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Primary Health Props (PHP)

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Monday 20 November, 2006

Primary Health Props

Proposed Conversion toUK-REIT

Primary Health Properties PLC
20 November 2006

20 November 2006



                         Primary Health Properties PLC

                            ("PHP" or "the Company")



                        Proposed Conversion to UK- REIT

Highlights

•  PHP, the provider of modern primary healthcare facilities, announces that 
   it has today written to shareholders requesting approval for conversion to 
   REIT status

•  Conversion enables significant annual tax savings on income and eliminates 
   capital gains tax paid on disposal of assets

•  Subject to shareholder approval, company could convert as early as 1 Jan 2007

•  Company to pay minimum of 90% of the profits of the tax exempt business by 
   way of dividends - in line with current dividend policy

•  Conversion expected to incur one-off charge of £4.5m, based on value of 
   assets to form tax exempt business as at 30 June 2006 - PHP intends to 
   elect to pay the conversion charge in four installments

•  Circular submitted to UK Listing Authority and to be posted today to 
   shareholders

•  An Extraordinary General Meeting to be held on 18 December 2006 at 11 am in 
   the Board Room, Ground Floor, Ryder Court, 14 Ryder Street, London SW1Y 6QB


Further information detailing the Circular and the potential benefits to
shareholders and background to UK-REIT conversion are below.



Harry Hyman, Executive Managing Director of PHP, said:



"We believe that conversion to a UK registered REIT is a highly attractive
opportunity for investors in PHP.  We have always adopted a policy of maximum
possible distribution of after tax profits and REIT status allows us to enhance
this policy.  The gains we make on tax transparency will be passed directly to
our shareholders, thereby maximising their returns - something that we have
always believed in and adhered to since listing ten years ago."



                                     -ends-

Enquiries:



Bell Pottinger Corporate & Financial

David Rydell/ Victoria Geoghegan                              Tel: 020 7861 3232





Primary Health Properties PLC

Harry Hyman, Managing Director                               Tel: 01483 306912











Notice of Extraordinary General Meeting and Proposed Amendments to the Articles
of Association for the Purposes of the Company Converting to a UK-REIT





Letter from the Chairman



Dear Shareholder



UK-REIT conversion



1.   Introduction



I am writing to you to explain why the Board of PHP is recommending that the
Company convert itself into a UK-REIT.



After many years of lobbying by the property industry, primary UK-REIT
legislation was enacted on 19 July 2006 with regulations published on 1 November
2006. This will facilitate the holding of property in a UK based corporate
structure on a tax neutral basis. The Directors believe that its business,
distribution policy and gearing levels are likely to allow PHP and its
subsidiaries to qualify as a UK-REIT.



The benefits of this to the Company are that all future capital gains will, so
long as PHP continues to meet the relevant qualifying conditions accrue in a tax
free environment and there will no longer be a requirement to provide for
deferred taxation. In addition PHP will not have to pay taxation in respect of
its net qualifying income. The deferred taxation provided in the Group's
accounts at 30 June 2006 was £21m.



The existing dividend policy under which PHP distributes substantially all of
its distributable profits by way of dividend will not be altered and the
Directors anticipate that this will enable the Company to satisfy the 90% test.



The cost of conversion is an entry charge of 2% of the Group's net assets which
can alternatively, by election, be paid in four instalments (where the rate is
2.19%).  It is intended that the Company will elect for the instalment option.
Assuming that conversion took place at 30 June 2006, the date of the Group's
last available balance sheet, then the charge would be £4.5m.



In order to facilitate the Company operating efficiently as a UK-REIT, certain
changes are required to the Articles of Association. These changes take account
of the UK-REIT legislation contained in Part 4 of the Finance Act 2006 and the
regulations made thereunder (the "UK-REIT regime"), specifically the UK-REIT
rules regarding the payment of dividends to Substantial Shareholders.



I am writing to explain the background to the proposed changes to the Articles
of Association which are being submitted for approval at the Extraordinary
General Meeting and why the Board thinks that they are in the best interests of
shareholders as a whole. Set out at the end of this document is a notice
convening the Extraordinary General Meeting, which sets out the text of the
proposed amendments to the Articles of Association.



If approved by Shareholders, the proposed amendments to the Articles of
Association will not take effect unless the Board elects for UK-REIT status.
The Extraordinary General Meeting will be held at the Board Room, Ground Floor,
Ryder Court, 14 Ryder Street, London SW1Y 6QB on 18 December 2006 at 11 a.m.
There is also enclosed a Form of Proxy to enable you to vote on the resolution
should you be unable to attend the meeting.



This document provides you with details of the proposals and explains why the
Board believes they are in the best interests of shareholders as a whole. In
order to assist your consideration of these proposals this letter also includes:



   -   background information on what a UK-REIT is;

   -   details of the advantages, both for the Company and its shareholders, of
       becoming a UK-REIT and the anticipated costs of conversion; and

   -   an explanation of why the Board believes it is in the best interests of
       shareholders for the Company to elect to convert into a UK-REIT.



2.   Background to conversion to a UK-REIT


a)   What is a UK-REIT?



A UK-REIT is a company that either itself owns and operates income-producing
real estate investments, which can be commercial or residential, or comprises a
group of companies which carries out these activities. Most of this income is
distributed to shareholders and in return the company is exempt from corporation
tax on profits and gains relating to its qualifying property rental business.



Converting into a UK-REIT does not materially alter the group of companies'
business or operations, but is merely a more tax-efficient structure. UK-REITs
are intended to enable the income from rented property assets to be earned in a
tax efficient way and to ensure that the return from investing in a property
company is more aligned with direct property investment.



A group of companies which elects for UK REIT status is permitted to carry on
both tax-free property rental activities and other, taxable activities, subject
to certain restrictions which are set out below. Electing for UK-REIT status
does not change the legal status of the company or its share capital.



b)   A global trend



Real estate investment trusts and similar structures have become a global trend,
trading successfully in North America (USA and Canada), Australia, Asia-Pacific
(Japan, Singapore, Hong Kong, Malaysia, Thailand, South Korea and Taiwan) and
Europe (The Netherlands, Belgium, Greece and France). The UK-REIT regime
commences from 1 January 2007 and Germany is currently considering introducing a
German real estate investment Trust in the near future.



c)    Key conditions to become a UK-REIT



In order to qualify as a UK-REIT, a group of companies will need to meet certain
conditions. The key features are as follows:



   -   the parent company must be a solely UK resident company whose ordinary
       shares are listed on a recognised stock exchange (which includes the 
       Official List but does not include the AIM market) and not be an 
       open-ended investment company;

   -   the parent company must not be a "close company";

   -   the property rental business, whether Tax Exempt (within the UK) or
       overseas, should comprise at least 75% of the overall group's activities,
       measured by reference to both the value of its assets and its total 
       profits;

   -   a minimum of 90% of the UK-REIT's "profits" (calculated under UK tax
       principles after interest and capital allowances and excluding chargeable
       gains) from the Tax Exempt business must be distributed to investors. 
       This distribution is referred to as a property income distribution or 
       "PID"; and,

   -   with some exceptions, the UK-REIT will be required to withhold basic rate
       tax on the payment of a PID (please refer to the additional tax 
       information in Part III) of this document.



PHP satisfies all the above conditions for conversion into a UK-REIT and the
Board expects the Group to continue doing so in the future.  The Group has been
preparing for conversion for many months to ensure a smooth transition.



In addition to the above conditions, as a UK-REIT, the Group needs to meet
certain other conditions in order to maximise tax efficiency as follows:



   -   the Group will be subject to a financing costs-cover test on the
       Tax-Exempt Business. This is a form of gearing test. The Group will need 
       to be within the limits envisaged by the test to avoid an additional tax 
       charge.

   -   the Company would suffer a significant tax penalty in the event that
       distributions are made to any corporate shareholder who is beneficially 
       entitled to 10% or more of the shares of the Company, or to 10% or more 
       of dividends declared, or who controls 10% or more of the voting power. 
       Further details are set out in k) below. The Group can protect itself 
       against the risk of this tax penalty provided it can demonstrate it has 
       taken reasonable steps to avoid paying distributions to such Substantial 
       Shareholders. The proposed amendments to the Articles of Association 
       should enable the Group to satisfy this requirement.



d)   Further Information on the UK-REIT regime



Further information on the UK-REIT regime is set out in Part II of this
document.



e)   Timing


The legislation to enable the establishment of UK-REITs was contained in the
Finance Act 2006 which became law on 19 July 2006. The detailed regulations that
will govern the UK-REIT regime were published on 1 November 2006.  HMRC are
intending to publish guidance on certain areas although this is only available
in draft form at the date this letter is written.  The Board will review such
guidance as is available prior to conversion into a UK-REIT and will not proceed
with the conversion if there are, or are likely to be, material changes that the
Board considers would be adverse for the Company or would affect the
consequences of conversion for shareholders in a way that is materially
different to that described in this document.


This legislation provides that a company satisfying the conditions for UK-REIT
status may elect to convert on, or after, 1 January 2007, provided that it has
served notice to HMRC of its intention to convert prior to the conversion date.



