ACC challenges ‘outrageous’ fees
A trio of large investors is taking on a Canadian manager of New Zealand hospital and healthcare buildings.
One of New Zealand’s biggest investors, Accident Compensation Corporation (ACC), is battling a Canadian property manager over its fees.
ACC is leading a group of three large investors challenging the ‘‘outrageous’’ management fees charged by Canada’s NorthWest Healthcare Properties Management, which manages the hospitals and healthcare buildings and facilities owned by Vital Healthcare Property Trust, a company listed on New Zealand’s stock exchange.
Vital owns Bowen Hospital and Wakefield Hospital buildings in Wellington, Boulcott Hospital in Lower Hutt, Royston Hospital in Hawke’s Bay and Ascot Hospital in Auckland as well as other health facilities and buildings in New Zealand and Australia.
It leases the buildings to hospital and healthcare operators who are its tenants.
Vital is owned by about 5000 investors who own units in the trust. Several thousand of those unitholders are New Zealanders.
ACC, ANZ Investments and Mint Asset Management together own 10 per cent of Vital’s units and are challenging NorthWest, which owns 25 per cent and is also the manager of the trust’s healthcare properties.
They say NorthWest’s fees are much higher than listed propertyowning companies in New Zealand such as Precinct Properties, Goodman Property Trust (GMT) and Investore.
ACC property portfolio manager Blair Cooper said that over the past three years 22 per cent, 28 per cent and 31 per cent of rental revenue paid to Vital has gone to the manager in fees.
‘‘That’s just amazing. The more you give to the manager the less is available for unitholders,’’ he said.
The manager would point to the strong performance of Vital in the past few years. Total shareholder returns were 104 per cent in five years and 284 per cent over 10 years, considerably higher than other property companies.
But the reason for that, Cooper said, was that the value of health and hospital buildings had risen a lot more than the value of office, retail or industrial buildings.
That was why Vital had outperformed other listed property firms.
The manager had done a good job and had been ‘‘outrageously compensated for that,’’ Cooper said. The manager had also ‘‘ridden the wave’’ of rising property prices, he added.
The manager’s base management fee was 0.75 per cent of the total value of property assets.
In comparison, Precinct Properties charged 0.55 per cent, while Investore charged 0.55 per cent and GMT charged 0.50 per cent.
Those companies’ fees also reduced once assets reached a certain value but Vital’s did not.
‘‘We want to share the pie in a much fairer way than has been shared to date,’’ Cooper said.
The base fees had soared by 150 per cent over the past six years but unitholders’ returns only rose 13 per cent.
‘‘The numbers only get scarier beyond that.’’
Total fees – base fees and performance fees – were nearly five times greater than six years ago.
‘‘We want Vital to grow with the right deals – that’s an important caveat. Do the right deal at the right time for the right price,’’ Cooper said.
‘‘All we ask them to do is to do an independent fee review. You can’t have NorthWest sitting on a board that is being asked to set NorthWest’s fees.
‘‘The board [of the manager] has an obligation to act in the best interest of unitholders.’’
The challengers have put five proposals before shareholders to vote on at the upcoming Vital annual meeting in Auckland on December 20.
They ask unitholders to vote to remove the power of the manager to increase its fees, for a review of the management fees, for the manager to negotiate in good faith to lower fees to ‘‘market levels’’, and to vote for Paul Mead to be a new independent director on the board of the manager.
They have been negotiating for nine months over these issues.
Cooper said Vital had agreed to a review of its fees, in the first quarter of 2019, but not by an independent reviewer.
The board of the manager is advising unitholders to vote against the five proposals from the three challengers.
In a letter to shareholders, independent chairwoman Claire Higgins said the votes on the proposals were non-binding even if unitholders approved them.
That was clear in the trust deed that governed the relationships between the unitholders, manager and supervisor.
Changes could only be achieved through commercial dialogue and not by a vote of unitholders.
She said the board had substantively addressed the matters raised. It had announced on November 23 a review of management fees in the first quarter of 2019.
It had also announced it would suspend its right to remove independent directors and increase management fees until the fee review had been completed.
The proposing unitholders wanted to ‘‘dictate’’ the terms of the board’s fee review, she said. Independent directors would have a key role in the review, including getting input from unitholders.
Higgins said it was relatively unusual for investors to have any input into the composition of the board of the manager in the way Vital unitholders did.
Wakefield Hospital’s buildings and facilities are owned by NZX-listed Vital Healthcare Property Trust and managed by NorthWest Healthcare Property Trust.