Become a Member

Track your favourite stocks
Create & monitor portfolios
Daily portfolio value

Company	Chg	Chg %
Quickpicks
£	%
Add shares to your quickpicks to display them here!

Continuation of Investment activities

13th Jul 2010 13:29

RNS Number : 2757P

Close High Income Properties PLC

13 July 2010

Close High Income Properties plc

Continuation of Investment Activities

Issue of £4.75 million of Convertible Loan Stock

Change of name to Alpha UK Multi Property Trust plc

Appointment of New PIA and New Director

Changes to Share Capital

Adoption of New Memorandum and Articles of Association

Approval of Panel Waiver

The Board of CHIP today announces the proposed issue of £4.75 million of Convertible Loan Stock ("CULS") to Alpha Tiger and Continuation of the Fund, plus associated proposals, which will be put to the approval of shareholders at an AGM and EGM to be held on 9 August 2010.

The Proposals comprise:

§ the subscription by Alpha Tiger of £4.75 million of CULS. The CULS carry an annual coupon of 4.75 per cent and can be converted at any time up to and including 30 June 2013 into Ordinary Shares at a Conversion Price of 31p;

§ the appointment of Alpha Real Capital ("ARC"), as the new property investment adviser to CHIP;

§ the change of name of the Fund to Alpha UK Multi Property Trust plc;

§ the appointment to the Board of CHIP of Phillip Rose, Chief Executive of ARC, as non-executive director; and

§ the Continuation of the Fund for a further three year period.

The Board believes the Proposals will provide a number of benefits to the Fund:

§ provide capital to the Company to allow additional capital expenditure in its Portfolio which otherwise would be constrained by the tight capital expenditure limits put in place by its lenders;

§ provide additional capital to allow the Portfolio to withstand fluctuations in income and provide the Group with additional financial flexibility;

§ provide capital on terms which are financially attractive and not materially dilutive to the NAV per Ordinary Share:- the Conversion Price of 31 pence represents a premium of 78 per cent to the average share price of CHIP of 17.4 pence in the period 1 May to 12 July 2010, and equates approximately to the Fund's NAV per Ordinary Share at 31 March 2010 of 31.3p;

§ bring in additional management resource at the fund manager level; and

§ provide capital that may be applied to make limited payments to resolve outstanding breaches under existing bank facilities and secure additional headroom under both existing and future banking facilities, where it is in the Group's interests to do so.

The Board believes that the refinancing of the Group's bank facility with Bank of Scotland as announced on 20 April 2010, combined with the Proposals that provide for the raising of additional equity on favourable terms for existing Shareholders and the appointment of the new PIA, will together create a strong platform from which to rebuild shareholder value. The Board believes the Proposals will provide Shareholders with the opportunity to benefit from any recovery in the UK property market and therefore offer superior value to a sale or a Wind Up of the Company under current market conditions, which would be likely to realise a discount to the NAV per Ordinary Share for Shareholders.

Furthermore, the Board anticipates that a combination of the increased certainty over the Company's financial position in relation to its assets secured by the Bank of Scotland facilities and the improvement in the asset management of the Portfolio through the appointment of an experienced, co-investing property manager would narrow the discount to the NAV per Ordinary Share at which the Ordinary Shares have traded in recent months.

A Circular containing details of the Proposals and containing Notices of the AGM and EGM to be held on 9 August 2010 will be sent to shareholders today.

Commenting on the Proposals, Jonathan Clague, Chairman of CHIP said:

"We are pleased to be able to announce proposals that allow the Fund to invest again in its portfolio and allow financial flexibility, on terms which we believe are financially attractive to Shareholders. We also welcome the appointment of Alpha Real as the new property investment adviser with the continued support of Close. We believe these proposals provide the foundations to enhance shareholder value over the next three years, compared to a sale of the Fund or a Wind Up in the current market environment".

This summary should be read in conjunction with the full text of this announcement.

Capitalised terms in this announcement have the same meaning as defined in Part II of this announcement.

For further information please contact:

Alpha Real Capital 020 7268 0333

Phillip Rose

Close Asset Management 020 7426 4000

Nigel Ashfield

Part I - The Proposals, Panel Waiver and AGM / EGM

1 Background to and reasons for the Proposals

The Company was floated in April 2003 to invest in high income producing properties and the Memorandum and Articles of Association require that after an approximate seven year life of the Fund, a Continuation Vote be held to consider whether to continue the investment activities of the Fund for a further five year period.

In February 2010, the Board received unsolicited expressions of interest from two credible parties seeking to make offers for the Company or certain of its assets. In the context of these indicative offers and the Continuation Vote due in summer 2010, the Board sought independent external advice from PwC Corporate Finance and conducted a strategic review of the options available to the Group to maximise value for Shareholders. These strategic options included a continuation of the Fund and a sale of the Fund. The Board provided the prospective bidders with additional information relating to the Group's property assets and banking facilities in order that indicative offers could be put forward for consideration by the Board.

As part of the strategic review, the Company also considered a proposal put forward by Alpha Real Capital LLP ("ARC") in March 2010. ARC is a property fund manager whose managed funds include two listed property funds: Alpha Tiger Property Trust Limited (in which the partners of ARC hold a 45 per cent shareholding) and Alpha Pyrenees Trust Limited (in which the partners of ARC also hold a stake). The ARC proposal was for a Continuation of the Fund, accompanied by a fundraising to be subscribed by Alpha Tiger and the appointment of ARC as the new PIA to the Fund. The Board was of the opinion that Continuation of the Fund would only be possible if additional capital was raised, due to the constraints imposed on the Fund under its renegotiated debt facilities. Further details of the Fund's debt facilities including the breach of covenants on the CHIP (Six) facility with Nationwide, are set out in paragraph 7 below.

The key elements of the Proposals are as follows:

§ the subscription by Alpha Tiger of £4.75 million of CULS. The CULS can be converted at any time up to and including 30 June 2013 into Ordinary Shares at a Conversion Price of 31 pence per share. If converted in full, the Company will issue Ordinary Shares representing approximately 15-17 per cent. of the enlarged share capital of the Company (depending on the date of conversion) (see paragraph 2 for further details). The CULS will be issued with stapled Preference Shares. The Preference Shares will give their holders certain voting rights (see paragraph 2 for further details) but not any income or capital rights in the Company whilst the CULS are outstanding. When the CULS are redeemed, repurchased or converted, the Preference Shares will automatically be redeemed, repurchased or converted into non-voting Deferred Shares;

§ the appointment of ARC as the new PIA to the Group. The new PIA will be responsible for implementing the Group's business plan and reporting to the Board;

§ the grant to Alpha Tiger of an option to subscribe for up to 4,000,000 Ordinary Shares at a price of 50 pence per share; and

§ the change of name of the Fund to Alpha UK Multi Property Trust plc.

Having considered the terms of the indicative offers put forward by the prospective bidders, and the terms of the Proposals, and having taken into account the current PIA's assessment of the projected performance of the Group's Portfolio, together with the investment preferences of the Company's major Shareholder, PIP, the Board determined that the Proposals offered the prospect of superior long-term value for Shareholders and consequently, in late April 2010, all discussions with the two prospective bidders ceased by mutual consent.

The Board believes that the Proposals will:

§ provide additional capital to the Company to allow additional capital expenditure in its Portfolio which otherwise would be constrained by the tight capital expenditure limits put in place by its Lenders;

§ provide additional capital to allow the Portfolio to withstand fluctuations in income without placing an undue strain on the limited cash resources of the Company;

§ provide capital on terms which are not materially dilutive to the NAV per Ordinary Share;

§ bring in additional management resource at the fund manager level; and

§ provide capital that may be applied to make cure payments and to secure additional headroom under both existing and future banking facilities, where it is in the Group's interests to do so.