The Board, subject to the passing of the resolution at the EGM convened for 18
December 2006 and the review of any guidance published by the HMRC after the
date of this letter as referred to above, intends to serve notice of conversion
on or before 29 December 2006 in order to achieve UK-REIT status for the Group
on 1 January 2007.



f)            Advantages of becoming a UK-REIT



By converting to a UK-REIT, UK resident members of the Group will no longer pay
corporation tax on the profits and gains from their qualifying property rental
business in the UK provided that it meets certain conditions. This will
effectively reduce the burden of taxation for most shareholders in respect of
the Tax-Exempt Business and enable them to gain access to more flexible indirect
property investments for their portfolios. Non-qualifying profits will continue
to be subject to corporation tax as normal.



For PHP, this will mean significant annual tax savings on its property income
and the elimination of tax which would otherwise arise in respect of capital
gains realised on the disposal of assets. This will lead to the eradication of
the contingent tax liability of £21.2 million, representing the deferred tax
liability provided in the Group's accounts as at 30 June 2006.



The elimination of this potential tax exposure (which will also apply to any
future gains in the value of the Group's qualifying property investment assets)
means that the Group will have more flexibility, post UK-REIT conversion, with
regard to its investment assets as it can dispose of them without incurring a
tax charge. Furthermore, as the Group will not suffer corporation tax on income
and gains relating to its UK investment assets, it should be able to return more
to shareholders.



g)          The cost of conversion to UK-REIT status



The entry cost of conversion to UK-REIT status has been set by the UK Treasury
at 2% of the market value of the assets within the Tax Exempt Business
immediately prior to entry into the UK-REIT regime (2.19% if the option to pay
in instalments is taken).



PHP intends to elect to pay the conversion charge in four instalments so, in
PHP's case, this would mean a conversion charge of £4.5 million, based on the
value of the assets that will form the Tax Exempt Business as at 30 June 2006.
The actual conversion charge will depend on the value of the assets as at 31
December 2006.  See page 17 of this document for further detail.



h)          Dividend policy


The Company intends to employ the same dividend policy following UK-REIT
conversion as it does now and the Board expects that this will comfortably
exceed the required PID distribution.



Following UK-REIT conversion, distributions from the Company may comprise PIDs,
ordinary corporate dividends or a combination of the two.  The Company will be
required to distribute to shareholders (by way of dividend), on or before the
filing date of the Company's tax return for the accounting period in question,
at least 90% of the income profits of the Tax-Exempt Business (broadly,
calculated using normal tax rules) of the UK-resident members of the Group in
respect of their Tax-Exempt Business and of the non-UK resident members of the
Group insofar as they derive from their UK qualifying property rental business
arising in each accounting period.  Subject to certain exceptions, these PIDs
will be subject to withholding tax at the basic rate of income tax (currently
22%). Companies may decide to distribute additional amounts over and above the
minimum PID, in which case such amounts will be treated as ordinary corporate
dividends or as a PID, dependent on their source.  For further detail, please
see Part II of this document.



In order to pay a PID without withholding tax, the Company will need to be
satisfied that the shareholder concerned is entitled to that treatment.  For
that purpose, the Company will require such shareholders to submit a valid claim
form (copies of which may be obtained on request) from the Company's Registrars,
Capita Registrars).



The precise proportion of recurring property rental income that the Group
distributes may vary between years and will be flexed as appropriate, according
to the needs of the business. Ordinarily, however, the Board would expect to
distribute a high proportion (including the mandatory PID element) of recurring
property rental earnings, on the basis of adjusted earnings per share as
reported under IFRS. A proportion of trading property profits and other income
from non-property activities may also be distributed, to the extent the Board
regards those earnings as sustainable. Capital gains arising on the disposal of
investment properties will, ordinarily, be retained/recycled within the business
to support future growth.



Had the Group previously been operating as a UK-REIT and the profit and
distribution levels remain unchanged, the PID element of those distributions
made in previous financial years would not have been significant, as illustrated
in the table below.


                             2003          2004         2005          2006 
                             (audited)     (audited)    (audited)     (audited)

Details from accounts

Profit before tax
         UK GAAP             2,179,000     2,472,000    3,030,000     n/a
         IFRS 1              n/a           n/a          19,387,000    18,403,000

Actual dividend paid         1,740,000     1,995,000    2,658,000     3,062,000


Theoretical PID if REIT conversion had been available in earlier periods

Estimated Taxable profits 2  78,074         Nil         60,900         624,217 3

Notional PID 4               70,267         Nil         54,810         561,795



1 The PBT under IFRS is substantially higher than under UK GAAP as it includes
the revaluation of properties.

2.The taxable profits for 2003 have been agreed with HM Revenue & Customs
(HMRC). However, the corporation tax return for the 2004 and 2005 year ends are
still open to enquiry by HMRC and the 2006 year end return is yet to be
submitted and is therefore an estimate.

3 The significant estimated taxable profit seen in the year ended 30 June 2006
is due to the chargeable gains arising on the sale of two investment properties.
Had these disposals not taken place, the taxable profits for the year would have
been nil, and therefore no PID would have been required.

4 Under the REIT legislation the PID must be 90% of taxable profits of the
property rental business. Since, substantially all of the profits relate to the
property rental business, for the purposes of this table, we have calculated the
PID as 90% of total taxable profits.



i)            Tax position of the Company's shareholders



The comments in this section are provided for general guidance only.
Shareholders who are in any doubt concerning the taxation implications of any
matters reflected here should consult their professional advisers.



As discussed in h) above, distributions from the Company may comprise PIDs,
ordinary corporate dividends or a combination of the two. If, as described
above, capital gains are recycled, only distributions of profits after interest
deductions and capital allowances will constitute PIDs.  Other dividends will be
taxed as normal in the hands of Shareholders.  Further detail in respect of the
attribution of distributions is included in Part II of this document.



Broadly, PIDs are treated for UK tax purposes in the hands of the shareholders
as property rental income rather than dividends. They may be subject to
withholding at source, at the basic rate of UK income tax of 22%. Additional UK
taxes may be payable. Certain shareholders may have their liability to tax
reduced, for example through the operation of a double tax treaty.  A general
guide to the treatment for the principal classes of shareholders is set out in
Part III of this document.



j)            The 10% rule



Under the UK-REIT regime, a tax charge may be levied on the Company if the
Company makes a distribution to a Substantial Shareholder unless the Company has
taken reasonable steps to avoid such a distribution being paid. Shareholders
should note that this restriction only applies to shareholders that are bodies
corporate and to certain entities which are deemed to be bodies corporate.  It
does not apply to nominees.



The background to the charge recognises that in certain circumstances such
shareholders resident in jurisdictions with favourable double tax agreements
with the UK can reclaim all or part of the UK income tax payable by them on the
dividend. The charge seeks to collect from the Company an amount of corporation
tax equivalent to the basic rate income tax liability on the dividend
irrespective of the tax treatment of the shareholder.



A tax charge may be imposed only if a UK-REIT pays a dividend in respect of a
Substantial Shareholding and the dividend is paid to a person who is a
Substantial Shareholder. The charge is not triggered merely because a
shareholder has a stake in the company of 10% or more. Neither is the tax charge
triggered if the person beneficially entitled to the dividend is not also a
Substantial Shareholder. The amount is calculated by reference to the dividend
that is paid to the Substantial Shareholder and is NOT restricted to the excess
over 10%.



The tax charge imposes an amount of corporation tax payable by the Company
equivalent to income tax at the basic rate on the dividend paid to the
Substantial Shareholder.



3.      Proposed changes to the Articles of Association


Whilst the Company has not identified any Substantial Shareholding to which the
10% rule would apply, the Board considers it appropriate that the Company should
put in place the mechanisms anticipated by the guidance issued by HMRC so that
the Company can avoid the imposition of such a tax charge.



The changes proposed to be made to the Articles of Association will give the
Board the powers it needs to demonstrate to HMRC that such "reasonable steps"
have been taken. These proposals are consistent with the draft guidance
published by HMRC.



The proposed amendments to the Articles of Association are set out in the notice
convening a Extraordinary General Meeting of the Company appearing on pages 31
to 39 of this document and a description of those amendments is set out in Part
IV of this circular:



   -   a right for the Board to require information in relation to any
       shares in order to determine whether the shares form part of a 
       Substantial Shareholding;


   -   that dividends will not be paid on shares forming part of a
       Substantial Shareholding if the Board is not satisfied that ownership of
       dividends has been disposed of ;


   -   that dividends will not be paid on shares where there has been a failure 
       to provide information requested in order to determine if a shareholding
       is a Substantial Shareholding;


   -   that dividends will not be paid on shares in any other case, if the
       Board believes the shares may form part of a Substantial Shareholding;


   -   that dividends not paid may be released if certain information is
       supplied or certification given that the dividend will not belong to a 
       person with a Substantial Shareholding;


   -   that trust arrangements may be put in place to prevent a person with
       a possible Substantial Shareholding being entitled to that dividend;


   -   a right to require that shares forming part of a Substantial Shareholding 
       are disposed of where a shareholder does not provide information about 
       beneficial ownership of the shares on request from the Board or fails to
       transfer the entitlement to the dividend to a person who is not a 
       Substantial Shareholder or fails to take action or provide information so 
       that any dividend withheld or held on trust is so transferred.



