Investors v Vital management board on fee reform proposals at AGM

Ascot Hospital in Auckland, owned by Vital. Photo/Richard Robinson

Unitholders in NZX listed Vital Healthcare Property Trust are holding a feisty annual meeting in Auckland today, as three major investors put resolutions to change fees and governance.

The business, with a market capitalisation of $914m, is a major medical and health property investor here and in Australia and three institutions have put resolutions put to the meeting which could change Vital.

Accident Compensation Corporation, ANZ New Zealand Investments and Mint Asset Management want the business overhauled but Canada's NorthWest Healthcare Properties Management, which runs Vital and owns 25 per cent, is unanimously opposed to the reforms.

Blair Cooper of ACC told the meeting the three institutions own around 10 per cent of the trust. He encouraged more than 100 investors at the meeting to elect Paul Mead as a new independent management board director. Choices facing Vital investors were important. Investors could vote for both Mead and Graham Stuart, already on the vital board and seeking re-election.

Claire Higgins, chair of NorthWest Healthcare Properties Management, said proxies had been received for 178m votes for Stuart and 56m for Mead. She defended the trust calling investors before today's meeting, saying the AGM was important and voter turnout had only been around 34 per cent historically. "At no time did we try to convince people about changing their vote," Higgins told the meeting.

Investors are now complaining about fees, conflicts of interest between the manager and the business in which they have invested, and lack of access to the trust deed.

Guy Elliffe of ACC said his role was to work with boards and get better outcomes and he praised other NZX listed businesses which had changed their structures, resulting in better governance. Change was "well overdue" for Vital, he said. Supporting the three investors' would "send a message to the board about the governance structures, Eliffe said.

Another investor described the unit structure as "archaic" but said NorthWest would be unlikely to corprotise the business "because why would you kill the goose that lays the golden egg?"

People are also challenging the board about voting for the resolutions, saying this is a clear conflict of interest but Higgins said legal advice had been taken on that point.

John Hawkins, NZ Shareholders Association chairman, complained on a 553 per cent management fee increase to NorthWest yet he said income had not risen by such a high amount which was a "significant misalignment" of interests between the manager and the investors.

The three institutions have put forward five proposals to be voted on today, including:

• Removing the power of the manager to increase its fees;
• An independent review of the management fees;
• Requiring the manager to negotiate in good faith to lower fees;
• Altering the trust deed to give more power for unitholders to appoint and remove directors and less power to the manager;
• Electing Paul Mead as a new independent management board director instead of Graham Stuart, appointed by the Vital board and who is standing for re-election.

NorthWest says the changes don't stand up to scrutiny and are inconsistent with New Zealand law.

Before the meeting, investors were cold-called, asked if they had voted on the resolutions and how they had voted, drawing a rebuke from the NZ Shareholders Association which said Vital's manager NorthWest Healthcare had "overstepped the mark" before the meeting.

"The result of this behaviour by the manager may be the opposite of what the manager seeks with some unitholders opting to reverse their earlier decision to support the manager," association chief executive Michael Midgley said.

"NZSA reminds all unitholders that they can change their vote as it is the last vote that counts. Unitholders unable to attend the meeting can appoint NZSA as their proxy but should act immediately."

But David Carr, Vital's chief executive, defended the calls saying some unitholders were glad to receive them and said thanks.

Brian Gaynor, an executive director of Milford Asset Management, predicted in a Herald column this month that today's meeting could be acrimonious because several large investors had proposed resolutions opposed by directors.

"These resolutions raise long-standing issues about the management of the trust by an external company. These external management arrangements can be hugely disadvantageous for investors and Vital is the last listed NZX entity to retain this structure," Gaynor wrote on December 8 in an article headlined Why a Vital battle's brewing in the boardroom.