PFI – Internalisation Agreement

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NZX and media announcement 3 April 2017

PROPERTY FOR INDUSTRY – INTERNALISATION AGREEMENT

The Independent Directors of NZX-listed industrial property landlord, Property for Industry Limited (NZX: PFI), are
pleased to announce that they have reached a conditional agreement with PFIM Limited (PFIM) to internalise the
management of PFI, subject to receiving shareholder approval at a special meeting to be held in June 2017 and
receipt of a binding ruling from the IRD relating to the tax treatment of the internalisation.

The Independent Directors believe internalisation will be accretive to earnings per share for shareholders, ensure
the continuity of PFI’s proven management team and strategy and ensure continued alignment of shareholder and
management interests. Importantly, significant costs savings are expected to be achieved and, post internalisation,
the Independent Directors expect PFI to have one of the lowest management expense ratios in the New Zealand
listed property sector.

Key features of the internalisation include:
 A payment of $42.0 million (implying a net cost for internalisation of $30.3 million post tax deductibility and
before transaction costs) to PFIM as consideration for the termination of the PFI management contract and the
acquisition by PFI of the business and certain assets of PFIM;
 Greg Reidy, Simon Woodhams and Craig Peirce will continue to act as Managing Director, General Manager
and Chief Financial Officer respectively, under independent service contracts with PFI; and
 The offer of employment by PFI to other employees of McDougall Reidy & Co Limited (to whom PFIM currently
subcontracts its management function), who will continue to provide the same services currently provided to
PFI.

Deloitte was commissioned by the Independent Directors to examine the valuation matters associated with the
internalisation agreement. Deloitte has concluded that the internalisation is expected to be earnings per share
accretive and accordingly is expected to provide a material net present value gain to shareholders. Deloitte has
also determined that the purchase price is fair taking into account the very limited rights of termination in the
existing management contract and the value benefits for shareholders from the transaction.

PFIM has provided management services for PFI since late 2011 and during that time has overseen growth in the
value of properties under management to $1.1 billion (comprising 84 properties of which 70 are in Auckland) while
also delivering growth in earnings per share, dividends per share and net tangible assets per share.

Peter Masfen, Chairman and Independent Director of PFI, said: “The internalisation agreement has been the result
of a proactive and collaborative approach by the Board and PFIM and will ensure the full continuity of PFI’s
successful business model and strategy, with the same people, the same processes and the same focus on
delivering strong, stable shareholder returns.

“The existing PFIM management contract has very limited rights of termination, and internalisation will safeguard
the retention of the current management team, which has significant experience and a deep understanding of the
industrial property sector.

“Post internalisation, the Board expects PFI to have one of the lowest management expense ratios in the New
Zealand listed property sector. The Independent Directors unanimously support the internalisation and believe that
it is in the best interests of shareholders.”

The internalisation agreement is conditional on approval by PFI shareholders and receipt by PFI of a binding ruling
from the IRD confirming that the proportion of the payment to PFIM relating to the termination of the PFI

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management contract is deductible for income tax purposes, implying a net cost for internalisation before
transaction costs of $30.3 million. This payment will be funded by an expansion of PFI’s bank facilities, which will
result in pro forma drawn bank debt of $364.7 million as at 31 December 2016 (which implies a pro forma gearing
ratio of 33.7%
1
). To this end, a $50 million Institutional Credit facility has been established with ANZ. The facility
expires on 31 July 2018 and ranks alongside PFI’s existing syndicated bank loan facility.

Northington Partners has been appointed to prepare an Independent Appraisal Report on the merits of the
internalisation agreement and this report will be included in a Notice of Special Meeting which is expected to be
sent to PFI shareholders in early June. The Special Meeting of shareholders is expected to be held in late June
and, subject to receiving shareholder approval and a binding ruling from the IRD, settlement of the internalisation is
expected to occur on 30 June 2017.

Forsyth Barr and Chapman Tripp have been appointed as financial advisor and legal advisor to the Independent
Directors of PFI, respectively.

ENDS

Contact
For further information please contact:

Anthony Beverley
Independent Director
Phone: +64 29 494 2266

For media assistance and enquiries, please contact Jackie Ellis, Ellis and Co on:
Phone: +64 27 246 2505
Email: jackie@ellisandco.co.nz.

About PFI
PFI is New Zealand's only listed company specialising in industrial property. PFI's portfolio of 84 industrial
properties in Auckland, Hamilton, Mount Maunganui, Wellington and Christchurch, is leased to 143 tenants.

www.propertyforindustry.co.nz


1
Total debt / total property assets. Pro forma as at 31 December 2016.

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INTERNALISATION AGREEMENT
1
PROPERTY FOR INDUSTRY
INTERNALISATION AGREEMENT
INTERNALISATION AGREEMENTINTERNALISATION AGREEMENTINTERNALISATION AGREEMENT
•
The Independent Directors of Property for Industry Li
mited (“PFI”) are pleased to announce
that they have reached a conditional agreement with P
FIM Limited (“PFIM”) to internalise the
management of PFI
•
Key features of the internalisation include:
•
A payment of $42.0 million (implying a net cost for
internalisation of $30.3 million, post
tax deductibility and before transaction costs) to PFIM as
consideration for the
termination of the PFI management contract and the acq
uisition by PFI of the business
and certain assets of PFIM;
•
Greg Reidy, Simon Woodhams and Craig Peirce will cont
inue to act as Managing
Director, General Manager and Chief Financial Officer
respectively, under independent
service contracts with PFI; and
•
The offer of employment by PFI to other employees o
f McDougall Reidy & Co Limited
(to whom PFIM currently subcontracts its management functi
on), who will continue to
provide the same services currently provided to PFI