The Articles of Association may be amended by special resolution passed by the
shareholders of the Company in the future, including to give powers to the
Directors to ensure that the Company can comply with the close company condition
described in Part II of this document, which powers may include the ability to
arrange for the sale of shares on behalf of shareholders.



4.      Exit from the UK-REIT regime



The Company can give notice to HMRC that it wants the Group to leave the UK-REIT
regime at any time. The Board retains the right to decide to exit the UK-REIT
regime at any time in the future without shareholder consent if it considers
this to be in the best interests of the Group.



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



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



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

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

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



In addition, if the conditions for UK-REIT status relating to the share capital
of the Company and the prohibition on entering into loans with abnormal returns
are breached or the Company ceases to be UK resident, becomes dual resident or
an open ended investment company, the Group will automatically lose UK-REIT
status (for further details regarding these conditions, see Part II).



Shareholders should note that it is possible that the Company could lose its
status as a REIT as a result of actions by third parties, for example, in the
event of a successful takeover by a company that is not a REIT or due to a
breach of the close company condition if it is unable to remedy the breach
within a specified timeframe.



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



5.      Extraordinary General Meeting


Set out on pages 31 to 39 of this document is the notice convening an
Extraordinary General Meeting to be held at The Board Room, Ground Floor, Ryder
Court, 14 Ryder Street, London SW1Y 6QB at 11 a.m. on 18 December 2006. At this
EGM a special resolution will be proposed to approve the proposed amendments to
the Articles of Association.



6.      Actions to be taken



A Form of Proxy for use by members, who alone are entitled to attend and vote at
the Extraordinary General Meeting, is enclosed. You are requested to complete
the Form of Proxy in accordance with the instructions thereon and return it so
that it is received by the Company's Registrars, Capita Registrars, not later
than 11 a.m. on 16 December 2006, being 48 hours before the time appointed for
holding the Extraordinary General Meeting. If you complete and return the Form
of Proxy, you can still attend and vote at the Extraordinary General Meeting in
person, if you wish.



7.      Recommendation



For the reasons stated above, the Board believes the conversion of the Company
into a UK-REIT to be in the best interests of the shareholders as a whole.
Accordingly, it expects to elect to become a UK-REIT with effect from 1 January
2007, subject to the approval of the shareholders to the proposed amendments to
the Articles of Association and review of any HMRC guidance available. The
Directors wish to facilitate such process by making the amendments to the
Articles of Association described in this document which will only come into
force if the Company becomes a UK-REIT.



The Board considers that the special resolution to be proposed at the
Extraordinary General Meeting, is in the best interests of the shareholders as a
whole and recommends you vote in favour of it.  Directors who hold Ordinary
Shares in the Company intend to vote in favour of this resolution in respect of
their own beneficial holdings of 65,195 Ordinary Shares in aggregate,
representing approximately 0.27% of the issued Ordinary Shares (as at 17
November 2006) being the last business day before the date of this document.



Yours sincerely,
Graeme A Elliot
Chairman




PART II



    THE UK-REIT REGIME TC "PART II - THE UK-REIT REGIME" /l 9 /* MERGEFORMAT





The UK-REIT regime



The following paragraphs are intended as a general guide only and constitute a
high-level summary of the Company's understanding of current UK law and HMRC
practice, each of which are subject to change, possibly with retrospective
effect. They are not advice. As at the date of this document, the guidance to be
published by HMRC has not yet been finalised (although it has been published in
draft form) and are therefore subject to change. Changes in the draft guidance
as made compared to the drafts currently available could change the position
described below.



Overview



The UK-REIT regime introduced in the Finance Act 2006 is intended to encourage
greater investment in the UK property market and follows similar legislation in
other European countries, as well as the long-established regimes in the United
States, Australia and the Netherlands.



Currently, investing in property through a corporate investment vehicle (such as
the Company) has the disadvantage that, in comparison to a direct investment in
property assets, some categories of shareholders (but not UK companies)
effectively suffer tax twice on the same income - first, indirectly, when
members of the Group pay UK direct tax on their profits, and secondly, directly
(but with the benefit of a tax credit) when the shareholder receives a dividend.
Non-tax paying entities, such as UK pension funds, suffer tax indirectly when
investing through a corporate vehicle that is not a UK-REIT in a manner they do
not suffer if they were to invest directly in the property assets. As a UK-REIT,
UK resident companies within the Group and non-UK resident companies within the
Group with a UK qualifying property rental business would no longer pay UK
direct taxes on their income and capital gains from the Tax-Exempt Business,
provided that certain conditions are satisfied. Instead, distributions in
respect of the Tax-Exempt Business will be treated for UK tax purposes as
property income in the hands of shareholders (Part III of this document contains
further detail on the UK tax treatment of shareholders after entry into the
UK-REIT regime). However, corporation tax and overseas taxation will still be
payable in the normal way in respect of income and gains from the Group's
business (generally including any property trading business, overseas property
rental business and certain other non property activities and investments) not
included in the Tax-Exempt Business (the "Residual Business").



While within the UK-REIT regime, the Tax-Exempt Business will be treated as a
separate business for corporation tax purposes to the Residual Business and a
loss incurred by the Tax-Exempt Business cannot be set off against profits of
the Residual Business (and vice versa).



As a UK-REIT, the Company will be required to distribute to shareholders (by way
of dividend) on or before the filing date for the UK-REIT's tax return for the
accounting period in question at least 90% of the income profits (broadly,
calculated using normal tax rules) of the UK-resident members of the Group in
respect of the Tax-Exempt Business and of the non-UK resident members of the
Group as they derive from their UK qualifying property rental business arising
in each accounting period. Failure to meet this requirement will result in a tax
charge calculated by reference to the extent of the failure, although this
charge can be avoided if an additional dividend is paid within a specified
period which brings the amount of profits distributed up to the required level.



In this document, references to a company's accounting period are to its
accounting period for tax purposes. This period can differ from a company's
accounting period for other purposes.



The treatment of a dividend paid by the Company in the first year after it
becomes a UK-REIT should depend on whether it is paid out of profits that
existed before or after the Group became a UK-REIT. For example, if the Company
converts into a UK-REIT on 1 January 2007 and has before that date announced an
intention to pay an interim dividend for payment after that date, that dividend
would be paid entirely out of profits earned before the Group became a UK-REIT
and should therefore be a Non-PID dividend. A dividend later in 2007 may be paid
partly out of profits earned prior to the Group becoming a UK-REIT and partly
out of profits earned subsequently and would therefore comprise partly a PID and
partly a Non-PID dividend. The Company will provide shareholders with a
certificate setting out how much of their dividend is a PID and how much is a
Non-PID dividend.



Subject to certain exceptions, PIDs will be subject to withholding tax at the
basic rate of income tax (currently 22%). As referred to above, further details
of the UK tax treatment of shareholders after entry into the UK-REIT regime are
contained in Part III of this document.



Qualification as a UK-REIT



The Group will become a UK-REIT by the Company (as the principal company of the
Group) serving notice on HMRC before the beginning of the first accounting
period during which it wishes the Group to become a UK-REIT. In order to qualify
as a UK-REIT, the Group must satisfy certain conditions set out in the Finance
Act 2006. A non-exhaustive summary of the material conditions is set out below.
Broadly, the Company must satisfy the conditions set out in paragraphs (A), (B),
(C) and (D) below and the Group companies must satisfy the conditions set out in
paragraph (E).



(A)       Company conditions



The Company must be a solely UK-resident company (other than an open-ended
investment company) whose ordinary shares are listed on a recognised stock
exchange, such as the London Stock Exchange. The Company must also not (apart
from in one exceptional circumstance) be a "close company" (as defined in
section 414 of the Income and Corporation Taxes Act 1988) - as amended by
section 106(6) of the Finance Act 2006 (the "close company condition"). In
summary, the close company condition amounts to a requirement that not less than
35% of the UK-REIT's shares are beneficially held by the public and for this
purpose the "public" excludes directors or the UK-REIT and certain of their
associates, and shareholders who, alone or together with certain associates,
control more than 5% of the UK-REIT's share capital.



(B)       Share capital restrictions



The Company must have only one class of ordinary share in issue and the only
other shares it may issue are non-voting fixed rate preference shares.



(C)       Interest restrictions



The Company must not be party to any loan in respect of which the lender is
entitled to interest which exceeds a reasonable commercial return on the
consideration lent or where the interest depends to any extent on the results of
any of its business or on the value of any of its assets. In addition, the
amount repayable must either not exceed the amount lent or must be reasonably
comparable with the amount generally repayable (in respect of an equal amount of
consideration) under the terms of issue of securities listed on a recognised
stock exchange.



