16 Apr 2013

Property firm set to double assets if merger goes ahead

7:01 am on 16 April 2013

Listed property firm Property for Industry (PFI), is set to double its assets under a planned merger with the unlisted Direct Property Fund (DPF).

Under the deal, PFI will take over the assets of DPF, boosting its portfolio to 83 commercial and industrial properties worth a total of $800 million, while bringing the equity from current DPF shareholders.

As part of the share swap plan DPF will cease to exist, while its shareholders will receive 123 PFI shares for each of their existing shares.

The companies said the terms of the merger ratio were reached after extensive due diligence and negotiation between the two boards.

BT Funds portfolio manager Matt Goodson said the announcement was no surprise given that both companies have had the same manager, McDougall Ready.

He said the deal would make PFI one of the largest listed property firms and it would give the listed entity greater size and liquidity.

Mr Goodson said with low interest rates investors were aggressively chasing yield in listed companies.

"And so by turning themselves from unlisted to listed, the holders in Direct Property will get a significant one-off value uplift, which at the moment looks as though it will be about 18%."

Deloitte will prepare an independent report on the merits and fairness of the merger to shareholders.

Mr Goodson said he would be interested to see DPF shareholders' response.

He said there could be a question mark over liquidity and those who invested in Direct Property were clearly prepared to be very long term investors as they did not need the liquidity of being listed.

Mr Goodson said it would be interesting to see whether investors approved the merger or not and whether they held onto their shares or sold them.

Mr Goodson says if bank deposit rates remain low he expected more property to come to the listed market.

The merger is conditional on both boards being satisfied with the outcomes of the Deloitte report, as well as shareholder and court approvals.

Shareholders should receive details of the proposal in late May with voting in late June.

Shares in Property for Industry rose more than 3% to $1.38 on Monday.