Vital's trustee stirs at urging of unitholders

Thursday 27th December 2018

Healthcare Property Trust’s trustee and supervisor says one of its roles is to ensure the manager is acting in the best interests of unitholders.

Investors at last week’s AGM left Trustees Executors in no doubt that a large number of unitholders don’t believe the manager, Canada-based NorthWest Healthcare Properties Management, has been acting in their best interests.

Concerns include NorthWest’s rights under the trust deed to set its own fees and to fire independent directors at will.

Investors are also aggrieved that NorthWest is enriching itself at their expense and using Vital as a piggy-bank.

For example, in the latest year alone, NorthWest took $25 million in fees, up from $20.4 million the previous year, despite net distributable income falling 27.6 percent to $46.1 million.

NorthWest bought Vital’s management contract in late 2011 for $11.5 million.

The trustee had representatives at last week’s AGM who responded to questions from the floor about what role the trustee has been playing while the manager – legally – fleeced investors to such an exorbitant degree and has also made some questionable investment decisions this year.

This includes deciding to borrow A$81 million from an already highly geared Vital to take a 13.4 percent stake in ASX-listed Healthscope.

“Our role is to ensure that the manager is performing their obligations under the trust deed and that they are complying with the Financial Markets Conduct Act and acting in the best interests of investors,” chief executive Ryan Bessemer replied in writing to BusinessDesk’s requests for information after about two weeks of trying to get answers.

“We have been working with the manager and the proposing unitholders (ACC etc) over the last few months to facilitate improvements to the governance arrangements of Vital,” Bessemer said. While he wasn’t at the AGM, Bessemer is the only officer of Trustees Executors authorised to speak to the media.

“We are monitoring these issues closely. We are here listening to the views of the unitholders and, as Claire Higgins (chair of Vital’s manager) has already stated, the manager is listening too,” he said.

The voting on five resolutions posed by rebel investors ACC, ANZ Investment Funds and Mint Asset Management, and on a director they nominated, Paul Mead, “will give a strong indication of the views of unitholders,” Bessemer said.

All five of their resolutions were convincingly supported by the majority of investors not associated with NorthWest – excluding NorthWest, the votes in favour ranged from 89.4 percent of those voting to 95.9 percent.

And the turnout swelled from the usual 34 percent to 56 percent.

But NorthWest holds all the cards in a legal sense, so none of the resolutions are binding on it.

Says Bessemer: “It should be noted that changes to the trust deed, which is the governing document, will need the support of all parties.”

While Trustees Executors’ job is to supervise NorthWest, it clearly has been left out of the loop on a number of matters.

For example, Bessemer says his company didn’t know NorthWest had hired a proxy solicitation firm to lobby Vital’s investors to vote against all five resolutions, an effort that clearly failed.

Trustees Executors “was not aware that NorthWest had hired a proxy company. Trustees Executors was only made aware, third hand, about the proxy company involvement on Dec. 12 via a media story,” Bessemer said, referring to a BusinessDesk story published on Dec. 11.

While some unitholders have said that the caller on behalf of NorthWest failed to answer questions and hadn’t presented unbiased facts, Bessemer says nobody raised such concerns with Trustees Executors “and this is hearsay until we are made aware first hand.”

Trustees Executors was also ignorant of the New Zealand Shareholders’ Association’s emphatic support of the rebel investors.

NorthWest has bowed somewhat to pressure and has agreed to review its fee structure. However, contrary to its own board charter that review is being led by the full five-person board – the charter says that such a review should be led by the independent directors.

Bessemer says the review follows “positive and constructive discussions with a number of unitholders” and that, following the AGM, “Trustees Executors will be engaging Vital to pursue clause 2.4 of the board charter where the board may form a committee comprising the independent directors to represent the interest of the trust or, more particularly, of unitholders.”

Bessemer didn’t directly respond to BusinessDesk’s question about what powers the trustee has to force changes to the trust deed or otherwise review NorthWest’s powers.

“Over the last couple of months, Trustees Executors has been working with ACC and Vital to improve better communication and governance outcomes for all,” was all he said in answer to that question.

However, a cursory reading of the Financial Markets Supervisors Act 2011 shows the trustee is far from toothless if it so chooses.

For example, clause 49 of the Act says that “if a trustee is satisfied that (a) there is a significant risk that the interests of unitholders will be materially prejudiced or (b) the provisions of the trust deed are no longer adequate to give proper protection to unitholders, the trustee may apply to the High Court for an order under this section.”

(BusinessDesk)

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