(D)       Financial Statements



The Company must prepare financial statements in accordance with statutory
requirements ("Financial Statements") and submit these to HMRC. The financial
statements must contain the information about the Tax Exempt Business and the
Residual Business separately. The UK-REIT regime specifies the information to be
included and the basis of the preparation of their financial statements.



(E)       Conditions for the Tax Exempt Business



The Tax Exempt Business must satisfy the conditions summarised below in respect
of each accounting period during which it is to be treated as a UK-REIT:



I.                     the Tax Exempt Business must throughout the accounting
period involve at least three properties;

II.                   throughout the accounting period no one property may
represent more than 40% of the total value of the properties involved in the Tax
Exempt Business. Assets must be valued at fair value and in accordance with
International Accounting Standards ("IAS") and at fair value when the IAS offers
a choice between a cost basis and a fair value basis;

III.                  treating all members of the Group as a single company, the
Tax Exempt Business must not include any property which is classified as
owner-occupied in accordance with generally accepted accounting practice; and

IV.                at least 90% of the amounts shown in the Financial Statements
of the Group companies as income profits (broadly calculated using the normal
tax rules) of the UK resident members of the Group arising in respect of the Tax
Exempt Business in the accounting period, and the income profits of the non-UK
resident members of the Group insofar as they arise in respect of such members'
UK qualifying property rental business in the accounting period, must be
distributed by the Company in the form of a dividend (a PID) on or before the
filing date for the Company's tax return for the accounting period (the "90%
distribution test"). For the purpose of satisfying the 90% distribution test,
any dividend withheld in order to comply with the 10% rule will be treated as
having been paid;

V.                  the profits arising from the qualifying property rental
business must represent at least 75% of the Group's total profits for the
accounting period (the "75% profits test"). Profits for this purpose means
profits before deduction of tax and excludes realised and unrealised gains and
losses on the disposal of property, calculated in accordance with IAS; and

VI.                at the beginning of the accounting period the value of the
assets in the qualifying property rental business must represent at least 75% of
the total value of assets held by the Group (the "75% assets test"). Assets must
be valued in accordance with IAS and at fair value where IAS offers a choice of
valuation between cost basis and fair value and in applying this test no account
is to be taken of liabilities secured against or otherwise relating to assets
(whether generally or specifically).



Effect of becoming a UK-REIT



(A)       Entry charge



Each UK resident member of the Group that carried on a qualifying property
rental business in the UK or overseas and any non-UK resident member of the
Group that carries on a qualifying property rental business in the UK will be
liable to pay an entry charge broadly equal to 2% of the aggregate market value
of the properties and other assets involved in that business.



This can be paid at the same time as corporation tax is payable in respect of
the first accounting period following entry into the UK-REIT regime, or in
instalments over a four year period.



If the instalment option is taken, as the Board intends to do, the actual amount
payable will be paid in the following percentages with the first instalment
payable as above and the remaining instalments on the anniversary of that date:


First instalment         0.50%
Second instalment        0.53%
Third instalment         0.56%
Fourth instalment        0.60%



There is no equivalent entry charge if a member of the Group buys a property
following entering into the UK-REIT regime. However, if the Group were to
acquire a company that is not a UK-REIT, a 2% entry charge will apply in respect
of the property owned by the acquired company. See also paragraph (K)
(Acquisitions and Takeovers below).



(B)       Tax savings



As a UK-REIT, the Group will not pay UK-direct tax on profits and gains from the
Tax Exempt Business. Corporation tax will still apply in the normal way in
respect of the Residual Business which includes certain trading activities,
incidental letting in relation to property trades, intra-group letting of
property, letting of administrative property which is temporarily surplus to
requirements and certain income such as dividends and interest from members of
the Group carrying on non-UK activities. Corporation tax could also be payable
were a member of the Group (as opposed to property involved in the UK qualifying
property rental business) to be sold. The Group would also continue to pay
indirect taxes such as VAT, stamp duty, land tax and stamp duty and payroll
taxes (such as national insurance) in the normal way.



(C)       Attribution of Dividends



Distributions by the Company will be attributed in the following order:



I.     In satisfaction of the obligation to distribute 90% of the profits of 
       the Tax Exempt Business, calculated under tax principles and excluding 
       chargeable gains, which arise in the accounting period - paid, under
       deduction of income tax at 22%, where appropriate as a PID.



II.     At the discretion of the Company, a distribution of all or any of 
        the following:



   -    profits earned by the Residual (taxable) Business in the period;

   -    reserves of the Residual Business including brought forward reserves;,

   -    profits representing the difference between the accounting 
        distributable profits and profits calculated for tax purposes of the
        Tax Exempt Business (the difference principally results from the effect 
        of claiming notional capital allowances in calculating the profits of 
        the Tax Exempt Business).



This distribution is treated as a normal dividend (to which a tax credit may be
attached) and no tax is withheld by the Company.



III.   Distribution of the remaining 10% of the Tax Exempt Business income 
       (calculated under tax principles and excluding chargeable gains) paid - 
       under deduction of basic rate income tax at 22%, where appropriate as a
       PID.



IV.    Distribution of gains relating to the Tax Exempt Business - paid under 
       deduction of 22% basic rate income tax, where appropriated as a PID.


V.     Distribution of any other amount - treated as a normal dividend 
       (to which a tax credit may be attached) and no tax is withheld by the
       Company.



(D)       Financial statements



As mentioned above, a UK-REIT will be required to submit Financial Statements to
HMRC.



(E)       Interest cover ratio



A tax charge will arise if, in respect of any accounting period, the ratio of
the income profits (before capital allowances) of the UK resident members of the
Group plus the UK income profits of any non-UK resident member of the Group, in
each case, in respect of its Tax Exempt Business plus the financing costs
incurred in respect of the Tax Exempt Business financing costs incurred in
respect of the Tax Exempt Business, excluding certain intra-group financing
costs, is less than 1.25. This ratio is calculated by reference to the Financial
Statements, apportioning costs relating partly to the Tax Exempt Business and
partly to the Residual Business reasonably. The amount (if any) by which the
financing costs exceeds the amount of those costs which would cause that ratio
to equal 1.25 is chargeable to corporation tax.



(F)     Property development and property trading by a UK-REIT



A property development by a UK resident member of the Group can be within the
Tax-Exempt Business provided certain conditions are met. However, if the costs
of the development exceed 30% of the fair value of the asset at the later of (a)
the date on which the Company becomes a UK-REIT, and (b) the date of the
acquisition of the development property, and the UK-REIT sells the development
property within three years of completion, the property will be treated as never
having been within the Tax-Exempt Business. If a UK resident member of the Group
disposes of a property (whether or not a development property) in the course of
a trade, the property will be treated as never having been within the Tax-Exempt
Business.



(G)       Certain tax avoidance arrangements



If HMRC believes that a member of the Group has been involved in certain tax
avoidance arrangements, it may cancel the tax advantage obtained and, in
addition, impose a tax charge equal to the amount of the tax advantage. These
rules apply to both the Residual Business and the Tax-Exempt Business.



(H)       Movement of assets in and out of the Tax Exempt Business



In general, where an asset owned by a UK-resident member of the Group and used
for the Tax Exempt Business begins to be used for the Residual Business, there
will be a capital gain tax-free step up in the base cost of the property.  Where
an asset owned by a UK-resident member of the Group and used for the Residual
Business begins to be used for the Tax Exempt Business, this will generally
constitute a taxable market value disposal of the asset, except for capital
allowances purposes. Special rules apply to disposals by way of a trade and to
development property.



(I)         Funds awaiting reinvestment



Where an asset used exclusively in the Tax Exempt Business is sold, the
legislation provides for the sale proceeds to be treated as assets of the Tax
Exempt Business for the purposes of the 75% profits test and the 75% assets test
for two years following the disposal, provided that they are held as cash or
cash equivalents. However, any interest earned on that cash is treated as part
of the Residual Business and therefore taxable.



(J)        Joint ventures



If one or more members of the Group are beneficially entitled, in the aggregate,
to at least 40% of the profits available for distribution to equity holders in a
joint venture company and at least 40% of the assets of the joint venture
company available to equity holders in the event of a winding-up, that joint
venture company is carrying on a qualifying property rental business which
satisfies the 75% profits test and the 75% assets test (the "JV company") and
certain other conditions are satisfied, the Company and the JV Company, may by
giving notice to HMRC elect for the assets and income of the JV company to be
included in the Tax-Exempt Business for tax purposes. In such circumstances, the
income and assets of the JV company will count towards the 90% distribution
test, the 75% profits test and the 75% assets test to the extent of the Group's
interest in the JV company.



As at the date of this document, the regulation in relation to joint ventures
and UK-REITs does not specifically apply to any subsidiaries of a JV company,
although it is currently expected that guidance or other further information to
clarify the position will be provided by HMRC.



(K)       Acquisitions and Takeovers



If a member of the Group acquires another UK-REIT, no entry charge will be
payable. However, if a company which is not a UK-REIT joins the Group, the entry
charge will be payable on the value of the properties owned by the qualifying
property rental business of the target company.



