The New Zealand Shareholders' Association will be voting in favour of Property For Industries' plans to buy its "very unusual" external management contract for $42 million which will cut costs for the industrial property investor and keep what's been a successful management team.

The management contract with PFIM Ltd, which in turn subcontracts it to McDougall Reidy & Co, is "very unusual" in that for "all intents and purposes this management contract is unable to be cancelled by the company in any likely circumstances" but can be "assigned to anyone and neither PFI nor shareholders have any real ability to influence this", the retail investor lobby group said in a statement.

Under the deal, PFI will pay $42m for the contract, with most of the management company staff transferring to the property investor, while three key executives will stay on as contractors rather than employees. Independent adviser Northington Partners valued the contract at $48m-to-$56m, with cheaper management fees likely to lead higher dividend payments.

NZSA said the main area for debate was on the long-term outlook for PFI, predicting that if shareholders opposed the deal it's "almost certain" the contract will be sold to a third party for at least $42m if not more, and that keeping the quality management team was an advantage.


The lobby group said it was disappointed the contractor salaries weren't disclosed but was satisfied the fee cap meant they couldn't balloon out and was also happy with the conflict of interest provisions in place.

"If the deal is not supported by shareholders, there is no certainty that any of the current management will be retained by a new contract owner.

The impact of this is unknown," NZSA said. "The clincher for us is that this may be the only opportunity for PFI to take control of its destiny and retain its high performing management team."

PFI shareholders will vote on the proposal at the June 22 annual meeting in Auckland. The company's shares were unchanged at $1.645 and have increased 4.1 per cent so far this year.