Aust Unity Healthcare Board Rejects Northwest Proposal on Healthcare Fund

5 June 2021

The battle for control of the Australian Unity Healthcare Property Trust (AUHPT) shifts up another gear as the Australian Unity Board rejects Northwests third offer.

The Board of AUFM believes that the third proposal continues to materially undervalue AUHPT, having regard to the current and expected future value of the portfolio and the benefits it could deliver to a potential acquirer.

In a statement to unitholders this week, Australian Unity said “NorthWest has continued to emphasise that each of its offers delivers an attractive value proposition for AUHPT unitholders, only to continue to increase its offer price”.

Australian Unity says they have engaged extensively with unitholders to understand what is important to them and have advised that a number of other factors have been considered in assessing the third proposal, including:
• the nature of AUHPT investors and their preference for income and desire for long term returns;
• concerns of many investors regarding the tax implications of a potential cash sale of investors’ AUHPT securities and their ability to then re-invest proceeds in comparable assets (with a similar risk and return profile);
• the strength of AUHPT’s near term development pipeline (including the unique access to opportunities that AUHPT’s relationship with the Australian Unity Group and other counterparties offers); and
• the very attractive current market conditions for the healthcare real estate sector.

It is usual practice for the Responsible Entity to appoint an independent board committee to advise on the proposal, however Australian Unity have not done this (or not made this appointment public) and as such are facing claims of conflicts of interest by NorthWest who indicate that the responsible entity comprises directors who are all executives of Australian Unity, a company which has received over $110 million in fees from the Fund over the past 10 years and holds just 1% of the units.

The NorthWest proposed offer is a cash price of $2.55 per wholesale unit and represents,

  • a 30% premium to the Price prior to submission of the Initial Proposal; and
  • 6 cents above the upper end of the Independent Expert’s (appointed by NorthWest) assessed underlying value range of AUHPT of $2.31 to $2.49 per Wholesale Unit.
  • a distribution yield of 3.7%, which compares to the average A-REIT sector distribution yield of 5.7%.

Northwest hold 5% of the units in the trust and have put & call agreements with Hume in relation to a further 11% of units. Northwest have used this stake to call a meeting of investors to vote on the proposal on the 1st July 2021. Any resolution to accept the proposal will require a 75% majority vote of investors.

Our Views

The healthcare market has seen a large amount of capital flow into the sector causing values to rise significantly over the last 12 months. It is conceivable that the Funds assets were undervalued at the time of the first offer in February 2021 and have risen since that time, however it is unlikely that the assets have risen by 30% in value.

I agree that investors may prefer to retain their interest in the assets or the sector without the tax or reinvestment costs but the proposal does not offer any form of script.

If the offer were amended by Northwest to include a Cash or Script proposal they may well have found greater acceptance amongst unit holders.

The manner in which the responsible entity has dealt with this proposal is questionable. In my opinion, the Board have not adequately assessed and communicated the value of the assets having regard to the “special circumstances” they believe warrant a higher offer, and as such it is difficult for investors to make up their own minds.

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