If a UK-REIT is taken over by another UK-REIT, the acquired UK-REIT does not
necessarily cease to be a UK-REIT and will, provided the auditions are met,
continue to enjoy Tax-Exemptions in respect of the profits of its Tax-Exempt
Business and capital gains on disposal of properties in the Tax-Exempt Business.
There is no entry charge as a result of the acquired UK-REIT joining the
acquiror's group and the properties of the acquired UK-REIT are not treated as
having been sold and reacquired at market value.



The position is different where a UK-REIT is taken over by an acquiror which is
not a UK-REIT. In these circumstances, the acquired UK-REIT is likely in most
cases to fail to meet the requirements for being a UK-REIT and will therefore be
treated as leaving the UK-REIT regime at the end of its accounting period
preceding the takeover and ceasing from the end of this accounting period to
benefit from Tax-Exemptions on the profits of its Tax-Exempt Business and
capital gains on disposal of property forming part of its Tax-Exempt Business.
The properties in the Tax-Exempt Business are treated as having been sold and
reacquired at market value for the purposes of corporation tax on chargeable
gains immediately before the end of the preceding accounting period. These
disposals should be tax free as they are deemed to have been made at a time when
the Company was still in the UK-REIT regime and future capital gains on the
relevant assets will therefore be calculated by reference to a base cost
equivalent to this market value. If the Company ends its accounting period
immediately prior to the takeover becoming unconditional in all respects,
dividends paid as PIDs before that date should not be recharacterised
retrospectively as normal dividends.






PART III



            UNITED KINGDOM TAX TREATMENT OF SHAREHOLDERS AFTER ENTRY

INTO THE UK-REIT REGIME TC "PART III - UNITED KINGDOM TAX TREATMENT OF
SHAREHOLDERS AFTER ENTRY

INTO THE UK-REIT REGIME" /l 9 /* MERGEFORMAT



INTRODUCTION



The following paragraphs are intended as a general guide only and are based on
the Company's understanding of current UK tax law and HMRC practice, each of
which is subject to change, possibly with retrospective effect. They are not
advice.



As at the date of this document, the detailed guidance to be provided by HMRC
has not yet been finalised (although it has been published in draft form) and
are therefore subject to change. Changes in the guidance as made compared to the
draft currently available could change the position described below



The following paragraphs relate only to certain limited aspects of the United
Kingdom taxation treatment of PIDs and Non-PID Dividends paid by the Company,
and to disposals of shares in the Company, in each case, after the Company has
elected into the UK-REIT regime.



Except where otherwise indicated, they apply only to shareholders who are both
resident and ordinarily resident for tax purposes solely in the United Kingdom.
They apply only to shareholders who are the absolute beneficial owners of both
their PIDs and their shares in the Company and who hold their shares as
investments. They do not apply to Substantial Shareholders. They do not apply to
certain categories of shareholders, such as dealers in securities or
distributions, persons who have or are deemed to have acquired their shares by
reason of their or another's employment, persons who hold their shares as part
of hedging or conversion transactions, or persons who hold shares in connection
with a UK branch, agency or permanent establishment.



Except where otherwise indicated at B(iv) (Withholding tax) below, they do not
apply to persons holding shares in the company by virtue of an interest in any
partnership, insurance companies, life insurance companies, mutual companies,
collective investment schemes, charities, trustees, local authorities, or
pension scheme administrators.



Shareholders who are in any doubt about their tax position, or who are subject
to tax in a jurisdiction other than the United Kingdom, should consult their own
appropriate independent professional adviser without delay, particularly
concerning their tax liabilities on PIDs, whether they are entitled to claim any
repayment of tax, and, if so, the procedure for doing so.



A.         UK TAXATION OF NON-PID DIVIDENDS



Non-PID Dividends paid by the Company will be taxed in the same way as dividends
paid by the Company prior to entry into the UK-REIT regime, whether in the hands
of individual or corporate shareholders and regardless of whether the
shareholder is resident for tax purposes in the UK.



B.        UK TAXATION OF PIDS



i.          UK taxation of shareholders who are UK resident individuals



Subject to certain exceptions, a PID will generally be treated in the hands of
shareholders who are individuals as the profit of a single UK property business
(as defined in section 264 of the Income Tax (Trading and Other Income) Act
2005). A PID is, together with any property income distribution from any other
company to which Part 4 of the Finance Act 2006 applies, treated as a separate
UK property business from any other UK property business (a "different UK
property business") carried on by the relevant shareholder. This means that
surplus expenses from a shareholder's different UK property business cannot be
off-set against a PID as part of a single calculation of the profits of the
shareholder's UK property business.



Please see also section B(iv) (Withholding tax), below.



ii.         UK taxation of UK resident corporate shareholders



Subject to certain exceptions, a PID will generally be treated in the hands of
shareholders who are within the charge to corporation tax as profits of a
Schedule A business (as defined in section 15 of the Income and Corporation
Taxes Act 1988). This means that, subject to the availability of any exemptions
or reliefs, such shareholders should be liable to corporation tax on income on
the entire amount of their PID. A PID is, together with any property income
distribution from any other company to which Part 4 of the Finance Act 2006
applies, treated as a separate Schedule A business from any other Schedule A
business (a "different Schedule A business") carried on by the relevant
shareholder. This means that any surplus expenses from a shareholder's different
Schedule A business cannot be off-set against a PID as part of a single
calculation of the shareholder's Schedule A profits.

Please see also section B(iv) (Withholding tax), below.



iii.        UK taxation of all shareholders who are not resident for tax
purposes in the UK



Where a shareholder who is resident outside the UK receives a PID, the PID will
generally be chargeable to UK income tax as profit of a UK property business and
this tax will generally be collected by way of a withholding.



Please see also section B(iv) (Withholding tax), below.



iv.        Withholding tax



(a)        General



Subject to certain exceptions summarised at paragraph (d) below, the Company is
required to withhold income tax at source at the basic rate (currently 22%) from
its PIDs. The Company will provide shareholders with a certificate setting out
the amount of tax withheld.



(b)        Shareholders solely resident and ordinarily resident in the UK



Where income tax has been withheld at source, shareholders who are individuals
may, depending on their individual circumstances, either be liable to further
tax on their PID at their applicable marginal rate, or be entitled to claim
repayment of some or all of the tax withheld on their PID.  Shareholders who are
corporates may, depending on their individual circumstances, be liable to pay
corporation tax on their PID but they should note that, where income tax is
withheld at source, the tax withheld can be set against the shareholder's
liability to corporation tax in the accounting period in which the PID is
received.



(c)         Shareholders who are not resident for tax purposes in the UK



It is not possible for a shareholder to make a claim under a double taxation
treaty for a PID to be paid by the Company gross or at a reduced rate. The right
of a shareholder to claim repayment of any part of the tax withheld from a PID
will depend on the existence and terms of any double tax convention between the
UK and the country in which the shareholder is resident.



(d)        Exceptions to requirement to withhold income tax



Shareholders should note that in certain circumstances the Company may not
withhold income tax at source from a PID. These include where the Company
reasonably believes that the person beneficially entitled to the PID is: a
company resident for tax purposes in the UK and where the person beneficially
entitled to a PID is a charity, a body mentioned in section 507(1) ICTA which is
allowed the same exemption from tax as charities, the scheme administrator of a
registered pension scheme, or the sub-scheme administrator of a pension
sub-scheme or a person entitled to receive the income of a fund entitled to
exemption under section 614(3) ICTA.



Payments made to the manager of an individual savings account or a personal
equity plan may also be made gross.



The Company will also not be required to withhold income tax at source from a
PID where the Company reasonably believes that the body beneficially entitled to
the PID is a partnership each member of which is either a body described in the
paragraph above or the European Investment Fund.



In order to pay a PID without withholding tax, the Company will need to be
satisfied that the shareholder concerned is entitled to that treatment.  For
that purpose, the Company will require such shareholders to submit a valid claim
form (copies of which may be obtained on request) from the Company's Registrars,
Capita Registrars.



A summary in tabular form of the UK tax position of distributions made by the
Company for certain groups of shareholders is shown below.







1.            UK Resident Individual

                          PID                                               Dividend


•   Tax withheld at 22%.                                •   No tax withheld by UK-REIT.

•   Taxed at his/her marginal rate.                     •   Treated as dividend income grossed up by
                                                            100/90 to include in the individual's income tax
•   Credit is given for the tax withheld by the             calculation.
    UK-REIT. Therefore, to the extent that the 
    individual is a lower or higher rate tax payer,     •    Taxed as top slice of income.
    a repayment or further tax may be due.              
                                                        •    Notional tax credit of 10% is available.
                                                             Therefore, only if the individual is a higher
                                                             rate tax payer will further tax be due.



2.            UK Resident Company


                          PID                                               Dividend


•   No tax withheld by UK-REIT.                         •   No tax withheld by UK-REIT.

•   Subject to Corporation Tax at 30%.                  •   Treated as a normal dividend -exempt from
                                                            tax.



3.            Non UK Resident Company


                          PID                                               Dividend


•   Tax withheld by UK-REIT on the distribution         •   No tax withheld by UK-REIT.

