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Xinyuan Real Estate Co., Ltd. (XIN) Q3 2019 Earnings Call Transcript

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Xinyuan Real Estate Co., Ltd. (NYSE: XIN)
Q3 2019 Earnings Call
Dec 6, 2019, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day everyone and welcome to the Xinyuan Real Estate Company Limited Third Quarter 2019 Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference call over to Mr. Bill Zima of ICR. Please go ahead, sir.

William Zima -- Investor Relations

Hello everyone, and welcome to Xinyuan's Third Quarter 2019 Earnings Conference Call. The Company's third quarter earnings results were released earlier today and are available on the Company's IR website, as well as on Newswire services.

Before we continue, please note that the discussion today will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our results may be materially different from views expressed today. Further information regarding these and other risks and uncertainties is included in our Form 20-F and other documents filed with the U.S. Securities and Exchange Commission.

Xinyuan does not assume any obligation to update any forward-looking statements, except as required under applicable law.

Today, you will hear from Mr. Yong Zhang, the Company's Chairman and Chief Executive Officer, who will comment on our operating results. He will be followed by Mr. Brian Chen, the Company's Chief Financial Officer, who will provide some additional color on Xinyuan's performance, review the Company's financial results and discuss the financial outlook. Following management's prepared remarks, we will open up the call to questions.

With that said, I would now like to turn the call over to Xinyuan's CEO, Mr. Zhang. Please go ahead.

Yong Zhang -- Director, Chairman of the Board and Chief Executive Officer

Thank you, Bill. Good morning, and thank you for joining our third quarter 2019 earnings conference call. During this quarter we are happy to see that Xinyuan remained profitable, despite some [Indecipherable] in the macroeconomic environment. This quarter, we were seeing continued demand for our domestic project. We commenced pre-sales of two new project in the third quarter in Zhengzhou and Huzhou, contributing to 7.3% and 9.1% of total GFA sales, and the total contract sales, respectively.

Our overseas projects progressed as planned. Hard costs of our Hudson Garden project in the Hell's Kitchen area of Manhattan remained under budget and on track. We received the temporary certification of occupancy for Target's ground floor occupancy. We also leased an additional 1,910 square feet of retail. Commercial space for a 15-year term. For our RKO project in Flushing, we engaged GKV Architects for the development of new architectural plan and schematic designs has already been finished. We are also pleased to see successful listing of our subsidiary theory, Xinyuan Property Management Company, on the Hong Kong stock exchange in October. The listing on such high-quality platform is the result of repeated -- repeat growth -- repeat growth of our preferred property management business. We believe, real estate will benefit our shareholders in the future. Going forward, we have full confidence in our long-term strategy, despite the persistent uncertainty in the market. We remain committed to our focus on enhancing the trends of our core real estate business and at the same time leveraging our auxiliary business to further improve our product offering. As we remain profitable, we will continue to lever value, through our shareholders -- to our shareholders through our quarterly cash dividend program.

Now please allow me to turn the call over to our CFO, Mr. Brian Chen. Brian, please go ahead.

Yu Chen -- Chief Financial Officer

Thank you, Chairman, Mr. Zhang. Hello everyone, and welcome to Xinyuan's third quarter 2019 earnings conference call. Allow me to tell us through, first of all, the financial results for the quarter and then we will further discuss our latest operation and initiatives. Last but not least, we will conclude by updating you on our financial outlook for the remaining of the year.

So, please note that all figures in my speech is in U.S. dollar terms, unless otherwise stated. Overall, we had a pretty good year-to-day financial results compared to the same time last year. However, facing the headwind, coming from the uncertainty in the macro-environment and the stringent government restrictions on Chinese housing market, we does see some challenge in the Q2 financial results. The total revenue was increased by 40% to about $1.57 billion for the nine months ended September 2019, from the $1.25 billion in the same period of 2018. However, for the quarter-to-date the revenue decreased by about 16.4% to $497.6 million in the third quarter, from the $595.5 million in the third quarter of the 2018. Comparing to the quarter before, the revenue decreased by about 18.3% from the $609.4 million.

