Xinyuan Real Estate - Some Good News
Summary
- The world is entering a global recession that will not end soon.
- It all started in China.
- But it is worth taking another look at this Chinese real estate company.
Elliott R. Morss, Ph.D. ©All Rights Reserved
With all the talk of virus, global recession, etc., one might have expected bad news from Xinyuan Real Estate’s (NYSE:XIN) latest report. At least for the entire year 2019, the total revenue increased 11.9% to $2.5 billion from $2.2 billion in 2018. But looking on a quarter-by-quarter basis, the numbers are not spectacular:
(Source: SEC Report)
And these numbers should get worse before they get better: they cover the last three months of 2019, just before the virus hit Wuhan.
That having been said, there are several reasons to be optimistic about XIN going forward.
Dividend
First, XIN maintained its 10 cent dividend or near-16% dividend yield. At least to Western investors, this continued dividend payment is important: it symbolizes the company’s concern for its stockholders and a solid cash flow since 2011.
New IR Firm
Second, its ridiculously attractive financial numbers (dividend rate 10%, price/earnings ratio of 2.2) suggest that word is not getting out on the company. So, it switched its IR firm to the Blueshirt Group. Hopefully, this will help.
TPG Liquidation
And finally, you might remember:
BEIJING, Aug. 26, 2013 /PRNewswire/ -- Xinyuan Real Estate Co., Ltd. (NYSE: XIN, "Xinyuan" or "the Company"), a real estate developer with a focus on high growth cities in China, announced today that the Company has entered into an agreement with TPG, one of the world's leading private investment firms, under which TPG will invest US$108.6 million through the purchase of convertible notes and common shares.
Under the agreement, TPG has agreed to purchase 1) convertible notes due 2018 in the aggregate principal amount of US$75.8 million, and 2) US$32.9 million worth of common shares. The convertible notes carry an annual cash coupon rate of 5.0% and will be convertible into Xinyuan's common shares at an initial conversion price of US$6.00 per ADS. The common shares will be issued at US$5.48 per ADS. Taking into account the common shares and assuming the convertible notes are fully converted, TPG will hold a total of 18.6 million ADSs post transaction on a fully diluted basis, equivalent to approximately 20% of the Company's total share capital taking into account the investment by TPG. In accordance with the terms of the purchase agreement, TPG will be entitled to nominate one non-executive director to Xinyuan's board of directors following the investment.
The liquidation of the TPG holdings that started in 2017 has now been completed. This downward pressure on the company’s stock price is over.
Chinese Economy
It appears that despite great technological advances, an unavoidable side effect of dealing with the COVID-19 virus is a global recession. The good news for XIN is that most of its business is in China, and the country appears to be recovering.
Property Management
XIN launched its property management business a few quarters back. It is a good steady follow-on business from real estate development. The property management company is now trading on HKEX (HKG:1895) with a near-850 million HK dollar market cap.
Continuing Worries
Ultimately, real estate is a local business. That is, one has to deal with unique zoning situations and local politicians. Most Western real estate companies make a point of finding local partners they can trust before investing in a foreign market. XIN has significant investments in the US and the United Kingdom. Right now, XIN's Oosten property in Brooklyn has 20% of its units unsold, and a number of them are being offered as rentals. And with the world entering into an already daunting economic collapse, one wonders about the market for its other US and UK investments. The good news? Only 6-8% of XIN’s business is from overseas markets.
Conclusion
Over the years, XIN has done many things to worry its investors. But the company is now better-positioned for capital gains than it has been for some time.
This article was written by
Analyst’s Disclosure: I am/we are long XIN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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