Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search


ANALYSIS: Vital investors foot the bill for ditching a dud

ANALYSIS: Vital investors foot the bill for ditching a dud idea

By Jenny Ruth

Sept. 2 (BusinessDesk) - Investors were mightily relieved when Vital Healthcare Property Trust’s manager announced in May that Vital wouldn’t be party to buying Healthscope properties for A$1.25 billion.

Trading in Vital speaks volumes: the unit price jumped from $2.12 on May 9, the day before Canada-based NorthWest Healthcare Properties Real Estate Investment Trust’s announcement, to as high at $2.65 in July.

But the relief is rather like the deliverance you feel when you stop banging your head against a brick wall.

In the May announcement, NorthWest promised Vital wouldn’t be charged fees and third-party due diligence costs relating to that deal.

But it would still pay the fees associated with taking a stake in Healthscope ahead of its successful takeover by fellow Canadian company, Brookfields.

NorthWest has said the stake gave it and Vital a seat at the table when Healthscope’s assets were carved up.

In Vital’s annual results in early August, NorthWest said of the prospective Healthscope investment that “declining to participate in this opportunity was exceptionally difficult.”

However, the facts show it was an easy decision if it was about acting in the best interests of Vital's unitholders.

First wind of the Healthscope opportunity landed in May last year. The market was told NorthWest had bought a 10 percent stake in the ASX-listed Healthscope via a derivatives arrangement, but not that Vital was already financially committed.

Even so, Vital’s institutional investors immediately did their sums on what Vital would have to pay for any Healthscope properties.

It was clear, even that early in the piece, that the price of Healthscope assets would be at yields below Vital’s cost of capital.

Despite refusing to say whether Vital had any involvement in the purchase, NorthWest did say that “an acquisition of Healthscope's underlying hospital related real estate is of interest” to both it and Vital.

NorthWest and Vital "currently intend to pursue any potential Healthscope real estate acquisition jointly, with scope to introduce other capital partners as appropriate."

It wasn’t until August last year that Vital’s unitholders learnt they had financed the stake with a $40 million loan that was about to rise to more than $80 million.

The institutions' initial calculations proved correct: NorthWest and the Singapore-government-backed Australian property vehicle it manages bought the Healthscope properties at a 5 percent yield.

The effective yield after costs to Vital would have been south of 5 percent but its cost of capital is about 6 percent.

Rather than being an “exceptionally difficult” decision to keep Vital out of it, it was a no-brainer. The price was too high.

But paving the way for NorthWest’s acquisition was a costly exercise for Vital.

The annual report shows total gross fees NorthWest charged rose 11.2 percent to $31.2 million in the year, but that double-digit increase looks far more reasonable than the 74.5 percent jump in gross fees to $22.1 million reported for the first half of the year.

NorthWest reimbursed Vital $5.9 million of the fees charged at the half year, a victory for the outraged investors at last year’s rowdy annual meeting and probably also for Graham Stuart, an independent director appointed to the manager’s board in December.

Stuart had strongly signalled his intention to act in unitholders’ interests.

The Financial Markets Authority can probably take a bow here too – it had made it very clear that it was breathing down necks at Vital’s trustee, Trustees Executors, to ensure they were doing their job of ensuring the manager acted in the best interests of Vital’s unitholders.

But despite this victory, the Healthscope episode was costly for unitholders.

One direct impact was that net distributable income fell 4.7 percent to almost $44 million for the year – remember that 11.2 percent increase in NorthWest’s fees.

In addition, Vital lent NorthWest a total of A$80.3 million to buy the stake in Healthscope but received only half the benefits.

It received $7.4 million in dividends and made a $6.1 million capital gain when the Brookfields takeover succeeded.

It also received interest at 4 percent from NorthWest of $2.7 million in the year ended June and $283,000 in the previous financial year.

The weighted-average interest rate Vital paid on its own bank borrowings of $735.4 million in the latest year was 4.4 percent – is having Vital borrow at 4.4 percent to lend to its manager at 4 percent in the best interests of unitholders?

In any case, Vital’s costs more than wiped out its gains from the Healthscope deal.

The annual report shows NorthWest charged it a “derivative acquisition fee” of $2.8 million, derivative financing costs of $2.4 million and a derivative “capital charge” of $3.3 million, or $8.5 million in total.

So NorthWest charged Vital $8.5 million in fees for the privilege of lending NorthWest $80.3 million.

Vital also paid third party commission, interest and legal fees of $9.3 million in the latest year as well as $3.3 million the previous year.

The net outcome for Vital was a cost of $1.6 million in the latest year on top of a $3.3 million the previous year.

Acting head of the management company, Miles Wentworth described this as “a cost of doing business.”