Net income was $43.5 million for the nine months ended September 30, 2019, comparing to only $1.8 million in the same period of 2018. For the quarter, the net income was $5.4 million compared to $23.9 million for the quarter -- for the prior quarter -- for the same quarter of the 2019. In terms of the contract sales, is decreased by a small percentage of 5.4% to $1.5 billion, for the first three quarter this year, from $1.56 billion in the same period of 2019 -- '18. That being said, if we -- for the quarter it was $504.8 million comparing to $571.3 million in the third quarter of 2018, and $507.4 million in the prior quarter. It's noteworthy that on a year-to-date basis, the contract sales decreased by the 5.4%, as I mentioned earlier. Most of these -- it was actually due to the FX fluctuation. If you're comparing to RMB in our base currency, the contract sale is actually flat, at -- or more or less the same amount compared to the year before. The total GFA sales in China were about 255,600 square meters in the third quarter comparing to 277,500 square meters in the same quarter last year, and 233,200 square meter compared to last quarter, which is about 10% increase, quarter comparing to the prior quarter.

In terms of the average selling price per square meter, the latest -- the price is about RMB13,500 in the third quarter of 2019 comparing to about RMB14,800 [Phonetic] in the quarter before, which is a 9% decrease. Comparing to the same price, same time last year though, it will remain flat. SG&A expense were about $57.6 million for the third quarter of 2019 comparing to $47.7 million for the third quarter of 2018 and $63 million for prior quarter in this year, which is actually a 9% reduction in terms of the absolute dollar amount.

The SG&A expense as a percentage of the total revenue increased to about 11.6% from 8% in the same quarter last year and 10.3% in the second quarter this year. Interest this quarter was about $31.3 million comparing to $28.4 million last quarter and $21.8 million in the same quarter last year. Due to the FX exchange frustration, exchange loss in this quarter was about $7.7 million comparing to about $4.4 million loss same time on last quarter. And for this quarter though, we actually had FX hedge program in place, which had an offset the loss by about $3.7 million, which brought the net FX loss for the quarter, down to about $5 million. Diluted net earnings per ADS attributable to the shareholder were about $0.60 for the nine months ended September 30, 2019 comparing to our $0.04 only in the same period of 2018.

Diluted net earnings per ADS considerable to shareholder was $0.07 in the third quarter comparing to $0.31 per ADS in the third quarter of 2018. For the quarter, the Company repurchased about $1 million ADS this quarter. And at this point, we already repurchased about $8.69 million ADS, which comprise of about 13.5% on our total ADS for the Company. If we look to our balance sheet, as of the September 30th this year, the Company's cash and cash equivalents, including restricted cash were about $688.4 million comparing to around $1 billion as at June 30, 2019. Majority of these reduction of debt was used to fund the settlement of the debt. So you can see that our total debt outstanding for now is was around $3.2 billion, is also decreasing from about $3.6 billion at the end of the second quarter.

So quarterly reduction of the total debt is around $400 million. The balance of the companies is the property under development, at the end of this quarter was about $3.6 billion comparing to about $3.8 billion at the end of the second quarter of the year. Shareholder equity at the end of the third quarter was about $710 million comparing to about $753 million at the end of the second quarter. Overall the shareholders equity reduced by $43 million, about $37 million of them actually contributed by the CPA to FX translation. If we move to the project updates, as at the September 30, 2019, our total unsold land bank was about 5 million square meter, which would translate to about CNY68 billion land bank which all we can translate to about $10 billion land bank. If we move to the U.S. project update, as at September 30, 2019 our Oosten project in Brooklyn, New York has recognised total revenue of about $260 million from the sales of 177 units out of the total 216 units. The other project -- the second project, which is the BLOOM ON FIFTY [Phonetic] avenue, which is our -- or we call it Hudson Garden project in Manhattan, New York complete the superstructure construction and as well as the precast concrete facade, window installation and refit permanent power from the electric utility provider.

During the past year, the project's design drawing were optimized. And the total number or unit subsequently increased from 82 to 92. 29,000 square feet of the projects, 38,000 square feet or the total retail space has been leased to U.S. department-store retailer target for 20 years term. And another 1,910 square foot has just been leased to dermatologist's office for a 15 year term. Residential unit sales are expected to be open in the first quarter next year.