•   May reclaim the difference between 22% withholding  •   Not subject to UK tax.
    and the relevant dividend withholding tax rate 
    agreed under the relevant double tax treaty 
    (if applicable) (typically to 15%).

•   No further UK tax.



4.            UK Tax Exempt shareholder


                          PID                                               Dividend


•   No tax withheld by UK-REIT.                         •   No tax withheld by UK-REIT.

•   Not taxable in the hands of the shareholder.        •   No UK tax.




C.        UK TAXATION OF CHARGEABLE GAINS, STAMP DUTY AND STAMP DUTY RESERVE TAX
IN RESPECT OF SHARES IN THE COMPANY



Subject to the paragraph headed "Introduction", above, the following comments
apply to both individual and corporate shareholders, regardless of whether such
shareholders are resident for tax purposes in the UK.



i.          UK taxation of chargeable gains



Chargeable gains arising on the disposal of shares in the Company following
entry into the UK-REIT regime should be taxed in the same way as chargeable
gains arising on the disposal of shares in the Company prior to entry into the
UK-REIT regime. The entry of the Group into the UK-REIT regime will not
constitute a disposal of shares in the Company by shareholders for UK chargeable
gains purposes.



ii.         UK stamp duty and UK stamp duty reserve tax ("SDRT")



A conveyance or transfer on sale or other disposal of shares in the Company
following entry into the UK-REIT regime will be subject to UK stamp duty or UK
SDRT in the same way as it would have been prior to entry into the UK-REIT
regime.






                                    PART iV

  FURTHER INFORMATION ON THE PROPOSED AMENDMENTS TO THE ARTICLES TC "PART IV -
    FURTHER INFORMATION ON THE PROPOSED AMENDMENTS TO THE ARTICLES" /l 9 /*
                                  MERGEFORMAT



As explained in the letter from the Chairman, it is proposed that the Articles
of Association should be amended in order to enable the Company to demonstrate
to HMRC that it has taken reasonable steps to avoid paying a dividend (or making
any other distribution) to a Substantial Shareholder.



For these purposes "Company" includes any body corporate and certain entities
which are deemed to be bodies corporate for the purposes of overseas
jurisdictions with which the UK has a double taxation agreement or for the
purposes of such double tax agreements.



If a distribution is paid to a Substantial Shareholder and the Company has not
taken reasonable steps to avoid doing so, the Company would become subject to a
tax charge.



The proposed amendments to the Articles will include the insertion of a new
Article (the "new Article"). The text of the new Article is set out in the
notice convening the EGM that is set out at the end of this circular.



The new Article:



(A)       provides directors with powers to identify Substantial Shareholders;



(B)       prohibits the payment of dividends on shares that form part of a
Substantial Shareholding, unless certain conditions are met;



(C)       allows dividends to be paid on shares that form part of a Substantial
Shareholding where the shareholder has disposed of its rights to dividends on
its shares; and



(D)       seeks to ensure that if a dividend is paid on shares that form part of
a Substantial Shareholding and arrangements of the kind referred to in (C) are
not met, the Substantial Shareholder concerned does not become beneficially
entitled to that dividend.



References in this Part to dividends include any other distributions.



The effect of the new Article is explained in more detail below:



(A)       Identification of Substantial Shareholders



The share register of the Company records the legal owner and the number of
shares they own in the Company but does not identify the persons who are
beneficial owners of the shares or are entitled to control the voting rights
attached to the shares or are beneficially entitled to dividends. While the
requirements for the notification of interests in shares provided in Part VI of
the Companies Act 1985 (the "Act") and the Board's rights to require disclosure
of such interests (pursuant to Section 212 of the Act and Article 9 of the
Articles) should assist in the identification of Substantial Shareholders, if
those provisions are not on their own sufficient.



Accordingly, the new Article would require a Substantial Shareholder and any
registered shareholder holding shares on behalf of a Substantial Shareholder to
notify the Company if his shares form part of a Substantial Shareholding. Such a
notice must be given within two business days. If a person is a Substantial
Shareholder at the date the new Article is adopted, that Substantial Shareholder
(and any registered shareholder holding shares on its behalf) must give such a
notice within two business days after the date the new Article is adopted. The
new Article gives the Board the right to require any person to provide
information in relation to any shares in order to determine whether the shares
form part of a Substantial Shareholding. If the required information is not
provided within the time specified (which would be seven days after a request is
made or such other period as the Board may decide), the Board would be entitled
to impose sanctions, including withholding dividends (as described in paragraph
(B) below) and/or requiring the transfer of the shares to another person who is
not, and does not thereby become, a Substantial Shareholder (as described in
paragraph (E) below).



(B)       Preventing payment of a dividend to a Substantial Shareholder



The new Article provides that a dividend will not be paid on any shares that the
Board believes may form part of a Substantial Shareholding unless the Board is
satisfied that the Substantial Shareholder is not beneficially entitled to the
dividend.



If in these circumstances payment of a dividend is withheld, the dividend will
be paid subsequently if the Board is satisfied that:



•   the Substantial Shareholder concerned is not beneficially
    entitled to the dividends (see also (C) below);

•   the shareholding is not part of a Substantial Shareholding;

•   all or some of the shares and the right to the dividend have been
    transferred to a person who is not, and does not thereby become, a 
    Substantial Shareholder (in which case the dividends would be paid to the 
    transferee); or

•   sufficient shares have been transferred (together with the right to the 
    dividends) such that the shares retained are no longer part of a
    Substantial Shareholding (in which case the dividends would be paid on the
    retained shares).

For this purpose references to the "transfer" of a share include the disposal
(by any means) of beneficial ownership of, control of voting rights in respect
of and beneficial entitlement to dividends in respect of, that share.



(C)       Payment of a dividend where rights to it have been transferred

The new Article provides that dividends may be paid on shares that form part of
a Substantial Shareholding if the Board is satisfied that the right to the
dividend has been transferred to a person who is not, and does not thereby
become, a Substantial Shareholder and the Board may be satisfied that the right
to the dividend has been transferred if it receives a certificate containing
appropriate confirmations and assurances from the Substantial Shareholder.  Such
a certificate may apply to a particular dividend or to all future dividends in
respect of shares forming part of a specified Substantial Shareholding, until
notice rescinding the certificate is received by the Company.  A certificate
that deals with future dividends will include undertakings by the person
providing the certificate:

(a)        to ensure that the entitlement to future dividends will be disposed
of; and

(b)        to inform the Company immediately of any circumstances which would
render the certificate no longer accurate.

The Directors may require that any such certificate is copied or provided to
such persons as they may determine, including HMRC.

If the Board believes a certificate given in these circumstances is or has
become inaccurate, then it will be able to withhold payment of future dividends
(as described in paragraph (B) above). In addition, the Board may require a
Substantial Shareholder to pay to the Company the amount of any tax payable (and
other costs incurred) as a result of a dividend having been paid to a
Substantial Shareholder in reliance on the inaccurate certificate (as described
in paragraph (E) below). The Board may require a sale of the relevant shares and
retain the amount claimed from the proceeds.

Certificates provided in the circumstances described above will be of
considerable importance to the Company in determining whether dividends can be
paid. If the Company suffers loss as a result of any misrepresentation or breach
of undertaking given in such a certificate, it may seek to recover damages
directly from the person who has provided it. Any such tax may also be recovered
out of dividends to which the Substantial Shareholder concerned may become
entitled in the future.

The effect of these provisions is that there is no restriction on a person
becoming or remaining a Substantial Shareholder provided that the person who
does so makes appropriate arrangements to divest itself of the entitlement to
dividends.

(D)       Trust arrangements where rights to dividends have not been disposed of
by Substantial Shareholder

The new Article provides that if a dividend is in fact paid on shares forming
part of a Substantial Shareholding (which might occur, for example, if a
Substantial Shareholding is split among a number of nominees and is not notified
to the Company prior to a dividend payment date) the dividends so paid are to be
held on trust by the recipient for any person (who is not a Substantial
Shareholder) nominated by the Substantial Shareholder concerned. The person
nominated as the beneficiary could be the purchaser of the shares if the
Substantial Shareholder is in the process of selling down their holding so as
not to cause the Company to breach the Substantial Shareholder rule.  If the
Substantial Shareholder does not nominate anyone within 12 years, the dividend
concerned will be held on trust for the Company.



If the recipient of the dividend passes it on to another without being aware
that the shares in respect of which the dividend was paid were part of a
Substantial Shareholding, the recipient will have no liability as a result.
However, the Substantial Shareholder who receives the dividend should do so
subject to the terms of the trust and as a result may not claim to be
beneficially entitled to those dividends.



(E)       Mandatory sale of Substantial Shareholdings



The new Article also allows the Board to require the disposal of shares forming
part of a Substantial Shareholding if:



•    if a Substantial Shareholder has been identified and a dividend has been 
     announced or declared and the Board has not been satisfied that the
     Substantial Shareholder has transferred the right to the dividend (or 
     otherwise is not beneficially entitled to it);

•    there has been a failure to provide information requested by the
     Board; or

•    any information provided by any person proves materially inaccurate or 
     misleading.

