CRC.L Regulatory News (CRC)

14 February 2022

Circle Property Plc

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

Proposed £34.5 million Disposal of Kents Hill Park Conference Centre,

Related Party Transaction

and

Notice of General Meeting

Circle Property Plc (AIM: CRC), which invests in, develops and actively manages well-located regional office assets, is pleased to announce that the trustees of the Circle Property Unit Trust (of which 100 per cent. of the units are owned by the Company), having sought advice from the Company's management and having received a recommendation for the unitholder to enter into the contract for sale, have conditionally exchanged contracts to sell Kents Hill Park Conference Centre ("Kents Hill Park CC"), the Group's largest asset, to LXI Property Holdings 4 Limited (a subsidiary of LXI REIT plc, a REIT listed on the Main Market of the London Stock Exchange, the "Buyer") for a cash consideration of £34.5 million (the "Disposal").

Under AIM Rule 15, the sale consideration for the Disposal, when aggregated with the sale consideration for the other disposals completed by the Company in the previous twelve months, exceeds 75 per cent. compared with the Company's market capitalisation. The Disposal is therefore conditional on the consent of Shareholders at the General Meeting.

The Company will be posting a circular today to Shareholders including, inter alia, details of the Disposal, revised executive incentive arrangements and notice of a General Meeting to be convened at the offices of Charles Russell Speechlys LLP, 5 Fleet Place, London EC4M 7RD at 10.00 a.m. on 9 March 2022 (the "Circular"). The Circular will be available shortly from the Company's website at: https://www.circleproperty.co.uk/investors/reports-and-presentations/2022. Unless otherwise stated, terms used in this announcement have the same meanings as given to them in the Circular.

Highlights

Kents Hill Disposal

· The Company has exchanged contracts on its largest asset, Kents Hill Park CC for £34.5 million. The asset is being sold 1.5 per cent. ahead of the last reported book value (30 September 2021: £34 million) delivering an IRR of 21 per cent. since the Company's admission to AIM in 2016;

· Kents Hill Park comprises offices and a conference centre, fully let to Compass Contract Services Limited, part of FTSE 100 listed Compass Group. Kents Hill Park was acquired by the Company in December 2013 for £11 million;

· Under the Company's ownership, Kents Hill Park has benefited from significant active asset management including several lease re-gears, refurbishment of multiple buildings within the park including K1, K2 and K3, redevelopment of the site and lease variations to incorporate fixed annual RPI uplifts.

Background to the Disposal and Recent Disposals

· Since IPO, the Company has always strived to deliver attractive returns to shareholders via its active asset management approach;

· The Company successfully divested out of retail and other sub-sectors to focus exclusively on regional offices. All asset disposals to date, have been at premium to book values due to management's added value approach;

· The proceeds of these sales were recycled into refurbishment and redevelopment projects, as well as selective new assets, for example, Concorde Park, Maidenhead acquired in August 2019 for £14.6 million;

· More recently, the Board has been focused on reducing gearing, and where opportunistic sales could be made, has selectively divested assets which have benefited from management's added value strategy;

· The proceeds from the Disposal will be utilised to further reduce the Company's gearing. Following Completion, the Board has resolved to utilise 50 per cent. of the proceeds to reduce debt, leaving an outstanding amount under the Company's facility of approximately £21.4 million;

· Consequently, post all disposals, the Company's LTV will have decreased from 46.6 per cent. (30 September 2021) to 29.4 per cent;

· Furthermore, post the completion of the Disposal, the pro-forma unaudited net asset value ("NAV") per share (based on 30 September 2021 book values for the remaining assets in the Group's portfolio) is estimated to be £2.77.

