The New Zealand Shareholders' Association has thrown its weight behind rebel investors in Vital Healthcare Property Trust, saying the manager is treating investors "with contempt."

NZSA says reform of the trust's governance structure is "essential and urgent" and that there is a "serious misalignment between the manager and the unitholders."

The approach the manager, owned by Canada-based NorthWest Properties Real Estate Investment Trust, has been taking "shows only contempt for the significant majority of unitholders."

NZSA is recommending investors vote in favour of all five resolutions put forward by the rebel investors, ANZ Investment Funds, Mint Asset Management and ACC, which together own 10 per cent of Vital.

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NZSA is also concerned about NorthWest's recent moves to have Vital and itself take a 13.4 per cent stake in Australian-listed Healthscope, a move that has seen NorthWest borrow $81 million from Vital so far and which NZSA says "is a most unusual transaction for an NZX-listed property trust."

The association notes that NorthWest hasn't said how much interest it is paying on that $81m loan, that the Healthscope position involves holding derivative contracts and that "significant risk is attached to such arrangements."

Vital's loan to NorthWest should be seen in the context of how heavily geared Vital is already – at June 30, Vital had drawn $670.1m of bank debt, taking its gearing under its bank covenant to 38.7 per cent, up from 29.3 per cent a year earlier.

As if to reinforce that, NorthWest has just released a statement showing it has committed Vital to a programme of "brownfields" developments on sites Vital already owns totalling $105m in New Zealand and more than A$16.75m ($17.6m) in Australia.

"The programme underpins our strategy to drive long-term value-add opportunities and deliver sustainable returns to Vital investors," the management company's chief executive David Carr said in the statement detailing the planned work.

However, increasing Vital's gearing also boosts the manager's fees because they are based on Vital's gross assets.

NZSA says management fees have risen "a staggering 553 per cent from $4.3m in full-year 2012 to $28.1m in full-year 2018" while property assets have grown from $567m to $1.73 billion over that period, a 205 per cent increase.

"The rental income has increased from $48m to $90.7m, an 88 per cent increase, and distributable income has increased from $23.3m to $46.1m, a 97 per cent increase," NZSA says.

The market price of units had risen from $1.21 to $2.01 at the time the NZSA wrote its recommendation, an 80 per cent increase. Tthe units recently traded at $2.05.

"There is clearly a serious misalignment between the management fees and the other metrics," NZSA says.

It also notes that NorthWest owns 24 per cent of Vital's units "but because of the governance arrangements, NorthWest has more effective control over the board and the trust than its holding would indicate."

The association also takes the manager to task for forcing investors to choose between NorthWest's candidate for the board, Graham Stuart, and the candidate the rebel investors have proposed, Paul Mead.

"Both are excellent candidates with strong track records. NZSA would comfortably support both. However, as unitholders are not being offered that opportunity, we are not able to support the manager's candidate," it says.

"In any event, Paul Mead has the edge as he has an extensive executive background in the industry and considerable experience dealing with derivatives, an area that requires in-depth knowledge."

NZSA notes that the constitution of the manager provides for a maximum of seven directors – the board currently has five directors.

It also notes that the manager can fire the "independent" directors at will. The manager has announced a review of its fees and has promised not to exercise its rights, including its ability to fire directors, while that review is underway.

Nevertheless, the provisions of Vital's trust deed giving the manager such power "cannot be considered good governance. A 24 per cent unitholder should not be able to dictate governance to the other 76 percent of unitholders."

Nevertheless, NZSA does acknowledge all the power lies with NorthWest and that the five resolutions the rebel investors have proposed will be non-binding on NorthWest, even if they are passed – "these can be rendered nugatory at will by the manager."

Nevertheless, NorthWest has been doing everything in its power to ensure the resolutions are not passed, including hiring a proxy solicitation firm to lobby unitholders to give their proxies to the chair. While nominally independent, the chair Claire Higgins, is backing NorthWest to the hilt.

"In the absence of reform, we believe the trustees will have to review the situation and take whatever action is possible to address the situation," NZSA says.

BusinessDesk has been trying to contact the trustee, Trustees Executors, since Wednesday but its chief executive Ryan Bessemer has not returned numerous calls.

"Although in law the terms of the NorthWest management contract permit the conduct, it is grossly unfair and reflects very poorly on the governance standards practiced by the manager," the association says.