According to the Zhitong Finance App, Fangyuan Life Service (09978) announced that on December 6, 2023, Fangyuan Life Service (an indirect wholly owned subsidiary of the company) entered into a replacement agreement I with Seller A. Fangyuan Life Service conditionally agreed to offset the first batch of outstanding receivables owed by Seller A's subsidiary to the relevant buyer by accepting the transfer of the first batch of properties from Seller A's subsidiary to the relevant buyer, about RMB 13.1 million (same unit below).

The cost of the first batch was about 13.1 million yuan. The first batch of offsets for each first batch of properties shall take effect on the relevant first batch of offsets after all the first batch of prerequisites for the relevant first batch of properties have been met. At that time:

(i) The relevant portion of the first batch of costs (corresponding to the cost of the relevant first batch of properties) shall be deemed to have been paid to Fangyuan Living Services and its subsidiaries an amount equivalent to the corresponding first batch of outstanding receivables to settle that amount; and

(ii) The relevant buyer shall be deemed to have paid the relevant portion of the first instalment price to Seller A's subsidiary. Thereafter, neither Seller A nor Seller A's subsidiary shall file any claim with the relevant portion of the first batch of costs against the relevant buyer after the relevant first instalment has been set off.

In order to implement the replacement transaction I, Seller A's subsidiary and the relevant buyer will separately enter into the first batch of property sales agreements for each first batch of properties.

On December 6, 2023, Fangyuan Life Services (an indirect wholly owned subsidiary of the Company), Seller A, and Seller B entered into a replacement agreement II. Fangyuan Life Services has agreed to transfer the second batch of properties to the relevant buyer by accepting Seller B to offset Seller A's subsidiary (with a balance of about $2.1 million) and Seller B (with a balance of about $600,000) in the second batch of outstanding receivables owed to it and its subsidiaries by approximately $2.7 million.

The cost of the second batch was about 2.7 million yuan. The second batch offsetting for each second batch property shall take effect on the relevant second batch set-off date after all the second batch prerequisites for the relevant second batch property have been met. At that time:

(i) The relevant portion of the second instalment cost (corresponding to the cost of the relevant second instalment property) shall be deemed to have been paid to Fangyuan Living Services and its subsidiaries an amount equivalent to the corresponding second instalment of outstanding receivables to settle that amount; and

(ii) The relevant buyer shall be deemed to have paid the relevant portion of the second instalment price to Seller B, and neither Seller A nor Seller B shall thereafter make any claim against the relevant portion of the second instalment price against the relevant buyer after the relevant second instalment has been set off.

In order to implement the replacement transaction II, Seller B and the relevant buyer will separately enter into a second batch of property sales agreements for each second batch of properties.

The first batch of properties includes seven commercial properties, with a total construction area of about 637.0 square meters. It is located in a private residential complex with 32 buildings in Yunshan Poetic Garden Phase I, No. 268 Tiyu South Road, Chikan District, Zhanjiang City, Guangdong Province, China; and six parking spaces in the Fangyuan Xinhui Yuedao Capital Private Residential Community at No. 9, Huicheng Huikang Road, Xinhui District, Jiangmen City, Guangdong Province, China, with a construction area of about 175.3 square meters.

The second batch of properties includes four commercial properties with a total construction area of about 149.2 square meters. It is located in Fangyuan, Zengcheng, Guangzhou, Yunxi, a private residential community located in Fangyuan, Fourth Street, West District, Shitan Town, Zengcheng District, Guangzhou, Guangdong, China.

Since Seller A's subsidiary failed to settle the first batch of outstanding receivables as scheduled, a replacement transaction I was entered into. The first batch of outstanding receivables comes from Fangyuan Life Service and its subsidiaries that have provided property management services and real estate agency services to Seller A's subsidiaries in the past. The company took various measures to recover the first batch of outstanding receivables, including requesting regular payments verbally and electronically and organizing offline meetings. After continuous efforts, the company and seller A finally agreed to transfer the first batch of properties to the relevant buyer to settle all of the first batch of outstanding receivables.

Similarly, since Seller A's subsidiary and Seller B each failed to settle the corresponding second batch of outstanding receivables as scheduled, a replacement transaction II was entered into. The second batch of outstanding receivables comes from Fangyuan Life Service and its subsidiaries that previously provided real estate agency services to Seller A's subsidiary and Seller B, respectively. The company has taken similar steps to recover the second batch of outstanding receivables. Through continuous efforts, the company finally reached an agreement with Seller A and Seller B to transfer the second batch of properties to the relevant buyers to fully settle the second batch of outstanding receivables.

Since the end of 2022, China's national government has implemented a series of progressive policies aimed at stimulating housing consumption. These measures allow local governments to relax minimum mortgage down payments, lower interest rates on housing fund loans, and relax mortgage interest rates. As a result, such support measures have stimulated demand in the housing market and promoted the recovery of the Chinese real estate market. Zhanjiang, Jiangmen, and Guangzhou are located in or near the Greater Bay Area Development Zone, which has attracted strong interest from investors from China and Hong Kong. These investors have further stimulated housing demand in these regions and are likely to cause housing prices to rise, which will have a ripple effect and have a positive impact on commercial property sales. Aware of the potential increase in the resale value of these properties, the company decided to hold these properties for investment purposes, with the aim of seizing suitable sales opportunities to maximize returns.

The company has considered the risks associated with replacement transactions. According to the terms of the replacement agreement, if any preconditions are not met, Fangyuan Life Service has the right to withdraw or partially withdraw the replacement agreement accordingly.

The directors believe that by carrying out replacement transactions, the Group will immediately reduce the credit risk associated with outstanding receivables by transferring the settlement costs of such properties; and that the resale value of such properties may rise when the Chinese property market recovers, which will improve the Group's overall financial situation in the future.