Proposed Disposal

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART, IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION

Public Service Properties Investments Limited ("PSPI" or the "Company")

Proposed disposal of UK companies, businesses and assets

The Company is pleased to announce that it has entered into a conditional agreement to sell its remaining UK companies, businesses and assets to Embrace, the Group's sole UK tenant.

Under the SPA, PSPI has conditionally agreed to sell and Embrace has conditionally agreed to acquire the Group's remaining UK business, comprising nine UK care home freeholds, office premises, a school and resource centre and domiciliary care and related businesses (together the Wellcare Portfolio). The terms of the Disposal under the SPA value the Wellcare Portfolio on a cash free, debt free basis at £34.5 million (being £35 million less rent and business licence fees received by the Company from Embrace in respect of any period after 1 January 2015). Implementation of the Disposal will result in the Company receiving, after debt repayment, taxation and transaction costs, £14.2 million in cash. In addition deferred consideration of a further £2.5 million is payable in cash by 31 December 2015 if Embrace is successful in tendering for ongoing domiciliary care contracts in Liverpool, the outcome of which is expected to be known by Embrace in or around April 2015.

Following completion of the sale, the Company and its remaining subsidiaries (the Continuing Group) will have no interests, business or debt in the UK and after completion of the sale of the Lichtenberg property described below, the Continuing Group's assets will comprise five German properties, with outstanding debt secured against three of these properties, and cash.

Due to its size, and given its importance to the Company, the Disposal is subject to the approval of Shareholders in a general meeting of the Company to be held at 11.00 a.m. on 3 March 2015 at Governance Partners, L.P., First Floor, 7 Bond Street, St. Helier, Jersey JE2 3NP, notice of which is set out in in a circular to be posted to Shareholders later today (Circular).

Certain Shareholders (being Elliott International, L.P. and DBH Global Holdings Limited) who in aggregate hold in excess of 50 per cent. of the Company's issued share capital have given undertakings (subject to certain qualifications) to vote in favour of the Resolutions. Richard Barnes and Neel Sahai, Non-Executive Directors of the Company, have also given undertakings to vote in favour of the Resolutions.

The Circular will be available from the Company's website www.pspiltd.com.

For further information please visit www.pspiltd.com or call:

Smith Square Partners LLP which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting exclusively for Public Service Properties Investments Limited and for no one else in connection with the Disposal and is not advising any other person or treating any other person as its client in relation thereto and will not be responsible to anyone other than Public Service Properties Investments Limited for providing the protections afforded to clients of Smith Square Partners LLP, or for giving advice to any other person in relation to the Disposal, the contents of this document or any other matter referred to herein.

RP&C International Limited which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting exclusively for Public Service Properties Investments Limited and for no one else in connection with the Disposal and is not advising any other person or treating any other person as its client in relation thereto and will not be responsible to anyone other than Public Service Properties Investments Limited for providing the protections afforded to clients of RP&C International Limited, or for giving advice to any other person in relation to the Disposal, the contents of this document or any other matter referred to herein.

The following has been extracted from the Circular:

1 Introduction

Earlier today, the Company announced that it had entered into a conditional agreement to sell its remaining UK companies, businesses and assets to Embrace, the Group's sole UK tenant.

Under the SPA, PSPI has conditionally agreed to sell and Embrace has conditionally agreed to acquire, through a combination of share sales and asset transfers, the Group's remaining UK business, comprising nine UK care home freeholds, office premises, a school and resource centre and domiciliary care and related businesses (together the Wellcare Portfolio). The Disposal terms value the Wellcare Portfolio on a cash free, debt free basis at £34.5 million (being £35 million less rent and business licence fees received by the Company from Embrace in respect of any period after 1 January 2015). Implementation of the Disposal will result in the Company receiving, after debt repayment, taxation and transaction costs, £14.2 million in cash. In addition deferred consideration of a further £2.5 million is payable in cash by 31 December 2015 if Embrace is successful in tendering for ongoing domiciliary care contracts in Liverpool, the outcome of which is expected to be known by Embrace in or around April 2015.

