The Board announced a Strategic Review on 16 March 2023 in response to several challenges that had been facing the Company for some time. These included low levels of liquidity in the Ordinary Shares; a small market capitalisation that limited the ability of larger investors to achieve their desired quantum of investment commitment; constraints on the Company's ability to diversify across larger schemes in the retail warehouse market due to the relatively small size of the Company; and cost inefficiencies from operating a subscale company.

All of these challenges stem from the inability of the Company to grow through new equity issuance as the Company's Ordinary Shares, like those of its peers in the REIT sector, have traded at a material discount to net asset value. The Board believes it is unlikely that this situation will change in the short to medium term and will therefore continue to frustrate the Board's long-stated objective to grow the Company.

The Board therefore undertook the Strategic Review with a stated preference for structuring a merger with one or more REITs, whilst acknowledging that all options for maximising value for Shareholders should be considered, including selling the entire Share capital of the Company, or selling the Company's portfolio or subsidiaries and returning monies to Shareholders.

The Board was very pleased with the interest shown in the Company, with merger proposals being received from a number of potential counterparties. These were reviewed alongside other options which included, amongst other things, share and cash offers for the Company and the entirety of the Property Portfolio.

In considering the merger proposals, the Board focused on, inter alia: the size of the proposed combined vehicle, and how that might enhance liquidity; the ability of the combined vehicle to produce a compelling investment proposition over the medium to long term; the cost savings per ordinary share that could be secured; the levels of gearing, interest costs and debt maturity; the ongoing level of sustainable dividend payments; and the share rating that could realistically be achieved in the short term by the combined vehicle.

Each of the merger proposals was explored in detail. Although there were proposals that achieved several of the target goals, the Board was not satisfied that a merger could be struck on terms that secured the desired overall outcome. Factors such as scale, increased exposure to weaker property market sub-sectors, reduction in dividend yield and persistent material discounts or discount volatility weighed against a merger in one form or another.

In the Strategic Review Announcement, the Board noted that realising the Company's assets and putting the Company in a position to return cash to Shareholders represented another means of maximising Shareholder value. In considering offers made for the Property Portfolio, the Board took independent advice on the realisation value of the assets within the Property Portfolio.

The Board also considered a gradual sale of assets in an organised wind-down of activities against a disposal of the entire Property Portfolio. However, it was determined that a gradual sale could leave Shareholders facing a shrinking market capitalisation and increasingly illiquid Ordinary Shares. In addition, any gain from selling the parts over the whole could be eroded very quickly by the higher costs per Ordinary Share of continuing to run the Company for an unknown period, potentially culminating in a forced sale of the final assets.

In the Board's assessment, the principal advantage of a portfolio disposal, with the subsequent return of cash to Shareholders, was that the implied exit value per Ordinary Share (after wind-up costs) had the potential to be materially higher than the share price that could otherwise be achieved through the creation of a merged vehicle, and would, in any event, be more readily ascertainable than the latter.

When considered in the light of the current market backdrop, the fact that the Company's Ordinary Shares traded at an average discount to their net asset value per Share of 24.6 per cent. over the 12 month period to 15 March 2023 (being the date immediately prior to the Strategic Review Announcement) and the inability of the Company to raise additional capital in order to achieve scale, the Board has concluded that the Disposal represents the best means of maximising Shareholder value and is therefore in the best interests of the Company and its Shareholders as a whole.

As at 6 September 2023, the Property Portfolio comprised 11 well-let and operational, convenience-led retail warehouse assets located across the UK which are let off affordable rents. The Property Portfolio has been assembled by the Investment Manager since the Company's launch on 28 October 2014. The key individuals at the Investment Manager responsible for the Property Portfolio are Danny O'Neill and Calum Bruce. As at 6 September 2023, the 1.18 million sq. ft. portfolio was let to a diversified base of 64 tenants over 108 units, with an aggregate contracted market rent of approximately £16.4 million per annum, delivering an average rent per sq. ft. of £13.97.