Under the terms of the New PIA Agreement, ARC will act as the Company's new PIA. The current PIA Agreement with CIL will terminate without penalty. The Board believes that these arrangements will allow the Company to benefit from the significant property expertise of Alpha Real. Further details of the New PIA Agreement can be found in paragraph 5 below and in the Circular.

The Company is pursuing the Proposals to allow investment in the Group's Portfolio and to improve the Group's liquidity and financial flexibility. The issue of the CULS is therefore a significant part of the Proposals and the Directors believe it is important that Shareholders vote in favour of the EGM Resolutions. If the EGM Resolutions are not passed, there will be a number of consequences for the Company. In particular, the Company's cash position is likely to be constrained resulting in limited financial flexibility and limited cashflow available to fund value added capital expenditure.

If the Continuation Vote is not passed or the EGM Resolutions fail to be approved, the Board will pursue an orderly Wind Up of the Fund or sale of the Company. In such circumstances the Board believes Shareholders would be likely to realise a material discount to the NAV per Ordinary Share. If the Proposals are passed, the Board believes Shareholders will be provided with the opportunity to benefit from any recovery in the UK property market and therefore believes the Proposals offer superior value to a Wind Up of the Fund or sale of the Company under current market conditions.

The Board believes that the refinancing of the Group's bank facility with Bank of Scotland as described more fully in paragraph 7 below, the raising of additional equity on favourable terms for existing Shareholders and the appointment of the new PIA will create a strong platform from which to rebuild shareholder value.

2 The Convertible Loan Stock and Option

The Company is proposing to raise £4.75 million in cash through the issue of CULS to Alpha Tiger which are convertible into Ordinary Shares at 31 pence per share, and to issue an Option to Alpha Tiger to subscribe in cash for up to a further 4,000,000 Ordinary Shares at 50 pence per share.

Having reviewed the fundraising options available to the Company the Board believes the issue of Convertible Loan Stock is less dilutive to the NAV per Ordinary Share than an issue of Ordinary Shares at the prevailing share price, which averaged 18.5 pence in the 3 month period to 30 April 2010 (the date on which the Proposals were announced) and averaged 17.4 pence in the period 1 May 2010 to 12 July 2010, and also offers the Company fixed three year funding at an attractive cost.

On 13 July 2010, the Company and Alpha Tiger entered into a Subscription Agreement pursuant to which Alpha Tiger has agreed to subscribe for £4.75 million of CULS, subject to certain conditions precedent including, inter alia: (a) the passing of the Continuation Vote and the EGM Resolutions; and (b) no material adverse change or development having occurred involving a material adverse change in the condition, business, properties, equity or operations of the Group; no event occurring which would make certain representations given by the Company in the CULS Instrument untrue or materially incorrect; or in the reasonable opinion of Alpha Tiger no circumstances or events (as described in the Subscription Agreement) having occurred which causes or will cause a material deterioration in the price or value of the CULS, in each case other than for any matters or events relating to CHIP (Six) as disclosed in the Circular.

The Company does not intend to list the CULS on any stock exchange. Summary terms of the CULS are shown in the table below and the financial effects on the Company of the issue of the CULS and the exercise of the Option follow in paragraph 4.

2.1 CULS

Investment Instrument	Convertible Loan Note.
Investor	Alpha Tiger.
Principal Amount	£4.75 million.
Issue price	At par in amounts and integral multiples of 31p.
Term	Date of issue to 30 June 2013.
PIK Coupon	4.75 per cent. p.a. quarterly interest payments which it is intended will be settled by payment in kind ("PIK") through the issue of further CULS. PIK interest accrues on a compounded basis.
Conversion	Convertible at any time during the term, in whole or in part, into Ordinary Shares at a conversion price of 31 pence per share (subject to downward adjustment in certain circumstances).
Redemption Premium	If not converted into Ordinary Shares during the term, the total amount of the CULS outstanding (including any additional CULS issued to satisfy interest payment obligations) will be redeemed in cash at par plus an 18 per cent. premium. The Noteholder has automatic rights of redemption upon a change of control of the Company or the termination of the New PIA Agreement (other than for cause) and upon the occurrence of certain events of default.
Voting Rights	To have limited voting rights from the date of issue by virtue of the simultaneous issue of stapled Preference Shares. See paragraph 2.2 below for further details.
Transferability	Fully transferrable in amounts of £1,000,000 and integral multiples of £0.31 in excess thereof from twelve months following issue.
Governing Law	English.

Although the CULS can be converted into Ordinary Shares at any time up to and including 30 June 2013, Alpha Tiger does not currently intend to make a decision as to whether to convert the CULS into Ordinary Shares until nearer the time of expiry of the term of the CULS.

Further details of the terms of the CULS can be found in the Circular.

2.2 Preference Shares

The CULS will be issued in amounts and integral multiples of 31p and each nominal amount of 31p of CULS will have a Preference Share attached to it. For each £100 of CULS issued there will therefore be 322.6 stapled Preference Shares. The Preference Shares will give the holder limited voting rights but no income or capital rights in the Company (other than the right to receive nominal value) whilst the CULS are outstanding. When any CULS are redeemed, repurchased or converted, the attached Preference Shares will automatically be redeemed, repurchased or converted into non-voting Deferred Shares with no income or capital rights.

The Preference Shares will entitle the holders to attend and speak at any general meeting of the Company. Each Preference Share will carry one vote on all shareholder resolutions other than resolutions which are required under the Listing Rules or Prospectus Rules (in relation to which the Preference Shares carry no voting rights).

The voting rights of the Preference Shares will account for between 15 per cent. and 17 per cent of the voting share capital of the Company as enlarged by the issue of Preference Shares. The Company does not intend to list the Preference Shares on any stock exchange.

2.3 Option Agreement

In addition to the issue of the CULS, the Company will also grant an option to subscribe for Ordinary Shares in favour of Alpha Tiger. This will give Alpha Tiger the right to subscribe for up to 4,000,000 Ordinary Shares at any time up to 30 June 2013 at a price of 50 pence per share (subject to downward adjustment in certain circumstances). If the Option is exercised in full, this will be equivalent to a further investment of £2.0 million by Alpha Tiger.

Further details of the terms of the Option can be found in the Circular.

3 Financial position of the Fund

3.1 Background

The Fund has three lending facilities, two with Nationwide (in relation to CHIP (Two) and CHIP (Six) respectively) and one with Bank of Scotland. The Group breached its LTV covenants under all three of its lending agreements in December 2008. Although the Group is now compliant with the covenants on two of its three revised facilities, the Group is in breach of covenants on the CHIP (Six) facility with Nationwide. Further details of the Fund's revised lending facilities are summarised in paragraph 7 below.

Throughout 2009 and 2010 the Fund has operated under tight constraints imposed by its Lenders and has not enjoyed free access to the cashflows of the Properties. As a result, the cash balances of the Group stood at £3.2 million at 31 March 2010, of which £450,000 was held in restricted accounts in favour of Nationwide.

In the first quarter of 2010 the Company agreed outline terms for a revised Bank of Scotland facility. However, to secure the revised terms on this facility, in April 2010 the Fund was obliged to amortise the Bank of Scotland loan by £1.0 million. As the Fund was operating with low cash balances it agreed with the PIA that it would defer payment of a proportion of the PIA's quarterly fee due on 31 March 2010 and 30 June 2010 relating principally to the property portfolio financed by the Bank of Scotland facility.

Given the cash constraints under which the Group is operating, the Board concluded that any continuation of the Fund should be accompanied by a fundraising.