Following Completion, the Continuing Group will have no interests, business or debt in the UK and after completion of the sale of the Lichtenberg property described below, the Continuing Group's assets will comprise five German properties, with outstanding debt secured against three of these properties, and cash.

Further details of the terms of the Disposal are set out in paragraph 3 below and in Part II of this document.

Due to its size, and given its importance to the Company, the Disposal is subject to the approval of Shareholders in a general meeting of the Company to be held at 11.00 a.m. on 3 March 2015 at Governance Partners, L.P., First Floor, 7 Bond Street, St. Helier, Jersey JE2 3NP, notice of which is set out at the end of this document. A Form of Proxy or Form of Instruction (as appropriate) for use in relation to the Meeting is enclosed with this document.

I am writing on behalf of the Board to set out the background to and reasons for the Disposal and to set out the reasons why the Board, which has been advised by Smith Square Partners and RP&C International, considers the Disposal to be in the best interests of the Company and its Shareholders as a whole. The Board recommends that Shareholders vote in favour of the Resolutions.

Certain Shareholders (being Elliott International, L.P. and DBH Global Holdings Limited) who in aggregate hold in excess of 50 per cent. of the Company's issued share capital have given undertakings (subject to certain qualifications) to vote in favour of the Resolutions. Richard Barnes and Neel Sahai, Non-Executive Directors of the Company, have also given undertakings to vote in favour of the Resolutions. Further details of the voting undertakings are set out in paragraph 11 below. 

2 Background to and reasons for the Disposal

PSPI's shares were admitted to trading on AIM in March 2007. At that time, the Company had a market capitalisation of £100 million and comprised a portfolio of property assets located in the UK, Switzerland and the United States of America. As part of the flotation, the Company raised cash of £31 million by way of a placing of new shares, which was used primarily for investment in the German care home market. At that time, the UK portfolio, comprised predominantly of care home assets, represented approximately 79 per cent. of the Company's assets, all of which were leased to the European Care Group (European Care), PSPI's sole UK tenant, and were valued at a capitalisation rate of 6.25 per cent. with an unexpired lease term of 30 years. Occupancy in the UK portfolio at that time averaged 88 per cent. of registered beds and the Company's business model was supported by debt markets which typically offered 70 to 75 per cent. loan to value funding on 5 to 7 year terms at spreads of 1.25 per cent. to 1.5 per cent. over LIBOR per annum. The investment opportunity in Germany (which had similar demographic trends to the UK) focused on securing multiple operators of care homes with lease terms averaging 20 years at a net initial yield of 7.3 per cent. to 7.5 per cent. per annum.

At flotation, the Company also announced its intention to commence a progressive dividend policy supported by index-linked lease payments and predominantly fixed rate financing which would result in the Company's net income increasing over time. In the three years after admission of its shares to trading on AIM, the Group acquired several assets in Germany at a gross purchase cost of approximately €58 million, additional properties in the UK at a gross purchase cost of approximately £24 million and refinanced and raised debt of approximately £100 million in those two countries. In April 2010, the Company raised a further £21 million through an issue of new shares by way of an 8 for 15 open offer at 70 pence per new share. The primary purpose of the open offer was to raise funds for a capital expenditure programme to expand and refurbish a number of the Company's UK care homes in exchange for rent increases on completion of the refurbishments. The Company paid £20.2 million in aggregate in dividends to Shareholders between 2007 and 2011.

The Capital Expenditure Programme

The level of funding required by PSPI for capital expenditure projects across the UK portfolio increased significantly following the raising of new capital in 2010. The capital expenditure programme, which for practical purposes was led by European Care, targeted the expansion and refurbishment of a number of the Group's properties. However, individual projects took much longer to complete and incurred higher costs than originally budgeted. It also took much longer than anticipated for European Care to refill those beds vacated during the construction and expansion programme. Alongside these challenges, the deterioration in the UK care market during and immediately following the credit crisis created additional operational and financial pressures across European Care's business.

