Archive | Property For Industry

Masfen says PFI internalisation hit for long-term good

Property for Industry Ltd lifted its after-tax result for the June half by 12.2%, but turned it into a loss with the $42 million internalisation vote (at a net after-tax cost to PFI of $30.3 million) right on balance date.

PFI chair Peter Masfen said on Wednesday the benefits of the internalisation would accrue in the years to follow: “One benefit is an enhanced level of distributable profit, enabling higher dividends, which we have confirmed in today’s announcement.”


  • Increased full-year dividend guidance – distributable profit (1) of between 7.7-7.9c/share, cash dividend of 7.45c/share
  • Transition of the Penrose portfolio – $13 million of shareholder value created equating to a property level internal rate of return of about 24%
  • Including the impact of the internalisation, PFI recorded a loss after tax of $5.6 million (1.25c/share and net tangible assets of 155.6c/share (160.7c/share at December)
  • Excluding the impact of the internalisation, PFI recorded profit after tax of $25.2 million (5.58c/share), up 12.2%, and net tangible assets of 162.5 cents/share (up 1.1% from December)
  • Distributable profit up 2.4% to 3.86c/share
  • Strong balance sheet – $40 million short-term facility obtained to complete the internalisation, gearing of 34.2%
  • $6 million uplift from independent revaluation of 7 properties, independent desktop review of rest of the portfolio
  • 29% of contract rent varied, leased or reviewed
  • Portfolio occupancy at 99.5%, with 5.5% of contract rent due to expire in the second half of the year
  • $14.2 million acquisition & $14.3 million divestment.

Link: More details

Earlier stories:
5 July 2017: PFI settles internalisation
23 June 2017: PFI vote strongly in favour of internalisation, and building sale settles

Attribution: Company release.

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PFI settles internalisation

NZX-listed Property for Industry Ltd said on Friday it had settled the internalisation of the company’s management, which shareholders overwhelmingly approved at the annual meeting on 22 June.

Shareholders agreed at the annual meeting to pay the existing external management team $42 million (at a net after-tax cost to PFI of $30.3 million) for the contract. The company will employ the same team to run the business on internal contracts.

The company will release its interim results on Wednesday 9 August and said it would give more details about the changed management structure then.

Earlier story:
23 June 2017: PFI vote strongly in favour of internalisation, and building sale settles

Attribution: Company release.

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PFI vote strongly in favour of internalisation, and building sale settles

Property for Industry Ltd shareholders voted 94.4% in favour yesterday of paying $42 million to internalise the NZX-listed company’s management.

The same management team will stay in place, making some wonder why the transaction was needed at all.

But deputy chair Anthony Beverley said benefits included the control on expenses, dealing with conflicts and strategic benefits. He said the return to shareholders would from the investment would flow through reduced expenses and higher profits.

NZ Shareholders Association chair John Hawkins told the PFI meeting the association had seen lower numbers than the 6.5% accretion to shareholders that the independent report by Northington Partners ascribed to the internalisation, but all the other predictions were still accretive.

And then he added: “I am confident that if shareholders reject this deal the management contract will be sold to a third party – that’s from some of the parties we have spoken to.”

And that’s the crux of the internalisation. PFI had an opportunity to control the future of its management, whereas sale of the management contract to a third party could have led to a far different future.

There were some quibbles that owners of the present manager, PFIM Ltd, would switch to internal contracts yet would still be allowed to conduct other business from the company office, but Mr Beverley said the external contract allowed that and the new contract would require them to give PFI priority.

The vote was held at PFI’s annual meeting, where the operational highlight was a presentation by general manager Simon Woodhams on the returns the company had achieved from its $28.5 million acquisition of the Sistema Plastics Ltd portfolio of 5 Penrose properties in 2015.

Sistema moved last year to new premises at Ihumatao, near Auckland Airport, after a period leasing back its Penrose premises. PFI has signed long-term leases on 3 of the Penrose buildings, sold one and has the fifth building still vacant.

The sale of 65 Hugo Johnston Drive to Crown Equipment Ltd for $14.25 million, up from PFI’s August 2015 acquisition price of $11.01 million, settled on Monday.

Earlier stories:
29 May 2017: Northington sees big gain for PFI from internalisation
24 May 2017: IRD makes tax ruling relating to PFI internalisation
1 May 2017: PFI sells one & leases 3 of 5-property Penrose portfolio
3 April 2017: PFI proposes internal management after 6 years of external

Attribution: Annual meeting, company releases.

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Northington sees big gain for PFI from internalisation

Northington Partners Ltd has given the thumbs up to the proposed internalisation of Property For Industry Ltd’s management in an independent assessment out today.

