THE manager of EC World real estate investment trust (Reit) on Wednesday (Mar 9) announced the Reit's entry into an expropriation and compensation agreement with the Chinese authorities in relation to the compulsory expropriation of Fu Zhou Industrial.

In a bourse filing, the Reit manager said the Chinese authorities will provide a compensation package of 108.5 million yuan (S$23.4 million) for the compulsory expropriation of the Hangzhou port property, which comprises berths and office buildings.

The Reit manager had announced in January that the property had received a notice from the government of Linping district in the city of Hangzhou, regarding the compulsory expropriation of Fu Zhuo Industrial for the development of the Grand Canal National Cultural Park in Hangzhou.

The compensation amount represents around 92.8 per cent of the property's latest announced valuation of 117 million yuan as of December 2020.

However, it is 26.8 per cent higher than the 85.6 million yuan purchase consideration of Fu Zhou Industrial at the time of EC World Reit's initial public offering.

The compensation package will be subject to property disposal-related taxes such as land appreciation tax, value-added tax and corporate income tax. Tax advisors are currently conducting an assessment on the tax payable; the Reit manager said a separate update will be given when the assessment has been finalised with the authorities.

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There are now 2 tenants at the property, including a third-party tenant. The Reit manager said the potential compensation to be paid to the tenant as a result of an early termination of the lease is to be assessed.

Apart from taxes and potential tenant compensation, the Reit manager said it also intends to use the proceeds for partial payment of existing borrowings, and distribution or working-capital purposes.

Fu Zhuo Industrial, located in the west of Chongxian New City, north of Hangzhou, has a total land area of around 24,403 square metres (sq m), with total net lettable area of around 7,128 sq m.

Based on its valuation of 117 million yuan, the property represented around 1.5 per cent of EC World Reit's portfolio, the manager had said in January.

EC World Reit units closed at S$0.74 on Wednesday, up 0.7 per cent or S$0.005, before the announcement.