As a result of these factors, operational performance for a large proportion of the UK portfolio fell significantly below the level required to support a refinancing of the Company's then £82 million debt facility, which was secured against the UK properties and was due for repayment in September 2012. In the last quarter of 2011, the Company engaged the services of debt advisory specialists to advise on a refinancing of this debt facility.

On 2 April 2012, the Company announced an update of its strategic review, which had been announced in September 2011 and reported that "concurrent with separate stand-alone refinancing processes by the Company and its UK tenant, the parties are in discussions with banks about a joint refinancing as part of a potential combination of the majority of the Group's UK property assets and the owned and operated properties of the UK tenant".

The 2012 Transaction

Following a review of refinancing options, the Board was advised that a standalone refinancing of the Group's £82 million facility without a material deleveraging would not be possible on attractive terms under the then prevailing market conditions and would also be conditional on European Care first having completed a refinancing of its own debt facilities secured against its owned and operated properties.

In July 2012, PSPI announced a proposed transaction to combine the majority of its UK property portfolio (through the sale of companies which owned 27 care home properties in the UK and had aggregate gross assets of approximately £154 million as at 31 December 2011) with the assets and business of European Care in a non-cash transaction (the 2012 Transaction). While the 2012 Transaction did not involve any cash proceeds being received by the Company, it did involve the transfer from the Group of £87 million of senior debt and interest rate swap obligations to European Care. The 2012 Transaction also enabled European Care to complete its own senior debt refinancing. Following the 2012 Transaction, European Care had total gross debt of approximately £326 million. The expectation by European Care's management was that the 2012 Transaction would enable it to significantly reduce financing risk and implement operational improvements across the business. The 2012 Transaction was completed in July 2012.

As a result of the changes described above, the Company suspended dividend payments to Shareholders in 2012. In addition, as part of its strategic review, in December 2012, the Company announced the sale of its non-core properties in Switzerland and the US as well as the sale of two properties in Germany. The sale of the Swiss and US properties enabled the Company to deleverage its consolidated balance sheet. The sale of the German properties was designed primarily to release funds to settle a number of accrued expenses arising from the 2012 Transaction. The total aggregate value of the properties in these transactions was approximately £28.5 million (equivalent). A total of approximately £23.0 million (equivalent) of debt was repaid following these sales.

The Wellcare Portfolio

The 2012 Transaction involved the disposal of approximately two-thirds of the Group's UK properties by number of beds at that time but did not involve the separately financed Wellcare Portfolio which was acquired in February 2004 for a gross acquisition cost of £32.3 million. Contemporaneously with the Wellcare Portfolio acquisition, the assets were leased and the businesses licenced to European Care for a period of 35 years. Annual aggregate income payable to the Company by European Care was £3.5 million. Contractually, the rent and business licence fees increase annually in line with increases in the Retail Price Index.

The Wellcare Portfolio was independently valued by Colliers as part of the 2012 Transaction at £51.1 million with the properties valued at £46.0 million, net of purchasers' costs, at an average capitalisation rate of 8.2 per cent. and £5.1 million for the domiciliary care business.

Following completion of the 2012 Transaction, European Care's business has continued to be negatively affected by local authority spending cuts, declining occupancy rates, increasing capital expenditure requirements and increased payroll costs as a percentage of turnover. The operating performance of the Wellcare Portfolio deteriorated significantly during 2013, although it partially recovered during 2014. However, the levels of occupancy and general operating performance of the portfolio have remained below market norms, particularly the level of operator EBITDAR to rent cover. Meanwhile, the Company has sought to further de-leverage its balance sheet utilising operational cash flow and proceeds from further sales of assets in Germany for, in aggregate, consideration of €15.9 million. The net proceeds received from these transactions were approximately £1.8 million after debt repayments and transaction costs.

