Vital's rebels score a moral victory

Friday 21st December 2018

Vital Healthcare Property Trust’s rebel investors can count themselves the moral victors in their tussle with Vital’s entrenched and lavishly compensated manager, Canada-based NorthWest Properties Management.

All five of their resolutions and the new independent director they proposed were convincingly supported by the majority of investors not associated with NorthWest.

But given NorthWest holds all the cards in a legal sense, and none of the resolutions are binding, it is looking like a hollow victory.

That’s unless the weight of opposition shames NorthWest into voluntarily implementing the changes investors are seeking.

The three rebel institutions, ANZ Investment Funds, Mint Asset Management and ACC, which own 10 percent of Vital’s units between them, won three of their five resolutions outright and would have won all five if NorthWest had been barred from voting its 24.9 percent stake.

While only about 56 percent of the trust's units were voted at Thursday's meeting, that was a stark contrast to the usual 34 percent. And investors attending certainly thought NorthWest should have been barred from voting because of its clear conflicts of interest.

For example, one of the three resolutions that the rebels won was a vote to remove NorthWest’s ability to fire independent directors at will. The other two were votes on removing NorthWest’s ability to set its own fees.

As ACC’s Guy Elliffe told the meeting, NorthWest pocketed 31 percent of Vital’s rental income in the year ended June.

According to the annual report, the manager collected $25 million in fees that year, 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.

During the meeting, Vital’s former chair, Graeme Horsley, asked his replacement, Claire Higgins, whether she had taken legal advice on whether NorthWest had the right to vote.

Higgins said she had asked for advice from NorthWest’s lawyer, Bell Gully, which had said NorthWest’s legal position with regards to voting was unclear, but that it thought NorthWest did have the right to vote.

She didn’t answer Horsley's question as to whether she had obtained advice from the law firm that had previously represented Vital’s investors - Harmos Horton Lusk.

Today, NorthWest confirmed that Harmos Horton Lusk hadn’t been invited to the meeting or asked for its advice on NorthWest’s voting rights.

The rebels did lose on their resolution to appoint Paul Mead as an independent director.

NorthWest had proposed Graham Stuart and forced investors to choose between them for a single board seat.

Possibly, investors were confused by the voting form which suggested they could vote for or against both men, although that would have disqualified their votes from being counted.

In the event, 184.3 million units were voted to elect Stuart compared with 89 million voted in favour of Mead. However, If NorthWest hadn’t voted its 110.8 million units, Mead would have received 54.8 percent of the votes cast.

The votes on the three resolutions the rebels won outright ranged from 50.5 percent of those voting, even including NorthWest, to 54.2 percent. Without NorthWest, those in favour ranged from 89.4 percent of those voting to 95.9 percent.

On the other two resolutions, they narrowly lost with 46.1 percent and 46.6 percent on each, including NorthWest’s votes. Were the manager's votes excluded, they would have won handsomely with 81.7 percent and 89.4 percent.

Vital units are down 1.5 cents at $2.055 and have fallen 7 percent year-to-date.

(BusinessDesk)

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