The proposal will go to the vote at PFI’s annual meeting, to be held at Eden Park on Thursday 22 June.

Under the proposal, PFI will pay the management team’s company, PFIM Ltd, $42 million, equating to $30.3 million after tax.

Northington owner Greg Anderson & director Jonathan Burke assessed the market value of the management agreement at $48-56 million and estimated the valuation of the internalisation to PFI at $63-78 million: “As a result, the proposed internalisation is expected to add between $33-48 million of value to PFI on a post-tax net present value basis.”

Other key points in their summary:

  • The proposed internalisation is estimated to provide earnings accretion of about 6%/year on a pro forma basis, enhancing distributable profit for PFI, which allows for higher future dividends in line with PFI’s dividend policy
  • Post-transaction gearing remains at a reasonable level and generally in line with other listed property vehicles
  • The $42 million internalisation payment is 19% lower than Northington’s midpoint valuation
  • The $30 million after-tax value represents a 41% discount to Northington’s midpoint market valuation
  • The proposed internalisation would significantly reduce PFI’s overall management expenses. It’s likely to have the lowest management expense ratio (MER) in the listed property sector with a MER of about 0.4%, compared to the sector average at 0.8% (excluding potential performance fees paid by other externally managed entities)
  • Northington estimates that the proposed internalisation will result in increased distributable profits to PFI shareholders of between 5-6% (on a normalised 2016 financial year pro forma basis): “All else being equal, this increase in earnings should allow for increased dividends”
  • “While the proposed internalisation will modestly increase gearing by about 3% (to 34%), and reduce NTA by about 7c/share to $1.54 (2016 financial year pro forma), in our view these impacts are more than outweighed by the net present value benefit and earnings enhancements noted above”.

PFI’s independent chair, Peter Masfen, said: “The management by PFIM has been very positive for PFI and has contributed to the delivery of strong & stable returns for our shareholders. Pleasingly, internalisation would see this partnership continue, with the retention of the existing highly experienced management team & employees.

“Currently, the management agreement is for a perpetual term and PFI has very limited rights to terminate the agreement. PFI also has very limited control if a third party wished to negotiate to acquire the agreement from PFIM. Internalisation removes these concerns and provides PFI with complete control over the management of the company, and an ability to manage the company at a significantly lower cost.”

Under the proposal, managing director Greg Reidy, general manager Simon Woodhams & chief financial officer Craig Peirce will transfer to PFI under independent service contracts, while all other employees will transfer to direct PFI employment.

PFI will also grant the senior management team a licence to operate its other non-PFI business out of the Prince’s Wharf premises (for a fee of $100,000/year + gst), have access to PFI’s IT support systems and use PFI employees for that external business.

PFI annual meeting documents
Details, including Northington report

Attribution: Company release, annual meeting & Northington documents.

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IRD makes tax ruling relating to PFI internalisation

Inland Revenue has issued a binding ruling affecting Property for Industry Ltd’s plans to internalise management.

The independent directors of the NZX-listed company said yesterday the binding ruling confirmed that the proportion of the payment to present manager PFIM Ltd relating to the proposed termination of its management contract would be deductible for income tax purposes.

The internalisation agreement remains conditional on approval by PFI shareholders at the company’s annual meeting on Thursday 22 June.

The company expects to send shareholders the notice of meeting in early June, including Northington Partners’ independent appraisal report on the merits of the internalisation.

Earlier story:
3 April 2017: PFI proposes internal management after 6 years of external

Attribution: Company release.

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PFI sells one & leases 3 of 5-property Penrose portfolio

Property for Industry Ltd has sold one vacant Penrose property out of a portfolio of 5 it bought from Sistema Plastics Ltd in 2015, and has leased 3 others.

General manager Simon Woodhams & chief financial officer Craig Peirce said today PFI had sold the vacant 65 Hugo Johnston Drive (pictured) to an owner-occupier for a gross $14.25 million after an unsolicited offer, with settlement due on 21 June. The price represented a 17.8% premium over current book value and 29.4% over the initial purchase price.

PFI paid $28.5 million in 2015 for the 5 properties – 4, 6 & 10 Autumn Place and 65 & 80 Hugo Johnston Drive.

Motat (the Museum of Transport & Technology) recently leased 9364m² at 6 & 10 Autumn Place.

Boxkraft Ltd signed up last October to lease 3872m² at 80 Hugo Johnston Drive, starting in January, 6 weeks after Sistema’s departure.

The 2 leases, for an average term of 6.7 years, are worth a total $1,269,647/year to PFI.

