SINGAPORE (THE BUSINESS TIMES) - A wholly-owned subsidiary of First Real Estate Investment Trust (First Reit) has served a termination notice to a Lippo Karawaci subsidiary to scrap an agreement for the development of a hospital in Surabaya, First Reit's manager said late on Monday (June 29).

The First Reit unit, Tata Prima Indah, and wholly-owned Lippo Karawaci subsidiary Saputra Karya entered into the development works agreement on Oct 20, 2015, to build the hospital, which was to be an improved healthcare facility to replace the ageing Siloam Hospitals Surabaya.

Siloam Hospitals Surabaya is owned by First Reit, and operated by Siloam Hospitals Group, which is owned by Lippo Karawaci. Lippo Karawaci is First Reit's former parent company.

First Reit had sold a portion of the land adjacent to the hospital to Saputra Karya in connection with the agreement.

Under the terms of the agreement, Tata Prima Indah has the right to terminate the agreement in the event the development works remain uncompleted by June 28, 2020.

First Reit's manager cited road subsidence that took place on Dec 18, 2018, along Surabaya's Gubeng Highway, which is in close proximity to Siloam Hospitals Surabaya.

"The road subsidence has had a serious impact on the development works, which are no longer progressing," it said.

The manager said it is evaluating all available options and has commissioned tax consultants, development and construction-related consultants, legal counsels and valuers to carry out feasibility studies across various fields.

The feasibility studies are ongoing and serve to determine the possibility of conducting future construction works on the site, given the road subsidence, it added.

It said it had been in active discussions with all stakeholders to reach a settlement on this matter and was optimistic in reaching a resolution.

Units of First Reit closed flat on Monday at 70 cents before the announcement.