Xinyuan Real Estate (NYSE: XIN)

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1 NEW YORK SÃO PAULO SHANGHAI Research Note (NYSE: XIN) XIN announced nouveau equity investment of 50% stake in MDL and expanded its portfolio in the UK and European markets. The Company initiated cross-sector partnership and pilot program with Chinese top internet service company Tencent. FY17 was filed at the end of April, in-line with early 4Q releases and reports. Company Description ( Xinyuan, XIN, or the Company ) is a real estate developer and property manager that focuses on large-scale residential projects. The Company operates primarily in China and the US. In China, XIN develops and manages large-scale real estate projects, such as high-rise buildings and multi-layer apartment buildings, in several tier-one and tier-two cities such as Beijing, Shanghai, Zhengzhou, and Jinan. XIN was one of the first real estate developers in China to enter the US market, and it deals in the development of residential properties in four locations Irvine, California; Reno, Nevada; and Manhattan and Brooklyn, New York. The headquarters of XIN is located in Beijing, China with an international development office in New York, NY. Key Data Key Financials 52-Week Range FY15A FY16A FY17A Shares Outstanding Revenue 1, , ,976.9 Market Cap EBIT Months Avg Volume 298,317 EBITDA Total Cash Earnings Total Debt CFF ,003.8 in USD million except price and volume One-Year Price & Volume in USD million $9 $8 $7 $6 $5 $4 $3 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb x Volume Price 300 Park Avenue, Fl. 12 New York, NY (646) research@jgrcap.com

2 Equity Investment in the UK On March 21, 2018, XIN announced that it had acquired 50% equity stake in Madison Developments ( MDL ) from ED Jersey, a 100% owned subsidiary of ED Group Holding ( ED Group ). The transaction was completed via Xinyuan s 100% subsidiary Xinyuan International (HK) Property Investment for a total consideration of GBP million (~US$40 million). MDL is the developer of the Madison Project at Marsh Wall, London, UK. This new investment and expansion is XIN s first step in the UK real estate market, as well as a milestone for the Company s international expansion strategy. The Madison is set to be a landmark building in Canary Wharf, where comes with more residential and commercial potential upon the arrival of Crossrail, a 118-kilometer (73 miles) railway line under development in London and the home counties of Berkshire, Buckinghamshire and Essex, England, in We believe while China remains XIN s core market, the Company seeks means of overseas investment and strategic partnership leveraged by the management experience and existing portfolio. The MDL investment is expected to generate favorable returns for XIN and its shareholders, Estate Location Source: LBS Websites research@jgrcap.com 2

3 The Madison Project site extends to 0.38 hectares (~0.94 acres) and is located adjacent to Canary Wharf, one of Europe s largest commercial centers. The planning permission was granted in March 2015 for the site to develop a 53-story building comprised of 423 residential apartments, including 319 private apartments and 104 affordable apartments, with approximately 425 sq. Meters ( sqft) of community facilities. Construction is currently underway, and its project completion is expected at Q To date, approximately 40% of the private apartments have been pre-sold, and 100% of the affordable apartments have been pre-sold. MDL is a subsidiary of ED Group Holding, a privately-owned Jersey-based investment company with investments in real estate, technology, and financial services in the UK, Europe, and North America. The Madison Project is being managed by LBS Properties, a property development and investment management company specializing in the residential and commercial sectors of the London market. Funding and the Impacts We look for detailed information regards funding of the Madison Project. Nevertheless, on March 19, 2018, the Company announced the closing of its offering of US$200 million in the aggregate principal amount of 9.875% senior notes due XIN may use the raised capital in the Madison Project funding, as well as further development and acquisitions. As of FY2017, the Company had $1.9 billion short-term debt and $1.4 billion long-term debt. There is an expected higher liability as of Q118, and, on the other hand, stronger free cash fl o w s. With the acquisition of the Madison Project in London, UK. XIN diversifies its portfolio and properties domestically in Chinese tier 1 and 2 cities, and in the US, UK. research@jgrcap.com 3

4 Source: Corporate Presentation Cross-industry Cooperation with Tencent Recently, the Company also announced a cross-industry strategic agreement with the computer systems subsidiary of the top Chinese provider of value-added internet services Tencent Computer. Drawing on Tencent Computer s resources and Xinyuan s expertise in real estate, the cooperation aims to energize the traditional real estate sector via the pilot program of Smart Cloud Sales Platform supported by Big Data. The agreement demonstrates XIN s continuous commitment to leverage advanced technologies for value-added applications in the real estate sector, adding to existing smart communities, blockchain, and the development of technology towns. Tencent s service would support XIN in enterprise integration with operational effi ciency improvement, cost reduction, and more access to effective user data and feedback. research@jgrcap.com 4