We continue to execute on the planning, governmental approval and predevelopment activity of the third project in New York, which is the RKO, our ground-up development project in Flushing, New York. Chancellor work or the size landmark artifact was completed at the end -- earlier this year and is currently stored in a warehouse for restoration work. As at September 30, 2019. GKV Architects was engaged to develop and deliver the new architectural plan and schematic design is 100% completed at this time [Phonetic]. If we look at our project in U.K. in the third quarter of 2019, the construction remain on track on the some -- Madison project, which is expected with the completion time of 2020. By the end of the third quarter, all of the 104 affordable housing apartment of this project has been pre-sold. Of the remaining 319 apartment, 134 apartments have been sold. In terms of the dividend, we announced our cash dividend for the third quarter of 2019 of the $0.10 per ADS, which will be paid before January 16, 2020, to shareholder of record as of December 18, 2019.

And for -- on to our full year 2019 financial forecast, for the whole year the Company expects consolidated net income and the contract sales to be close to those of the 2018.

This concludes my prepared remarks for today's call. Operator, now we are ready to take some more questions.

Questions and Answers:

Operator

Thank you sir. [Operator Instructions] Thank you. We will take our first question today from George Guo a Private Investor. Please go ahead.

George Guo -- Private Investor -- Analyst

Hi, thank you for picking the call. I have a question regarding your guidance, you see the net income will be similar to 2018. But your share comps also absorb about 11% and 12%. So then you look, we will have a earnings per share increase of about 13%?

Yu Chen -- Chief Financial Officer

Okay. Yes. The -- the share purchase was purchased in the last few year, is not as happened in this quarter. And for this 13.5%, we bought it back but they haven't been cancelled. So for the calculation, we still go by the full shares outstanding out there.

George Guo -- Private Investor -- Analyst

Okay. Also I noticed, there is no land -- new land purchase. Is that to preserve cash?

Yu Chen -- Chief Financial Officer

For the quarter, we didn't acquire a lot of land, is to some extent is our cash management. But for next year with us, I had some land acquisition plan in place. Also you look at our land bank. As at this point, we had about 600 -- 68 billion -- about CNY68 billion was of the land bank, which is sufficient for our development and grow for the next two to three year.

George Guo -- Private Investor -- Analyst

Okay. Also last question is, do you expecting any policy change in China that to help the real estate developers? That's what I heard, they're going to help the real estate, to loosen their policy. Is that true or not?

Yu Chen -- Chief Financial Officer

At this point we -- causes alternatives that somewhere middle next year, there might be some loose up of these restriction, but not really in the recent weeks or and next quarter. We have more focus on our own operation and efficiency than betting and gambling, or the loose of these governmental policy.

George Guo -- Private Investor -- Analyst

Thank you.

Operator

Thank you. [Operator Instructions] We will take our next question from Terry Chan, Private Investor. Please go ahead.

Terry Chan -- Private Investor -- Analyst

Okay. Hi, good morning. Thank you for the presentation. And then I have two questions, that mainly regarding your cash bonds, and your liquidity position. So the first one is despite your cash level is getting pretty low in this -- annual third quarter. So like you have any target like what will be your cash level by the end of this year? And also that is like -- if we're looking at your short-term debt, it's your outstanding short-term debt is why is almost $1 billion. So what your plan and what kind of measure that you're thinking about taking to adjust the short-term debt repayment pressure. And will the company consider in the asset disposal to -- to alleviate some of their pressure that you're -- we are seeing right now? Thank you.

Yu Chen -- Chief Financial Officer

Thank you. First of all, also the cash position, we forecast that by the end of the year, the cash position could be improved to about $1 billion. And typically, in a business like ours, Q4 is the largest quarter, with most of the pre-sales and recognized for the quarter and the cash collection from the operation. We expect that the cash position will be improved. In terms of the short-term debt, you are right that it is high. We had about $1 billion. But again we use the cash collect for the quarter end and the next 12 months to come. We actually expect that, we could had about $18 billion cash can collect for the next 12 months. This should be sufficient to help on us to cover the short-term debt. The other thing is that, as mentioned earlier, we had about $10 billion land bank, out of that lie 40%, we could bring it to the market and push for the pre-sale, for the next 12 months. And the -- certainly, we are also working on certain refinancing for the next 12 months. And with our credit and reputation, we are confident that we can refinance certain fund for the next 12 months. So overall we are confident that Xinyuan had a very good liquidity capability to deal with these short-term debt. As a matter of fact for this -- for this $1 billion short-term debt, certain percentage of them is negotiable, with our lender to renew or extend for another one year or two. So I have answered your question from those three or four points.

