Internalisation Agreement Reached

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 2

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

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

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