3.2 Application of proceeds

After deducting transaction costs, the net proceeds available to the Company as a result of the issue of the CULS will be approximately £4.4 million. The Fund intends to apply the net proceeds of the fundraising to the following areas:

(a) capital expenditure and payment of central costs

§ capital expenditure on the Portfolio can only be financed from the surplus cashflow generated by the Portfolio up to a limit of approximately £300,000 p.a. under the terms of the Group's lending facilities. However, the Board believes capital expenditure of £500,000 to £1.0 million per annum is required on the Portfolio over the three years to 30 June 2013 in order to reduce the level of vacant units across the Portfolio and attract new tenants. The Board therefore intends to deploy a minimum of £500,000 p.a. on capital expenditure, of which a minimum of £200,000 p.a. will be funded from the fundraising proceeds, over the three years to 30 June 2013;

§ the Fund has accrued PIA fees payable to CIL, the current PIA, under the terms of the existing PIA agreement, in respect of the first two quarters of 2010 of approximately £550,000. Payment of these fees has been deferred in order to preserve cash and will be settled from the proceeds of the fundraising;

§ certain corporate costs, including audit fees, tax advice, directors' fees and a proportion of the PIA fee, estimated at approximately £465,000 p.a., cannot be funded from the cashflow generated by the Subsidiaries, due to the continuing constraints imposed by the Lenders. These costs will be met from the fundraising proceeds;

(b) providing a cash buffer of a minimum of £1.0 million to meet fluctuating cash requirements

§ the Company will maintain cash balances to meet the unexpected or fluctuating cash requirements of the Group's Subsidiaries, as the Lenders impose constraints on the use of Subsidiaries' cashflow for these purposes. The cash balances of the Company held for these purposes will be augmented by the fundraising, providing additional financial flexibility.

§ the fundraising will permit the Fund to make limited payments to resolve outstanding breaches under existing bank facilities and secure additional headroom under both existing and future banking facilities, but only where it is in the Group's interests to do so.

It is the Board's opinion that the fundraising will allow the Company to invest in the Portfolio and provide the financial flexibility necessary to enhance the value of the Portfolio.

4 Financial effects of the Proposals

The CULS are convertible debt which must be converted into Ordinary Shares by 30 June 2013 or be redeemed as debt by the Company.

If the CULS are not converted at 30 June 2013 the CULS will be redeemed by the Company at par (inclusive of any PIK coupons) plus a premium of 18 per cent., for a total maximum principal amount of approximately £6.5 million, on 30 June 2013. This equates to an annual net cost of funding to the Company of approximately 14 per cent. over the three year period, (please refer to Part III of this announcement for sources and bases for this calculation).

If the CULS are converted on or before 30 June 2013, the CULS will convert into Ordinary Shares at the Conversion Price of 31 pence per share. If the Option is exercised in full on or before 30 June 2013, the Option will result in the issue of Ordinary Shares at 50 pence per share. The dilutive effects of such conversion of the CULS and the exercise of the Option on existing Shareholders are illustrated in the tables below:

4.1 Proforma voting dilution

Example Conversion Date	Upon issue	Issue + 1 yr	Issue + 2 yr	Issue + 3 yr
Existing Ordinary Share Capital
Issued Share Capital	84,095,025	84,095,025	84,095,025	84,095,025

Convertible Unsecured Loan Stock
Coupon	4.75%	4.75%	4.75%	4.75%
Initial principal	£4,750,000	£4,750,000	£4,750,000	£4,750,000
Accrued PIK coupon	£0	£229,676	£470,457	£722,881
Total accrued principal	£4,750,000	£4,979,676	£5,220,457	£5,472,881
Conversion price	31p	31p	31p	31p
New Ordinary Shares	15,322,581	16,063,471	16,840,184	17,654,455
Ordinary Shares in issue post conversion of CULS	99,417,646	100,158,536	100,935,249	101,749,520
Proforma voting dilution resulting from conversion of CULS	-15.4%	-16.0%	-16.7%	-17.4%
Option Agreement (exercised in full)
Subscription monies	£2,000,000	£2,000,000	£2,000,000	£2,000,000
Option price	50p	50p	50p	50p
New Ordinary Shares	4,000,000	4,000,000	4,000,000	4,000,000
Ordinary Shares in issue (after conversion of CULS and exercise of Option in full)	103,417,646	104,158,536	104,935,249	105,749,520
Proforma voting dilution resulting from conversion of CULS and full exercise of Option	-18.7%	-19.3%	-19.9%	-20.5%

Note:

The information in the table above is unaudited, pro-forma information. Sources and bases of calculation can be found in Part III of this announcement.

4.2 Proforma NAV per Ordinary Share

	At 31 March 2010	At 30 June 2013

Undiluted NAV per Ordinary Share	31.3p	31.3p	40.0p	50.0p	60.0p
Diluted for conversion of CULS	30.9p	31.2p	38.4p	46.7p	55.0p
Proforma NAV dilution (after conversion of CULS)	-1.3%	-0.1%	-3.9%	-6.6%	-8.4%
Diluted for exercise of Option	N/A	N/A	N/A	N/A	54.8p
Proforma NAV dilution (after conversion of CULS and exercise of Option in full)	-1.3%	-0.1%	-3.9%	-6.6%	-8.7%

Notes:

(1) The information in the table above is unaudited, pro-forma information. Sources and bases of calculation can be found in Part III of this announcement.

(2) The range of NAV per Ordinary Share at 30 June 2013 is illustrative only. Figures of less than 31.0p have not been shown in the table above as it is assumed that no Conversion would occur in such circumstances and the CULS would be redeemed as debt.

4.3 Effect on Group Debt

The LTV ratio of the Group stood at approximately 75 per cent. at 31 March 2010. The funds raised through the issue of CULS are not intended to be applied to pay down debt, although the Group may apply certain of the funds to pay down debt if to do so would improve Shareholder value. The funds are intended instead to be applied to allow the Group to undertake value-added capital expenditure, to provide a cash buffer for any unexpected working capital requirements of the Portfolio and for necessary Group expenditure. As such, the Proposals would not reduce the LTV of the Group. The Board did consider a larger fundraising which would have reduced the LTV to a level at which dividend distributions could be resumed, however, this would have caused material dilution to existing Shareholders.

5 Appointment of new PIA and Director

5.1 Background

The Board believes there is considerable merit in the PIA having a significant financial interest in the Fund in order to align Shareholders' interests with those of the PIA.

The current PIA of the Fund is CIL, a Close Group subsidiary. The existing PIA Agreement with CIL will be terminated without penalty. The new PIA of the Fund will be ARC, a property management company that already manages two other listed property funds: Alpha Pyrenees Trust Limited and Alpha Tiger Property Trust Limited. Alpha Real co-invests, either directly or through its affiliates, in the funds it manages to align the interest of the manager with those of the shareholders in these funds.

In the preliminary results announcement released on 30 April 2010, the Company indicated that the new PIA would be a 50:50 joint venture between a Close Group Company and Alpha Real. Following further negotiations between Close Group and Alpha Real it was agreed that the new PIA would be ARC. However, CIL will provide accounting, reporting, IT and banking services to ARC to ensure continuity of service to the Fund in these areas.

5.2 Summary of the New PIA Agreement

A New PIA Agreement is to be entered into by the Company and ARC. Under the terms of the New PIA Agreement the Board has secured a reduction in the annual PIA fee to 1.25 per cent. of the Fund's gross asset value (from approximately 1.50 per cent.) and has negotiated a restated PIA performance fee hurdle (being 20 per cent. of any over-performance over a 15 per cent. annual hurdle return).

The terms of the new agreement are summarised below:

Management Entity	§ ARC.
Services	§ ARC will be responsible for: - Acquisitions and disposals - Lettings - Rental reviews - General property management - Reviewing the Company's lending facilities - Reporting to the Board and to Shareholders
Fund Manager	§ Tom Pissarro will be appointed by ARC as fund manager to the Fund
Contract length	§ Three year contract with rolling 6 month notice period thereafter
PIA Fees	§ Annual fee of 1.25 per cent. p.a. of the Fund's gross asset value, payable quarterly in arrears § Acquisition and disposal fee of 1.0 per cent. of the value of assets acquired or sold § Performance fee of 20 per cent. of the surplus Net Asset Value above a 15 per cent. annual hurdle return in Net Asset Value, calculated from 30/6/2010 until the 2013 continuation vote or the Wind Up of the Fund

The Board is also proposing the Company change its name to Alpha UK Multi Property Trust plc to reflect the change of PIA.

