Despite the downturn of the global economy, not all real estate suffered equally. Real estate markets in the developing world appeared to have recovered quicker or in some cases had never really slowed down at all when contrasted against the market found here in America. The following is a quick look at three such companies that have come to typify the state of the markets from three key regions from around the world. All values were taken as of May 5, 2012.
Meritage Homes Corporation (MTH)
Meritage designs and builds single-family detached residences in the Southwest United States as well as in North Carolina, and in Florida. The company focuses primarily on luxury and first-time homeowners, and since 1985 has built over 70,000 homes. Yet the company is in a large group of peers, which includes well-known homebuilders such as Toll Brothers (TOL) and Lennar Corporation (LEN). The company often builds communities tailored to an "active adult' lifestyle, which supports golf courses, dancing, tennis courts, and poolside relaxation. The company details its current market situation and summarizes its latest report in the following statement:
During the three months ended March 31, 2012, we reported positive year-over-year results in our sales, closings and backlog. We believe the improvements are being driven by improved consumer sentiment and continued excellent housing affordability, as well as significant decreases in existing housing inventory levels in most of our markets. Nevertheless, the resale market continues to be our biggest competition; however, we feel we successfully differentiate ourselves from these homes through our energy efficient offerings, innovative technology, ability to personalize our homes and by providing a home warranty.
Meritage trades with a $894 million market capitalization. The company maintains a price-to-book ratio of 1.87 and currently trades with a price-to-sales ratio of 1.02. With a slim operating margin of 1.09% and declining revenue year-over-year in prior filings, the company has had a very difficult market to operate in. Nevertheless, the recent comments listed above appear to sound a promising note of enthusiasm.
Xinyuan Real Estate (XIN)
Xinyuan Real Estate is a Chinese residential real estate developer that specializes in building multi-layer apartments and high rise apartment buildings. The company differentiates itself from most established Chinese real estate developers in that it pursues a strategy of focusing on projects in Tier II and Tier III cities rather than the largely populated Tier I cities. Tier II cities are those that are growing rapidly but have not yet reached the point of being a mega-city. In its an announcement following its annual report, the company summarizes its operations with the following statement:
We were pleased to achieve our revenue and net income guidance ranges for the fourth quarter despite market headwinds experienced from November 2011 onwards. While broader demand for our projects was affected by ongoing home buying restriction policies, our development projects in Tier II & III cities have been better insulated from more significantly weaker housing prices in Tier I cities.
The company trades with a $231 million market capitalization. Yet despite poor price action, the company actually has $635 million in shareholder equity and over $487 million in cash and cash equivalents. With strong growth resulting in a forward price-to-earnings ratio of 2.23, and a dividend that was recently increased 60% to $0.16 per ADS, one begins to wonder why the market continues to discount this NYSE-listed company.
Gafisa S.A (GFA)
Gafisa S.A. is a Brazilian real estate developer that engages in the construction of residential buildings for customers of the upper-income, middle-income, and lower-income (Tenda). The company is headquartered in Sao Paulo, Brazil, operates in the majority of Brazil's 26 states, and was founded in 1954. Since its inception, the company has completed 970 developments accounting for 11 million square meters of constructed projects. The following was taken from the company's statement regarding its full-year 2011 results:
Gafisa has made significant structural and managerial changes that position the Company for long-term growth and improved financial performance. Our full-year preliminary results reflect required corrective actions, including the scaling back of our Tenda business, the dissolution of contracts with potential homeowners who no longer qualify for bank mortgages and a reduced geographic focus.
Gafisa trades with a market capitalization of $847 million. The company carries stockholder equity of $1.33 billion, but also supports a long-term debt load of $1.8 billion when contrasted against total assets of $4.4 billion. Scarred by what many have seen as management errors, the company appears to be correcting its long-term future and should stand as a likely value play with its current price-to-book ratio of 0.62.
Disclosure: I am long XIN.