Shareholder Approval and Future Strategy

· Following completion of the Disposal, the Company will remain an operating company developing, investing in and actively managing the remainder of its portfolio of 10 regional property assets, valued at approximately £76 million (as at 30 September 2021) compared with a current market capitalisation of approximately £58 million;

· Since admission to AIM, the Company has suffered from limited liquidity in its shares and the share price has remained at a significant discount to the Company's NAV;

· Notwithstanding the strong financial and operational performance of the Company since IPO, and strategic execution, the structural discount in the Company's share price relative to its NAV persists;

· The Board has therefore determined to continue to make targeted asset sales in an orderly manner over an extended period of two to three years, if not sooner;

· In line with this strategy, the Company's Remuneration Committee has agreed revised executive incentive arrangements for John Arnold, Chief Executive Officer and Edward Olins, Chief Operating Officer, classified as a related party transaction under AIM Rule 13, detailed below and in the Circular;

· In summary, basic salaries will remain the same, the discretionary bonus currently capped at 100 per cent. of salary will be reduced by 30 per cent. and subject to KPIs relating to NAV and earnings, and certain existing and future LTIP awards will be replaced with a cash incentive payment based on how quickly, and for what quantum, assets are sold;

· The Board has strong conviction in the value of the Company's assets, its management and its business plan, as well as in the regional offices sector more generally;

· The Board intends to return the remaining proceeds of the Disposal and future asset sales to Shareholders in as orderly and efficient manner as possible. The Board will update Shareholders in due course as to the timing and mechanism, but it is anticipated that a minimum of two returns of capital will be made and will likely include a tender offer and/or share buyback, the first of which is expected to occur within 12 months of completion of the Disposal;

· The Directors consider the Disposal to be in the best interests of the Company and its Shareholders as a whole. Accordingly, the Directors unanimously recommend that the Shareholders vote in favour of the Resolutions to be proposed at the General Meeting;

· The Directors intend to vote in favour of their own respective beneficial holdings of 4,399,276 representing approximately 15.55 per cent. of the Company's issued share capital.

Circle Property's Chairman, Ian Henderson, said:

"We are delighted to report this significant transaction for the Company today. It is aligned to our strategy of targeted asset sales and delivering premium returns on our quality regional commercial offices portfolio. We have a proven track record of crystallising value from our assets, which is reflected by the Group's total shareholder return of 114.3% since IPO in February 2016.

Our intention is to return the proceeds of the Disposal and any future asset sales to our Shareholders in an orderly manner, alongside further reducing the Group's LTV. Notwithstanding the strong financial and operational performance of the Company since IPO, the discount in the Company's share price relative to its NAV persists, and therefore the Company will, following completion of the Disposal, continue to selectively divest assets in the best interests of Shareholders."

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the UK version of the EU Market Abuse Regulation (2014/596) which is part of UK law by virtue of the European Union (Withdrawal) Act 2018, as amended and supplemented from time to time.

1. Introduction

The Company announces that the trustees of the Circle Property Unit Trust (of which 100 per cent. of the units are owned by the Company), having sought advice from the Company's management and having received a recommendation for the unitholder to enter into the contract for sale, have conditionally exchanged contracts to sell Kents Hill Park Conference Centre ("Kents Hill Park CC"), the Group's largest asset, to LXI Property Holdings 4 Limited (a subsidiary of LXI REIT plc, a REIT listed on the Main Market of the London Stock Exchange) (the "Buyer") (the "Disposal"). The sale price of £34.5 million represents a 1.5% increase on the 30 September 2021 valuation of £34 million, delivering an IRR of 21% since the Company's admission to AIM in 2016, with completion of the Disposal expected to take place on 25 March 2022, subject to Shareholder approval.

Kents Hill Park CC comprises a conference, hotel and fitness centre, fully let to Compass Contract Services (UK) Limited, providing 159,872 sq ft of accommodation with an unexpired lease term of 19.5 years and total rent passing of approximately £1.73 million per annum (£10.83 psf overall). Kents Hill Park CC, together with Kents Hill Business Park was acquired by the Company in December 2013 for approximately £11 million and the profit before tax for the year ended 31 March 2021 attributable to Kents Hill Park CC was £1.3 million.