Terry Chan -- Private Investor -- Analyst

Thank you. But will the company consider like -- any major light asset disposal at all?

Yu Chen -- Chief Financial Officer

No. At this time we don't have that intention, we believe that with our organic growth and by -- and push for the planning process and bringing more land banks on the sales, we should be able to recover sufficient funds to pay for these certain debt.

Terry Chan -- Private Investor -- Analyst

Alright. Thank you very much.

Operator

Thank you. We now move to Chris Dial [Phonetic] of CKD Analysis. Please go ahead.

Chris Dial -- CKD Analysis -- Analyst

Yes. Can you hear me?

Yu Chen -- Chief Financial Officer

Yes. Please go ahead.

Chris Dial -- CKD Analysis -- Analyst

Thank you. Please comment on your dividend policy. Do you foresee a change in that? You have been consistently paying a dividend. Then the second part of my question, I'll ask you, you distributed your property management operation and listed it separately onto the Hong Kong Exchange. I would like to know is there any benefit involved there for shareholders, the stock price went down.

Yu Chen -- Chief Financial Officer

Yeah. Okay. First of all, for the dividend policy, we evaluate the dividend policy every quarter. At this point, because we are confident to achieve more or less similar net income comparing to year before, in the near future we intend to keep this dividend be consistent with before. Obviously, we see uncertainty of this macro-environment. If the environment change or the financial, we made this more challenging in the future, we will always review this on a quarterly basis and adjusted accordingly. But at this point, we mean to keep it consistent.

To come to your second question about the Property Management Company got leased in Hong Kong Stock Exchange. Yes, currently, the share price paying or dropping. But we've believed that, that these are temporary change is this share price does not reflect the true value or our Property Management Company and we are more focused on how to grow and long-term growth instead of the share price. We believe that, with passing by when our Property Management Company does deliver the performance, as well we forecast the investor will recognize the value and the share price will go back to a reasonable lever.

In terms of what's the benefit to our shareholder, although we splitted off, the Property Management Company still fully consolidated in Xinyuan's financial statement. But change of the share price won't be referred into our financial number, but the way that we release it on the market can help in last bringing additional capital for that operation, as well as to increase the credibility of their operation and bring in a lot more partner and the coordinator can help in walk together with the -- our Property Management Company. Also you can push our business to improve the operation. So in the near future, we believe that by bringing on these platform, the Property Management Company will have the opportunity, and have a capability, and we have a confident that, they will deliver and we'll grow way faster and more profitable than stay private, leading the growth.

Chris Dial -- CKD Analysis -- Analyst

Are you saying that you're consolidating all the Property Management or it's just a part of it being consolidated in your -- like your quarterly reports and earnings reports?

Yu Chen -- Chief Financial Officer

Currently Xinyuan own about 60% of the -- on the -- on Property Management Company. So based under the U.S. GAAP and common guidelines, we fully consolidate each line. And then in the minority interest, we will deduct the net income of that, the 40% minority interest.

Chris Dial -- CKD Analysis -- Analyst

[Speech Overlap] Is that reflected in your third quarter? The number have been higher, have you not spun-off property management?

Yu Chen -- Chief Financial Officer

For the quarter, we just -- this leasing event happen is a Q4 event, we just lease it in October 11. So in this quarter you won't see any change. But based on our three years forecast, this business supposed to be growth by about 30% to 40% each year. And we believe that the by going on these platform, there we had -- they've better results and better chance to grow even better than what we forecast. And the value we'll show on our financial statement.

And Don, also don't forget that Property Management is part of our auxilary business. Xinyuan's official business is not a stand-alone business. All of these auxiliary, they had a lot of synergy effect with our main business line. Each business growth, they will contribute or help out to the other business line and the whole Xinyuan as a whole.

Chris Dial -- CKD Analysis -- Analyst

[Technical Issue]

Yu Chen -- Chief Financial Officer

I'm sorry, I can't hear you, your voice is little bit trembling. Can you repeat your question?

Chris Dial -- CKD Analysis -- Analyst

[Technical Issue] especially taking into account your growth expectations for Property Management?

Yu Chen -- Chief Financial Officer

We still miss the first half of your question. The second half is fine. Can you repeat the first half?