In April 2014, European Care announced that it had been acquired by financial investors and re-branded as Embrace Group. The transaction involved a debt for equity swap and a pre-pack administration of European Care & Lifestyles (UK) Limited and Esquire Realty Holdings Limited. As part of this transaction all of Embrace's outstanding debts were eliminated. The Embrace entities, which are the tenants and licensees of the Wellcare Portfolio, have not been placed into administration and contractual rent and licence fees have continued to be paid in accordance with existing agreements. Discussions between PSPI and Embrace in respect of the operational performance of, and future strategy for, the Group's UK portfolio have been taking place for some time and a proposal to acquire the Wellcare Portfolio was made by Embrace at the end of last year. After careful consideration of the alternatives to the Disposal, the Directors discussed the proposal with representatives of two of the Company's largest shareholders, Elliott International, L.P. and DBH Global Holdings Limited. Following confirmation from those shareholders that they would support the Disposal, the SPA was executed and Shareholders' approval for the Disposal is now being sought.

Alternatives to the Disposal

Since the 2012 Transaction, PSPI has continued to test the market for its assets in the UK and Germany in line with its stated strategy. In the UK, the Board has mandated independent advisers, including Colliers, to assess potential options for the Wellcare Portfolio, including realisation and considering potential alternative operators and licensees.

The Board believes that the alternatives involve significant uncertainties in terms of valuation, timeline and execution. In particular, the Company has been advised by Colliers that there is unlikely to be a single buyer for all of the Wellcare Portfolio due to the diverse nature of services offered, the location of the assets and variations in the quality and condition of individual properties. Certain other options, including PSPI becoming an operator of its care homes, would require a fundamental change in the Company's business and would involve additional operational and financial risks, including a requirement to fund capital and maintenance expenditure of up to £4.0 million in the short term. Shareholders should note that this level of expenditure would represent approximately 78 per cent. of the current annual revenue (£5.1 million) generated by the Wellcare Portfolio. Moreover, it is likely that services provided in some of the properties would need to be changed which, coupled with the significant capital expenditure referred to above, could result in a period of uncertain operational performance. The Board has been advised by Colliers that a realistic timeframe for material improvements in operational performance (which cannot be guaranteed) could be two to three years. 

By contrast, the Disposal offers a greater level of certainty, as it involves a single transaction with Embrace for the Wellcare Portfolio as a whole with a low level of execution risk and a relatively rapid implementation timetable. Furthermore, due to Embrace's knowledge of the Wellcare Portfolio, a reduced number and level of representations and warranties have been provided by the Company in the SPA.

The Board believes that the status quo (carrying on without the Disposal) is untenable in the longer term as the current and prospective ratio of Embrace's earnings to rent paid on the properties in the Wellcare Portfolio may be taken as evidence that certain of the homes are 'over-rented'. While this conclusion does not take into account the fact that earnings across the portfolio have reduced due to poor operating performance in certain of the properties and, although each tenant continues to have a contractual obligation to pay the rent and businesses licence fees to the Group, the Board has been advised by Colliers that Embrace or any alternative operators, if appointed, might seek to re-negotiate the leases on the basis of current operational performance. Such renegotiation could have a further negative impact on the valuation and future marketability of the Wellcare Portfolio.

As a result of the factors set out above, the Board has concluded that the Disposal represents the best option to monetise in the near term the whole of the UK portfolio for cash. Accordingly, the Board, which has been advised by Smith Square Partners and RP&C International, considers the Disposal to be in the best interests of the Company and its Shareholders as a whole.

The value of the Wellcare Portfolio under the SPA of £34.5 million on a cash free, debt free basis (being £35 million less rent and business licence fees received by the Company from Embrace in respect of any period after 1 January 2015 and before any deductions for taxes, debt repayment and prepayment penalties and other transaction costs) represents a discount of approximately 31 per cent. to the value of the Wellcare Portfolio as included in the unaudited consolidated financial statements of the Group, as at 30 June 2014.