Further details of the New PIA Agreement can be found in the Circular.

5.3 Alpha Real

Alpha Real is a UK-based co-investing real estate fund manager focused on value-added investing with over £600 million of assets under management across the UK, United States of America, Europe and Asia. Alpha Real has significant experience of raising equity from public markets and has raised circa £200 million to date for UK listed property funds. Its partners are successful and highly experienced UK real estate investors, including the following individuals:

§ Phillip Rose (Partner) - (see background below).

§ Philip Gower (Partner) - founded Antler Property Investments, Chairman of Rockmount Capital, UK real estate investor for 40 years.

§ Sir John Beckwith (Partner) - founded London & Edinburgh Property Trust, Property Mezzanine Partners, Europa Capital Partners.

Tom Pissarro MRICS (43) - proposed fund manager of CHIP

Tom has over 20 years' UK commercial property investment, financing and asset management experience. He has been a main board director of Antler Property since 1999, an Alpha Group company, responsible for UK investment, portfolio strategy and asset management. He was previously a director at Fletcher King plc where he commenced his career and qualified as a Chartered Surveyor.

Tom was a director and the asset manager of the Access Fund (an English limited partnership), a £50 million high yielding single and multi-let industrial and office portfolio which was realised in 2006 generating a high total return to investors. Tom has been responsible for managing £700 million of investments over the last seven years, including £141 million of single and multi-let industrial properties.

Phillip Rose (50) - proposed non-executive Director of CHIP

Phillip has 25 years' experience in the real estate, fund management and banking industries in Europe, the United States of America and Australasia and has extensive experience in establishing investment programmes in emerging property markets through joint ventures. He has been the global head of real estate for ABN AMRO Bank, chief operating officer of European shopping centre investor and developer TrizecHahn Europe (which undertook masterplanned developments in emerging property markets such as Poland, Hungary, the Czech Republic and Slovakia), managing director of Lend Lease Global Investment and executive manager of Australian listed fund General Property Trust. He is currently a non-executive director of Great Portland Estates plc, Alpha Pyrenees Trust Limited and Alpha Tiger, the chief executive officer of Alpha Real and a member of the management committee of the Hermes Property Unit Trust.

5.4 Alpha Tiger

Alpha Tiger is a Guernsey registered, closed-ended investment company traded on AIM. Alpha Tiger was established for the purposes of investing in and developing real estate in India. In September 2009, Alpha Tiger's shareholders approved a revised investing policy that allows the company to invest in real estate opportunities unconstrained by geography, but with a particular focus on the UK, Europe and Asia.

Alpha Tiger is managed by Alpha Real and is 45 per cent. owned by the partners of Alpha Real.

5.5 Appointment of Phillip Rose to the Board

The Board believes that the Company would benefit from the experience of Phillip Rose through his participation on the Board. Phillip Rose, who is chief executive officer and a founding partner of Alpha Real, also sits on the board of directors of Alpha Tiger. Shareholders are being asked to grant their approval to the appointment of Phillip Rose as a non-executive Director. He will be appointed on the same terms as the existing non-executive Directors.

5.6 Arrangements with the Close Group

Under the Proposals, CIL (the existing PIA) will have its PIA Agreement with the Company terminated without penalty. However CIL will provide ARC (the new PIA) with accounting, reporting, IT and banking advisory services and insurance arrangement services in relation to CHIP. The contract between ARC and CIL will provide for these services to be provided over a three year period for an annual fee payable by ARC of 0.30 per cent. of the Fund's gross asset value plus 33 per cent. of any acquisition / disposal fees receivable by ARC in relation to CHIP, plus 37.5 per cent. of any performance fee receivable by ARC in relation to CHIP (subject to a limit of £3.7 million).

The amounts payable to CIL under the arrangements between CIL and ARC could not exceed the amounts due to CIL under the existing PIA Agreement if it were to remain in place, and hence the arrangements with CIL do not constitute a related party transaction requiring Shareholder approval under Chapter 11 of the Listing Rules.

CIL is a wholly-owned indirect subsidiary of Close Brothers Group plc and forms part of its asset management division.

6 Current Trading & Prospects

6.1 Recent Investment Performance

As disclosed in the Preliminary Results, during the year ended 31 December 2009 the Group's Portfolio fell in value by 9.6 per cent. to £110.3 million. The NAV per Ordinary Share fell by 29.56 per cent. over the year from 41.44 pence to 29.19 pence. The annual report and accounts for the year ended 31 December 2009 were sent to Shareholders on 14 May 2010 and contain further details on the Fund's performance.

In the quarter to 31 March 2010, the Group's Portfolio increased in value by £1.5 million or 1.3 per cent. to £111.7 million, increasing NAV per Ordinary Share to 31.28 pence. The LTV ratio of the Group stood at approximately 75 per cent. at 31 March 2010.

Portfolio vacancy levels peaked in the third quarter of 2009, reaching 18.9 per cent. (from 12.3 per cent at the start of the financial year), but improved in the final quarter of 2009 to 17.9 per cent. Portfolio vacancy levels increased again in the first three months of 2010 to 18.3 per cent. However the PIA believes that vacancies have reached a level at which they will now stabilise and begin to reduce.

6.2 Group strategy and prospects

Assuming Shareholders vote in favour of the Resolutions, the Board proposes to put in place a three year business plan focusing on:

§ increasing property income by continuing to reduce vacant units and improving rental values;

§ maintaining and improving the Portfolio with selected added-value capital expenditure where it is felt it would facilitate the rental of a vacant unit, improve the rental value of a unit or improve the valuation of a let unit;

§ selectively divesting non-core assets; and

§ amortising the Company's loan facilities where possible in order to improve the LTV position of the Group.

Having considered the prospects for the Portfolio, the Board believes, based on the current PIA's business plan and an improving UK real estate market, which should drive increased property values over the medium-term, that the Company should be in a position where the LTV of the Group's lending facilities will have reduced sufficiently by the end of 2012 to be able to refinance the existing lending facilities on more favourable terms with a view to re-instating dividend payments to Shareholders.

Assuming the Resolutions are passed, prior to the continuation vote to be held in the summer of 2013, the Company will consider whether a Wind Up of the Fund is appropriate or whether the prospects for the reinstatement of dividend payments and for capital growth are such that a further Continuation is warranted.

7 Revised Bank facilities

7.1 Terms of the new facilities

The Company has three bank facilities, one with Bank of Scotland and two with Nationwide. As outlined in the Preliminary Results, the Company has agreed revised terms for these facilities. A summary of the terms is shown below:

Facility	Bank of Scotland	Nationwide (CHIP Two)	Nationwide (CHIP Six)
Date signed	April 2010	October 2009	October 2009
Borrower	CHIP (One) Limited CHIP (Three) Limited CHIP (Four) Limited CHIP (Five) Limited	CHIP (Two) Limited	CHIP (Six) Limited
Expiry	31/10/2012	23/10/2012	01/03/2013
Drawn balance (31/3/2010)	£55.1m	£9.6m	£18.9m
LIBOR	Hedged - £63.5m at 5.56% to 29/12/10	Hedged - £8m at 2.79% to 23/10/12	Hedged - £18m at 2.79% to 1/3/13
Margin above LIBOR	2.60%	2.50%	3.50%
Penalty interest (on breach)	2.60%	2.00%	2.00%
Blocked cash (1)	None	£200,000	£250,000
Quarterly amortisation	£200,000	None	None
Cash sweep (2)	Full(3)	Full	Full
Capital expenditure limit	£54,000 per quarter	£10,000 per quarter	£10,000 per quarter
% of asset sale proceeds remitted to Lender	100%	100%	100%
Maximum LTV covenant	90% throughout	75% to 31/03/2011, 65% thereafter	no covenant until 31/3/10 90% to 31/03/2012, 85% thereafter
Actual: LTV (31/3/2010)	71.7%	64.9%	91.3% (in breach)
ICR covenants (historic)	125% - compliant	160% - compliant	110% - compliant
ICR covenants (forward looking)	125% - compliant	160% - compliant	110% - in breach
Minimum rent covenant	£6.4m gross rent	n/a	n/a
Actual: rent	£7.1m gross rent for 12 months ending 31/3/2010	n/a	n/a
Dividend restrictions	No dividends to be paid on Ordinary Share	None	None

Notes:

(1) Cash balances which sit within the relevant subsidiary company but cannot be used by the relevant subsidiary company as the Lender requires a cash buffer as additional security.

