Information on Caledonian Trust

I INTRODUCTION

Caledonian Trust is a property investment and development company based in Edinburgh established in 1972. The company was admitted to Aim on 22 September 1995.

II HISTORY

The Company was incorporated under the name of Abusard Investments Limited on 27th January 1972. It changed its name to First Talisman Investment Company Limited on 24th August 1972 and was re-registered as a public company on 28th April 1982. It changed its name to First Talisman Investments plc on 28th September 1982, to Towngrade Securities plc on 2nd November 1983 and to Caledonian Trust PLC on 29th June 1988.

Douglas Lowe, the Chairman, together with two colleagues purchased a controlling interest on 30 July 1987 when he was appointed Chief Executive, a position he has held ever since. A summary of the Company's financial history is shown in APPENDIX A

III POLICY

(a) Statement

The Company's policy has been to operate in the property sector. Within the sector the Company has identified and invested in assets mispriced by the market, or about to increase significantly in value as a result of external circumstances, or where value can be increased by management, particularly by effecting planning change. The Company has also uncovered and exploited opportunistic commercial situations. The Company's objective has been to maximise shareholder value, primarily through growth in NAV, in the medium term. These policies continue.

(b) Implementation

In late 1987 Caledonian's existing investment portfolio in the South East was fully valued but in Scotland rental growth had been very slow due to the overhang of surplus space. By June 1988 Caledonian has sold its existing portfolio and by 1989 had purchased Edinburgh investment properties valued at 10.2m with further investments added later. Between 1987 and 1990 Edinburgh office rents rose by about 150%.

In 1989 Aberdeen office rents were still highly reversionary and in 1989 Caledonian purchased St Magnus House for 7.05m. Within two years rental values had doubled. Shortly after "Black Wednesday", 16 September 1992, when interest rates had spiked to 15%, prior to the UK leaving the ERM, Caledonian purchased Stoneywood Business Centre at Dyce, Aberdeen, a 226,000ft2 industrial property, for 2.75 yielding 22%. In 2001 Stoneywood was sold to BP for 9.05m as a site for its new HQ.

The recession of the early 1990s caused by high interest rates brought heavy losses to the Company. However, by then the portfolio comprised principally high-yielding properties with excellent covenants, often reversionary, which offered better prospects than other available opportunities and the Company decided to hold much of the portfolio in the expectation of lower yields. Between November 1992 and November 2000 the ICHP All Property Yield Index dropped from 9.2% to 7.0%.

In the mid 1990s there were three opportunistic corporate actions. In 1994 the Company made a successful 4m cash and share offer for the Bank of Edinburgh Group Limited, a Company now without a banking licence, but was unsuccessful in its bid for Lawrie & Symington, a livestock auctioneer with a very large property portfolio. In 1995 in a cash and share bid the Company took over CCL Developments PLC which had a small investment portfolio and a 40% stake in a joint venture with Caledonian near Waterloo station. Since then numerous proposals have been considered but none has developed to the offer stage.

In 2001 the Company's policy changed. Stoneywood had been sold for 9.05m and St Magnus was offered for sale at over 12.0m. The 20 December 2001 Press Notice said "The sale of investment property marks the transaction of the Company from primarily an investment company to a development and investment company". The Chairman's statement of 20 December 2002 reflected that change: "Most of the Group's investments have now matured and have been realised and the existing portfolio consists mostly of potential developments, primarily in areas with excellent prospects". The change in policy has continued to be implemented and the accounts to 30 June 06 state: "In addition to its investment portfolio the Group now owns twelve rural development sites, and has a further very large site under offer (now purchased), four significant city centre sites, two small housing sites in the Edinburgh area and 85 house plots near Dunbar".

The Company continues to search for and offer for suitable sites. Prices of rural development opportunities have risen considerably over the past few years as changes in planning policy become clearer and the opportunities the Company discerned previously have become more widely appreciated.

The maximum value of the Company's development properties will be realised by undertaking their development. However the Company's policy is to maximise investment in development opportunities where investment returns are presently highest and, if cash resources become limited, to realise development sites or to release our capital by suitable financial structures to fund the purchase of further such development opportunities.