econintersect.com
       
  

FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.



posted on 21 November 2015

Xinyuan Real Estate XIN: The Numbers Sound Better.

by Elliott Morss, Morss Global Finance

Introduction

Last week, XIN reported on its 3rd quarter performance. Most numbers were up a bit over last quarter and up a lot over the third quarter of 2014. But as I said in an earlier piece: being better than 2014 is testament to just how bad a year 2014 was for Chinese real estate.

Summary Results

Table 1 provides data on recent performance. More floor space was sold in the 3rd quarter but at lower prices than in the 2nd quarter. Net income stayed up and XIN projects an increase of 30% for the entire year. That sounds good and indeed offers plenty of coverage for its $0.05 quarterly ADS dividend. But the growth is only half of what XIN projected at the beginning of 2015. At that time, it projected 2015 income in the $90 - $100 million range.

Table 1. - XIN Quarterly Results

xx1

Sales Prices and Projected Income

Table 2 provides more information on lower selling prices. There are two ways to view these reductions. The positive way is to say it is part of a program to reduce leverage: speed up the sale of properties and reduce debt. The negative way to view it is that it is a reflection of weaker real estate markets resulting in lower net income.

The properties highlighted in red recorded exceptionally large price reductions. I queried XIN about these. Apparently in each XIN project there are different types of properties selling at very different average prices. So when sales volumes are low you might happen to sell mostly expensive or inexpensive properties. But the overall average of selling prices is probably a good indicator of what is happening, and it is down 12% from the 2nd quarter.

Table 2. - XIN Selling Prices

xx2

It is notable that XIN's inventory of properties for sale is up slightly from the 2nd quarter. One can project that if this inventory sells of at its current prices, the total proceeds would be $2.7 billion.

In addition to these active projects, XIN has 576,000 square meters in the planning stage with launches on 64% this quarter and the balance in the first quarter of 2016.

Equity, Leverage, and Buybacks

XIN had 153 million shares outstanding at the end of 2014. That is now down to 146 million shares. In 2007, it approved setting aside 10 million shares to be awarded to staff via stock options. And this year, it approved another 20 million shares. Keep in mind an ADS is equivalent to two shares.

The case for buybacks, as shown in the following example, has been presented to XIN management. It shows what the earnings per share would be for $100 million real estate investments at different returns. It also shows what would happen to earnings per share if its outstanding shares were reduced as the result of a $100 million buyback at $1.75 per share ($3.50 per ADS).

xx3

Whenever George Liu, the Chief Financial Officer of XIN is asked about buybacks, he says the same thing:

"We will be doing some buying back. We plan to continue to repurchase from time to time."

My sense is his heart is not in it. There are two reasons for this. First, XIN executives like to believe they can make a 20% return on property investments. Second, XIN is a real estate company. It raises money and invests in real estate. That's what real estate developers do.

Deleveraging

Some Westerners believe XIN's relatively low stock price is the result of being too leveraged. The lower average sales price might be an indication that XIN wants to deleverage somewhat. But I doubt it. The company's debt is up slightly ($71 million) from the second quarter.

Liu has earlier talked quite enthusiastically about lowering finance charges by issuing its own bonds in China. He seems somewhat less enthusiastic about these prospects today. XIN would need central government approval to do this, and my sense is that XIN is encountering unexpected problems with that.

Conclusions

Real estate development has been and will always be risky. The developers never know when to stop. But even though China is only projected to grow by 6.9% in 2015, XIN has found a solid real estate niche - providing housing to the growing middle class of China. So XIN is not really interested in buybacks. And it won't raise its dividend. But the exiting dividend yielding 6% is safe. And who knows, more people may come to believe XIN is a very legit company and this could lead to a higher stock price.

>>>>> Scroll down to view and make comments <<<<<<

Click here for Historical Investing Post Listing










Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, using Livefyre just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.



You can also comment using Facebook directly using he comment block below.





Econintersect Investing


search_box

Print this page or create a PDF file of this page
Print Friendly and PDF


The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.


Take a look at what is going on inside of Econintersect.com
Main Home
Analysis Blog
Joan Robinson’s Critique of Marginal Utility Theory
The Truth About Trade Agreements - and Why We Need Them
News Blog
Rail Week Ending 03 December 2016: Finally A Positive Month
November 2016 CBO Monthly Budget Review: Total Receipts Up by 1 Percent in the First Two Months of Fiscal Year 2017
Infographic Of The Day: Copyright - Illegal Download
Early Headlines: Asia Stocks Mixed, Oil Steady, Bank Mafia, Trump To Remain TV Producer, US Life Expectancy Down, India Stocks Suffering, Park Impeached, China Struggles To Support Yuan And More
Heavy Metal And Hard Rock Albums That Went Certified Diamond Status
Down The Drain: Wastewater With The Most Cocaine
Apple's App Store Set For 5 Million Apps By 2020
How Can The UK Government Meet Its Legal Air Pollution Targets?
Most Gun Deaths In The United States Have A Tragic Motive
What We Read Today 08 December 2016
Five Mysterious Space Diseases That Could Kill Astronauts Before They Get To Mars
03 December 2016 Initial Unemployment Claims Rolling Average Insignificantly Worsens
November 2016 CBO Monthly Budget Review: Down by 3 Percent in the First Two Months of Fiscal Year 2017
Investing Blog
Are Your Trade Entries Patient Enough?
Investing.com Technical Summary 08 December 2016
Opinion Blog
Looking At Everything: Trump's $1 Trillion Infrastructure Plan
The Global Financial Mess Is Due To Political Failure
Precious Metals Blog
Silver Prices Rebounded Today: Where They Are Headed
Live Markets
08Dec2016 Market Close: Wall Street Closes Higher, But Not Without Pause For Indicators That Spell CAUTION In Capital Letters
Amazon Books & More






.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government



Crowdfunding ....






























 navigate econintersect.com

Blogs

Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day
Weather

Newspapers

Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government
     

RSS Feeds / Social Media

Combined Econintersect Feed
Google+
Facebook
Twitter
Digg

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution

Contact

About

  Top Economics Site

Investing.com Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2016 Econintersect LLC - all rights reserved