The independent directors of the Vital Healthcare Property Trust’s manager, NorthWest Healthcare Properties Management Ltd, said today the company had reached conditional agreement on a new governance & fees structure.
The new structure has been agreed with the manager’s parent, NorthWest Healthcare Properties REIT of Toronto.
One immediate change is that independent management company chair Claire Higgins resigned, as of today. Mrs Higgins took over as chair last April from Graeme Horsley, who’d been a management company director for 11 years, the last 7 as chair.
NorthWest REI president Bernard Crotty has assumed the chair, with a proviso: “To ensure that board decisions continue to benefit from a majority of independent votes, one of the remaining independent directors will hold a casting vote in the event of an equality of votes.”
The management structure & fees proved highly contentious issues at Vital’s annual meeting in December. If NorthWest of Toronto hadn’t voted, it would have lacked support for most of the business management put to the meeting.
Key elements of the proposed new structure:
- NorthWest REIT to permanently remove its unilateral right to remove independent directors (clause 30.11 of the trust deed) and to increase fees (clause 22.5 of the trust deed)
- A tiered base fee (replacing the current flat base fee of 75 basis points) as follows:
– 65 bps up to $1 billion of Vital’s gross asset value (GAV)
– 55 bps from $1 billion to $2bn of GAV
– 45 bps from $2 billion to $3bn of GAV
– 40 bps over $3 billion of GAV.
- Incentive fee based on changes in net tangible assets (NTA) as defined in the schedule to this release and calculated as 10% of the average annual increase in Vital’s NTA over the respective financial year and the 2 preceding financial years
- Detailed activity-based fee structure as detailed in the schedule to this release.
Independent directors support agreement
The manager’s independent directors confirmed that they believed the proposed new governance & fees structure was in the best interests of, and on balance fair & reasonable to, unitholders in the circumstances.
The independent directors said they felt it “provides Vital with a solid basis from which to move forward, so that our focus can fully revert to the generation of superior financial performance. This matter has been fully & duly considered, recognising the responsibilities of the board of the manager and the role of the independent directors.
“The process leading to this outcome has been robust and the independent directors acknowledge that NorthWest Healthcare REIT has traded off existing contractual & economic entitlements to achieve this proposed new governance & fee structure.”
The independent directors expressed their thanks for unitholders’ patience & ongoing support while the strategic issues were under consideration.
Now a return to focus on Healthscope portfolio
In their release today, NorthWest Management said it was “now in a position to focus on the Healthscope real estate opportunity and potentially agree terms with NorthWest REIT that could see Vital participate in a Healthscope transaction. The board expects to provide a further update on the extent of any participation in the Healthscope opportunity by the end April.”
The management company will work through the detail of how changes to Vital’s trust deed are to be implemented in the next few weeks.
“In the meantime, the manager has agreed to procure that its fees do not exceed those that would have been charged if the amendments had been effective from 1 April (other than in respect of the incentive fee, for which it needs to be 1 July 2019 given the financial year-based formulation). If the amendments are ultimately not approved, adjustments will be made to reverse this interim arrangement.
“The agreement will terminate if the changes have not been implemented by the end of calendar 2019 or if NorthWest gives written notice cancelling the agreement because of a significant change event.”
4 March 2019: Vital Healthcare Property profit drops, trust grows development book & looks at recycling assets
21 December 2018: Vital Healthcare Property dissidents show muscle, and their arguments may yet hold sway
6 December 2018: Vital doubles loan to NorthWest for Healthscope acquisition
25 November 2018: Vital Healthcare management fees up for review, new action at Healthscope
23 November 2018: Northwest increases Healthscope stake to 11.1%
9 May 2018: Vital Healthcare’s parent makes new Australian investment
Attribution: Company release.