For the purposes of the Board's consideration of the Disposal, Colliers has provided an independent valuation on a desk top basis of the properties included in the Wellcare Portfolio as at 31 December 2014, following physical inspections of the properties in July and December 2014. In preparing its valuation, Colliers has evaluated the operating performance of Embrace, over the eleven months ended 30 November 2014. Its independent valuation of the Wellcare Portfolio properties (net of purchasers' costs) as at 31 December 2014 was £35.4 million, compared to its previous independent valuation of these properties (on the same basis) of £38.4 million as at 30 June 2014. In arriving at its valuation at 31 December 2014 Colliers stated "This valuation assumes that the landlord will enforce the tenants covenant to keep the premises in a good state of repair and decoration. Whilst we have not undertaken a schedule of dilapidation, from our inspection of the premises for valuation purposes we consider the cost of tenant compliance would be a minimum of £3.85 million. The value would be a minimum of £3.85 million lower without the benefit of this assumption."

A summary of Colliers' independent valuation report on the properties in the Wellcare Portfolio as at 31 December 2014 is set out in Part III of this document.

3 Principal terms of the Disposal and use of proceeds

Under the SPA, PSPI has conditionally agreed to sell and Embrace has conditionally agreed to acquire the Sale Companies and the Sale Assets comprising:

i. all the shares of Healthcare Properties (Wellcare) Limited (HCPW) (a wholly-owned indirect subsidiary of PSPI, which owns five care homes and office premises) and HCP Community Support Services Limited (which operates a school and resource centre);

ii. all the shares of HCP Wellcare Progressive Lifestyles Limited (a wholly-owned indirect subsidiary of PSPI, which has licensed a domiciliary care and related business to Embrace); and

iii. four care homes and related assets owned by Healthcare Properties (I) Limited and the related licences,

for an initial consideration of £32.5 million less (a) the cost (including prepayment penalties) of repaying the bank debt of HCPW and (b) rent and business licence fees received in respect of any period after 1 January, 2015)) payable at Completion. In addition deferred consideration of a further £2.5 million is payable in cash by Embrace to PSPI by 31 December 2015 if Embrace is successful in tendering for ongoing domiciliary care contracts in Liverpool, the outcome of which will is expected to be confirmed by Embrace in or around April 2015.

All of the properties and businesses proposed to be sold pursuant to the Disposal are charged as security for the BLME Loans. This security will be released to enable the Disposal to be implemented and the BLME Loans will be pre-paid, triggering an early repayment charge of approximately £0.4 million. If Completion takes place on the proposed date of 3 March 2015, the total amount payable to BLME (including the early repayment charge) will be approximately £16.3 million, less any surplus cash balances held by BLME.

The net proceeds from the Disposal, after debt repayment and prepayment penalties, taxation and transaction costs, amounting to approximately £14.2 million, will not be used by PSPI to acquire new assets. Some of the proceeds may be used to repay some or all of the remaining debt secured against three of the German properties, with the balance (net of normal course expenditure and contingencies) to be returned to Shareholders in due course. The timing of any distribution to Shareholders may be subject to the timing of further asset disposals in Germany.

As described in paragraph 10 below, the Board is seeking Shareholder approval at the General Meeting by way of the Special Resolution for greater flexibility for the arrangements for returning funds to Shareholders. This will supplement the existing redemption authority which the Board already has under the Articles.

4 Historical financial information on the Wellcare Portfolio

Certain historical financial information on the Wellcare Portfolio is set out in Part IV of this document. The unaudited results for the year ended 31 December 2014 reflect turnover of £5.2 million and a profit before and after tax of £2.3 million and £1.9 million respectively. 

5 Valuation Report

A summary of Colliers' independent valuation report on the properties in the Wellcare Portfolio as at 31 December 2014 is set out in Part III of this document. The properties have been valued (net of purchasers' costs) at £35.4 million applying an average annual capitalisation rate of 11.0 per cent., compared to the most recent independent valuation (on the same basis) of £38.4 million as at 30 June 2014.