(2 At the end of each quarter cash balances (excluding blocked cash) that sit within the relevant subsidiaries are "swept" (i.e. paid to the relevant lender) save for an agreed retention sufficient to meet the relevant subsidiary's following quarter's estimated payments, such retention subject to agreed maximum limits for capital expenditure and PIA fees.

(3) Cash balances can be swept at Bank of Scotland's discretion.

7.2 CHIP (Six) facility with Nationwide

The CHIP (Six) portfolio comprises nine regional office buildings and as at 31 March 2010 was valued at £20.4 million with a vacancy rate of 24.5 per cent. Nationwide debt secured on the CHIP (Six) portfolio at 31 March 2010 was £18.9 million and other liabilities (net of cash balances of £0.7 million) were £1.2 million resulting in an equity value of the portfolio of £1.0 million equivalent to 1.2 pence per Ordinary Share, representing 4 per cent. of the Group's net asset value of £26.3 million (31.3 pence per Ordinary Share) at 31 March 2010. For the year ended 31 December 2009, net income (being rental and other income, less property costs, interest payable and management fees) generated by the CHIP (Six) portfolio was £0.2 million, representing 13 per cent. of the Group's net income of £1.5 million for the year ended 31 December 2009.

CHIP (Six) entered into a revised facility agreement with Nationwide in October 2009, the terms of which are summarised in the table at paragraph 7.1 above. The facility contains covenants on LTV and ICR ratios.

The first LTV covenant test under the revised facility was required at 31 March 2010. The value of the CHIP (Six) portfolio at that date has been impacted by the continuing high level of vacant units and high market yields attributable to secondary regional office property, such that the LTV ratio stood at 91.3 per cent. at 31 March 2010 against a covenant of 90 per cent.

The revised facility also contains a twelve month forward looking ICR covenant. Due to a number of leases that are due to expire (or with tenant breaks) in the twelve months to 31 March 2011, and due to the continuing high level of vacant units, the forward looking ICR covenant was also in breach at 31 March 2010, being below the minimum 110% covenant level.

CHIP (Six) continues to service interest payments on the facility and is compliant with the facility's other covenants.

Following discussions with Nationwide, on 9 April 2010 the LTV covenant breach under this facility was waived until 1 July 2010 on payment of a fee of £5,000. On 12 July 2010 a further waiver was obtained in respect of the LTV and forward-looking ICR covenant breaches until 11 October 2010 conditional only upon payment of a further fee of £6,500; this fee was paid on 12 July 2010. Under the terms of this waiver, Nationwide has agreed not to bring any action against CHIP (Six) in respect of historical breaches of LTV and forward-looking ICR covenants until 11 October 2010.

Discussions with Nationwide are on-going and although no definitive proposals have yet been discussed with Nationwide, the Board's objective is to secure amendments to the facility which would allow CHIP (Six) to operate with improved financial flexibility up until maturity of the facility in March 2013. The Board intends to make proposals to Nationwide during the course of the next two months and believes it will reach agreement with Nationwide by 11 October 2010 in order to provide a remedy to the on-going breaches of covenants.

However, Shareholders should note that, in the event that an agreement with Nationwide cannot be reached by 11 October 2010, Nationwide could from that date seek repayment of the facility on demand and to enforce its security over the CHIP (Six) assets.

In the event that Nationwide seeks to enforce its security over the CHIP (Six) assets the equity value realisable from the CHIP (Six) portfolio is likely to be nil and cash held in CHIP (Six) is unlikely to be recoverable by the Group. However, in such circumstances, there would not be any event of cross-default under the Company's other facility with Nationwide in respect of CHIP (Two) Limited, or under the Company's bank facility with Bank of Scotland, Nationwide would have no recourse to Group assets sitting outside CHIP (Six), and the Group would have sufficient cash reserves to continue to pursue its business plan in respect of the remaining portfolio of properties.

7.3 Strategy for refinancing facilities in 2012

The Company's three lending facilities expire in late 2012 and early 2013 which would, if the Resolutions are passed, fall a few months before the next continuation vote to be held in mid 2013.

The Board, having reviewed the current PIA's outlook for the Portfolio over the next three years, in relation to asset value recovery, rental income growth and reduction in vacant units across the Portfolio, and in relation to the projected amortisation of the Company's lending facilities, believes that the Group's average LTV across the Portfolio will have reduced sufficiently by the expiry date of the facilities for the Group to be in a position to refinance its lending facilities on suitable market terms.

8 Dividends and dividend policy

The Company suspended dividends in the fourth quarter of 2008. The Board is aware of the importance of the dividend to Shareholders and is focused on its attempts to reinstate dividend distributions. However, for the foreseeable future the Board believes that its priority must be to ensure that the Group complies fully with its revised loan facilities and notably the Bank of Scotland facility which restricts the payment of dividends to Shareholders until maturity of the facility in October 2012. As such, surplus income is likely to be held in reserve or used to reduce the Group's overall debt and therefore it is unlikely that the dividend will be reinstated in the short to medium term.

As outlined above, the Board is focused on improving the financial position of the Company over the next three years with the aim of re-instating dividend payments once the Group's LTV ratio has reduced to the 60-65 per cent. range, which the Board believes, having reviewed the current PIA's outlook for the Portfolio, should be achievable within the next three years.

9 Dispensation from Rule 9 of the Takeover Code

Upon the issue of the CULS, which carry stapled Preference Shares conferring voting rights, (limited in certain respects), Alpha Tiger will hold approximately 15.3 million voting shares representing approximately 15.4 per cent. of the voting share capital of the Company as enlarged by the issue of Preference Shares. The Company intends to issue further CULS in respect of the PIK coupons, such that the stapled Preference Shares will amount to approximately 17.7 million voting shares at 30 June 2013, representing approximately 17.4 per cent. of the voting share capital of the Company as enlarged by the issue of Preference Shares.

If the CULS are converted into Ordinary Shares at the expiry of the conversion period at 30 June 2013, and the Option is exercised in full, Alpha Tiger would hold approximately 21.7 million Ordinary Shares, representing 20.5 per cent. of the Fully Diluted Share Capital.

The Proposals accordingly confer voting rights in the Company in favour of Alpha Tiger of between approximately 15.4 per cent. and approximately 20.5 per cent. of the relevant diluted voting share capital.

PIP is the Company's largest Shareholder with approximately 15.7 million Ordinary Shares, representing approximately 18.7 per cent. of the Issued Share Capital. Parties connected to PIP own a further 282,100 Ordinary Shares. The PIP Concert Party Shareholding therefore amounts to approximately 16.0 million Ordinary Shares representing approximately 19.0 per cent. of the Issued Share Capital and approximately 15.1 per cent of the Fully Diluted Share Capital.

PIP is a fund established by Close Group to invest in Close Group managed property funds. The Close Group has no shareholding in PIP but CIL, a Close Group subsidiary, acts as investment adviser to PIP. CIL will continue to have an economic interest in the management of the Fund through the sub-contract arrangements described in paragraph 5.6 above, and the Close Group and the Alpha Group may seek to co-operate further.

