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XIN: Its Corporate Structure, Core Markets and Business Strategy

IN FOCUS: XINYUAN REAL ESTATE (NYSE: XIN) ITS CORPORATE STRUCTURE, CORE MARKETS AND BUSINESS STRATEGY.

The alphaDIRECT Insight

As a top 100 real estate developer in China, Xinyuan believes it is uniquely positioned to capture potential growth opportunities driven by three key factors.  First, China is the world’s largest housing market, and they believe this market can grow rapidly in the years ahead.  Housing growth can be driven by China’s shift to an economy that is more urbanized and centered on white collar jobs in technology, finance, engineering, etc.  The housing market appears to be driven both by volume—the economically-driven migration to major cities—and by quality—the shift to more luxurious housing enabled by upward mobility.  Second, management believes that Xinyuan is a well-established operator with a proven track record of success in real estate.  Management states that Xinyuan’s solid financial performance generates ample liquidity, which is being returned to shareholders in the form of dividends.  XIN has paid a consistent quarterly dividend since 2011.  Management often reiterates its commitment to its dividend, which reflects solid performance and confidence in the growth outlook.  Third, Xinyuan trades at a meaningful discount to its peers (global real estate developers) according to management.  Management believes that the valuation discount could be due to a lack of investor visibility and the misperception of being a pure “China play”.  As such, Xinyuan believes it has the potential to be re-rated higher as investors come to appreciate its long-term growth prospects, its global ambitions, and the sustainability of its dividend.

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Shawn Severson: We would like to thank you Brian for joining us today.  You are the Chief Financial Officer of Xinyuan Real Estate, a highly-ranked real estate developer and property manager in China. Can you start by sharing the company’s core business and vision?

Brian Chen: Thank you Shawn!  Xinyuan has been ranked among the top 100 Chinese real estate businesses for 15 consecutive years.  Through 2019, it has completed over 60 projects with a total gross floor area of approximately 20 million square meters and provided more than 200,000 homeowners with high quality accommodation.

We serve the “mass affluent” the rising middle class in China.  China is the second largest economy in the world and continues to urbanize and modernize the entire country.  This urbanization trend drives us to expand our residential real estate development in the largest tier 1 and tier 2 cities.

Our track record is strong. We weathered the 2008/09 financial crisis, delivering stellar financial results. Revenue growth has been 15% annually since 2016. Our gross margin is around 28%, with around 5-6% net margin.  We have been paying a dividend quarterly for 9 consecutive years.  At today’s stock price—which we think is very depressed due to the market crash, our yield is about 20%! This track record is the result of a diversified business model and a good international expansion plan.

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