6 The Continuing Group

On 3 November 2014, the Company announced that it had signed a contract to dispose of a German partnership, which owned two care homes in Langen and Lutzerath leased to the Marseille Kliniken AG Group (MK), for a consideration of €13.4 million in cash. This represented a 7.5 per cent. discount to the value of the properties at 30 June 2014 which was included in the Company's unaudited consolidated interim results for the six months ended 30 June 2014. The two care homes generated net rental income of €1.0 million and a profit of approximately €0.5 million for the year ended 31 December 2014. Of the sale proceeds, €10.7 million was used to repay debts secured against properties leased to MK in Germany and to settle transaction costs which included prepayment penalties and interest rate swap breakage costs. The balance was used for working capital purposes. The sale completed on 9 January 2015.

On 12 January 2015, the Group also entered into a contract with MK to sell the Lichtenberg assisted living apartment building located in Berlin, which is one of the three remaining properties leased by the Group to MK, for €2.5 million in cash. This represented a 20 per cent. premium to the value of the property at 30 June 2014. The property generated rental income of €0.2 million per annum and an unaudited profit of approximately €0.1 million for the year ended 31 December 2014. The sale is expected to complete in the second half of February 2015 following updating of the land registry in Berlin. Of the sale proceeds, €2.0 million will be used to repay debts secured against properties leased to MK in Germany and to settle transaction costs, including prepayment penalties and interest rate swap breakage costs, and the balance of €0.5 million will be used for general working capital purposes.

Following Completion and completion of the sale of the Lichtenberg property, the Group will own five care home properties occupied by three tenants in Germany. Rental income from these properties is €2.1 million per annum. These properties were independently valued by Colliers at €19.1 million net of purchasers' costs as at 31 December 2014. The remaining bank debt secured against three of the remaining German properties (excluding any application of the net proceeds of the Disposal in further reducing this debt) will be €4.4 million.

The Company will continue to test the market in respect of its remaining five properties located in Germany, which are fully let, with no voids, and have a weighted average unexpired lease term of approximately 16 years. There are ongoing discussions which may result in due course in the disposal of some or all of these assets which the Company will announce as appropriate.

Following Completion and the sale of the three German properties referred to above, management fees are expected to decrease by approximately £0.2 million per annum. Other savings including, inter alia, reduced audit and other professional costs of, in aggregate, approximately £0.2 million per annum should also be achieved.

7 Current Trading

Total unaudited annual rental and finance lease income was £7.7 million for the year ended 31 December 2014. UK rental and finance lease income, currently at £5.1 million per annum, increased by 2.8 per cent. in February 2014 reflecting the annual increase in the retail price index at the end of January 2014. Rental income in Germany in the year ended 31 December 2014 remained at the same levels, in euros, as that received in the year ended 31 December 2013. As stated above, the Group's property portfolio remains fully let and all rental income continues to be paid when due.

An independent valuation of the Group's property assets was undertaken by Colliers at 31 December 2014 in connection with the preparation of the Company's year-end figures. The gross aggregate capital value of the Group's properties at 31 December 2014 decreased from £72.1 million at 31 December 2013 to £55.4 million at 31 December 2014. The UK portfolio valuation decreased by £0.3 million or 0.9 per cent. to £37.4 million. The German portfolio decreased by £14.9 million to £17.9 million with £11.3 million being in respect of assets sold in November 2014, £3.3 million in respect of decreased valuations of the six German properties retained at 31 December 2014 and £0.4 million in respect of changes in the foreign exchange rates used at the beginning and end of 2014.

A majority of the decline in the valuation of the German portfolio is attributable to the properties leased to MK, reflecting Colliers' assessment of a weaker covenant primarily due, in its opinion, to the de-listing of the parent company's shares and a declining level of rent cover from operating earnings.

The Group continues to generate sufficient cash to meet all of its scheduled interest payments, debt repayment obligations and other operational costs. Loan to Value at 31 December 2014 was 43.6 per cent. and 17.5 per cent. for the portfolios in the UK and Germany, respectively, and 32.2 per cent. for the Group as a whole. The debt secured against the German properties declined in November 2014 after the repayment of approximately £8.3 million of debt following the sale of the Langen and Lutzerath properties.

