Property for Industry shareholders vote to internalise management

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Property For Industry's managers will reap a $42 million payday after the industrial property investor's shareholders voted to internalise its management contract.

At the company's annual meeting in Auckland this morning, 94.4 per cent of votes cast were in favour of the motion to internalise. Management rights have been owned by PFIM Ltd since about 1994, with PFIM subcontracting its management role for Property for Industry. Former employees of the subcontractor, including Greg Reidy (managing director), Simon Woodhams (general manager) and Craig Peirce (chief financial officer), will continue in their roles.

The net cost of taking over the contract is expected to be around $30m, after a binding ruling from the Inland Revenue Department that it is tax-deductible, with the deal now to settle on June 30.

PFI will expand its banking facilities to buy the contract and has established a $50m institutional credit facility with ANZ Bank New Zealand, which expires on July 31, 2018, and ranks alongside PFI's existing syndicated bank loan facility. The arrangement will result in PFI's pro forma drawn debt being $364.7m, and its gearing ratio 33.7 per cent.

Independent appraiser Northington Partners has assessed the fair market value of the contract between $48m and $56m, and the value to PFI at between $63m and $78m, deputy chairman Anthony Beverley said, according to notes on the NZX.

"Post internalisation, PFI will likely have the lowest management expense ratio in the listed property sector, of approximately 0.4 per cent, compared to the sector average at 0.8 per cent," Beverley said. "The proposed internalisation is estimated to provide earnings accretion of approximately 6 per cent per annum on a pro forma basis, enhancing distributable profits for PFI which should allow for higher future dividends."

PFI reported a record $123m profit for calendar 2016, including an $88m fair value gain on investment properties. The company's 83 properties were valued at $1.08 billion as at December 31 and its weighted average lease term was 4.79 years.

Beverley was re-elected as a company director with 99.9 per cent shareholder support at the meeting, with independent director Humphry Rolleston also re-elected.
PFI's shares last traded at $1.64, and have gained 3.8 per cent this year.