50 per cent. of the proceeds from the Disposal (subject to Completion) will be utilised, in line with the Board's previously announced strategy, to reduce the Company's gearing from the current level, with the balance being held as Group cash.

2. Background to, and reasons for, the Disposal

The portfolio held by the Group consisted of 16 commercial property investments and developments in the UK with a value of £73.9 million on admission to AIM in February 2016. As stated in the Company's admission document, the Company's approach is to have a diversified exposure to UK commercial real estate. The executive Directors advise the Board on asset management strategies to optimise and enhance value, and originate, appraise and present investment proposals in accordance with the investment process and objectives of the Group from time to time. The Board is advised on, amongst others, investment strategy, asset purchases and sales, portfolio/asset management and financing.

Circle looks at all sectors and locations within the UK where assets can be acquired at or close to vacant possession values. In order to achieve lettings swiftly and ahead of competition, properties may be let at "soft"/below market rents, yet still produce attractive initial yields. Property let on short-dated leases or part vacant properties are considered where the initial income covers the interest costs. In addition, vacant property may be acquired or development opportunities undertaken where the location is deemed to justify the risk profile.

Previous Disposals and Acquisition of Concorde Park, Maidenhead

Following admission to AIM, the Company has made certain non-core, strategic asset disposals, primarily in order to remove its exposure to the retail market. The proceeds of these sales were recycled into the Company's refurbishment and redevelopment pipeline as well as towards the purchase of Concorde Park, Maidenhead in August 2019, a south east office park for £14.6 million. Following these activities, the Company's portfolio is exclusively focused on regional offices.

As initially reported in the Company's final results for the year ended 31 March 2020 announced in September 2020, the Board stated that it remained committed to reduce gearing from the level at that time by opportunistic sales and that the Company had a number of assets that have benefited from an active management approach and added value following redevelopment, lease restructures or renewals which the Board expected to be highly sought after. The following selective sales were made in 2021:

* premium stated post refurbishment cost. 156% increase pre-refurbishment cost

** representing 51.04% of the total consideration paid, total sale consideration and total book value, respectively, due to the Company as head lessee

Financing

The Company has a financing facility in place with RBS and HSBC for £100 million. The senior revolving facility is for £60 million (of which the Company had drawn £62.3 million) with an "accordion" option for a further £40 million (the "Facility").

Following completion of the disposal of One Castle Park, Bristol on 16 December 2021, £18 million of the sale proceeds were used to repay a proportion of the Facility. Following this repayment, the Group's LTV is 36.9% (excluding cash at bank) with a Group cash balance of £7.6 million, reflecting a net LTV of 29.9%. The total amount drawn down under the Facility is currently £40.544 million. 

Disposal and Future Strategy

The Company announced today that the trustees of the Circle Property Unit Trust (of which 100 per cent. of the units are owned by the Company), having sought advice from the Company's management and having received a recommendation for the unitholder to enter into the contract for sale, have conditionally exchanged contracts to sell Kents Hill Park CC, the Group's largest asset, to LXI Property Holdings 4 Limited (a subsidiary of LXI REIT plc, a REIT listed on the Main Market of the London Stock Exchange). The sale price of £34.5 million represents a 1.5% increase on the 30 September 2021 valuation of £34 million, delivering an IRR of 21% since the Company's admission to AIM in 2016, with Completion expected to take place on 25 March 2022, subject to Shareholder approval. 50 per cent. of the proceeds from the Disposal (subject to Completion) will be utilised to reduce the Company's gearing with the balance being held as Group cash.

Following Completion, the Board has resolved to repay £17.25 million (being 50 per cent. of the proceeds of the Disposal) of the Facility which will result in the principal outstanding under the Facility reducing to approximately £21.48 million. On Completion, the Group's LTV will reduce to 29.4% (excluding cash at bank) with the Group expected to have a cash balance of approximately £24.7 million.