For the purpose of the Takeover Code a concert party is deemed to exist between Alpha Tiger and PIP and the parties connected to each of them. The Proposals confer voting rights in the Company in favour of the Concert Party of, in aggregate, up to approximately 35.6 per cent. of the Fully Diluted Share Capital, which could rise to approximately 36.2 per cent. in certain limited circumstances as set out in Part III of this document.

Under Rule 9 of the Takeover Code, any person, or group of persons acting in concert, which acquires an interest in shares which, when taken together with an interest in shares already held by him or an interest in shares held or acquired by persons acting in concert with him, carry 30 per cent. or more of the voting rights of a company which is subject to the Takeover Code, is normally obliged to make a general offer in cash to all shareholders.

In addition, Rule 9 provides that where any person, together with persons acting in concert with him, is interested in shares which in aggregate carry not less than 30 per cent. of the voting rights of a company, but does not hold shares carrying more than 50 per cent. of such voting rights, and such person, or any person acting in concert with him, acquires an interest in any other shares which increases the percentage of shares carrying voting rights in which he is interested, such person is normally required to make a general offer to shareholders.

An offer under Rule 9 must be made in cash and at the highest price paid within the preceding 12 months for any shares in the company by the person required to make the offer or any person acting in concert with him.

The Panel will normally waive the requirement for a general offer to be made in accordance with Rule 9 if the shareholders of the company who are independent of the acquirer and its concert party pass an ordinary resolution on a poll approving such a waiver.

The Panel has agreed to waive the obligation to make a general offer that would otherwise arise on members of the Concert Party as a result of the Proposals, subject to the approval on a poll of Shareholders who are independent of the Concert Party. Accordingly, the Panel Waiver Resolution is being proposed at the EGM and will require approval of a majority of independent Shareholders.

Shareholders should note that the Panel Waiver does not remove the obligation on the Concert Party to make an offer under Rule 9 of the Code if the Concert Party's shareholding were to increase by virtue of, inter alia, future purchases of Ordinary Shares by the Concert Party, or share buy-backs by the Company. Shareholders should note, however, that Alpha Tiger, ARC, PIP and the Close Group have entered into a standstill agreement through which they have undertaken (subject to certain exceptions) not to acquire further Ordinary Shares in CHIP. A summary of the standstill agreement is shown in the Circular.

Further details of the Concert Party are shown in the Circular.

10 Timetable of principal events

Each of the times and dates in the table below is indicative only and may be subject to change.

Circular sent to Shareholders	13 July 2010
Latest time and date for receipt of Forms of Proxy for the AGM and EGM	10.00 a.m. on 5 August 2010
Annual General Meeting	10.00 a.m. on 9 August 2010
Extraordinary General Meeting	Immediately following the AGM on 9 August 2010

CULS and Preference Shares issued to Alpha Tiger	10 August 2010

Notes:

1. References to time are to London time.

2. If any of the above times or dates should change, the revised times and/or dates will be notified to Shareholders by an announcement on an RIS.

3. Any events in the above timetable following the AGM and EGM are conditional upon the passing of the Continuation Vote and the EGM Resolutions.

11 General meetings

The AGM will be held on 9 August 2010 at 10.00 a.m. at IOMA House, Hope Street, Douglas, Isle of Man IM1 1AP. In addition to the usual business transacted at the AGM, the AGM Resolutions will include an ordinary resolution to approve the Continuation of the Fund for a further five year period and a special resolution to amend the Articles of Association to require the Continuation Vote to be held every three years, going forward.

If the Continuation Vote at the AGM is passed, the Extraordinary General Meting will be held immediately following the AGM at IOMA House, Hope Street, Douglas, Isle of Man IM1 1AP. At the EGM, Shareholders will vote on a resolution to approve the Proposals and separately on the Panel Waiver Resolution.

Shareholders should read the full text of the Resolutions contained in the AGM Notice and EGM Notice in the Circular.

12 Importance of Vote

The Proposals to be implemented by the EGM Resolutions will, inter alia, raise capital for the Group to allow investment in the Group's Portfolio and to improve the Group's liquidity and financial flexibility. If the Continuation Vote is approved but the EGM Resolutions are not passed, there will be a number of consequences for the Company. In particular, the Company will have limited financial flexibility to manage the Group's debt position and limited cashflow available to fund value added capital expenditure. In the absence of the fundraising, the Board believes that the Fund would not be able to invest sufficiently in the Portfolio to enhance its value and reduce the level of vacant units.

For these reasons, and having considered the viability of other strategic options for the Fund, if the Continuation Vote is passed but the EGM Resolutions fail the Board would seek, over the subsequent six to nine month period, an orderly sale of the Company or the assets of the Group (with subsequent return of capital to Shareholders). The Board believes that any offer for the Company or sale of the assets of the Group would be likely to realise a material discount to the NAV per Ordinary Share for Shareholders. The Company would continue to fund itself from its existing resources during this sale period and any such transaction would ultimately require separate shareholder approval under the Takeover Code and/or the Listing Rules.

Shareholders should also note that by voting for the EGM Resolutions, the Group will raise capital to provide some limited financial flexibility to negotiate a resolution to the breach of the CHIP (Six) facility with Nationwide. Although the Board believes it will reach such an agreement by 11 October 2010, when the waiver of the breach of covenants expires, there can still be no guarantee that the Company will be able to conclude a restructuring of the CHIP (Six) facility.

Shareholders should note that, in the event that an agreement with Nationwide cannot be reached by 11 October 2010, Nationwide could from that date seek repayment of the facility on demand and to enforce its security over the CHIP (Six) assets.

13 Irrevocable undertaking from PIP

PIP holds 18.7 per cent. of the Issued Share Capital and is the Company's largest Shareholder. The Company, Alpha Tiger and ARC have sought, and PIP has given, its irrevocable undertaking to vote in favour of the Resolutions outlined in the Circular (save in respect of the Panel Waiver Resolution, upon which PIP is not eligible to vote).

Further details of the irrevocable undertaking are shown in the Circular.

PIP has been independently advised by MCFL in connection with the Proposals.

14 Board recommendation

The Board, which has been so advised by PwC Corporate Finance, believes that the Continuation Vote, the Proposals and the Panel Waiver are fair and reasonable and in the best interests of the Company and its Shareholders as a whole and accordingly unanimously recommends Shareholders to vote in favour of the Resolutions, as they intend to do in respect of their aggregate holdings of 99,000 Ordinary Shares, representing approximately 0.1 per cent of the Issued Share Capital. Philip Scales is not independent of PIP and therefore has not taken any part in the Board's consideration of the Panel Waiver.

In providing advice to the Directors, PwC Corporate Finance has taken into account the commercial assessments of the Directors.

PricewaterhouseCoopers LLP, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting exclusively for Close High Income Properties plc and no one else in connection with the proposals set out herein and will not be responsible to anyone other than Close High Income Properties plc for providing the protections afforded to clients of PricewaterhouseCoopers LLP nor for providing advice in relation to any of the matters referred to or contemplated in this announcement.

