Vital Healthcare Property Trust's manager is trying to ward off criticism from three of Vital's institutional investors by saying that two of the three manage similar investment funds and charge fees that are "broadly analogous" to the fees it charges Vital.

But the manager, Canada-based NorthWest Healthcare Properties Management, is making a false comparison because its fees are several orders of magnitude greater than fees charged by managers of similar vehicles and are nowhere close to "broadly analogous."

"An externally managed trust fund is an appropriate, valid and common business structure for a business like ours," chair Claire Higgins says in the notice of meeting for the AGM to be held on December 20.

"Indeed, two of the proposing unitholders themselves operated externally managed funds," Higgins says.

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But Vital's fee structure is significantly more lucrative for NorthWest than the fee structures of other similar listed property trusts or for the unlisted funds run by ANZ Investment Funds or Mint Asset Management, two of the three institutional critics.

The government-owned ACC is the third institution fighting to change the way Vital is being managed.

The returns to NorthWest and the returns to Vital's investors are clearly divergent.

NorthWest bought Vital's management contract in 2011 for $11.5 million and has pocketed about $100m in gross fees since then, a gross return before expenses of 870 per cent.

Over that same period, distributions to unitholders have risen from 8.1 cents per unit to 8.56 cents, a 5.7 per cent increase.

A key reason why Vital has been so lucrative for NorthWest is that property valuations have soared compared to where they were post-GFC.

For example, the Apollo Health and Wellness Centre in Auckland was valued at $21.7m in 2011 and $28.5m in 2018.

But also, NorthWest has had Vital buy lots more health properties – and why wouldn't it maximise purchases since that helps drive its own fee income?

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Vital's gross assets have more than tripled from $533.4 million at March 31, 2011 to $1.79 billion in March this year.

NorthWest's fees are levied on Vital's gross assets and Vital's indebtedness has also more than tripled from $195.5m in 2011 to $668.7m in 2018. NorthWest charges fees on that debt, so it's clearly in its interests to maximise Vital's borrowing.

In sharp contrast, the fees charged by all the funds managed by ANZ and Mint are levied on net assets. If the fees Vital pays NorthWest were levied on net assets, they would be paying fees on $988m of net assets, a little over half the gross assets of $1.79b.

NorthWest's base fee is 0.75 per cent and it collected $11.9m as its base fee in the latest year ended March. If the fee had been levied on net assets, it would have been paid something less than $7.4m (the fees are calculated quarterly).

NorthWest also charges an "incentive" fee of 10 percent of the increase in value between one year and the next, subject only to its total fees being capped at 1.75 per cent of Vital's gross value. It pocketed $13.1m in the year ended March as its "incentive" fee.

It also charged Vital another $3.6m in "strategic transaction costs."

Neither ANZ nor Mint charge their investors directors' fees.

By comparison, Mint's fees range from 1.24 per cent to 1.52 per cent of net, not gross, assets and, to earn any "performance" fees, the Mint Active Equity Trust's performance has to exceed that of the NZX50 Index plus 3 per cent a year before the calculations start.

For the Mint Real Estate Investment Trust the benchmark is the NZX Property Gross Index plus 2 per cent a year.

Mint is entitled to 10 per cent of any out-performance. Not 10 per cent of any increase in gross assets, the much lower bar NorthWest enjoys.

In ANZ's case, its fees range from 1.21 per cent to 1.41 pe rcent of net assets, depending on the fund, and it doesn't charge performance fees.

Having hauled in more than twice the 2011 purchase price of Vital's management contract, NorthWest have begun charging investors for directors' fees - an additional $130,000 in the year ended March 31. Until the latest year, NorthWest had paid directors out of its management fees.

Neither ANZ nor Mint charge their investors directors' fees.

Another large difference between Vital and the ANZ and Mint funds is that Vital is listed on NZX and the other funds are not.

NorthWest's fee income is also much more lucrative than any of the other NZX-listed property vehicles.

Goodman Property Trust, for example, pays its manager a base fee of 0.5 per cent of gross assets, excluding cash, debtors and development land, up to $500m and 0.4 per cent thereafter.

Unlike NorthWest, Goodman's performance has to exceed the NZX property index excluding Goodman before it pays its manager any performance fee. Such performance fees are capped at 5 per cent of annual out-performance and any out or under-performance is cumulative and carried forward indefinitely.

So again, a much higher bar than NorthWest's and not at all "broadly analogous" to the fees Vital pays.

The three institutions criticising NorthWest's milking of Vital want an independent review of the fee structure but NorthWest has offered only a board-led review.

The board currently has an 'independent' chair, Higgins, two other 'independent' directors, one of whose appointment is being contested by a nominee put forward by the three institutions, and three NorthWest representatives.

Although Vital's trust deed gives NorthWest the right to fire the independent directors at will for no reason, making them not very independent at all, NorthWest has undertaken not to exercise that right through the first quarter of calendar 2019 while the fee review is undertaken.