© Scoop Media

Business Headlines | Sci-Tech Headlines


Science Media Centre: Funding For R&D In New Zealand – Expert Reaction

Research, Science and Innovation Minister Dr Megan Woods has today announced $401.3 million funding for research and development through Budget 2020 and the COVID Response and Recovery Fund. The fund includes $150 million for an R&D loan scheme, ... More>>


Maritime NZ: NZ Joins Global Initiative Keeping Ports Open And Freight Moving

New Zealand has joined an international port authorities’ global initiative for safe and efficient movement of goods and shipping during the COVID-19 crisis. World-wide, 56 port authorities have agreed how they will work together facilitating maritime ... More>>


National: National Backs Businesses With $10k JobStart

National will provide a $10,000 cash payment to businesses that hire additional staff as part of our commitment to keeping New Zealanders in jobs, National Party Leader Todd Muller and Finance spokesperson Paul Goldsmith have announced. Our JobStart ... More>>


DIY Law: Government Exempts Some Home Improvements From Costly Consents

Homeowners, builders and DIYers will soon have an easier time making basic home improvements as the Government scraps the need for consents for low-risk building work such as sleep-outs, sheds and carports – allowing the construction sector ... More>>


Media Awards: The New Zealand Herald Named Newspaper Of The Year, Website Of The Year At Voyager Media Awards

The New Zealand Herald has been labelled a “powerhouse news operation” as it claims the two biggest prizes – Newspaper of the Year and Website of the Year – along with many individual awards at the 2020 Voyager Media Awards Website of the ... More>>


ASB Bank: ASB Takes The Lead Again With New Low Home Loan Interest Rate

ASB has moved again to support its customers, cutting a number of home loan rates, including the two-year special rate to a new low of 2.69% p.a. Craig Sims, ASB executive general manager Retail Banking says the reduced rate will be welcome news for many ... More>>


Nathan Hoturoa Gray: The Problems With Testing And Case Statistics For Covid-19

To begin to understand disease transmission in a country requires adequate testing of your population with properly vetted, accurate tests. As the world struggles to find what 'adequate percentage' of the population is necessary, (estimates predict ... More>>


RNZ: Fletcher Building To Lay Off 1000 Staff In New Zealand

The construction company will cut around 10 percent of its workforce as it struggles with the fallout from Covid-19. More>>


Can Pay, Won't Pay: Cashflow Moves Urged

Government Ministers are asking significant private enterprises to adopt prompt payment practices in line with the state sector, as a way to improve cashflow for small businesses. More>>


Gordon Campbell: On Why We Should Legally Protect The Right To Work From Home

For understandable reasons, the media messaging around Level Two has been all about “freedom” and “celebration”, but this is not necessarily going to be a universal experience. When it comes to workplace relations, Level Two is just as likely to ... More>>


New Zealand Government: Supporting Kiwi Businesses To Resolve Rent Disputes

The Government will legislate to ensure businesses that suffered as a result of the COVID-19 response will get help to resolve disputes over commercial rent issues, Justice Minister Andrew Little announced today. More>>


Science Media Centre: Understanding 5G Concerns – Expert Q&A

Recent attacks on cell phone towers have brought concerns over the rollout of 5G technology into sharp relief.
While scientific research has consistently shown that the technology does not adversely affect human health, public concerns about its impact have spread around the world, fueled in part by growing misinformation online. The SMC asked experts to comment... More>>


Trade: Record Monthly Surplus As Imports Dive

Imports in April 2020 had their biggest fall since October 2009, resulting in a monthly trade surplus of $1.3 billion, Stats NZ said today. “This is the largest monthly trade surplus on record and the annual goods trade deficit is the lowest ... More>>


Media Blues: Stuff Chief Executive Buys Company For $1

Stuff chief executive Sinead Boucher has purchased Stuff from its Australian owners Nine Entertainment for $1.
The chief executive was returning the company to New Zealand ownership, with the sale is expected to be completed by 31 May.
"Our plan is to transition the ownership of Stuff to give staff a direct stake in the business as shareholders," Boucher said in a statement.... More>>


RNZ: Bar Reopening Night 'much, Much Quieter'

Pubs and bars are reporting a sluggish first day back after the lockdown, with the fear of going out, or perhaps the joy of staying home, thought to be a reason for the low numbers. More>>


Stats NZ: New Zealand’s Population Passes 5 Million

New Zealand's resident population provisionally reached 5 million in March 2020, Stats NZ said today. More>>

NIWA: Seven Weeks Of Clearing The Air Provides Huge Benefits: Scientist

Seven weeks of lockdown has provided evidence of how pollution can vanish overnight with benefits for the environment and individuals, says NIWA air quality scientist Dr Ian Longley. Dr Longley has been monitoring air quality in Auckland, Wellington ... More>>


Government: Milestone In Cash Flow Support To SMEs

A significant package of tax reforms will be pushed through all stages in Parliament today to throw a cash flow lifeline to small businesses. More>>