Property for Industry managers to reap $42 million payday by taking management inhouse
The managers of Property For Industry will reap a $42 million payday under a proposal for the industrial property investor to internalise the management contract, a deal Deloitte has deemed fair.
Under the scheme, Greg Reidy, Simon Woodhams and Craig Peirce will continue as managing director, general manager and chief financial officer respectively, and other employees of McDougall Reidy & Co, which manager PFIM Ltd subcontracts its management role for Property for Industry (PFI), "will continue to provide the same services currently provided to PFI", the company said in a statement.
It said the net cost of taking over the contract is expected to be $30.3 million, subject to a binding ruling from the Inland Revenue Department on its tax deductibility. Northington Partners has been hired for an independent appraisal of the proposal ahead of a vote at a special meeting of shareholders expected in late June. The deal would then settle on June 30.
PFI will expand its banking facilities to buy the contract and has established a $50 million 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 $364.7 million, and its gearing ratio 33.7 percent.
The announcement comes after PFI reported a record $123 million profit for calendar 2016. The results included an $88 million fair value gain on investment properties. The company's 83 properties were valued at $1.08 billion as at Dec. 31 and its weighted average lease term was 4.79 years.
In declaring the deal fair, Deloitte noted "the very limited rights of termination in the existing management contract", the "general expansion in valuation multiples in recent years", and the "value benefits for shareholders from the transaction".
According to the Companies Office, Greg and Helen Reidy and Robert Burnes' Robert Burnes Trustee (2012) own 25 percent of PFIM. A further 33 percent is owned by Arthur Young, Jennifer Bufton and Simon Bufton, while Malcolm and Jane McDougall own about 19 percent. The McDougalls and the Reidys also own McDougall Reidy & Co, which has been managing PFI for PFIM, and Peirce and Woodhams also have stakes in that company.
Peter Masfen, PFI's chairman and independent director of PFI, also noted the limited rights under the existing contract to terminate PFIM's management rights and said the deal would "safeguard the retention of the current management team, which has significant experience and a deep understanding of the industrial property sector."
PFI's independent directors have retained brokerage Forsyth Barr and law firm Chapman Tripp as advisers.
PFI's shares last traded at $1.615. In the past five years they have gained 41 percent, lagging behind the S&P/NZX 50 Index's 106 percent gain.