          orm set out in the Notice of the EGM;

            'Substantial Shareholding'    the shares in the Company in relation to which or by
                                          virtue of which (in whole or in part) a Person is a
                                          Substantial Shareholder;

            'Substantial Shareholder'     any person whose interest in the Company, whether legal
                                          or beneficial, direct or indirect, may cause any member
                                          of the Group to be liable to pay tax under Regulation 10
                                          of the Real Estate Investment Trusts (Breach of
                                          Conditions) Regulations 2006 (as such regulations may be
                                          modified, supplemented or replaced from time to time) on
                                          or in connection with the making of a Distribution to or
                                          in respect of such Person including, at the date of
                                          adoption of Articles 180 to 186 any holder of excessive
                                          rights as defined in the Real Estate Investment Trusts
                                          (Breach of Conditions) Regulations 2006; and

            'Tax-Exempt Business'         the Group's qualifying property rental businesses in the
                                          UK and elsewhere for the purposes of Part 4 of the
                                          Finance Act 2006.

            


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