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Xinyuan Real Estate Co., Ltd. (NYSE:XIN)
Q1 2019 Earnings Call
May 23, 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 First Quarter 2019 Earnings Conference Call. Please note that today's call is being recorded.

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

William Zima -- Partner

Hello, everyone, and welcome to Xinyuan's first quarter 2019 earnings conference call. The company's first 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 US Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our results may be materially different from the 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 US Securities and Exchange Commission. Xinyuan does not assume any obligations to update any forward-looking statements, except as required under applicable law.

Today, you will hear from Mr. Lizhou Zhang, the company's Chief Executive Officer, who will comment on the company's operating results. He will be followed by Mr. Xuefeng Li, the company's Interim 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.

Lizhou Zhang -- Chief Executive Officer and Executive Director

Thank you, Bill. Good morning, and thank you all for joining our first quarter 2019 earnings conference call. Our first quarter results show a good start to 2019. We are pleased to announce that our contract sales increased 26% year-over-year due to a steady and positive demand for our active projects in China. At the same time, our first quarter revenue more than doubled to $468.9 million.

During the quarter, we continue to make investments to support our long-term growth by acquiring a new project in Flushing. We also commenced pre-sales on new projects in Zhengzhou, which further contributed to our total GFA and total contract sales.

Our overseas projects progressed as planned. As of the end of the first quarter, a total of 177 units out of the 2016 units have been sold and closed our Oosten project in Brooklyn, New York City. We also completed construction to the sixth floor of the Hudson Garden project in Manhattan. The structural core of our London Madison project jet was completed in the first quarter. Construction remains on track for the completion of 2020. Our Malaysia project remains on track as well.

Our Xinyuan Property Management Company subsidiary has achieved the rapid growth in recent years. To further driving its development, we have applied to lease the Xinyuan Property Management Company in Hong Kong. After the listing, we will continue to be the controlling shareholder in a fully consolidated company. We believe that listing such a high-quality platform, where many peer companies are listed, will benefit all of our shareholders.

We are also pleased to be able to continue to deliver value to our shareholders with our dividend payment this quarter. Despite market and policy, we remain optimistic about our ability to achieve positive operating performance. We will remain focused on our core business, maintain our competitive advantages and strengthening our market-leading position.

Now, please allow me to turn the call over to our Interim CFO, Mr. Li Xuefeng. Xuefeng, please go ahead.

Xuefeng Li -- Interim Chief Financial Officer

Thank you, Mr. Zhang. Hello, everyone, and welcome to Xinyuan's first quarter 2019 earnings conference call. Allow me to take you through the financial results for this quarter, further discuss our latest operations and initiatives, and conclude by updating you on our financial outlook for the remainder of this year.

Please note that all figures are in US dollar terms unless otherwise stated. Contract sales were $479.7 million in the first quarter of 2019, compared to $380.7 million in the first quarter of 2018 and $724 million in the fourth quarter of 2018.

Total GFA sales in China were about 211,400 square meters in the first quarter compared to 149,800 square meters in the same quarter last year and 355,000 square meters in the last quarter. Total revenue increased 159.7% to $468.9 million from $174.1 million in the first quarter of 2018 and decreased 57.1% from about $1 billion in the fourth quarter of 2018.

The average selling price per square meters sold in China was around RMB15,300 in the first quarter of 2019 compared to about RMB13,500 in the last quarter and about RMB15,900 in the first quarter of 2018.

SG&A expenses as a percentage of total revenue decreased to 12% from 22.8% in the first quarter of 2018 and increased from 9.7% in the fourth quarter of 2018. Interest expense this quarter was about $24.3 million compared to about $23 million last quarter, and $29.8 million in the same quarter last year. Due to foreign exchange fluctuations,exchange gain in this quarter was about $3.5 million compared to about $652,000 exchange gain last quarter.

Net income for this quarter increased to $18.2 million, compared to a net loss of $12.7 million for the first quarter of 2018. Diluted net earnings per ADS attributable to shareholders was $0.33 compared to a net loss of $0.16 per ADS in the first quarter of 2018.

The company repurchased 2.1 (ph) million ADS in the first quarter of 2019. Balance sheet. As of March 31, 2019, the company's cash and cash equivalents was $1.1 billion compared to $1.2 billion as of December 31, 2018.

Total debt outstanding was $3.51 billion, increasing from around $3.45 billion at the end of the fourth quarter of 2018. The balance of the company's real estate properties under development at the end of the first quarter of 2018 -- 2019 was $4 billion compared to $4.7 (ph) billion at the end of the fourth quarter of 2018. Shareholders' equity at the end of the first quarter of 2019 was about $769 million compared to about $746 million at the end of fourth quarter of 2018.

