Money managers rail at Ottawa's trust move
TORONTO -- The gloves came off over the government's income trust policy at a Bay Street real estate conference yesterday, when several prominent money managers expressed their outrage over the new tax policy, even as they enjoy windfall gains from the current flurry of takeover activity.
"We are not sure where the fairness is in the Tax Fairness Plan," said Oscar Belaiche, a vice-president at Goodman & Co., referring to the federal government's move to impose a tax on cash distributions to unitholders of income trusts. Many believe that Oct. 31 announcement is responsible for increased M&A activity in the sector.
Mr. Belaiche, who manages funds with about $4-billion invested in the trust sector, said the new rules have politicized him because of the way they were enacted.
"The real issue I have is that there was a promise made. There is a way to break a promise, if you have to break a promise, without breaking a person's jaw," he told the conference sponsored by CIBC World Markets.
His blunt message, and those of other investors and executives at the gathering, are a sign of the increasing disenchantment on Bay Street over the federal government's economic policy. It's a development that the Liberal Party has signalled it hopes to make the most of. Earlier this week, party leader Stéphane Dion travelled to King and Bay streets to pitch his message to the financial community. This Friday, the party will continue the tactic with a lunchtime town hall meeting at the Design Exchange hosted by MP John McCallum, a former bank economist.
Mr. Belaiche, who describes himself as a "lifelong Conservative," said he and others in the investment community have decided to become vocal about their displeasure with the tax measures, announced on Oct. 31, because they were done without consultation.
"These guys are out there with a machete and they are hacking and slashing and making changes without a lot of thought," he said in a later interview.
His aim, he said, is to get some flexibility in the proposed measures, a change in Finance Minister or an election.
Mr. Belaiche's outrage was echoed by other money managers and leaders of real estate investment trusts.
Stephen Suske, co-chief executive officer of Chartwell Seniors Housing, said the new tax rules, which target REITs with operating businesses such as seniors housing, are threatening the industry -- at least in the public markets.
"I think the Finance Minister is trying to make seniors housing the Avro Arrow of real estate," he told the forum, referring to the legendary fighter plane scrapped by the Diefenbaker government.
Ira Gluskin, president of Gluskin Sheff + Associates Inc., said the federal government has avoided a public outcry over the new tax measures because M&A activity has helped trust units to recover from the slump they suffered following the October announcement.
"The public is not upset because the income trust sector has come back," he said. "The government has been able to get away with this."
Indeed, many of the managers said the wave of takeouts has created huge gains. Mr. Belaiche said this week's offer for UE Waterheater Income Fund turned a $60-million investment by his company into a $90-million one in a day.
Dennis Mitchell, a portfolio manager with Sentry Select Capital Corp., said the gains from M&A activity also create a challenge because of the shortage of new product on the market.
If a good-quality real estate portfolio came to the public market, he said, there would be huge interest from funds looking for reinvestments. "For us it is a no-brainer," he said. "We would certainly be there in size."
Instead, Mr. Mitchell and Mr. Belaiche said they are both looking outside Canada for investments. Mr. Belaiche said his funds also will look to other income-generating investments such as dividend stocks.
