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Hedge funds 'dream' of mini-Brookfield at Dundee

Thursday, October 25, 2012

BOYD ERMAN

Dundee Corp. shares have quietly been on a tear since late summer as a buzz grows about how much hidden value there is inside the company as it builds what some view as a mini-Brookfield Asset Management Inc.

Dundee is the creation of Ned Goodman, who has ventured into everything from zinc mining to investment banking to asset management to real estate. He sold his mutual fund management business to Bank of Nova Scotia, and now most of the value is generally viewed to be in Dundee's publicly traded real estate subsidiaries (not to mention the almost $1-billion of Scotiabank shares Dundee is still sitting on). The company has been steadily taking real estate businesses public as real estate investment trusts.

What some believe the broader market is missing is the value that is still in the realty side that remains within Dundee Corp. There's land and property development, and there's the business that really has some managers talking, and that's Dundee Real Estate Asset Management, known for short as DREAM. Dundee Realty is 70 per cent owned by Dundee Corp. and 30 per cent by Michael Cooper, who has overseen Dundee's ascension into a big manager of real estate.

DREAM runs assets such as commercial and residential real estate, both investment and development, and investments in renewable energy businesses. The managing partner at DREAM is Mr. Cooper.

The company manages $7-billion of commercial real estate for clients that include Dundee's REITS. There's also a huge portfolio of development lands under management. The infrastructure side is a $200-million fund. All in, there's about $10-billion of assets under management.

That asset mix sounds very similar to Brookfield's, albeit on a much smaller scale. And the structure is the same, too: Create a stable of fee-paying funds that others can invest in, publicly or privately, then collect the fees.

So what is it all worth? GMP Securities L.P. analyst Stephen Boland recently put the value of DREAM at $2.70 per share.

In addition, he reckons Dundee Realty is worth another $7, over and above the almost $40 of net asset value he believes is at Dundee. For the moment he does not include the realty assets in his target price calculation, which is based on a 20 per cent discount to net asset value and stands at $31.50.

If Dundee can find a way to get the street to pay more attention to that extra value, look for the stock to run further.

The downside for some investors will be the control exerted on Dundee by Mr. Goodman, who is a strong personality (dig into one of his letters to shareholders for a taste) and the exposure to real estate at what could well be the top of a cycle. But Mr. Cooper has proven he can make money in real estate, and there is always that Scotiabank stock to keep a floor under Dundee.

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