8 Unaudited consolidated pro-forma statement of net assets of the Continuing Group

An unaudited consolidated pro-forma statement of net assets of the Continuing Group, assuming the Disposal and sale of the Langen, Lutzerath and Lichtenberg properties had been completed on 30 June 2014, is included in Part V of this document. The pro-forma statement shows a reduction in net assets from £51.8 million to £32.2 million immediately following completion of the Disposal and sale of the German properties referred to above. The reduction is primarily due to the fact that the Wellcare Portfolio is being sold at a discount to the carrying value of the assets at 30 June 2014. The unaudited pro-forma statement of net assets also reflects the unwinding of outstanding inter-company balances between the entities being sold and other Group companies.

9 Use of Proceeds, Future Strategy and Dividend Policy

At Completion, the consideration receivable by the Company (excluding funding for the repayment of the bank debt of HCPW which is to be sold to Embrace) will be approximately £24.4 million which will be used to:

i. repay the bank debt of Healthcare Properties (I) Limited of approximately £8.7 million, including prepayment penalties; and

ii. pay taxation and transaction costs in connection with the Disposal estimated at approximately £1.5 million.

The net proceeds of approximately £14.2 million will be used to increase the Group's working capital.

In addition, on completion of the sale of the Lichtenberg property, working capital will be increased by a further £0.4 million which, combined with existing balances will result in the Group having total cash balances of approximately £20.1 million. The Company does not plan to re-invest these funds and will consider repayments of debt secured against the three German properties (amounting to €4.4 million following completion of the sale of the Lichtenberg property).

On the assumption that Embrace is successful in tendering for domiciliary care contracts in Liverpool as described above, the Company will receive an additional £2.5 million in cash by 31 December 2015. The Board will determine the most appropriate use of the additional proceeds at that time depending on progress on the disposal of the remaining German properties, and will seek to return capital to Shareholders in due course.

Further announcements in relation to the above will be made as appropriate.

10 General Meeting

Due to its size, and given its importance to the Company, under the AIM Rules for Companies, the Disposal is subject to the approval of Shareholders in a general meeting of the Company. If passed, the Transaction Resolution will authorise the Directors to implement the Disposal on the terms set out in the SPA and as summarised in this document.

The Board is also seeking Shareholder approval at the General Meeting by way of the Special Resolution for greater flexibility for the arrangements for returning funds to Shareholders. If passed the Special Resolution will amend the Articles to provide that Shares may be redeemed at the option of the Company at such times and on such terms (including as to price, provided that it shall not be less than their par value) as the Board may determine provided that Shares shall only be redeemed pursuant to this provision pro rata from each Shareholder (or as nearly pro rata as practical without giving rise to fractions). This will supplement the existing redemption authority which the Board already has under the Articles.

You will find set out at the end of this document a Notice convening the General Meeting to be held at 11.00 a.m. on 3 March 2015 at Governance Partners, L.P., First Floor, 7 Bond Street, St. Helier, Jersey JE2 3NP, to consider the Resolutions. The Transaction Resolution will be proposed as an ordinary resolution and, in order to be passed, will require the approval of 50 per cent. or more of the votes cast at the Meeting, whether in person or by proxy. The Special Resolution will be proposed as a special resolution and, in order to be passed, will require the approval of 75 per cent. or more of the votes cast at the Meeting, whether in person or by proxy.

All Shareholders are entitled to attend and vote at the General Meeting and all Shareholders present in person or by proxy shall upon a show of hands have one vote and upon a poll shall have one vote in respect of every Share held. In order to ensure that a quorum is present at the General Meeting, it is necessary for two Shareholders entitled to vote to be present, whether in person or by proxy (or, if a corporation, by a representative).

11 Undertakings to vote in favour of the Resolutions

Each of Elliott International, L.P. and or its affiliates and DBH Global Holdings Limited, has undertaken (subject to certain qualifications) to vote in favour of both of the Resolutions in respect of their holdings of 48,613,359 and 6,249,083 Shares respectively, representing in aggregate approximately 52.1 per cent. of the Company's issued share capital.

