To get the plan passed, Cooper tied its approval to the GE shareholder vote on the deal. If Dundee REIT’s shareholders wanted the 19 per cent premium that GE was offering, they’d have to give Cooper what he wanted. It was a classic case of Cooper pushing the envelope—nothing illegal or improper, but certainly bold.
Five years out, external managers are commonplace. But RioCan, long a stickler on governance, remains a notable critic. “Everybody here at RioCan stands or falls with the success of RioCan,” says CEO Sonshine. “When you’re externally managed, it’s not quite the same.”
Imagine a REIT whose share price is suffering. Does management have much reason to worry if it can buy properties and still make a percentage of the purchase price? It’s “the gift that keeps on giving, if you handle it right,” Sonshine says. However, he acknowledges that Cooper does own a good chunk of Dundee REIT shares himself, so he has some skin in the game.
Asked about the criticisms, Cooper doesn’t hurry on to the next question, but his drawn-out answer doesn’t really offer much. He says he’s focused on creating value–as if any CEO isn’t–and the people around him are totally “engaged and excited”—as if that has anything to do with management fees.
Cooper also notes that Dundee REIT has churned out massive returns for shareholders. True: Whatever time frame you choose, Dundee’s shares are almost always up, save for the worst period of the financial crisis. But then, the whole sector has been hot. And RioCan has returned more than Dundee since 2003, when Cooper created the REIT—a 88 per cent gain, before distributions, versus 75 per cent for Dundee.
The funny thing about this debate is that Cooper’s DREAM doesn’t need boatloads of new money. The private investments Cooper’s made are already wildly successful. That Saskatchewan land deal he struck in 1994? “That was the historic moment for our company,” Cooper says of the holding now held by Dundee Realty, the parent company of DREAM. Goodman believes it’s “probably the best investment I’ve ever made.” In the first nine months of 2012, Dundee Realty sold $147-million worth of land and made a margin of $45-million.
Gluskin, the veteran money manager, and an investor in Goodman’s parent company, Dundee Corp., says the investing public often ascribes Cooper’s worth to his returns in the public markets, but these profits are “chicken shit” compared to what he earns through his 30 per cent stake in Dundee Realty, which has “fantastic” value. (Dundee Corp. holds the remaining 70 per cent. Over the years, Goodman and Cooper have developed quite the bond. At a recent Fraser Institute dinner honouring Goodman, he referred to Cooper as his “fifth son.”)
As for Dundee REIT’s external management fees, Gluskin likens the dilemma to investing in companies that have dual-class share structures, where one class of shares gets voting rights and the others don’t. The investor always has the right to buy or not buy, he says. However, he admits Dundee’s fees are excessive. “We’re paying more than we need to.” But there’s a reason for that. “Well, we’re paying more for Michael Cooper.”
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Since shedding two-thirds of Dundee REIT’s portfolio in 2007, Cooper has fought to rebuild. After the GE deal, the REIT was heavily skewed to the Calgary market—a terrifying liability when oil prices plummeted to $34 (U.S.) per barrel from $145 (U.S.) in less than a year. But after waiting out the economic crisis, Cooper has struck some notable deals. Summer of 2011: Dundee acquires Blackstone’s downtown Toronto office portfolio for $832-million. January, 2012: Dundee acquires Whiterock REIT, another office specialist in the Toronto area, for $608-million. May, 2012: Dundee acquires Scotia Plaza, breaking records. It’s like Cooper can’t help but outdo himself.
But it could all blow up in his face. Canada’s real estate market is starting to cool and some people worry that, as of the Scotia deal, the hotshot CEO has been blindsided by the bubble, just like GE was. Cooper counters by arguing that he wasn’t the only one who saw the value in Scotia Plaza.