Note: For additional background, please see our previous article on XIN.
On April 3 before market open, Xinyuan Real Estate Co (NYSE:XIN) reported results for 4Q19 and full year 2019. Like all stocks, it has declined a lot during the COVID-19 sell-off, but had been declining for several months even prior to the virus outbreak.
There was likely a fair amount of concern that they would cut their dividend given the slowdown in China. But they maintained it at $0.10/share, so with the drop in the share price to $2.26/share, the dividend yield is now 18%. This marks the 33rd consecutive quarter of a dividend payment.
Dividend Payment History
Source: Elle Investments, Yahoo Finance
For 2019, net income came in at $83M. After deducting $15M owed to non-controlling interests, net income to common shareholders ended up being $68M. Their guidance for 2020 calls for net income similar to the 2019 amount, so if we assume they can hit $68M again, then the market cap of $135M gives a forward P/E of 2x. This is absurdly low, but for investors that have been following this stock for some time, it is not surprising.
The concern with XIN has always been whether we can believe the financials or not. Since the majority of their real estate properties are in China, questions persist over the veracity of the values they report.
They do have some projects outside of China, but these continue to be small contributors to total revenue. The number of units sold at the Oosten Project in Brooklyn remains stuck at 177 (out of 216 total) for four quarters and counting, with cumulative revenue from this project also stuck at $260M (for perspective, their total revenue for 2019 was $2.6B). Construction at the Hudson Garden Project in Manhattan continues on track, and Target is still expected to be the anchor tenant, having committed to a 20-year lease. At the Madison Project in the UK, only two market rate units were sold during 2019, bringing the total sold to 135 out of 319 total market rate units.
The financials for the first quarter of the year are usually low anyway, so the impact of the virus is not as bad as it could have been. As of March, their construction and sales sites across China (except for Wuhan) are back to normal as the lockdown period came to an end, so we find their 2020 net income guidance believable. The balance sheet remains adequate, with $1.1B of cash and restricted cash as of year-end, and debt of $3.2B.
The larger question surrounding the true value of their properties in China remains unanswered, however. But again, this is not a new risk. Our thesis has always been that the consistent dividend (now yielding almost 20%) and the modest share buybacks represent enough of a reward to assume this risk. We see no change in the thinking post-COVID-19 and the recent earnings results. We think XIN remains a Buy.
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.
Additional disclosure: Disclaimer: The Elle Investments portfolio is managed utilizing a “quantamental” approach where each position, while based on Fundamental Analysis, is sized as part of a larger quantitative portfolio. The commentary presented here is for research purposes only and is not to be taken as investment advice. Readers are expected to perform their own due diligence and/or hire an investment professional prior to entering/exiting positions. Published research ideas are related to the specific market price and publicly available information at the time of research submission/publication. Elle Investments will enter/exit positions without notice.
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