Kents Hill Park CC comprises a conference, hotel and fitness centre, fully let to Compass Contract Services (UK) Limited, providing 159,872 sq ft of accommodation with an unexpired lease term of 19.5 years and total rent passing of approximately £1.73 million per annum (£10.83 psf overall). Kents Hill Park CC was acquired by the Company together with Kents Hill Business Park in December 2013 for £11 million and the profit before tax for the year ended 31 March 2021 attributable to Kents Hill Park CC was £1.3 million.

Under AIM Rule 15, the sale consideration for the Disposal, when aggregated with the sale consideration for the other disposals completed by the Company in the previous twelve months detailed above, exceeds 75% compared with the Company's market capitalisation. The Disposal is therefore conditional on the consent of Shareholders at the General Meeting.

Following Completion of the Disposal, the Company will remain an operating company investing in, developing and actively managing, the remainder of its portfolio of 10 regional commercial property investment and development assets in the UK it owns, valued at approximately £76 million as at 30 September 2021 compared with a current market capitalisation of approximately £58 million.

Since admission to AIM, the Company has suffered from limited liquidity in the Ordinary Shares and the share price has remained at a significant discount to the Company's net asset value ("NAV"). The closing mid-market price of the Ordinary Shares on 11 February 2022 (being the latest practicable date prior to publication of this announcement) was £2.05, a 25.18 per cent. discount to an unaudited estimated NAV per share as at 30 September 2021 of £2.74. Following Completion, the Company's pro-forma unaudited NAV per share is estimated to be £2.77.

The Board has therefore decided to continue to make targeted asset sales in an orderly manner over a period of two to three years (if not sooner). In line with this strategy, the Company's Remuneration Committee has agreed revised executive incentive arrangements for John Arnold, Chief Executive Officer and Edward Olins, Chief Operating Officer as detailed below in paragraph 5.

In addition, the Company will continue to achieve lettings at estimated rental values and will complete scheduled developments including at K3 Kents Hill, Milton Keynes (scheduled for completion in Summer 2022) as well as other refurbishments and fit-outs as necessary.

The Company has delivered total shareholder returns (calculated as to NAV growth plus dividends) of 114.3% since IPO in February 2016 and the Company's share price since IPO has increased by 41.83% versus the FTSE AIM All Share Index, which has increased over the same period by 19.20%.

The Board remains committed to maximising returns and delivering value to Shareholders, and as such, the Board will evaluate and determine returns of capital to Shareholders using a combination of existing cash resources and the proceeds of any future asset sales including from the Disposal. The Board expects that a minimum of two returns of capital will be made to Shareholders, the structure of which has yet to be decided by the Board but is likely to include a tender offer and/or share buyback, the first of which is expected to occur within 12 months of the date of the Disposal.

3. Property Portfolio

Following Completion, the Company will be the beneficial owner of the following 10 regional commercial property investment and development assets in the UK:

* exchanged contracts December 2021, subject to completion expected in Q1 2022

4. Details of the Disposal

The trustees of the Circle Property Unit Trust (of which 100 per cent. of the units are owned by the Company), having sought advice from the Company's management and having received a recommendation for the unitholder to enter into the contract for sale, have entered into a binding conditional sale and purchase agreement ("SPA") with LXI Property Holdings 4 Limited (the "Buyer") for the sale of Kents Hill Park CC. The Disposal is conditional only on the passing of Resolution 1 at the General Meeting.

Under the SPA, the Consideration for the Disposal will be £34.5 million, to be satisfied in cash at Completion.

Under the SPA, the Long Stop Date for receipt by the Company of Shareholder approval pursuant to the passing of Resolution 1 is 21 March 2022, with an expected date for Completion of 25 March 2022. A deposit of £0.5 million has been paid by the Buyer.

5. Executive Remuneration Arrangements and Related Party Transaction

Existing Remuneration Arrangements

John Arnold, Chief Executive Officer and Edward Olins, Chief Operating Officer (each an "Executive" and together, the "Executives") are employed by the Company under service agreements dated 11 February 2016.