Part II

Definitions

AGM Notice	the notice convening the AGM which is set out in the Circular.
AGM Resolutions	the resolutions to be proposed at the AGM.
AIM	the AIM market of the London Stock Exchange plc.
Alpha Concert Party	those members of the Concert Party details of whom are set out in the Circular.
Alpha Group	Alpha Real and each of the funds managed by Alpha Real.
Alpha Real or ARC	Alpha Real Capital LLP, a limited liability partnership incorporated under the laws of England and Wales whose registered office is at 1B Portland Place, London, United Kingdom W1B 1PN.
Alpha Tiger or the Investor	Alpha Tiger Property Trust Limited, a Guernsey registered closed ended investment company (with registered number 44786), whose registered office is at Regency Court, Glategny Esplanade, St. Peter Port, Guernsey GY1 1WW.
Annual General Meeting or AGM	the annual general meeting of the Company to be held at 10.00 a.m. on 9 August 2010.
Antler	Antler Investment Holdings Limited, a limited liability company incorporated in the British Virgin Islands, whose registered office is at Palm Grove House, PO Box 438, Road Town, Tortola, British Virgin Islands.
Arrco	Arrco Limited, a limited liability company incorporated in England and Wales, which is a member of the same corporate/trust holding structure as Antler and whose registered office is at Wilow House, Oldfield Road, Heswall, Wirral, United Kingdom CH60 0FW.
Articles or Articles of Association	the articles of association of CHIP.
Bank of Scotland	Bank of Scotland plc, a subsidiary of Lloyds Banking Group plc.
Auditors	Ernst & Young LLC.
Board or Directors	the board of directors of CHIP.
Business Day	a day (excluding Saturdays and Sundays or public holidays in England and Wales and the Isle of Man) on which banks generally are open in London and the Isle of Man for the transaction of normal business.
CHIP or the Company or the Fund	Close High Income Properties plc, a company incorporated under the laws of the Isle of Man (under company number 106038C), whose registered office is at IOMA House, Hope Street, Douglas, Isle of Man, IM1 1AP.
CHIP (Two)	CHIP (Two) Limited, a subsidiary of CHIP.
CHIP (Six)	CHIP (Six) Limited, a subsidiary of CHIP.
CIL	Close Investments Limited, a subsidiary of Close Asset Management Holdings Limited (a member of the Close Group), which is PIA of the Fund as at the date of this announcement.
Circular	the document to be sent to Shareholders today containing details of the Proposals.
Close Asset Management or CAM	Close Asset Management Limited, a member of the Close Group.
Close Group	Close Brothers Group plc and its subsidiaries and/or subsidiary undertakings from time to time.
Closing Price	the closing middle market quotation of an Ordinary Share as derived from the Daily Official List on a particular day.
Concert Party	the concert party for the purposes of the Takeover Code including Alpha Tiger, PIP and parties connected to them, details of which are set out in paragraph 9 of Part I of this announcement and more fully in the Circular.
Continuation	the extension of the Fund's investment activities for a further period pursuant to the Articles.
Continuation Vote	the ordinary resolution to be proposed at the AGM, to approve the continuation of the investment activities of the Fund for a further five year period.
Conversion	the issue of Ordinary Shares upon the conversion of the CULS under the terms of the CULS Instrument.
Conversion Price	the price at which CULS would convert into Ordinary Shares, being 31 pence per Ordinary Share (subject to downward adjustment in certain circumstances pursuant to the CULS Instrument).
Convertible Loan Stock or CULS	convertible unsecured loan stock of the Company to be created and issued pursuant to the CULS Instrument.
CULS Instrument	the deed constituting up to £6,000,000 of Convertible Loan Stock, to be executed by the Company, subject to the passing of the Resolutions.
Daily Official List	the daily official list of the London Stock Exchange.
Deferred Shares	the non-voting deferred shares in the share capital of the Company.
EGM Notice	the notice convening the EGM which is set out in the Circular.
Extraordinary General Meeting or EGM	the extraordinary general meeting of the Company proposed to be held immediately following the AGM.
EGM Resolutions	the resolutions to be proposed at the EGM.
Financial Services Authority or FSA	the Financial Services Authority of the United Kingdom.
Forms of Proxy	the white and pink forms of proxy accompanying the Circular for use by Shareholders in connection with the AGM and EGM respectively.
FSMA	the UK Financial Services and Markets Act 2000 (as amended) including any regulations made pursuant thereto.
Fully Diluted Share Capital	105,749,480 Ordinary Shares, being the Issued Share Capital, plus the 17,654,455 Ordinary Shares that would be issued to the holders of CULS if they exercised their rights of conversion and were issued new Ordinary Shares on 30 June 2013 (please see Part III of this announcement for the basis of calculation), plus the 4,000,000 Ordinary Shares that would be issued upon the full exercise of the Option.
Group	CHIP and, where appropriate, its Subsidiaries.
ICR	the interest cover ratio, measuring the extent to which interest payable by the Group is covered by eligible net rental income from Properties.
IPD	Investment Property Databank.
Issued Share Capital	the issued share capital of the Company as at 12 July 2010 , being 84,095,025 Ordinary Shares.
Independent Directors	the current directors of CHIP, excluding Philip Scales.
Latest Practicable Date	the latest practicable date prior to publication of the Circular, being 12 July 2010 .
Lenders	Bank of Scotland and Nationwide.
Listing Rules	the Listing Rules made by the FSA under Part VI of FSMA, as amended and in force from time to time.
London Stock Exchange or LSE	London Stock Exchange plc.
LTV	the loan-to-value ratio, measuring the indebtedness of the Group against the valuation of its Properties, expressed as a percentage.
MCFL	Mazars Corporate Finance Limited, the corporate finance division of Mazars LLP.
Memorandum and Articles of Association	the memorandum and articles of association of the Company.
Nationwide	Nationwide Building Society.
Net Asset Value or NAV per Ordinary Share	the value of the Group's assets, less its liabilities, divided by the number of Ordinary Shares in issue at the relevant time, as published from time to time by the Company on an RIS.
New PIA Agreement	the agreement proposed to be entered into between the Company and ARC regarding the future provision of management and strategic advisory services to the Company, as summarised in the Circular.
Noteholder	a holder of CULS.
Official List	the official list of the UKLA.
Option	the option to be granted pursuant to the Option Agreement.
Option Agreement	the option deed to be entered into between Alpha Tiger and the Company, pursuant to which the Company will grant Alpha Tiger an option to subscribe for up to 4,000,000 Ordinary Shares, the terms of which are outlined in the Circular.
Ordinary Shares	ordinary shares of £0.01 each in the share capital of the Company.
Panel	the UK Panel on Takeovers and Mergers.
Panel Waiver	the waiver by the Panel of any obligation which would otherwise be imposed on the Concert Party or any member of the Concert Party, either collectively or individually, under Rule 9 of the Takeover Code as a result of the issue of Preference Shares, Conversion or the exercise of the Option.
Panel Waiver Resolution	the resolution numbered 2 set out in the EGM Notice to approve the Panel Waiver.
PIA	the property investment adviser which provides management and strategic advisory services to CHIP under the terms of a PIA Agreement. The current PIA is CIL and the proposed PIA is ARC.
PIA Agreement	the current property investment advisory agreement dated 18 October 2002 (as amended by a supplemental agreement dated 6 November 2003) between the Company and CIL regarding the provision of management and strategic advisory services to the Group.
PIK	payment in kind, referring to the issue of additional CULS in lieu of interest payment due under the CULS Instrument.
PIP	Property Investment Portfolio plc, a company incorporated under the laws of the Isle of Man (under company number 107880C) whose registered office is at IOMA House, Hope Street, Douglas, Isle of Man, IM1 1AP.
PIP Concert Party	those members of the Concert Party details of whom are set in the Circular.
PIP Concert Party Shareholding	the aggregate holdings of Ordinary Shares held by PIP, the directors of PIP, the Close Group and funds managed on a discretionary basis by members of the Close Group as at 12 July 2010, being 16,013,907 Ordinary Shares.
Preference Shares	preference shares of £0.00001 each in the share capital of the Company which carry certain voting rights as described more fully in the Circular.
Preliminary Results	the preliminary results of the Group for the year ended 31 December 2009, which were released on 30 April 2010.
Proposals	the proposals through which, inter alia, the Fund will raise £4.75 million by the issue of the CULS, enter into the Option Agreement and the New PIA Agreement and make certain changes to the Board, as described more fully in the Circular.
Properties or Portfolio	the properties of the Group.
Prospectus Rules	the Prospectus Rules made by the FSA under Part VI of FSMA, as amended and in force from time to time.
PwC	PricewaterhouseCoopers LLP.
PwC Corporate Finance	the corporate finance division of PwC.
Record Date	close of business on 5 August 2010 .
Register	the register of members of the Company.
Regulatory Information Service or RIS	one of the regulatory information services authorised by the UK Listing Authority to receive, process and disseminate regulatory information in respect of listed companies.
Resolutions	the AGM Resolutions and the EGM Resolutions together.
Shareholders	holders of Ordinary Shares.
Subscription Agreement	the subscription agreement entered into between CHIP and Alpha Tiger on 13 July 2010 pursuant to which Alpha Tiger has agreed to subscribe for £4.75 million of CULS subject to and conditional upon, inter alia, the passing of the Resolutions.
Subsidiaries	the subsidiaries of the Company, being CHIP (One) Limited, CHIP (Two) Limited, CHIP (Three) Limited, CHIP (Four) Limited, CHIP (Five) Limited, CHIP (Six) Limited, CHIP (Seven) Limited, CHIP (Ipswich 1) Limited and CHIP (Ipswich 2) Limited, each being private limited companies incorporated in the Isle of Man and each of which are wholly owned.
Takeover Code	the City Code on Takeovers and Mergers.
UK or United Kingdom	the United Kingdom of Great Britain and Northern Ireland.
UK Listing Authority or the UKLA	the FSA acting in its capacity as the competent authority for the purposes of Part VI of FSMA and in the exercise of its functions in respect of admission to the official list of the UK Listing Authority.
Wind Up	the orderly disposal of the Properties and other assets of the Company and its Subsidiaries in accordance with the Memorandum and Articles of Association, and the corresponding return of capital to Shareholders.

