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Jason Underwood, CEO of Whiterock Real Estate.

Fernando Morales/The Globe and Mail

Real estate executive Jason Underwood does not like to talk about his pay package. But his competitors do.

The Canadian property sector had a particularly strong 2010, as investors raced to snap up whichever buildings came to market and tenants signed leases at a brisk pace. The executives who guided companies through the growth are being rewarded by their boards: compensation is up sharply throughout the industry.

But none of those paycheques has raised as many eyebrows as the one received by Mr. Underwood, chief executive officer of Whiterock Real Estate Investment Trust.

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Toronto-based Whiterock, which has a market capitalization of just $373-million, is small. Mr. Underwood's pay packet, at $4.8-million, is less modest.

His 475-per-cent pay raise last year pushed him into the upper echelon of real estate industry compensation with the likes of RioCan REIT chief executive officer Edward Sonshine and Brookfield Properties Corp. chief executive officer Richard Clark.

"I hope people understand that I have been paid well because I have created a lot of value for investors and if I did not perform I would be the lowest-paid executive in the industry," he says, referring to his $150,000 base salary.

But the disclosure has fuelled new debate over a controversial practice in the real estate business of compensating executives for buying and selling properties or raising money, rather than increasing the value of their company.

The bulk of Mr. Underwood's pay was a cash bonus tied to the number of deals pushed through in 2010. His contract stipulates that if Whiterock sells or buys buildings, he gets a cut of the price. If it issues debt or new units? He gets a cut of that, too.

"There's a moral hazard here for paying an incentive when a deal gets done," said Ken Hugessen, a partner at Hugessen Consulting. "The concern many boards have is that you are essentially relying on your CEO to evaluate a deal and present the deals for approval, and you don't want to complicate that with questions about motivation."

To get around the issue, many companies have moved to bonus plans that pay CEOs in options that are tied to share prices, so that the long-term effects of deals come into play. Others have introduced clawback mechanisms to ensure the company can take back bonuses if deals go sour.

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"At the end of the day, nobody should pay you to be big, they should pay you to be profitable," says RioCan's Mr. Sonshine, whose bonuses are based on increasing the REIT's funds from operations. "You want to be fair to your shareholders."

In addition to his base salary, Mr. Underwood was awarded $247,314 in options and was paid a $4.4-million bonus by the REIT's board. In 2009, he earned $833,708.

"There have been some years that were pretty lean," he says. "There aren't too many years like 2010. I'd rather focus on what we've accomplished here."

There are plenty of other things to talk about. An American who moved to this country because he saw an opportunity to buy real estate, Mr. Underwood has built Whiterock, in six years, into a company with $1.5-billion in assets.

Few REITs have benefited from the abundant capital available to Canadian real estate companies as much as Whiterock. The vast majority of its 75 buildings - it has property in every province except Manitoba, and Newfoundland and Labrador - were bought before they hit the open market.

"We started small, with a high cost of capital or high yield, with high leverage compared to our peers, and the majority of our assets were in secondary markets, but fast-forward to today and we have increased adjusted funds from operations considerably, while decreasing leverage," he said.

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Whiterock's investors have also fared well. The units have gained 43 per cent in the last year, at a time when the broader S&P/TSX index gained 19 per cent. In first-quarter results released Wednesday, the company said its funds from operations came in at 31 cents a unit, up 15 per cent from a year ago.

That the Alabama-born Mr. Underwood is here at all is, in some ways, fortunate. He was nearly killed in an apartment fire when he was 30.

He was sleeping on the couch when an ember jumped out of the fireplace, and received third-degree burns to 30 per cent of his body. Two friends were in the apartment: one did not survive.

"When I touched the doorknob my skin melted," he said, showing the prominent skin graft scars on his hands.

He founded Whiterock two years later, quitting a New York-based private equity job and driving to Toronto because he believed there were better deals to be found outside of the United States.

Working out of a small rented office, he bought his first property - which housed a Staples in Prince Edward Island. More acquisitions came, and shortly after the company offered its units to investors, Whiterock and its board were presented with a buyout offer.

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His board was convinced it was the right move, but the longer it dragged out, the less comfortable Mr. Underwood became. Stewing at home and grappling to build a personal life - he hired a life coach and focused on changing a workaholic lifestyle that left no room for a family - he decided to pull his support for the deal and face the consequences.

The board wouldn't support him, and it quit. Institutional shareholders also walked away, leaving about 97 per cent of the company in the hands of retail investors. Whiterock units were yielding 20 per cent; analysts waited for the company to fold. Today, the units are yielding 8.2 per cent, a marked improvement since the "very scary" days of 2008.

"Most people said that it could not be done," he says. "We did it and are going to keep doing it."

His personal life has changed even more dramatically than his company's fortunes. Altering his priorities gave him time to meet someone - he married his nutritionist and they now have a young son. He drives an hour to work every day in his 2008 Honda Civic from his 100-acre farm west of Toronto, and he has converted squash courts in the company's head office into a "wellness area" for employees.

"I strongly encourage everyone to take advantage of the new space," he said. "It's important to live a well-rounded life."

But there are some aspects of his personal life that he would rather remained private. "You sure you need to mention the salary?"

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