The existing remuneration arrangements for the Executives are as follows:

· Basic Salary: John Arnold's annual basic salary is £215,378 and Edward Olins' basic salary is £193,840.

· Annual Discretionary Bonus: The Executives are entitled to an annual discretionary bonus capped at 100% of basic salary which is subject to assessment against the meeting of key performance indicators ("KPIs") comprising the net asset value, earnings (EBITDA) and a progressive dividend policy, each evenly weighted.

· LTIP Awards: The Executives are both eligible for annual awards under the Circle Property plc 2016 Long Term Incentive Plan ("LTIP") in the form of conditional rights or nil cost options to acquire Ordinary Shares, the quantum of which is capped at 200% of basic salary per year. The LTIPs are subject to a three-year vesting period subject to the performance of the Group with reference to two performance conditions, the Group's total shareholder return ("TSR") and a fixed hurdle rate for NAV, each accounting for 50% of the award. TSR is a comparison of share price plus dividends paid against a bespoke basket of peer group quoted companies and REITs. The NAV target will not be met if under 8% and if the NAV return is 14% or above then the NAV vesting criteria will be met in full. Where the NAV increase falls between 8% and 14% the award will vest on a straight-line basis between 50% and 100%.

Revised Remuneration Arrangements

As part of the strategy to make targeted asset sales, it is intended that the Executives' remuneration will be amended as follows:

· Basic Salary: The annual basic salary of both John Arnold and Edward Olins will remain as set out above.

· Annual Discretionary Bonus: The Executives will be entitled to a reduced annual discretionary bonus capped at 70% of salary (a reduction of 30%) which is subject to meeting key performance indicators ("KPIs") regarding NAV and earnings (EBITDA).

• LTIP Awards: The Remuneration Committee of the Board has agreed under the revised remuneration arrangements, that previous awards of nil cost options granted to the Executives pursuant to the LTIP, as set out in the table below, will be treated as follows:

o Already vested LTIP awards (i.e. 2016 LTIP, 2017 LTIP and 2018 LTIP Awards as set out in the table below) shall continue to exist under the existing terms of the LTIP and related awards deeds.

o The Board shall exercise its discretion to determine that unvested LTIP awards granted in 2019 and 2020 shall vest to a limited extent (as set out in the table below), subject to performance periods, and will lapse to the extent not vested.

o The Board shall exercise its discretion to determine that unvested LTIP awards granted in 2021 shall lapse in full.

o No further awards shall be granted under the LTIP in 2022 or going forwards.

Assuming the Company continued with its current strategy of investing in and developing properties (rather than targeted asset sales), the approximate total value of forfeited bonus payments and awards under the LTIP total approximately £1.8 million for John Arnold and approximately £1.6 million for Edward Olins. 

· Incentive Payment: To compensate the Executives for the retrospective reduction of LTIPs in 2019 and 2020, the lapsing of LTIPs for 2021 and no further issues of awards under the LTIP in 2022 or going forwards, under the detailed rules of the proposed 2022 Incentive Plan and the definitions set out below, the Executives will each also be eligible to receive a cash Incentive Payment worth up to £2.5 million per Executive.

In summary:

· The Incentive Payment is subject to a maximum overall cap of £2.5 million per Executive. The size of the Incentive Payment depends on how quickly, and for what quantum, the Assets are sold.

· No more than one Incentive Payment shall be paid to each Executive and the Executive shall never be eligible to receive an Incentive Payment under both Scenario 1 and Scenario 2 below.

· Subject always to and included within that overall cap, the Company shall also bear the cost of the Executives' National Insurance contributions on any Incentive Payment.

· Scenario 1: If the Assets are sold for less than their 31 March 2021 valuation then the maximum incentive payment ("MIP") an Executive may receive is £750,000. This diminishes to £562,500 if the Assets are sold after 31 March 2023, and no Incentive Payment at all would be paid if less than 90% of the Assets are sold after 31 March 2024. The size of the Incentive Payment also diminishes in direct proportion with the aggregate proceeds of sale. Where the proceeds of sale are 80% of the 31 March 2021 valuation of the Assets, no Incentive Payment would be payable.

