Vital loses votes amid investor discontent
Vital Healthcare Property Trust's manager defeated the election of a director proposed by rebel investors ACC, ANZ Investment Funds and Mint Asset Management.
But three of the five rebel non-binding resolutions were passed, including two relating to the controversial issue of management fees.
The annual meeting, which began at 2pm yesterday, went on all afternoon.
NZX-listed Vital invests in healthcare-related buildings, particularly acute surgical, rehabilitation and psychiatric hospitals, and aged care facilities. The trust's assets are managed by Vital Healthcare Management, which is in turn owned by Canada-based healthcare real estate investment trust NorthWest Healthcare Properties.
Yesterday NorthWest faced a roomful of unhappy investors in Auckland, and a substantial vote in favour of three of the rebel's proposals, suggesting unhappy investors aren't going away.
One unitholder pointed to the excessive fees NorthWest is pocketing and accused it of using Vital as “a private piggy bank”. That that needs to stop, was the message.
In the latest year, the annual report showed the manager collected $25 million in fees, up from $20.4 million the previous year, despite net distributable income falling 27.6 percent to $46.1 million.
Guy Elliffe, representing rebel investor ACC, told the meeting that 31 percent of Vital's rental income went to NorthWest in the latest year.
The three rebel institutions own 10 percent of Vital between them, and want changes in governance and the fee structure.
They want NorthWest to be stripped of its right to fire independent directors at will and to set its own fees. Those rights are currently granted to Northwest by Vital's trust deed and endorsed by NZX.
And the result of the non-binding vote suggested they aren't alone in wanting change. The rebels received support for three of their five proposals:
- getting rid of NorthWest's power to unilaterally remove independent directors and to unilaterally remove the right for unitholders to nominate and vote on independent directors (passed by 54:46 percent);
- getting rid of NorthWest's power to unilaterally alter the its fee (54:46 percent);
- asking NorthWest to "negotiate in good faith with unitholders to bring [its] fees ... in line with current market levels and improve the alignment of interests between the manager and unitholders" (50.5:49.5 percent).
Two of the rebel proposals were defeated: to increase the size of the board; and to alter the board's charter and policies to better reflect unitholders' interests.
At the meeting, a number of investors were also incensed that NorthWest has "borrowed" $81 million from Vital to buy a 13.4 percent effective stake in ASX-listed Healthscope at an effective price of A$2.36 per share when the shares are currently trading at A$2.085.
Another investor complained about the meeting being held so close to Christmas: “It seems to me that it was a jack-up,” he said, adding that “we do not like what NorthWest is doing with our money.”
Several attendees complained that NorthWest shouldn't be voting its more than 24 percent stake in Vital, or 82.06 million units, because it has a clear conflict of interest.
However independent chair Claire Higgins, who is subject to Northwest's 'fire-at-will' rights, told the meeting that legal advice she had sought was unclear, a statement that drew loud laughter.
Nevertheless, “the advice we have had is that the manager is entitled to vote,” Higgins said.
Higgins told the meeting she held proxies for 178.5 million units being voted in favour of Graham Stuart, NorthWest's choice as a third independent on a five-person board. A further almost 6 million units over which she held discretion would also be used in favour of Stuart's nomination, making it clear he would be elected.
Higgins had earlier noted that the number of units in Vital that had traditionally been voted at AGMs was previously just 34 percent. However 56 percent had voted ahead of this meeting.
Higgins said she also held votes in favour of the rebels' choice, Paul Mead, totalling 56.8 million units.
One investor challenged Higgins' status as being the “independent” chair because she had voted the discretionary proxies she held in NorthWest's favour and against the interests of Vital's investors.
Substantially higher numbers of units that Higgins was holding proxies for were voted in favour of the five rebel proposals – for example more than 105 million of them were in favour of the first proposal and nearly 107 million were in favour of the second.
Nevertheless, Higgins continued to vote any discretionary proxies against the changes unitholders are demanding.
Vital units were up 1 cent, or 0.5 percent, at $2.07 in late trading.