Elliott R. Morss

Long only, growth, long-term horizon
Elliott R. Morss
Long only, growth, long-term horizon
Contributor since: 2010
Company: morssglobalfinance.com
According to XIN's June 2015 filing:
Current portion of long-term bank loans and other debt - $687 million + LT Bank Loans - $85 million + Other Long Term Debt - $745 million = $1,517 million.
And with the recent local bond issues ($320 million) , the total goes to $1,837.
Let's say they use $150 million to replace more expensive debt. Assuming the differential in rates at 5%, that would save $7.5 million. We should learn more when they issue the annual/final quarter report shortly.
Total about $260 million. Let us see if they use it to reduce debt or buy more RE.
drb26:
If you read SEC submissions of almost any publicly traded company, you will find that most of the verbiage is spent in defense of compensation to manangement. And of course, to other shareholders, equity compensation can be seen "watering."
But I agree with Iain - Nothing unusual here. And I prefer compensation in equity rether than cash: it keeps management's incentives aligned with ours.
Calculus:
Not sure what you are saying.
Defending value of Yuan at all costs? If so, they are not doing good job.
As pointed out in article, Yuan has weakened from 8 to $ to 6 to dollar.
And keep in mind, their exporters are not happy when Yuan stronger....
To All:
I am sure we will all review carefully the final quarter report on XIN coming shortly.
In meantime, you might find my latest thoughts on the Chinese economy of some interest - http://tinyurl.com/j9h...
Purchase of Manhattan property should really help XIN with image. Perhaps they will get a Western partner to co-finance construction.
609etc: Property management income can be a steady, continuous revenue stream for real estate companies. BAM has capitalized on it in a big way and I hope XIN copies BAM.
Data from Yahoo: Short sales falling. Average daily volume under $500K.
With all the SA enthusiasm these numbers might change!
Share Statistics
Avg Vol (3 month): 158,872
Avg Vol (10 day): 115,971
Shares Outstanding: 73.43M
Float: 32.34M
Shares Short (as of Dec 15, 2015)3: 226.77K
Short Ratio (as of Dec 15, 2015)3: 2.47
Shares Short (prior month)3: 244.49K
Brett:
Well put - there should be more good news than bad.
It will be interesting to see if XIN uses the proceeds from its onshore bond sales to reduce more expensive debt. That is not what real estate developers normally do....
To All:
Some back of envelope numbers on debt savings: $340 million at, say 12% = $44.2 million. $340 million at, say 6.5% = $22.1 million. Savings = $22.1 million. That is significant considering 2014 net income was only $48.5 million. With 73.5 million ADRs outstanding, the $22.1 million savings would mean = 30 cents per ADR. More than a drop in the bucket.
And perhaps more importantly, getting approval to issue domestic bonds is another indication of XIN's growing legitimacy.
Building on the success of Oosten, I see XIN finding a Western financial partner in 2016. Real estate is always risky. but 2016 could be a very good year for Oosten. for a project in 2016 when you consider net income in 2014
Shawn426:
I just saw the XIN presentation. And I agree. This is by far the best, most informative product for potential Western investors that XIN has ever produced. To access it, go to Investor Relations on the XIN web site - http://bit.ly/1wDXEuu, and click on the Investor Presentation for Nov. 2015.
Sun Myung:
I just checked http://bit.ly/1zcfyVc
That lists 278 Oosten units:
136 active sales ($1,169 per ft² avg, $1,570,257 avg price)
115 in contract sales ($1,168 per ft² avg, $1,440,478 avg price)
27 previous sales ($1,041 per ft² avg, $1,889,148 avg price)
That totals (136*1.5mil) + (115*1.4mil) + (27*1.9 mil)= $416 mil
Gents:
A couple of points on what you have said to date:
1. Correction - Brett is right. I mixed ADS's with shares. Using just shares, the return on buybacks becomes $0.57 which is equivalent to about a 33% return on investment in real estate. However, you should note that in the earnings transcript, there was talk of a 50%+ return on investment for Oosten.
I will make revision in my table shortly.
2. Diligent CPA - Here are some back of envelope calculations on Oosten. One article says there are 500 units with average space of 1,450 square feet. That totals a square foot area of 725,000. I checked Trulia and some of the larger units (3,000+ sq. ft.) are selling at just over $1,000/sq ft. So assume an average selling price of $1,000, and you get $725 million when all is sold. That compares with the $2.7 billion of projected sales of other inventory mentioned in my article.
On Oosten, I would also point to some very positive coverage in the China Daily - http://bit.ly/1PA4uJb.
3. Things could go wrong, but let us just consider what could happen on the positive side:
a. Oosten is going very well, and the good Oosten publicity could attract some large Chinese or Western investors to partner with XIN on more US properties.
b. The trip to NYC could also pay off in landing some important financial partners.
c. XIN could get approval to issue its own bonds which could cut its finance costs by 40%.
d. Liu is very aware of Western pressure to repurchase. He said in the recent transcript: "It's clearly a judgment call and obviously we think that our focus on the fundamentals is definitely more important than any repurchases planned, but for your information, we did a lot more than - we did a lot more than 200,000 shares in the last quarter."
My bottom line - with a very safe 6% dividend, there are reasons to be very optimistic looking forward.
I will offer my thoughts in a new posting early next week.
Gents:
I too am bullish on XIN over the longer turn because of where it its building and its focus on China's growing middle class.
But I too have my doubts about the effects of lower interest rates. Keynes talked about "liquidity trap" where rates are lowered but people do not spend more because they are worried about the future. Keynes went on to say these are cases where monetary policy is ineffective and fiscal policy where government spend more or cuts taxes are the only things that will work.