In these circumstances, if the Company incurs a charge to tax as a result of one
of these events, the Board may, instead of requiring the shareholder to dispose
of the shares, arrange for the sale of the relevant shares and for the Company
to retain from the sale proceeds an amount equal to any tax so payable.

The new Article has been discussed with HMRC which has confirmed that they
constitute "reasonable steps" to avoid paying a dividend to a Substantial
Shareholder for the purposes of the legislation.



(F)       Takeovers



The new Article does not prevent a person from acquiring control of the Company
through a takeover or otherwise, although as explained above, such an event may
cause the Group to cease to qualify as a REIT.



(G)       Other



The new Article also gives the Company power to require any shareholder who
applies to be paid dividends without any tax withheld to provide such
certificate as the Board may require to establish the shareholder's entitlement
to that treatment.






                                     PART V



                         PRIMARY HEALTH PROPERTIES PLC



   Notice of Extraordinary General Meeting TC "PART V NOTICE OF EXTRAORDINARY
                      GENERAL MEETING" /l 9 /* MERGEFORMAT



Notice is hereby given that an Extraordinary General Meeting of Primary Health
Properties PLC (the "Company") will be held in The Board Room, Ground Floor,
Ryder Court, Ryder Street London SW1Y 6QB, on 18 December 2006 at 11 a.m. to
consider and, if thought fit, to pass the following resolution as a Special
Resolution:





                               SPECIAL RESOLUTION



THAT, with effect from (and including) the first day of the calendar year
following the date of this resolution in respect of which the Company has given
a valid notice under section 109 of the Finance Act 2006, the Articles of
Association be and they are hereby amended by the insertion of the following as
new Articles 161 to 167:



161      Real Estate Investment Trust

Cardinal principle

161.1  It is a cardinal principle that, for so long as the Company is the
principal company in a real estate investment trust ("REIT") for the purposes of
Part 4 of the Finance Act 2006, as such Part may be modified, supplemented or
replaced from time to time, no member of the Group should be liable to pay tax
under Regulation 10 of the Real Estate Investment Trusts (Breach of Conditions)
Regulations 2006 (as such regulations may be modified, supplemented or replaced
from time to time) on or in connection with the making of a Distribution.

161 .2 This Article supports such cardinal principle by, among other things,
imposing restrictions and obligations on the shareholders of the Company and,
indirectly, certain other Persons who may have an interest in the Company, and
shall be construed accordingly so as to give effect to such cardinal principle.

162      Definitions and interpretation

162.1  For the purposes of this Article, the following words and expressions
shall bear the following meanings:

•    "business day" means a day (not being a Saturday or Sunday)
on which banks are normally open for business in London;

•    "Distribution" means any dividend or other distribution on
or in respect of the shares of the Company and references to a Distribution
being paid include a distribution not involving a cash payment being made;

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

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

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

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

•     "HMRC" means HM Revenue & Customs;

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

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

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

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

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

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

162.2  Where under this Article any certificate or declaration may be or is
required to be provided by any Person (including, without limitation, a
Distribution Transfer Certificate), such certificate or declaration may be
required by the Directors (without limitation):

•    to be addressed to the Company, the Directors or such other
Persons as the Directors may determine (including HMRC);

•     to include such information as the Directors consider is
required for the Company to comply with any Reporting Obligation;

•     to contain such legally binding representations and
obligations as the Directors may determine;

•     to include an undertaking to notify the Company if the
information in the certificate or declaration becomes incorrect, including prior
to such change;

•     to be copied or provided to such Persons as the Directors
may determine (including HMRC); and

•     to be executed in such form (including as a deed or deed
poll) as the Directors may determine.

162.3This Article shall apply notwithstanding any provisions to the contrary in
any other Article (including, without limitation, Articles 129 to 138
(Dividends)).

163      Notification of Substantial Shareholder and other status

163.1 Each shareholder and any other relevant Person shall serve notice in
writing on the Company at the Registered Office on:

(a)                    him becoming a Substantial Shareholder or him being a
Substantial Shareholder on the date this Article comes into effect (together
with the percentage of voting rights, share capital or dividends he controls or
is beneficially entitled to, details of the identity of the shareholder(s) who
hold(s) the relevant Substantial Shareholding and such other information,
certificates or declarations as the Directors may require from time to time);

(b)                    him becoming a Relevant Registered Shareholder or being a
Relevant Registered Shareholder on the date this Article comes into effect
(together with such details of the relevant Substantial Shareholder and such
other information, certificates or declarations as the Directors may require
from time to time); and

(c)                    any change to the particulars contained in any such
notice, including on the relevant Person ceasing to be a Substantial Shareholder
or a Relevant Registered Shareholder.

Any such notice shall be delivered by the end of the second business day after
the day on which the Person becomes a Substantial Shareholder or a Relevant
Registered Shareholder (or the date this Article comes into effect, as the case
may be) or the change in relevant particulars or within such shorter or longer
period as the Directors may specify from time to time.

163.2  The Directors may at any time give notice in writing to any Person
requiring him, within such period as may be specified in the notice (being seven
days from the date of service of the notice or such shorter or longer period as
the Directors may specify in the notice), to deliver to the Company at the
Registered Office such information, certificates and declarations as the
Directors may require to establish whether or not he is a Substantial
Shareholder or a Relevant Registered Shareholder or to comply with any Reporting
Obligation. Each such Person shall deliver such information, certificates and
declarations within the period specified in such notice.

164      Distributions in respect of Substantial Shareholdings

164.1  In respect of any Distribution, the Directors may, if the Directors
determine that the condition set out in Article 161.9 is satisfied in relation
to any shares in the Company, withhold payment of such Distribution on or in
respect of such shares.  Any Distribution so withheld shall be paid as provided
in Article 161.10 and until such payment the Persons who would otherwise be
entitled to the Distribution shall have no right to the Distribution or its
payment.

164.2  The condition referred to in Article 161.8 is that, in relation to any
shares in the Company and any Distribution to be paid or made on and in respect
of such shares:

(a)              the Directors believe that such shares comprise all or part of
a Substantial Shareholding of a Substantial Shareholder; and

(b)              the Directors are not satisfied that such Substantial
Shareholder would not be beneficially entitled to the Distribution if it was
paid,

and, for the avoidance of doubt, if the shares comprise all or part of a
Substantial Shareholding in respect of more than one Substantial Shareholder
this condition is not satisfied unless it is satisfied in respect of all such
Substantial Shareholders.

164.3  If a Distribution has been withheld on or in respect of any shares in the
Company in accordance with Article 161.8, it shall be paid as follows:

(c)      if it is established to the satisfaction of the Directors that the
condition in Article 161.9 is not satisfied in relation to such shares, in which
case the whole amount of the Distribution withheld shall be paid; and

(d)      if the Directors are satisfied that sufficient interests in all or some
of the shares concerned have been transferred to a third party so that such
transferred shares no longer form part of the Substantial Shareholding, in which
case the Distribution attributable to such shares shall be paid (provided the
Directors are satisfied that following such transfer such shares concerned do
not form part of a Substantial Shareholding); and

(e)              if the Directors are satisfied that as a result of a transfer
of interests in shares referred to in (b) above the remaining shares no longer
form part of a Substantial Shareholding, in which case the Distribution
attributable to such shares shall be paid.

In this Article 161.10, references to the "transfer" of a share include the
disposal (by any means) of beneficial ownership of, control of voting rights in
respect of and beneficial entitlement to dividends in respect of, that share.

164.4  A Substantial Shareholder may satisfy the Directors that he is not
beneficially entitled to a Distribution by providing a Distribution Transfer
Certificate.  The Directors shall be entitled to (but shall not be bound to)
accept a Distribution Transfer Certificate as evidence of the matters therein
stated and the Directors shall be entitled to require such other information,
certifications or declarations as they think fit.

164.5  The Directors may withhold payment of a Distribution on or in respect of
any shares in the Company if any notice given by the Directors pursuant to
Article 161.7 in relation to such shares shall not have been complied with to
the satisfaction of the Directors within the period specified in such notice.
Any Distribution so withheld will be paid when the notice is complied with to
the satisfaction of the Directors unless the Directors withhold payment pursuant
to Article 161.8 and until such payment the Persons who would otherwise be
entitled to the Distribution shall have no right to the Distribution or its
payment.

164.6  If the Directors decide that payment of a Distribution should be withheld
under Articles 161.8 or 161.12, they shall within five business days give notice
in writing of that decision to the Relevant Registered Shareholder.

164.7  If any Distribution shall be paid on a Substantial Shareholding and an
Excess Charge becomes payable, the Substantial Shareholder shall pay the amount
of such Excess Charge and all costs and expenses incurred by the Company in
connection with the recovery of such amount to the Company on demand by the
Company. Without prejudice to the right of the Company to claim such amount from
the Substantial Shareholder, such recovery may be made out of the proceeds of
any disposal pursuant to Article 161.21 or out of any subsequent Distribution in
respect of the shares to such Person or to the shareholders of all shares in
relation to or by virtue of which the Directors believe that Person has an
interest in the Company (whether that Person is at that time a Substantial
Shareholder or not).