The valuation of the Property Portfolio as at 15 August 2023 was £207.25 million. The valuation of the Property Portfolio as at 30 June 2023, being the last quarterly valuation, was £208.4 million. The Valuation Report as at 15 August 2023 accounts for capital expenditure of approximately £1.3 million having been incurred since 30 June 2023.

During the financial year ended 30 September 2022, the Property Portfolio generated profits of £22.1 million and £16.4 million of revenue from rental income; delivered a net asset value total return of 11.5 per cent.; enabled the Company to pay out an annualised dividend per Ordinary Share of 5.00 pence; and at the end of the period had an EPRA NAV per Share of 94.9 pence. During the six months ended 31 March 2023, the Property Portfolio incurred losses of £24.95 million; generated £7.6 million of revenue from rental income; delivered a net asset value total return of -12.6 per cent.; enabled the Company to pay out an annualised dividend per Ordinary Share of 5.00 pence and at the end of the period had an EPRA NAV per Share of 80.4 pence.

During the period from 30 September 2022 to 6 September 2023, the EPRA Vacancy Rate fell from 6.5 per cent. to 5.8 per cent., the weighted average unexpired lease term was 5.3 years, up from 4.5 years at the last financial year end, and rent collection was consistently at 99.9 per cent. each quarter.

Realty Income is a US real estate investment trust listed on the New York Stock Exchange, and is a constituent of the S&P 500. Realty Income currently holds over 12,400 real estate properties which are primarily let to commercial clients under long-term net lease agreements.

As at 30 June 2023, Realty Income held, through RI UK 1 Limited and its subsidiaries, 241 properties in the UK, with a total leasable space of approximately 23 million sq. ft. As at 6 September 2023, Realty Income had a market capitalisation of approximately US$39.1 billion.

The Disposal is being made pursuant to the terms of the Sale Agreement and the principal terms and conditions of the Sale Agreement will be set out in detail in the Circular.

Under the Sale Agreement, the Company has agreed to sell the entire issued share capital of each of the Targets to the Purchaser, a wholly-owned subsidiary of Realty Income. The Sale Agreement contains certain warranties and indemnities given by each of the Company and the Purchaser which are customary for a transaction of this nature. 

The Consideration of approximately £196.8 million (after agreed deductions) is payable in full and in cash by the Purchaser on Completion, subject to certain customary adjustments, as detailed in the Circular.

Completion of the Disposal is conditional only upon the approval of the Resolution by Shareholders at the General Meeting. The Board expects that, subject to the approval of the Resolution at the General Meeting, Completion will occur on, or around, 28 September 2023.

The Property Portfolio comprises the entire business of the EPIC Group. After adjustment for estimated transaction costs, the Company expects, immediately following Completion, to have Estimated Net Assets of approximately £152.2 million, equivalent to 72.0 pence per Ordinary Share[1].

The Estimated Net Assets per Share equates to a 17.7 per cent. premium to the Share price of 61.2 pence as at 15 March 2023 (the closing price immediately prior to the Strategic Review Announcement), a 14.0 per cent. premium to the Share price of 63.2 pence as at 2 August 2023 (the closing price immediately prior to the Strategic Review Update Announcement) and a 10.8 per cent. premium to the average Share price over the twelve months to 2 August 2023. The Estimated Net Assets per Share equates to a 10.8 per cent. discount to the latest published net asset value per Share of 80.77 pence, as at 30 June 2023.

If Shareholders subsequently approve the voluntary liquidation of the Company on or around 31 December 2023, the estimated amount per Share available for distribution to Shareholders in the liquidation (taking into account the estimated costs of liquidation, service provider termination costs and estimated net income in the period following Completion) is expected to be materially the same as the Estimated Net Assets per Share of 72.0 pence, unless and to the extent that any dividends are paid in the period between Completion and liquidation.

No transitional services arrangements in respect of the Property Portfolio will be required following the Disposal as Realty Income will take over the management of all the assets within the Property Portfolio immediately upon Completion. The Company will not, therefore, incur costs in implementing transitional services arrangements in respect of the Property Portfolio going forward.