5 Financials The Company filed for FY2017 on April 30, 2018, which is in-line with the previous released Q418 information. As of the end of 2017, revenue increased 27% to nearly $2 billion compared to $1.56 billion for FY16 albeit there was a slow down in growth versus 34% in FY16. XIN continues assets growth and increase in shareholders equity with improved BV per share. Source: Bloomberg, JGR Capital research@jgrcap.com 5

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7 Risk Considerations Source: Bloomberg, JGR Capital Increase in Liability. In our view, XIN s debt/ebitda ratio would remain largely stable YoY in Nevertheless, as per reported FY17 and recent new senior notes due in 2020, the increasing debt obligations could have a negative impact on its operational performance. This could concern the investors as well and make it difficult for the company to raise funds on favorable terms of the market. Global Economy. As XIN develops properties in the international market, the Company encounters continued concerns about the systemic impact of potential long-term and wide-spread recessions and economics instability drive by geopolitical issues, unstable credit markets and financial conditions, energy costs, volatile oil prices and the global housing and mortgage markets. China. Although the Chinese government began to loosen mortgage restrictions in 2H17, the demand in Chinese real estate market has weakened, particularly in Tier 3 and Tier 4 cities. Consensus remains optimistic about the Chinese economy, but to the extent, any fluctuations in Chinese economy significantly affect homebuyers demand for XIN s units or change their spending habits, XIN s operating results may be materially and adversely affected. Continued turbulence in the international markets and prolonged declines in consumer spending, including home purchases, as well as any slowdown of economic growth in China, may adversely affect XIN s liquidity and financial condition. US. Since its expansion in the US market in 2012, Xinyuan is getting increasingly sensitive to the US general economic conditions, industry conditions, and particularly the housing market with increasing US assets in its portfolio. The housing industry is highly cyclical and is significantly affected by changes in, such as employment and income levels, availability of financing for buyers, interest rates, levels of new and existing homes for sale demographic, trends, and housing demand. UK. The full effects of Brexit will depend on any agreements the country makes to retain access to European Union markets either during a transitional period or more permanently. Malaysia. In 2014, XIN acquired 100% of a Malaysian company engaged in land reclamation development for a total area of 170 acres. The market demand for landfill development in Malaysia could be affected by various factors, including the general economic environment and any macroeconomic control measures implemented by the local authorities. research@jgrcap.com 7

8 JGR Capital Information Headquarters Address 300 Park Avenue, Fl. 12 New York, NY Contact Disclosure This report contains forward-looking statements, which involve risks and uncertainties. Actual results may differ significantly from such forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in the Risk Factors section in the SEC filings available in electronic format through SEC Edgar filings at The research analysts principally responsible for this research preparation do not receive compensation that is based upon any specific investment banking services or recommendations and can be compensated based on factors relating to the overall profitability of JGR Capital ( firm ). As of the date of research distribution, neither the firm nor the principal research analysts beneficially own 1% or more of any class of common equity securities for this issuer (including, without limitation, any option, right, warrant, future, long or short position). The securities of the issuer(s) discussed in this research may be unsuitable for investors depending on their specific investment objectives and financial position. Past performance is no guarantee of future results. This research does not constitute a personal trading recommendation or take into account the particular investment objectives, financial situation or needs of an individual reader of this report and does not provide all of the pertinent information to make an investment decision. JGR Capital does not provide investment banking services nor has it received compensation for investment banking services from the issuers covered in this research content. The firm does not make a market in the issuer s securities. It has received compensation from the issuer for providing non-investment banking services to this issuer. The non-investment banking services provided to the issuer includes investor relations advisory and services, production of this research content, comprehensive reporting analytics, and financial analysis. The fees for these services vary on a per-client basis and are subject to the amount and category of provided services. For the services provided to the issuer covered in this report, engagement commenced on May 15th, 2017, for a 12-month period within the typical $30,000 to $38,000 compensation structure for the services engaged by this issuer. Firm analysts and members of the research production team are prohibited from holding or trading securities in the issuer. Additional information is available upon request. JGR Capital s research contents are based on data obtained from sources that it believes to be reliable and does not purport to be a complete statement of all material factors. This report is for informational purposes and is not a solicitation of orders to purchase or sell securities. No part of this material may be copied, photocopied or duplicated in any form or by any means, or redistributed without prior written consent from JGR Capital. All rights reserved.