· Scenario 2: If the Assets are sold for more than their 31 March 2021 valuation then the Incentive Payment is instead calculated as a lump sum plus a percentage of the Overage. The lump sum is either £750,000 or £562,500 and the percentage is 20% or 25% of the Overage (subject always to the cap on the aggregate sum). No Incentive Payment would be made unless 90% of the Assets (by value) had been sold by 31 March 2024.

Further details of the revised executive remuneration arrangements are set out below.

The remuneration arrangements described above could be deemed to fall outside of usual remuneration parameters and are therefore classified as a related party transaction under AIM Rule 13. The Directors (excluding John Arnold and Edward Olins), having consulted with the Company's nominated adviser, Cenkos, believe that the terms of the new incentive arrangements are fair and reasonable insofar as Shareholders are concerned.

6. Current Trading and Prospects

The development at K3 Kents Hill is proceeding well and the Company has already received strong tenant interest. The development will cost approximately £2.45 million funded through the Company's cash resources and the project is now scheduled for completion in Summer 2022. This targeted spend will deliver an attractive space which the Directors are confident will achieve a good rental income. Moreover, the completed high-spec, modern fit-outs at Concorde Park, Maidenhead and 36 Great Charles Street, Birmingham are beginning to register increasing levels of tenant interest, with higher levels of viewings and requests for landlords' letting proposals.

The Company has been able to maintain exceptionally high rental recovery in excess of 90% during the six months ended 30 September 2021. Rent collection for the current quarter ended 31 March 2022 stands at 76 per cent. and, with agreed monthly payments, this figure increases to 79 per cent. of rent due. Conversations and negotiations around rental arrears continue and the Board is confident of a positive outcome, particularly as office attendance and usage increases. The majority of the Group's tenants remain firmly of the view that the office plays a central part in the running of their respective businesses. Whilst having the flexibility to work some of the time from home can be advantageous in certain circumstances, dependent upon the individual and the nature of the work, the view remains that team building, collaboration, creativity, employee assessment, mentoring and training is most effective within an office environment. Given all of this, and reflected in the Group's solid financial metrics, the Board remains of the view that whilst working patterns may adapt, the office is very much here to stay.

On 29 November 2021, the Board declared an interim dividend of 3.5p, which was paid on 14 January 2022 to shareholders on the register on 10 December 2021, with an ex-dividend date of 9 December 2021. This dividend was an increase of 40% on 2020's COVID-19 impacted interim dividend of 2.5p and importantly, 6% ahead of 2019's interim dividend of 3.3p.

7. General Meeting

COVID-19

Whilst Shareholder participation at the General Meeting is important to the Board of Directors, the Board fully complies with the current Government recommendations in relation to COVID-19 and therefore Shareholders should consider whether or not it is appropriate for them to attend the General Meeting in person.

Resolution 1 (to approve the Disposal) is being proposed as an ordinary resolution and will require approval by a simple majority of those votes cast (by persons present in person or by proxy) at the General Meeting for Resolution 1 to be passed.

Resolution 2 (to approve the Company making market purchases of Ordinary Shares) is proposed as a special resolution and will require approval by 75 per cent. of those votes cast (by persons present in person or by proxy) at the General Meeting for Resolution 2 to be passed.

Completion of the Disposal is conditional, inter alia, on the Shareholders passing Resolution 1 being proposed at the General Meeting. If the Shareholders do not pass Resolution 1, completion of the Disposal will not proceed.

8. Recommendation and Voting Intentions

The Disposal constitutes a fundamental change of the Company's business for the purposes of  Rule 15 of the AIM Rules and is therefore subject to the approval of the Shareholders at the General Meeting.

The Directors consider the Disposal to be in the best interests of the Company and its Shareholders as a whole. Accordingly, the Directors unanimously recommend that the Shareholders vote in favour of the Resolutions to be proposed at the General Meeting, as the Directors intend to do in respect of their own beneficial holdings of 4,399,276 Ordinary Shares representing approximately 15.55 per cent. of the Company's existing Ordinary Shares.