If the Disposal becomes unconditional, it is the intention of the Board to seek Shareholder approval for the voluntary liquidation of the Company with a view to distributing substantially all of the Company's net assets (which will comprise of cash) to Shareholders as soon as reasonably practicable (with the target being, by the end of this calendar year), unless an appropriate corporate opportunity is identified in the meantime which, in the view of the Board (having consulted with key Shareholders), merits further consideration. The Board would only recommend an alternative corporate opportunity if it reasonably believed that such opportunity would offer Shareholders greater benefit than a simple return of capital.

It is expected that, as part of and on the day of Completion, the existing Debt Facilities will be novated or transferred to the Company on the same terms that are currently in place. This novation or transfer will be achieved by the novation of the No.2 Facility Agreement and the provision of a new facility to the Company by Aviva Commercial Finance under such novated No.2 Facility Agreement to repay amounts outstanding under the No.1 Facility Agreement. This will result in the Company owing amounts to Aviva Commercial Finance in the same amounts and on the same terms as the Facility Agreements. The Debt Facilities will be repaid on the date of liquidation if Shareholders approve the voluntary liquidation of the Company, as described above.

The Board intends to hold the cash proceeds of the Disposal together with existing cash reserves (which will be secured in favour of Aviva Commercial Finance) in interest bearing current accounts. The Board intends to maintain the current level of dividend, with monthly dividend payments, until the return of capital to Shareholders.

Should Shareholder approval to put the Company into voluntary liquidation not be obtained, the Board would reassess the options available to the Company at that time.

The Disposal is conditional on the passing of the Resolution at the General Meeting. Notice of the General Meeting, which will be held at the offices of Dickson Minto W.S., Level 4, Dashwood House, 69 Old Broad Street, London EC2M 1QS at 11.00 a.m. on 26 September 2023, is set out in the Circular.

The General Meeting is being held for the purposes of considering and, if thought fit, passing the Resolution. The Resolution proposes that the Disposal be approved and that the Directors be authorised to implement the Disposal. The Resolution will be proposed as an ordinary resolution, requiring a majority of votes cast to be in favour for the Resolution to be passed. The full text of the Resolution is included in the Notice of the General Meeting.

In the event that the Resolution is not passed and, as a result, the Disposal does not proceed, the Company will be liable to pay the Purchaser's costs up to approximately £1.46 million, in accordance with the Cost Cover Agreement, and its own abort costs which are expected to be approximately £1.3 million.

The Board has received financial advice from each of Investec and Dickson Minto Advisers, the Company's joint financial advisers, in connection with the Disposal and, in giving such financial advice to the Board, each of Investec and Dickson Minto Advisers has relied on the Board's commercial assessment of the Disposal.

The Board considers that the Disposal and the passing of the Resolution are in the best interests of the Company and its Shareholders as a whole. Accordingly, the Board unanimously recommends that Shareholders vote in favour of the Resolution to be proposed at the General Meeting, as the Directors intend to do in respect of their own beneficial holdings, which, in aggregate, amount to 370,775 Ordinary Shares, representing approximately 0.175 per cent. of the Company's issued Ordinary Share capital as at 6 September 2023

The Company has received an irrevocable undertaking to vote in favour of the Resolution from TR Property Investment Trust plc in respect of, in aggregate, 34,686,226 Ordinary Shares, representing approximately 16.41 per cent. of the Company's issued Ordinary Share capital as at 6 September 2023.

Upon Completion, the Company will dispose of the entirety of the Property Portfolio. As a result, the Company will no longer satisfy the conditions of the UK REIT Regime, will be deemed to have ceased to be a REIT from the date of Completion and will thereafter not benefit from the tax treatment afforded by REIT status.

The Strategic Review, and the Formal Sales Process framework within which it was conducted, have now concluded, and the Company is therefore no longer in an "Offer Period" as defined in the Takeover Code. As a consequence, the requirement to make disclosures under Rule 8 of the Takeover Code has now ceased.