Ascot in form for Vital win

PHIL DOYLE/Fairfax Media

Capital markets veterans: Craig Priscott, left, and David Glenn.

If successful, the bid to oust the current manager of the listed Vital Healthcare Property Trust, will be the third investor "rescue" by little-known Ascot fund management group.

On Thursday last week, Fairfax broke the story of a new bid to "internalise" the management of the listed Vital trust by buying out the management contract now with ANZ-owned Vital Healthcare Management Limited for $14 million, but Ascot is now rallying unit-holders with an alternative which could cost as little as $3.1m.

The bid was almost instantly damned by the "independent" directors of Vital, who owe their primary duty not to unitholders but to its shareholder, ANZ. The Ascot bid was "opportunistic" and they questioned its credentials saying: "The independent directors are most concerned at Ascot's representation that it has the expertise necessary to manage this complex, specialist Australasian healthcare portfolio without sufficient property management experience, management infrastructure, financial and other resources, banking and tenant relationships to continue to protect and enhance unit-holders interests."

It's true that unit-holders in Vital, who this past week received letters asking them to back Ascot's bid, will not know much about the firm founded by Sandy Maier, David Glenn and Craig Priscott – each with long experience in capital markets and company management.

While they may know a little of Maier, who tried to keep South Canterbury Finance afloat, they are unlikely to be aware of Ascot's previous battles.

One was over a healthcare properties trust brought back, says Glenn, from the brink of receivership after a bitter "proxy war" in late 2009. Ascot, invited to intervene by a group of investors, fought to eject the incumbent board and management.

A proxy war is a battle for the hearts and minds of investors, and most importantly, for their proxy votes – needed to change the board and oust management.

Radius Properties was an illiquid medical properties trust sold to retail investors by now-defunct financial planning company Vestar. But it had stopped paying a dividend and, Glenn said, was just months away from receivers being called in.

The war for proxies went largely unreported, partly because Radius is not listed, and partly because it is so small. Ascot hopes to prompt more such proxy wars.

It won when sharebrokers sided with Maier, Glenn and Priscott, delivering the proxy votes needed. In his first letter to investors, new chairman Maier stated bluntly:

Radius was in breach of its banking covenants, and the bank wanted immediate repayments

More than 1.6 million shares had been issued just before the vote, which had been cast against the new directors

A $1.5m loan from the management to the company was in default, and Radius did not have the money to pay

A development called Peppertree was "half-complete" and Radius did not have the cash to finish it.

More revelations were to follow. In July 2010, Maier again wrote to investors in Radius, telling them revaluations of Radius' properties had shown them to be worth just 36c a share, not the 95c investors had been led to believe.

It is common for new management to take a "conservative" stance on asset valuations, but it was a big fall.

Maier also revealed a deal with former management to buy assets the new management did not want, the proceeds of which cleared the loan to management. The old manager sold their shares in RPL to the company for a "nominal sum" and would no longer be involved in three proportionate ownership schemes part-owned by Radius.

Investors are awaiting audited figures, expected to show that their shares have a net asset backing of around 70c again.

Dividends will start being paid later this year and the search is on for a means of providing liquidity.

The Radius Properties action, which Ascot hopes will show Vital unit-holders that expert managers can come in and take over the management of a medical properties trust with ease, came about as a result of Ascot being invited in to rescue dismal I-Cap Equity Partners – a private equity fund with directors in common with Radius – that had got itself into trouble.

Chaired by former National Party finance minister Ruth Richardson, I-Cap was in an awful mess, said Glenn. It owned 11 minority stakes in capital-hungry early-stage companies, had little income and was debt-encumbered.

Such early-stage companies often require fresh inputs of cash, and I-Cap was in no such position, risking being diluted in capital raisings. When Glenn took over in 2006 (it was decided there was not enough money available to justify Maier coming on as chairman), he embarked on asset sales. It was not easy, as shares in the investments were illiquid and the other shareholders knew I-Cap needed to sell.

The plan was to focus on just one or two quality investments, such as tech firm Next Windows, and clear debts. Glenn also embarked on capital-raising, which diluted some retail investors unwilling to put more cash in. 2008 accounts revealed net assets per unit of just 4.7c. Net assets are back up to nine cents after the sale of its Next Windows stake to a Canadian firm and I-Cap is seeking acquisitions.

- © Fairfax NZ News