Chris Dial -- CKD Analysis -- Analyst

Yeah, it's a very nice return on capital business, and Property Management business is a good business. So I'll just state for the record that, that's a very, better way of realizing value for shareholders, I guess on a longer term basis or even on a shorter-term basis?

Yu Chen -- Chief Financial Officer

Shorter -- in the shorter term, probably not that -- not that direct.

Chris Dial -- CKD Analysis -- Analyst

Okay. Thank you.

Operator

Thank you. [Operator Instructions] As we have no further questions, I would -- excuse me, we do have a follow-up question from George Guo. Please go ahead.

George Guo -- Private Investor -- Analyst

Yes. Hi. Have a few more questions. The first one is that, the tax rate seems to get -- to be very high this quarter, is there a explanation for that?

Yu Chen -- Chief Financial Officer

Yes. On our tax, is actually had two component. One is the land appreciation tax, the other is corporate income tax. It's very higher this quarter, are due to two reasons. First reason is that the -- for the company, according to our broken down analysis, the effective tax rate in our Chinese domestic market is actually stayed very healthy and reasonable, 25%. And for the corporate income tax rate for our U.S. operation, it also remained at a reasonable 35% which is a federal and state tax.

The issue is coming from these offshore senior notes, the increase of the senior notes, you cannot transfer back to the domestic market, to be used to deduct the taxable income. And for this quarter because the denominator, which is our -- the taxable income is a smaller compared to the quarter before. So it looks a little bit high in this quarter. But on a year-to-date basis it stay in the reasonable level.

George Guo -- Private Investor -- Analyst

Okay. The next question is you have a new President and a new Board of Director, what's -- can you tell us more about that?

Yu Chen -- Chief Financial Officer

Yes, we had a new CEO who is also joining our Board this quarter, and President [Phonetic] joining the Board. This gentlemen has over 25 years experience in the finance and accounting. We believe that by Mr. Li joining the Company, Xinyuan's overall performance, and the finance and accounting capability will move up to another level.

Unidentified Speaker

[Foreign Speech]

Yu Chen -- Chief Financial Officer

Sure. And just to clarify this gentlemen, he is joining us as the President, and the CEO, remain as Mr. Zhang, still taking the CEO role.

George Guo -- Private Investor -- Analyst

I see. Last question for me is, can you update us about the blockchain effort. It seems to be very hot [Phonetic] in China.

Yu Chen -- Chief Financial Officer

Yes, it is high in China, and...

Yong Zhang -- Director, Chairman of the Board and Chief Executive Officer

[Foreign Speech]

Yu Chen -- Chief Financial Officer

Sure. So let me translate, that was coming from our Chairman and CEO, Mr. Zhang. Now let me translate or correspond to your question on the blockchain. Yeah, we believe that blockchain is a technology that had a great future. And can -- made a lot of change for the industry. Since three years ago, we started to look into this opportunity by working with IBM, E&Y and a few -- and some law firm. We already clarified and accomplished a lot on achievement in terms of the technology and legal compliance. For the quarter, we launched a trial, and trying to security ties about 10 unit of our property by means of these blockchain technology or what we call as STO.

We hope that, this trial can deliver the value for the future for the Company.

Yong Zhang -- Director, Chairman of the Board and Chief Executive Officer

[Foreign Speech]

Yu Chen -- Chief Financial Officer

Yeah, Xinyuan is a Company believe in the technology, can change life and change the real estate industry. By pricing these new technology and combine it with innovation in the fundraising and financing, we believe that the benefit we'll realize in the future.

George Guo -- Private Investor -- Analyst

Okay. Thank you. That's all my questions.

Operator

Thank you. Ladies and gentlemen, at this time, I would now like to turn the call back over to management for any closing remarks.

Yu Chen -- Chief Financial Officer

We thank you all for joining us on today's call and we appreciate your ongoing support. We look forward to updating you on our progress in the weeks and months ahead. Thank you again everyone. Have a good day.

Operator

[Operator Closing Remarks]

Duration: 45 minutes

Call participants:

William Zima -- Investor Relations

Yong Zhang -- Director, Chairman of the Board and Chief Executive Officer

Yu Chen -- Chief Financial Officer

Unidentified Speaker

George Guo -- Private Investor -- Analyst

Terry Chan -- Private Investor -- Analyst

Chris Dial -- CKD Analysis -- Analyst

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This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

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