FURTHER DETAILS ON REVISED EXECUTIVE REMUNERATION ARRANGEMENTS

1 SCENARIO 1: Collective Sales less than or equal to Value Figure

1.1 In the event that the Collective Sales Figure is less than the Value Figure, the gross Maximum Incentive Payment ("MIP") for which each Executive shall be eligible shall be calculated in accordance with the provisions of this Scenario 1.

1.2 The MIP for which each Executive may be eligible shall diminish as time elapses, as follows:

1.2.1 If the Relevant Date falls between 1 April 2021 and 31 March 2023 (inclusive), the MIP shall be £750,000;

1.2.2 If the Relevant Date falls between 1 April 2023 and 31 March 2024, the MIP shall be £562,500;

1.2.3 If the Relevant Date falls on or after 1 April 2024 (or never occurs), the MIP shall be nil, and each Executive shall not be eligible to receive an Incentive Payment.

1.3 The proportion of the applicable MIP which each Executive shall be eligible to receive as an Incentive Payment shall depend upon the Collective Sales Figure and shall be calculated as follows:

1.3.1 Where the Collective Sales Figure is less than 80% of the Value Figure, no Incentive Payment shall be payable to each Executive.

1.3.2 Where the Collective Sales Figure is 80% of the Value Figure, an Incentive Payment of £200,000 shall be payable to each Executive. Where the Collective Sales Figure exceeds 80% of the Value Figure, this Incentive Payment shall increase proportionately on a straight line basis up to the point at which the Collective Sales Figure is 100% of the Value Figure. If the Collective Sales Figure is equal to 100% of the Value Figure, each Executive would be eligible to receive an Incentive Payment equal to 100% of the applicable MIP. By way of illustration, example calculations are at Appendix 1.

1.4 Where the Collective Sales Figure is greater than the Value Figure, Scenario 1 shall not apply and the provisions of Scenario 2 shall instead apply.

1.5 The MIP payable to each Executive under this Scenario 1 in any circumstance is £750,000.

2 Scenario 2: Collective Sales greater than Value Figure

2.1 Where the Collective Sales Figure is greater than the Value Figure, the Incentive Payment for which each Executive shall be eligible shall be calculated as a lump sum plus a percentage of the Overage, in accordance with the following provisions of this Scenario 2:

2.1.1 Where the Relevant Date falls between 1 April 2021 and 31 March 2023 (inclusive), the gross Incentive Payment for each Executive shall be equal to £750,000 plus 25% of the Overage;

2.1.2 Where the Relevant Date falls between 1 April 2023 and 31 March 2024 (inclusive), the gross Incentive Payment for each Executive shall be equal to £562,500 plus 20% of the Overage;

2.1.3 Where the Relevant Date falls on or after 1 April 2024 (or never occurs), no Incentive Payment shall be payable to each Executive.

2.2 If the Collective Sales Figure is equal to or less than the Value Figure, this Scenario 2 shall not apply and the provisions of Scenario 1 shall instead apply.

2.3 The gross Incentive Payment, if any, (together with any NICS Payment) due to each Executive under this Scenario 2 shall be subject always to an aggregate overall cap of £2.5 million and to the other provisions of the 2022 Incentive Plan.