There might no be a bit of a liquidity trap in China even though the 2015 GDP growth rate is still project at between 6 and 7%.
Drusus:
My experience is that the big RE houses set a target return for every investment before they make it - something like 50% in 2 years or less. And they try to structure things so they can get out having made that return. They do this by saying to their other partners give us our money first and we will leave a lot of our profit on the table for the remaining investors.

In this case, their escape was via their converts that they could cash in when they wanted and they did.
Their purchases of common stock is more problematic for them. My guess is that they have given up on XIN but they don't want to take a big loss.
They got positions on the Board and investment committee both to stay in touch with what XIN is thinking and to keep them from doing anything "crazy" - for "caretaker" reasons.
My guess is that they have lost interest in TPG as a place to make the returns they want and will sell out at some target price in the not too distant future.
These sales would put a downward pressure on the XIN equity price.
Of course, TPG is not sharing their thinking with the public and these are just my guesses.
To All:
I think the article iainwoolward referred to can be found here - http://bit.ly/1LShVNu.
For anyone interested in XIN, it is worth a read.
Liu again points out that being able to issue "local" bonds would save XIN money (7% vs. some loans they are now paying 13% on).
It does appear he is less hopeful on getting approvals to issue local bonds soon. He said he must first get a credit rating before submitting to the central government to issue local bonds, and the waiting line for approvals has gotten quite long.
He said the amount of local bonds they could issue is limited to 40% of net assets. From XIN's latest SEC submission, I get $3.5 billion total assets - 2.6 billion total liabilities = $900 million X .4 = $360 million.
I am very glad to see George emphasizing efforts to attract dollar funding, particularly on larger projects. There is plenty of US and global institutional money looking for real estate investments.
iainwoolward:
I think you are right. At least my broker is not withholding....
I agree.
pamocan:
There is always some risk in real estate. But the demographics are on the side of XIN: a rapidly growing middle class eager to continually upgrade their living quarters.
The CFO was very firm on the dividend: it will be kept at this level for the indefinite future.
SirCat: If Greece cannot compete with Germany and other Euro countries, how can survive in the Eurozone where everyone has to use the same currency? Assuming wages and other costs in Greece do not adjust downward, Would not the Greek people try to buy all their goods from other countries and thereby run out of Euros? Keep in mind how helpful it was to the US vis-a-vis Japan to have its own currency....
Timberwolfe Equity: Point taken. I knew something was keeping Greek interest rates down: the 10-yr rate got to 42% in 2012 and is now below 9% while Greek prospects are not markedly better.
As an economist, I am not taken by discussions of what prices should be.As Bill Belichick often says, "it is what it is." I am far more interested in what might happen to the price.
Instead, I urge readers to look at the populations and GDP growth rates of cities where XIN has investments appearing on p. 7 of XIN's Investment Presentation. All but one city (Sanya, a resort town) have populations of 6.5 million or more. The US has only one city with more than 6.6 million - NYC.
GDP Growth rates in XIN's Chinese cities range from 7.7% (Beijing and Shanghai) to 12.5% in Hefei.
So growth rates slow a bit in China (Maybe 6.9% in 2015, down from 7.4% in 2014). I am still pleased to be "betting" on real estate in XIN's cities.
fedecapo:
My primary reason for investing in XIN was its selection of cities. 1st, 2nd or 3rd tier, they are huge and their growing middle classes will continually want to upgrade their housing, whatever happens to the Chinese economy.
In China, XIN is not a big RE company. But they want to be. And they are learning.
The next few years should be interesting
To All:
What with the capitalization of some loans, etc., it is very hard for an outsider to come up with an accurate figure on how much XIN might be to save by issuing its own debt.
However, CFO Liu said that whatever they can switch would be very significant. One other point: CFO Liu said the right to issue bonds is not automatic: they have to first get approval from the central government and it was my impression they are in the process of trying to get approval.
I did not ask George his view on the low stock price. My sense is that senior officials at XIN are troubled. But right now, their highest priority is in getting their net income up via real estate investments. Rightly or wrongly, They do not see stock buybacks or dividend increases as important as good real estate investments for their future stock prices.
However, having George and May attend a number of real estate conferences in NYC was a way to publicize the company and perhaps line up some potential finance from Western investors.
For a better understanding of how XIN thinks, I urge all to read their "Investment Presentation mentioned in the article and available here- http://bit.ly/1KOYbhD
Results of my interview with XIN management can be read here - http://bit.ly/1V82b3G
I just got this back from May Chen and George Liu:
"It was very nice meeting you yesterday as well. As you know, we are attending the global real estate conference these two days and will head back to China this Friday. We will take a look at the draft article and get back to you early next week. Please let us know if it works for you. Thank you!".
I will post as soon as I get their feedback.
I am completing a draft today.
I want to give George Liu and May Shen, the director of Investor Relations, a chance to review it. I will have a piece out on the interview in the next few days.
My numbers came from XIN's SEC report found here http://1.usa.gov/1K5luCo#
The numbers for end June 2015 are:
ST Bank Loans & Other = 204,924,699
LT Bank Loans = 84,598,273
Other LT Debt = 745,256,672
Total Debt = 1,034,779,644
Prop. Under Development = 2,097,123,391
Leverage 49%
DonPlata:
Thanks for your definition of net gearing. All it tells me is that the price is too low. Perhaps more interesting is the debt to property underdevelopment ratio. At the end of June 2014, it was 57%. It is now 49%.
I will add your questions to my list.