Orient Paper to Sell Headquarters Compound
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Orient Paper Inc., Boading, China, has announced the sale of land use rights for its headquarters compound. The compound includes the company's office building, all industrial-use buildings, and three employee dormitories located on Juli Road in Xushui County, Hebei Province, to Hebei Fangsheng Real Estate Development Co. for approximately $8.23 million in cash.
In 2012, governmental authorities in Xushui County, where Orient's headquarters compound is located, approved a new urban development plan covering properties occupied by several entities, including the company, that had previously been zoned for industrial use. Under this development plan, these properties were re-zoned for residential use only. Since the development plan was announced, the company has evaluated its options to determine the most effective and least disruptive way to comply with the plan's requirements.
Among alternatives investigated were having the company establish a land development subsidiary to develop the headquarters compound by itself, attempting to solicit proposals from real estate development companies that might be prepared to purchase the headquarters compound from the company and convert the land and buildings to residential use, and surrendering the company's land use rights to the local government.
After this investigation and analysis of the various options available to the company, at its meeting this past week, the board determined that the proposal of Hebei Fangsheng was the most attractive of the available alternatives and directed officers of the company to proceed with the Transaction.
The sale price of the headquarters compound's industrial land use rights is approximately $2.79 million, as determined by the valuation from a government designated appraisal, which was 3.35% higher than a second independent appraisal commissioned by the company. The sale price per acre is also 28% higher than the unit price that the company paid for the industrial land use rights for a piece of land right across the street from the company's main manufacturing plant in the Xushui County in April 2012.
In addition to the sale of the land use rights, the sale also includes the industrial buildings and the dormitories located within the headquarters compound. The sale prices of the Industrial buildings and dormitories are approximately $1.15 million and $4.29 million respectively. An appraisal obtained by the company put the value at $0.4 million.
Gross profit resulting from the sale is approximately $740,000, and net gain for Orient Paper was approximately $345,000 from the overall transaction after payment of applicable taxes and fees. The net proceeds from the sale were approximately $7.84 million, which are expected to fund the company's household and tissue paper business expansion.
In connection with the sale, Hebei Fangsheng agrees to lease the Industrial Buildings back to Orient Paper at an annual rental of RMB 1 million, or approximately $162,000, for a term of up to three years, while the company prepares to relocate its offices and the digital photo paper operations currently located in the headquarters compound.
As the relocation from Juli Road is mandatory, the sale allows Orient Paper to continue its operations in the current location for a maximum of three years while looking for a new location.
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