In addition, each of Richard Barnes and Neel Sahai, Non-Executive Directors of the Company, has irrevocably undertaken to vote in favour of both of the Resolutions in respect of their aggregate holdings of 148,571 Shares, representing approximately 0.1 per cent. of the Company's issued share capital.

12 Action to be taken

Shareholders and Depositary Interest Holders will find enclosed with this document a Form of Proxy or Form of Instruction (as appropriate). Please complete, sign and return the enclosed Form of Proxy or Form of Instruction as soon as possible in accordance with the instructions printed on it, whether or not you intend to be present at the General Meeting. To be valid a Form of Proxy must be completed, signed and returned in accordance with the instructions printed thereon as to be received by the Company's registrars, Computershare Investor Services (BVI) Limited, c/o The Pavilions, Bridgwater Road, Bristol, BS99 6ZY as soon as possible and, in any event, not later than 11.00 a.m. on 27 February 2015 or 48 hours before any adjournment meeting. To be valid, a Form of Instruction must be completed, signed and returned in accordance with the instructions printed thereon so as to be received by the office of the Depositary, Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol, BS99 6ZY as soon as possible and, in any event, not later than 11.00 a.m. on 26 February 2015 or not less than 48 hours (excluding weekends and public holidays) before the time appointed for the Meeting or any adjournment of it. The completion and return of a Form of Proxy/Instruction will not preclude Shareholders from attending and voting in person at the General Meeting should they subsequently wish to do so.

Depositary Interest holders may submit their votes using the CREST electronic proxy appointment service. The completion and return of a Form of Proxy or Form of Instruction will not preclude you from attending and voting at the General Meeting in person should you subsequently decide to do so. Please read the notes to the Notice of General Meeting set out at the end of this document and the accompanying Form of Proxy or Form of Instruction (as appropriate) for detailed instructions. The attention of Shareholders and Depositary Interest Holders is also drawn to the voting intentions of the Directors set out below.

13 Further Information

Your attention is drawn to the furtherinformation contained in the remainder of this document. You are advised to read the whole of this document and not to rely solely on the information contained within this letter.

14 Recommendation

Your Board, which has been advised by Smith Square Partners and RP&C International, considers the terms of the Disposal to be fair and reasonable. In providing their advice, Smith Square Partners and RP&C International have relied upon the Directors' commercial assessments of the Disposal.

The Board considers the Disposal to be in the best interests of the Company and its Shareholders as a whole and accordingly unanimously recommends that Shareholders vote in favour of the Resolutions to be proposed at the General Meeting. Those Directors who hold Shares (being Richard Barnes and Neel Sahai) have irrevocably undertaken to vote in favour of the Resolutions in respect of their own beneficial holdings amounting in aggregate to 148,571 Shares representing approximately 0.1 per cent. per cent. of the Company's issued share capital.

Yours sincerely

Patrick Hall

Chairman

DEFINITIONS

In addition to the terms defined elsewhere in the text, the following definitions apply throughout this announcement and the Circular, unless the context requires otherwise:

Overseas Shareholders

The distribution of this announcement in or into jurisdictions other than the United Kingdom may be restricted by law and therefore any persons who are subject to the laws of any jurisdiction other than the United Kingdom should inform themselves about, and observe, such restrictions. Any failure to comply with the applicable restrictions may constitute a violation of the securities laws of any such jurisdiction. Subject to certain exceptions, this announcement is not for release, publication or distribution, directly or indirectly, in or into the United States, Australia, Canada, the Republic of South Africa, Japan or any jurisdiction where to do so might constitute a violation of local securities laws or regulations.

Forward-looking statements

This announcement may include 'forward-looking statements'. All statements other than statements of historical fact included in this announcement, including without limitation, those regarding the Company's financial position, business strategy, plans and management objectives for future operations are forward-looking statements. Forward-looking statements are subject to risks and uncertainties and accordingly the Company's actual future financial results and operational performance may differ materially from the results and performance expressed in, or implied by, the statements. These factors include but are not limited to those described in the Circular.