165      Distribution Trust

165.1  If a Distribution is paid on or in respect of a Substantial Shareholding
Distribution paid in circumstances where the Substantial Shareholder is not
beneficially entitled to the Distribution), the Distribution and any income
arising from it shall be held by the payee or other recipient to whom the
Distribution is transferred by the payee on trust absolutely for the Persons
nominated by the relevant Substantial Shareholder under Article 161.16 in such
proportions as the relevant Substantial Shareholder shall in the nomination
direct or, subject to and in default of such nomination being validly made
within 12 years after the date the Distribution is made, for the Company as may
be nominated by the Directors from time to time.

165.2  The relevant Substantial Shareholder of shares of the Company in respect
of which a Distribution is paid shall be entitled to nominate in writing any two
or more Persons (not being Substantial Shareholders) to be the beneficiaries of
the trust on which the Distribution is held under Article 161.15 and the
Substantial Shareholder may in any such nomination state the proportions in
which the Distribution is to be held on trust for the nominated Persons, failing
which the Distribution shall be held on trust for the nominated Persons in equal
proportions. No Person may be nominated under this Article 161 who is or would,
on becoming a beneficiary in accordance with the nomination, become a
Substantial Shareholder. If the Substantial Shareholder making the nomination is
not by virtue of Article 161.15 the trustee of the trust, the nomination shall
not take effect until it is delivered to the Person who is the trustee.

165.3  Any income arising from a Distribution which is held on trust under
Article 161.15 shall until the earlier of (i) the making of a valid nomination
under Article 161.16 and (ii) the expiry of the period of 12 years from the date
when the Distribution is paid be accumulated as an accretion to the
Distribution. Income shall be treated as arising when payable, so that no
apportionment shall take place.

165.4  No Person who by virtue of Article 161.15 holds a Distribution on trust
shall be under any obligation to invest the Distribution or to deposit it in an
interest-bearing account.

165.5  No Person who by virtue of Article 161.15 holds a Distribution on trust
shall be liable for any breach of trust unless due to his own wilful fraud or
wrongdoing or, in the case of an incorporated Person, the fraud or wilful
wrongdoing of its directors, officers or employees.

166     Obligation to dispose

166.1  If at any time, the Directors believe that:

(f)       in respect of any Distribution declared or announced, the condition
set out in Article 161.9 is satisfied in respect of any shares in the Company in
relation to that Distribution;

(g)                a notice given by the Directors pursuant to Article 161.7 in
relation to any shares in the Company has not been complied with to the
satisfaction of the Directors within the period specified in such notice; or

(h)                 any information, certificate or declaration provided by a
Person in relation to any shares in the Company for the purposes of the
preceding provisions of this Article 161 was materially inaccurate or
misleading,

the Directors may give notice in writing (a "Disposal Notice") to any Persons
they believe are Relevant Registered Shareholders in respect of the relevant
shares requiring such Relevant Registered Shareholders within 21 days of the
date of service of the notice (or such longer or shorter time as the Directors
consider to be appropriate in the circumstances) to dispose of such number of
shares the Directors may in such notice specify or to take such other steps as
will cause the condition set out in Article 161.9 no longer to be satisfied.
The Directors may, if they think fit, withdraw a Disposal Notice.

166.2  If:

(i)          the requirements of a Disposal Notice are not complied with to the
satisfaction of the Directors within the period specified in the relevant notice
and the relevant Disposal Notice is not withdrawn; or

(ii)         a Distribution is paid on a Substantial Shareholding and an Excess
Charge becomes payable;

the Directors may arrange for the Company to sell all or some of the shares to
which the Disposal Notice relates or, as the case may be, that form part of the
Substantial Shareholding concerned. For this purpose, the Directors may make
such arrangements as they deem appropriate. In particular, without limitation,
they may authorise any officer or employee of the Company to execute any
transfer or other document on behalf of the holder or holders of the relevant
share and, in the case of a share in uncertificated form, may make such
arrangements as they think fit on behalf of the relevant holder or holders to
transfer title to the relevant share through a relevant system.

166.3  Any sale pursuant to Article 161.21 above shall be at the price which the
Directors consider is the best price reasonably obtainable and the Directors
shall not be liable to the holder or holders of the relevant share for any
alleged deficiency in the amount of the sale proceeds or any other matter
relating to the sale.

166.4  The net proceeds of the sale of any share under Article 161.21 (less any
amount to be retained pursuant to Article 161.14 and the expenses of sale) shall
be paid over by the Company to the former holder or holders of the relevant
share upon surrender of any certificate or other evidence of title relating to
it, without interest. The receipt of the Company shall be a good discharge for
the purchase money.

166.5  The title of any transferee of shares shall not be affected by an
irregularity or invalidity of any actions purportedly taken pursuant to this
Article 161.

167     General

167.1 The Directors shall be entitled to presume without enquiry, unless any
Director has reason to believe otherwise, that a Person is not a Substantial
Shareholder or a Relevant Registered Shareholder.

167.2  The Directors shall not be required to give any reasons for any decision
or determination (including any decision or determination not to take action in
respect of a particular Person) pursuant to this Article 161 and any such
determination or decision shall be final and binding on all Persons unless and
until it is revoked or changed by the Directors. Any disposal or transfer made
or other thing done by or on behalf of the Board or any Director pursuant to
this Article 161 shall be binding on all Persons and shall not be open to
challenge on any ground whatsoever.

167.3  Without limiting their liability to the Company, the Directors shall be
under no liability to any other Person, and the Company shall be under no
liability to any shareholder or any other Person, for identifying or failing to
identify any Person as a Substantial Shareholder or a Relevant Registered
Shareholder.

167.4  The Directors shall not be obliged to serve any notice required under
this Article 161 upon any Person if they do not know either his identity or his
address. The absence of service of such a notice in such circumstances or any
accidental error in or failure to give any notice to any Person upon whom notice
is required to be served under this Article 161 shall not prevent the
implementation of or invalidate any procedure under this Article 161.

167.5  The provisions of Articles 151 to 158 shall apply to the service upon any
Person of any notice required by this Article. Any notice required by this
Article 161 to be served upon a Person who is not a shareholder or upon a Person
who is a shareholder but whose address is not within the United Kingdom and who
has failed to supply to the company an address within the United Kingdom
pursuant to Article 153, shall be deemed validly served if such notice is sent
through the post in a pre-paid cover addressed to that Person or shareholder at
the address if any, at which the Directors believe him to be resident or
carrying on business or, in the case of a holder of depository receipts or
similar securities, to the address, if any, in the register of holders of the
relevant securities. Service shall, in such a case be deemed to be effected on
the day of posting and it shall be sufficient proof of service if that notice
was properly addressed, stamped and posted.

167.6  Any notice required or permitted to be given pursuant to this Article may
relate to more than one share and shall specify the share or shares to which it
relates.

167.7  The Directors may require from time to time any Person who is or claims
to be a Person to whom a Distribution may be paid without deduction of tax under
Regulation 7 of the Real Estate Investment Trusts (Assessment, Collection and
Recovery of Tax) Regulations 2006 to provide such certificates or declarations
as they may require from time to time.

167.8  These Articles may be amended by special resolution from time to time,
including to give powers to the Directors to take such steps as they may require
in order to ensure that the Company can satisfy Condition 4 of Section 106 of
the Finance Act 2006 (as such section may be modified, supplemented or replaced
from time to time) which relates to close company status, which powers may
include the ability to arrange for the sale of shares on behalf of shareholders.




By order of the Board                                     Registered Office
J O Hambro Capital Management Limited
Secretary
Ground Floor                                              Ground Floor
Ryder Court                                               Ryder Court
14 Ryder Street                                           14 Ryder Street
London                                                    London
SW1Y 6QB                                                  SW1Y 6QB


20 November 2006


Notes:



1.             A member entitled to attend and vote at the meeting may appoint
one or more proxies to attend and, on a poll, vote instead of him or her. A
proxy does not need to be a member of the Company. A proxy may not speak at the
meeting except with the permission of the Chairman of the meeting and may only
vote on a poll (not on a show of hands).



2.             A reply paid form of proxy is enclosed. To be valid, the form of
proxy and the original (or a certified true copy) of any power of attorney or
other authority under which the form of proxy is signed must be deposited at the
office of the Company's Registrars, whose address is shown on the form of proxy,
no later than 11a.m. on 16 December 2006 (or, in the event of an adjournment,
the time which is 48 hours before the adjourned meeting). Completion of the form
of proxy will not affect the right of a Shareholder to attend and vote at this
meeting.



3.             Under regulation 41 of the Uncertificated Securities Regulations
2001, only persons included in the register of members of the Company at 6.00
p.m. on 16 December 2006 (or, in the event of any adjournment, 6.00 p.m. on the
date which is two days before time of the adjourned meeting) are entitled to
attend or vote at the meeting in respect of the shares registered in their names
at that time. Changes to entries on the register after the relevant deadline
shall be disregarded in determining the rights of any person to attend or vote
at the meeting (or adjourned meeting).










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