Unitholders of Sabana REIT will be 'worse off' if internalisation of manager proceeds, ESR Group warns

The group said each 1 -pp increase in borrowing costs will reduce the REIT's DPU by $0.0027.

ESR Group has warned unitholders of Sabana REIT that the internalisation of the latter’s manager will not result in cost savings.

The group issued the open letter to refute Quarz’s claims of financial upside following the internalisation of Sabana REIT’s manager.

The group said Quarz's assumptions are “either overestimated and ignore the realities of running a business in today’s volatile and uncertain market or already ongoing.”

ESR Group also underscored that “once higher debt costs are factored in, unitholders will be worse off.”

The company also warned that if Sabana REIT’s manager is removed, its borrowing cost will likely increase.

“Each increase of one percentage point (100 basis points) will cost unitholders an additional $3.0m in interest each year which will reduce DPU by 0.27 Singapore cents,” the group said.

ESR added that the REIT manager's removal may also “trigger an unwinding of the existing interest rate hedges which have been put in place.”

“If this is the case, the actual impact of one percentage point (100 basis points) will be even higher at $8.3m in interest each year, which will reduce DPU by 0.75 Singapore cents,” the group stated.