4 Autumn Place, the smallest property in the portfolio, is still vacant, but PFI said it represented just 6.5% of the total lettable area originally bought.

Attribution: Company release.

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PFI proposes internal management after 6 years of external

Property for Industry Ltd’s independent directors have reached a conditional agreement with the NZX-listed landlord’s external manager, PFIM Ltd, to internalise management.

PFIM has managed PFI & its portfolio for 6 years. Assuming shareholder approval in June, the same team will carry on running the business.

The agreement is subject to shareholder approval at a special meeting to be held in June and receipt of a binding ruling from Inland Revenue relating to the tax treatment of the internalisation.

The independent directors believed internalisation would be accretive to earnings/share, ensure the continuity of PFI’s management team & strategy and ensure continued alignment of shareholder & management interests.

They said they expected to achieve significant cost savings and, post-internalisation, PFI to have one of the lowest management expense ratios in the New Zealand listed property sector.

Key features of the internalisation:

  • A payment of $42 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 management contract and the acquisition by PFI of the business & certain assets of PFIM
  • Greg Reidy will continue to act as managing director, Simon Woodhams as general manager and Craig Peirce as chief financial officer under independent service contracts with PFI, and
  • The offer of employment by PFI to other employees of McDougall Reidy & Co Ltd (which PFIM currently subcontracts its management function to), who will continue to provide the same services currently provided to PFI.

PFI has 5 directors, 4 independent. They are the chair, Peter Masfen, and Anthony Beverley, Humphry Rolleston & Susan Peterson. The fifth director, Greg Reidy, represents the manager.

The independent directors commissioned Deloitte to examine the valuation matters associated with the internalisation agreement. Deloitte has concluded that the internalisation is expected to be earnings/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 has overseen growth in the value of properties under management to $1.1 billion, while also delivering growth in earnings/share, dividends/share & net tangible assets/share.

PFI will fund the payment to PFIM by an expansion of its 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%. To this end, the company has established a $50 million institutional credit facility with ANZ Bank, which expires on 31 July 2018 and ranks alongside PFI’s existing syndicated bank loan facility.

The independent directors have appointed Northington Partners Ltd to prepare an independent appraisal report on the merits of the internalisation agreement. That & the notice of meeting will be sent to shareholders in early June.

Earlier stories:
19 February 2014: PFI sees numerous benefits from Direct Property merger
24 January 2012: PFI management handover confirmed
1 November 2011: PFI looks dismal on AMP Capital’s exit – great scope for new manager
30 September 2011: AMP sells PFI management back to McDougall & colleagues

Attribution: Company release.

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PFI buys one, sells one in East Tamaki

Property for Industry Ltd has bought an industrial property at 11 Turin Place and settled the sale of another one at 27 Zelanian Drive, both in East Tamaki.

11 Turin Place has 6936m² of warehouse, 1072m² of breezeway canopies and 457m² of office & amenities on a 1.9ha site, and is leased for 15 years to Thermakraft, supplier of building & wall wrap, roofing underlay & window flashing tape. The lease provides fixed rental growth of 4.55% every 2 years.

PFI bought the property in a sale & leaseback transaction for a net $14.2 million, representing a yield on purchase of 6.5%.

The company announced its sale of the vacant industrial property at 27 Zelanian Drive, for a net sale price of $8.3 million, on 13 December.

Attribution: Company release.

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PFI sells vacant East Tamaki property

NZX-listed Property for Industry Ltd has sold the vacant 27 Zelanian Drive, East Tamaki, to an owner-occupier for a gross $8.475 million.

General manager Simon Woodhams said yesterday the price represented a yield on market of 6.95% and was above current book value. The transaction is due to settle on 1 February.

“PFI has sold around $45 million of property over the last 3 years, taking advantage of high levels of demand from both investors & owner-occupiers. The funds from the sale of PFI’s property at 27 Zelanian Drive will be recycled into new capital projects.”

Attribution: Company release.

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Revaluations lift PFI portfolio by 9%

Property for Industry Ltd said on Friday independent valuations lifted the value of its property portfolio by 9% ($88 million) to $1.09 billion.

PFI’s portfolio of 84 properties was valued at $987 million a year ago. On top of the valuation lift, capex & property-related prepayments added $16 million.

General manager Simon Woodhams said: “Demand for industrial property from both investors & owner-occupiers remains high, spurred on by low interest rates. Rental growth, both forecast & already achieved, is also supporting values.”

Independent valuers CBRE, Colliers International, Jones Lang LaSalle & Savills carried out the valuations, which remain subject to finalisation & audit. The final independent valuation outcome will be confirmed in the results for the December year to be announced on Monday 13 February.

Attribution: Company release.

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