Profit figure for Sabana Reit’s manager in ESR Group’s letter ‘factually wrong’: Quarz
Kalpana Rashiwala
ACTIVIST investor Quarz Capital says the profit number for the manager of Sabana Industrial Reit in ESR Group’s open letter to the real estate investment trust’s (Reit) unitholders on Friday (Jul 28) night is “factually wrong”.
In a letter to The Business Times early Saturday morning, Quarz – which is pushing to internalise the management of Sabana Reit – took issue with the S$1.26 million profit figure for Sabana Reit Estate Investment Management (SREIM) stated by ESR Group.
In its letter, Quarz said that SREIM owns 100 per cent of the Reit’s property manager, Sabana Property Management. “While the reported financials of Sabana Reit manager do not consolidate the profit, this is just a reporting format.”
“One hundred per cent of the profit of Sabana Property Manager goes to Sabana Reit manager. As such, the profit of Sabana Reit manager includes 100 per cent of the profit of Sabana Property Management…
“As such, the total profit of Sabana Reit manager in 2022 is S$2 million and not S$1.26 million as cited by ESR Group, which is factually wrong,” Quarz said. It added that the total profit of Sabana Reit manager in 2021 was S$1.63 million, lower than in 2022, probably due to the impact of Covid 19.
“Either way, ESR’s stated profit number for Sabana Reit manager is factually wrong,” Quarz said.
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It went on to add that under its internalisation proposal, the fees paid to the manager will be on a cost-recovery basis; thus, there will be no taxable income. Hence, Quarz would look at the Reit manager’s profit before tax figure, which would be S$2.4 million for 2022. “All this will go back to all unitholders in cost savings.”
In its Friday night letter, ESR Group said that cost savings from internalising Sabana Reit’s manager were “grossly overstated”.
“Any potential cost savings out of the S$1.26 million of profit generated by the Sabana Reit manager will be wiped out by the potential increase in borrowing cost, and unitholders will be worse off on an ongoing basis,” said ESR.
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It argued that without the backing of a strong sponsor for its unsecured facilities, Sabana Reit’s borrowing costs are likely to rise.
Each increase of one percentage point will cost unitholders an additional S$3 million in interest each year, potentially reducing distribution per unit by 0.27 Singapore cent, according to ESR’s estimates.
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