The directors of Vital Healthcare Property Trust’s manager are insisting that they’re complying with their own board charter, even though it’s clear that isn’t true.

The directors are also reiterating previous arguments as to why Vital’s investors should vote against a number of proposals put forward by three institutional investors, ANZ Investment Funds, Mint Asset Management and Accident Compensation Corp.

Following public pressure from those investors, the manager, which is owned by Canada-based NorthWest Healthcare Properties Real Estate Investment Trust, has announced a board-led review of its fee structure.

But the board charter which was updated in August says that when there are conflicts of interest between NorthWest and Vital’s investors, a committee of independent directors should be making decisions.

“The board recognises that there may be circumstances in which the interests of unitholders and the company’s shareholder may not be aligned,” the board charter says.

“An example is where the fee entitlements of the manager or other contractual terms under the trust deed are under formal assessment (for instance, incentive fees) or review,” it says.

“In such circumstances, the board may form a committee comprising the independent directors to represent the interests of the trust or more particularly, of unitholders.”

The charter states that the full board or established sub-committees can make decisions “absent circumstances of this nature”.

The board announced the review on Nov. 23 and said that “the fee review will be led by the full board.”

Despite that, when BusinessDesk queried whether the directors are abiding by the board charter, their official response was: “Yes, we are complying with the board charter.”

When BusinessDesk pointed out the discrepancy between this and what the board charter says, NorthWest sent a further response.

“Vital is very conscious of the important role of the independent directors when it comes to negotiating fees, as it forms a sub-committee of independent directors on a regular basis.  Independent directors will have a significant role in the fee review and will seek input from unitholders.”

The six-person board – which is the manager’s board, not Vital’s – has three NorthWest directors sitting on it.

The rebel investors, who want an independent review of Vital’s management fees, say the returns to NorthWest since it bought Vital’s management contract for $11.5 million in 2011 have been spectacularly better than the returns to investors.

In the explanatory notes to their resolution on the fee structure, they say that including incentive fees, per-unit earnings have fallen 19 percent over the last five years while the total base and incentive fees paid to NorthWest have increased by 481 percent.

Actual distributions to Vital’s investors have risen from 8.1 cents per unit to 8.56 cents, a 5.7 percent increase.

However, Northwest is insisting that its interests are aligned with those of Vital’s investors.

“There is a significant alignment of interests between (NorthWest) and the Vital unitholders with … (NorthWest) being Vital’s largest unitholder at just under 25 percent of the total units on issue,” chair Claire Higgins says in today’s statement.

NorthWest has also made no mention of the manager’s board charter in deciding that Vital will lend it a total of $81 million to buy a 13.4 percent stake in ASX-listed Healthscope.

The charter says that a further example of a circumstance in which a committee of independent directors should be making the decisions is “where the shareholder of the manager is considering partnering with the trust on a transaction.”

While such partnering is clearly what NorthWest intends doing in relation to Healthscope, it has made no mention of any committee of independent directors driving any decisions.

At the same time as NorthWest announced the fee review, it also undertook not to exercise its right to remove the independent directors in the meantime.

Vital’s trust deed allows NorthWest to sack the independent directors at will for any reason, a state of affairs NZX endorsed in 2007, which renders the assertion that any of the manager’s directors are independent a fiction.

In today’s statement, Higgins argues the letter of the law rather than the substance of the three investors’ arguments.

Their proposals “show a misunderstanding of the governance structure for Vital – an externally managed listed trust rather than a listed company – and suggest misleadingly that they will result in change.”

The investors acknowledge that Northwest holds all the cards.

“External manager structures such as Vital’s generally result in conflicts of interest between the interests of the manager and the interests of unitholders,” the dissident unitholders say in explanatory notes.

Higgins also argues that Vital is delivering “market-leading long-term total returns.” While that is true over a five-year or 10-year period, the units have under-performed over the year-to-date, having fallen 4.5 percent while the benchmark NZX 50 Index has gained 4.3 percent.

Higgins is also highlighting the irony that an ANZ unit is one of the three rebels, when it was ANZ which sold NorthWest Vital’s management contract.

That sale followed an investor revolt led by ACC, which rejected a proposal that Vital’s investors buy the management contract for $8 million.

ACC’s attempt to get ANZ voted out as Vital’s manager, a vote that needed the support of at least 75 percent of Vital’s investors, failed miserably and paved the way for NorthWest to buy the management contract.

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