Project updates. As of March 31, 2019, our total unsold land bank was 5.5 million square meters. US project updates. As of March 31, 2019, our Oosten project in Brooklyn, New York, has recognized a total revenue of about $260.1 million from the sales of 177 units out of 216 total units, representing approximately 82% of the total units sold.

Our Hudson Garden project in Manhattan, New York, completed construction up to 6th Floor. With design drawing optimization, the total number of units increased from 82 to 92. A total of 29,000 square foot out of the 38,000 square foot of retail space has been leased to the US department store retailer, Target, with a 20-year lease. Pre-sales are expected to begin at the end of second quarter of 2019.

We continue to execute on planning, governmental approvals, and pre-development of our ground-up development project in Flushing, New York. After the Landmark Protection Committee's approval on our landmark protection plan, we were awarded with a Certificate of Appropriateness. Transfer work was completed at the end of February 2019. The landmark artifacts are now stored in a warehouse for restoration work.

UK project updates. In the first quarter of 2019, the structural core of the Madison project was completed, and the structural frame will be completed in the second quarter of 2019. Construction remains on track for completion in 2020. At the end of the first quarter of 2019, all of the 104 Affordable Housing apartments of the 423 unit Madison project have been pre-sold. Of the remaining 319 apartments, 133 apartments have been sold, representing 41.7% of total number of units.

Senior notes issuance, to refinance and to optimize our debt structure, in April, we issued $300 million of 14.2% senior notes due 2021, among which $200 million were issued at par and $100 million at 103.932%, representing a yield of 12.3%. The proceeds have been and will be primarily used for repayment and repurchase of our offshore debt.

Dividend. We announced a cash dividend for the first quarter of 2019 of $0.10 per ADS, which will be paid before June 20, 2019, for shareholders of record as of June 3, 2019.

And finally, on to our full-year 2019 financial forecast. For the full year of 2019, the company expects an increase in contract sales of about 10%, and increase in consolidated net income of 15% to 20% over 2018.

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

Questions and Answers:

Operator

Thank you. I would now like to introduce Mr. Brian Chen, General Manager of Capital Markets Department, who will be assisting with the answer to questions -- answering questions. (Operator Instructions) And we'll take our first question from Richard Geronimo, who is a Private Investor.

Richard Geronimo -- Private Investor -- Analyst

Yeah. Hello. Good morning. How are you, guys? Hello?

Brian Chen -- General Manager, Capital Markets Department

Good morning. Thank you.

Richard Geronimo -- Private Investor -- Analyst

Good morning. Okay. I have a couple questions. Do you guys -- clearly, the company is doing quite well. Do you guys have any thoughts about coming to the US, United States and trying to pick up some analysts to follow the company.

Brian Chen -- General Manager, Capital Markets Department

Yes. This is Brian Chen again. The General Manager of Capital Market department. It is actually really my role. After this call in a months or so, we do plan to organize a tour to US to interact with our analysts and investors to talk about face-to-face and have a more in-depth conversation.

Richard Geronimo -- Private Investor -- Analyst

Okay. So, have you -- obviously, you started the groundwork for it. Do you have some analysts from some major companies that are interested in following Xinyuan?

Brian Chen -- General Manager, Capital Markets Department

At this moment, I'm not aware. As far as I know, Xinyuan is pretty much the only one real estate developer that originated from China but listed in the New York Stock Exchange. Looks like we don't have a lot of coverage. That is one other area that we will try to improve by doing some -- a tour, some of the conversation on the ground. And we are going to enhance our Investor Relationship function, taking in more questions and have more conversation about the company's current status and the future plans.

Richard Geronimo -- Private Investor -- Analyst

Okay. And with the refinancing up to the 14.2% coupon, so you're still giving guidance of revenue of 10% increase and including the increased coupon rate and also an increase of the income of 15% to 20%.

Xuefeng Li -- Interim Chief Financial Officer

Yeah. That is still the plan for the year. For the contracted sales, our plan is to have a 10% increase and the proceeds (ph) had 10% to 15% increase. As far as we can see, for the Q1, we actually achieved the goal for the quarter. Q2, we are almost there. We are moving on to achieve the goal two. At this point, we don't see any major issue to miss the target for the year.

Richard Geronimo -- Private Investor -- Analyst

Okay. That's great news. The Malaysian project, when -- I know you've been doing the landfill or filling a new area. When do you expect construction to begin?