DEFINITIONS

Additional Figure: the total of the full purchase prices of all New Assets (together with any related purchase incentives, legal and professional fees and taxes)

Assets: the Original Assets together with the New Assets

Collective Sales Figure: the total aggregate proceeds of sale received by the Company in cleared funds in respect of sales of Assets which have been sold unconditionally by the Company after 31 March 2021, less costs and capital expenditure on improving any of the Assets after 31 March 2021; in each case as determined by RemCo

Incentive Payment: a payment to each Executive under the incentive plan

March 2021 Valuation: £135.4 million

MIP: the gross Maximum Incentive Payment for which the Executive may be eligible under Scenario 1

New Assets: any assets that are acquired by the Company after 31 March 2021 and deemed at any time by RemCo to be included in this definition of New Assets

Original Assets: the assets that are listed in Appendix 1 below

Overage: the Collective Sales Figure, less the Value Figure

Relevant Date: the earliest date on which the Collective Sales Figure is equal to (or greater than) 90% of the Value Figure; or such later date as the Company and the Executives may agree in writing

RemCo: the Remuneration Committee of the board of directors of the Company as constituted from time to time

Value Figure: the total of the 31 March 2021 Valuation plus (if any) the Additional Figure

APPENDIX 1

"Original Assets" the Group's current and certain former property assets set out as follows:

APPENDIX 2

Scenario 1 - Illustrative examples - assuming all other eligibility criteria met

Example 1

· Relevant Date is 1 April 2021 - 31 March 2023 inclusive;

· Value Figure is £135.4 million;

· Collective Sales Figure is £108 million (and therefore less than 80% of Value Figure); and

· Incentive Payment would be Nil.

Example 2

· Relevant Date is 1 April 2021 - 31 March 2023 inclusive (so MIP is £750,000);

· Value Figure is £135.4 million;

· Collective Sales Figure is £108.32 million (80% of Value Figure); and

· Incentive Payment would be £200,000.

Example 3

· Relevant Date is 1 April 2021 - 31 March 2023 inclusive (so MIP is £750,000);

· Value Figure is £135.4 million;

· Collective Sales Figure is £115.09 million (85% of the Value Figure); and

· Incentive Payment would be £337,500.

Example 4

· Relevant Date is 1 April 2021 - 31 March 2023 inclusive (so MIP is £750,000);

· Value Figure is £135.4 million;

· Collective Sales Figure is £128.63 million (95% of the Value Figure); and

· Incentive Payment would be £612,500.

Example 5

· Relevant Date is 1 April 2021 - 31 March 2023 inclusive (so MIP is £750,000);

· Value Figure is £135.4 million;

· Collective Sales Figure is £135.4 million (100% of the Value Figure); and

· Incentive Payment would be £750,000.

Example 6

· Relevant Date is 1 April 2021 - 31 March 2023 inclusive (so MIP is £750,000);

· Value Figure is £135.4 million;

· Collective Sales Figure is £140 million (more than 100% of the Value Figure); and

· No Incentive Payment under Rule 3. Rule 4 would apply instead.

Example 7

· Relevant Date is 1 April 2023 - 31 March 2024 inclusive (so MIP is £562,500);

· Value Figure is £135.4 million;

· Collective Sales Figure is £108.32 million (80% of Value Figure); and

· Incentive Payment would be £200,000.

Example 8

· Relevant Date is 1 April 2023 - 31 March 2024 inclusive (so MIP is £562,500);

· Value Figure is £135.4 million;

· Collective Sales Figure is £115.09 million (85% of the Value Figure); and

· Incentive Payment would be £290,625.

Example 9

· Relevant Date is 1 April 2023 - 31 March 2024 inclusive (so MIP is £562,500);

· Value Figure is £135.4 million;

· Collective Sales Figure is £128.63 million(95% of the Value Figure); and

· Incentive Payment would be £471,875.

Example 10

· Relevant Date is 1 April 2023 - 31 March 2024 inclusive (so MIP is £562,500);

· Value Figure is £135.4 million;

· Collective Sales Figure is £135.4 million (100% of the Value Figure); and

· Incentive Payment would be £562,500.

Scenario 2 - illustrative example - assuming all eligibility criteria met

Example 11

· Relevant date is on or before 31 March 2023;

· Value Figure is £135.4 million;

· Collective Sales Figure is £142.4 million;

· Overage is £7 million;

· Lump sum incentive payment would be £750,000;

· 25% of the Overage would be an incentive payment of £1,750,000; and

· Incentive Payment would be £2,500,000.