KEY BENEFITS OF THE INTERNALISATION
2
PROPERTY FOR INDUSTRY
INTERNALISATION AGREEMENT
INTERNALISATION AGREEMENTINTERNALISATION AGREEMENTINTERNALISATION AGREEMENT
•
The internalisation agreement results in the followin
g key benefits for PFI shareholders:
•
Ensures the full continuity of PFI’s proven strategy
•
Safeguards the retention of the current management t
eam who have significant
experience and a deep understanding of the industrial p
roperty sector
•
Provides continued alignment between senior managemen
t and PFI shareholders as
senior management remuneration will be linked to share
holder returns as well as
providing incentives for internalised costs to be below 0
.3% of total tangible assets
(expected to be one of the lowest expense ratios in the N
ew Zealand listed property
sector)
•
Expected to be earnings per share accretive (on a pro fo
rma FY16 basis), leading to a
material net present value gain for shareholders
PFI Chairman, Peter Masfen: “
The internalisation agreement has been the result of a
proactive
and collaborative approach by the Board and PFIM, and w
ill ensure the full continuity of PFI’s
successful business model and strategy, with the same people,
the same processes and the
same focus on delivering strong, stable shareholder return
s
.”

DELOITTE REPORT TO THE BOARD
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PROPERTY FOR INDUSTRY
INTERNALISATION AGREEMENT
INTERNALISATION AGREEMENTINTERNALISATION AGREEMENTINTERNALISATION AGREEMENT
•
PFI’s Independent Directors commissioned Deloitte to exam
ine the valuation matters
associated with the internalisation agreement
•
Deloitte has concluded that the internalisation is expect
ed to be earnings per share accretive
and accordingly is expected to provide a material net pr
esent value gain to shareholders (i.e.
the present value of forecast cost savings exceeds the purchase
price)
•
In addition, Deloitte has concluded that the purchase p
rice is fair and consistent with
comparable transactions, taking into account:
•
The very limited rights of termination in the existin
g management contract;
•
The general expansion in valuation multiples in recent
years; and
•
The value benefits for shareholders from the transactio
n

OTHER CONSIDERATIONS
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PROPERTY FOR INDUSTRY
INTERNALISATION AGREEMENT
INTERNALISATION AGREEMENTINTERNALISATION AGREEMENTINTERNALISATION AGREEMENT
•
The cost of internalisation is expected to be deductible
for tax purposes
•
An application for a binding ruling has been made to
the IRD, and the internalisation
agreement is conditional on the receipt of this binding
ruling
•
The cost of internalisation will be funded by an expan
sion of PFI’s bank facilities
•
A $50 million Institutional Credit facility has been
established with ANZ. The facility
expires on 31 July 2018 and ranks alongside PFI’s existing sy
ndicated bank loan
facility
•
Expected to result in PFI having FY16 pro forma drawn
debt of $364.7 million (gearing
ratio of 33.7%
1
)
•
Further information on PFI including its 2016 Annual
Report, and on PFIM, is available at
www.propertyforindustry.co.nz
1.
Total debt / total property assets

PROCESS OVERVIEW
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PROPERTY FOR INDUSTRY
INTERNALISATION AGREEMENT
INTERNALISATION AGREEMENTINTERNALISATION AGREEMENTINTERNALISATION AGREEMENT
•
The internalisation agreement is conditional on appro
val by PFI shareholders
•
A Notice of Special Meeting is expected to be sent to PF
I shareholders in early June
•
Northington Partners have been appointed to prepare
an Independent Appraisal Report
on the merits of the internalisation agreement
•
A copy of this report will be sent to shareholders with
the Notice of Special Meeting
•
The Special Meeting of shareholders is expected to be he
ld in late June and, subject to
receiving shareholder approval and a binding ruling f
rom the IRD, settlement of the
internalisation is expected to occur on 30 June 2017
•
The Independent Directors unanimously support the i
nternalisation and believe that it
is in the best interests of PFI shareholders

DISCLAIMER
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PROPERTY FOR INDUSTRY
INTERNALISATION AGREEMENT
INTERNALISATION AGREEMENTINTERNALISATION AGREEMENTINTERNALISATION AGREEMENT
The information included in this presentation is provide
d as at 3 April 2017.
Neither Property for Industry Limited (PFI) nor PFIM
Limited (PFIM), the manager of PFI, guarantee the r
epayment of capital or
the performance referred to in this presentation.Past performance is not a reliable indicator of future
performance.
The presentation includes a number of forward looking st
atements. Forward looking statements, by their nature,
involve inherent
risks and uncertainties. Many of those risks and uncertaintie
s are matters which are beyond PFI’s and PFIM’s control a
nd could
cause actual results to differ from those predicted. Varia
tions could either be materially positive or materially
negative.
While every care has been taken in the preparation of t
his presentation, PFI and PFIM makes no representation o
r warranty as
to the accuracy or completeness of any statement in it incl
uding, without limitation, any forecasts.
This presentation has been prepared for the purpose of
providing general information, without taking account o
f any particular
investor’s objectives, financial situation or needs. An invest
or should, before making any investment decisions, consider
the
appropriateness of the information in this presentation
, and seek professional advice, having regard to the investo
r’s objectives,
financial situation and needs.This presentation is solely for the use of the party to
whom it is provided.