In a disappointing outcome for investors Vital Healthcare Trust independent directors recently announced that the Trusts manager ANZ has decided not to proceed with internalisation.  The independent directors stated that due to events outside their control they were unable to conclude negotiations for internalisation and will endeavour to re-engage with negotiations in the New Year.

While the independent directors have failed in negotiations it is still possible to remove the manager at the AGM in December and begin the internalisation process.  Unit holders can vote for both or either of ACC’s and Ascot Property Managements resolutions.   The ACC resolution requires a 50% majority and requests the trustee to remove the manager.  The issue with this resolution is that the trustee is not obligated to remove the manager and could face legal action by ANZ if it did so.

The Ascot resolution requires a 75% majority to terminate the management contract for a cost of $3.1m.  Ascot will then run the internalisation process for a fee of $1.4m.  To get this through Ascot will have to convince unitholders and independent directors that it can run the internalisation process smoothly with little risk to unitholders.  This resolution will be difficult to pass without the backing of the independent directors.

On the 22 September an investment company owned by ANZ purchased 26,000,000 VHP units, representing 9% of the Trust, at $1.18 per unit.  This was a strategic purchase as it reduces the shareholdings of institutions that were pushing for a low internalisation price or the removal of the manager.  The ACC’s holding has reduced from 9.073% to 5.528% through this transaction.  The ACC now has less bargaining powers and ANZ has decreased its risk of losing the valuable Vital Healthcare Trust management contract.

While suffering a setback, internalisation is still possible if unitholders are willing to remove the manager at December’s AGM. 

William Curtayne