Part III

Sources, bases and assumptions

1. Net Asset Value per Ordinary Share

The references to NAV per Ordinary Share of 31.3 pence at 31 March 2010 as referred to in this announcement are sourced from the Company's RIS statement of 14 April 2010 disclosing the unaudited NAV per Ordinary Share of 31.28 pence.

This NAV per Ordinary Share is calculated as follows sourced from the Company's unaudited management accounts:

(a) property valuation of £111.7 million as at 31 March 2010, based on the regular quarterly valuation of the Portfolio carried out by DTZ Debenham Tie Lung Limited (31 December 2009: £110.3 million); less

(b) gross debt of £83.3 million (31 December 2009: £83.5 million); less

(d) current assets, including cash, of £4.7 million (31 December 2009: £5.2 million); less

(e) other current liabilities of £3.8 million (31 December 2009: £4.2 million).

The sum of amounts at (a) to (e) above, being the NAV of the Group at 31 March 2010 of £26.3 million (31 December 2009: £24.5 million), is then divided by the Issued Share Capital to arrive at an NAV of 31.28 pence per Ordinary Share (31 December 2009: 29.19 pence).

The NAV per Ordinary Share at 30 June 2010 is expected to be published on an RIS by 30 July 2010, at least 10 calendar days before the EGM.

2. Concert Party Shareholding subject to Panel Waiver

The statement in paragraph 9 of Part I of this announcement that the Proposals confer voting rights in the Company in favour of the Concert Party of, in aggregate, approximately 35.6 per cent. of the Fully Diluted Share Capital has been calculated using the following assumptions:

(a) £4,750,000 of CULS are issued to Alpha Tiger on 1 July 2010, with PIK coupon of 4.75 per cent. p.a. (compounded quarterly) such that £722,881 of further CULS are outstanding by 30 June 2013 (corresponding in aggregate to 17,654,455 CULS of nominal value of 31 pence, each having attached to it a Preference Share). Assuming that the £5,472,881 of CULS are converted into Ordinary Shares on 30 June 2013 at the Conversion Price of 31p, the number of Ordinary Shares to be issued to Alpha Tiger is 17,654,455 (and the Preference Shares are converted into non-voting Deferred Shares);

(b) the option to subscribe for 4,000,000 Ordinary Shares is exercised in full by Alpha Tiger on 30 June 2013 and such shares are issued by the Company;

(c) the PIP Concert Party Shareholding of 16,013,907 Ordinary Shares remains unchanged in the period to 30 June 2013; and

(d) the Issued Share Capital remains unchanged immediately prior to the issue of Ordinary Shares pursuant to the conversion of the CULS and the exercise of the Option.

The sum of Ordinary Shares in (a) to (c) above, being 37,668,362 Ordinary Shares, divided by the Issued Share Capital at (d) above augmented by the issue of new shares at (a) and (b) above, being 105,749,520 Ordinary Shares, is equal to approximately 35.6 per cent.

Under the terms of the CULS Instrument, the Company continues bearing interest on the CULS after 30 June 2013 if a conversion notice has been served but the Ordinary Shares are not delivered on that date. The maximum additional interest that could accrue on the CULS after 30 June 2013 under the terms of the CULS Instrument is £323,287 as calculated below:

(a) PIK coupon of 4.75 per cent. p.a. (continuously compounded) accrues on the balance of £5,472,881 from 1 July 2013 for 90 days, such that a maximum additional £62,984 of CULS is outstanding at the end of the 90-day period;

(b) PIK coupon of 15 per cent. p.a. (continuously compounded) accrues on the balance of £5,535,865 for up to a further 120 days maximum, such that a maximum additional £260,303 of CULS is outstanding at the end of the 120-day period.

Assuming that the additional CULS of £323,287 are converted to Ordinary Shares in full at the Conversion Price of 31p, the total number of Ordinary Shares to be issued to Alpha Tiger is 18,697,315. The interests of Alpha Tiger and PIP combined would therefore be 38,711,222 Ordinary Shares and the fully diluted share capital would be 106,792,380 Ordinary Shares. Hence the maximum possible aggregate holding of Ordinary Shares by Alpha Tiger and PIP if the Proposals are approved would represent approximately 36.2 per cent. of the Company's fully diluted share capital.

Prior to this conversion, each of the CULS of 31p each will have attached to it a Preference Share carrying voting rights as described more fully in the Circular. On conversion of the CULS to which they are attached the Preference Shares will convert into non-voting Deferred Shares.

3. Annual cost of funding if CULS redeemed as debt

The statement in paragraph 4 of Part I of this announcement that if the CULS are redeemed on 30 June 2013 this would equate to an annual net cost of funding to the Company of approximately 14 per cent. has been calculated based on the following assumptions:

(a) principal due on the CULS at 30 June 2013 of £4.75 million, plus PIK coupon accruing for 3 years at 4.75 per cent. p.a. with coupon paid quarterly of £722,881, plus redemption premium of 18 per cent. being £985,119, resulting in a redemption payment of approximately £6.5 million; and

(b) net proceeds from the issue of CULS of approximately £4.4 million.

The internal rate of return that equates £6.5 million to £4.4 million over a three year period is approximately 14 per cent.

4. Proforma dilution calculations

The table at paragraph 4.1 of Part I of this announcement has been prepared using the following assumptions:

(a) interest on the CULS principal issued of £4.75 million accrues quarterly at an annual rate of 4.75 per cent. and is settled each quarter by the issue of additional PIK CULS;

(b) the Issued Share Capital of the Company remains unchanged apart from the effect of the Conversion of the CULS and the exercise of the Option; and

The table at paragraph 4.2 of Part I of this announcement has been prepared using the following assumptions:

(a) the diluted NAV per Ordinary Share at 31 March 2010 has been calculated assuming net proceeds of the fundraising of approximately £4.4 million and the conversion of £4.75 million of CULS at the Conversion Price of 31p; and

(b) the diluted NAV per Ordinary Share calculations at 30 June 2013 have been calculated assuming an uplift in net assets by virtue of the elimination of the CULS principal of £4.75 million, plus accrued PIK coupon of £722,881, as calculated in the table in paragraph 4.1 of Part I, and the conversion of the corresponding £5,472,881 of CULS at the Conversion Price of 31p.

This information is provided by RNS

The company news service from the London Stock Exchange

END

MSCLLFLFDSIVLII

Related Shares:

FTSE 100 Latest

Value8,417.34

Change2.09