Lizhou Zhang -- Chief Executive Officer and Executive Director

(Foreign Language) Already began, about one year.

Brian Chen -- General Manager, Capital Markets Department

Okay.

Lizhou Zhang -- Chief Executive Officer and Executive Director

And we are on our trait (ph). Yes. All the projects we look for, we will be end at end of this year or the next year, the first quarter of next year.

Xuefeng Li -- Interim Chief Financial Officer

Okay.

Brian Chen -- General Manager, Capital Markets Department

So the landfill is supposed to be finished by the end of this year or early next year.

Lizhou Zhang -- Chief Executive Officer and Executive Director

Yeah.

Richard Geronimo -- Private Investor -- Analyst

Okay. And that's the 170 acre area under water? Is that correct.

Brian Chen -- General Manager, Capital Markets Department

It's actually some more.

Lizhou Zhang -- Chief Executive Officer and Executive Director

No, the 100 acre.

Brian Chen -- General Manager, Capital Markets Department

Oh, OK. It's actually 100 acre.

Lizhou Zhang -- Chief Executive Officer and Executive Director

Yeah.,

Richard Geronimo -- Private Investor -- Analyst

Okay. So it's 100 acres.

Lizhou Zhang -- Chief Executive Officer and Executive Director

Yes.

Richard Geronimo -- Private Investor -- Analyst

Okay. I guess, I have one more question about the Hudson project. How is that going to be marketed? I mean, there -- obviously, there is friction between Chinese and Americans. And how do you plan on marketing that so that you get the best return?

Brian Chen -- General Manager, Capital Markets Department

Yeah. It's hard to say because the situation is very hard for now because of some of the relationship between the two countries. We will -- based on the local market for now way. Now, we analyze the market and we want to determine our price, our beginning.

Lizhou Zhang -- Chief Executive Officer and Executive Director

Yeah. The project is located in the good area, Hell's Kitchen, and comparing to the building nearby, our price is reasonable. We believed and we had a pretty good local sales and marketing teams. At this point, we have no reason to believe that we cannot move to sell, based on the local demand and the local team.

Operator

We will take our next question from Rupesh (ph) Patel, Private Investor.

Unidentified Participant

Hi. I had one question on the stock buyback program. I know that's lesser (inaudible) if the company had approved $40 million to spend behind stock buyback. My question is how much of that approved amount remains for future stock buyback?

Brian Chen -- General Manager, Capital Markets Department

Would you please repeat the question?

Lizhou Zhang -- Chief Executive Officer and Executive Director

What is the question? We didn't get the -- can you repeat your question?

Unidentified Participant

Sure. The stock buyback program, how much money is available with the company to purchase stock back from the market? Let me rephrase it. The Board of the company had approved $40 million to spend behind stock buyback, and the company has already bought back some shares. And then, how much money is left for future buyback?

Xuefeng Li -- Interim Chief Financial Officer

Okay. For that original program, we have already used pretty much almost all of them so far. We are in the process to submit an application to our Board to apply for some quota to continue that program.

Unidentified Participant

Okay. Thank you. That's all I had.

Operator

(Operator Instructions) We'll take next question from Mark Skitt (ph), Private Investor.

Mark Skitt -- Private Investor -- Analyst

Hi. Great earnings call for you guys. I just have one question. So, I see that you guys have both (ph) opportunities on New York. I was just wondering if you guys are seeing any opportunities in other cities in the US or maybe even Europe?

Lizhou Zhang -- Chief Executive Officer and Executive Director

For the moment, the company is in the middle of the process, looking for new opportunity. But we are not expand without principle. We are only looking at the quality projects that we can manage it, and we can make sure to return reasonable profit and return to the company. We could also open. At this point, we are not limited by the region and the area. Obviously, previously, our presence in New York and little bit in London and Malaysia, this would be the base that we are trying to focus on.

Mark Skitt -- Private Investor -- Analyst

Okay. That's all I had. Thank you.

Operator

That concludes today's Q&A session. I would now like to turn the call back over to Xuefeng Li. Please go ahead.

Xuefeng Li -- Interim Chief Financial Officer

Okay. We thank you 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.

Duration: 23 minutes

Call participants:

William Zima -- Partner

Lizhou Zhang -- Chief Executive Officer and Executive Director

Xuefeng Li -- Interim Chief Financial Officer

Brian Chen -- General Manager, Capital Markets Department

Richard Geronimo -- Private Investor -- Analyst

Unidentified Participant

Mark Skitt -- Private Investor -- Analyst

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