Xinyuan Real Estate Co., Ltd. Announces Financial Results for the Fourth Quarter and Full Year 2008
(“Xinyuan” or “the Company”) (NYSE: XIN), a residential real estate developer
with a focus on high growth, strategic Tier II cities in
announced its unaudited financial results for the fourth quarter and full year
ended
Highlights For The Fourth Quarter 2008 versus The Third Quarter 2008
-- Total revenues decreased $22.2 million to US$60.8 million from US$83.0
million.
-- The Company recorded a gross loss of US$75.8 million versus a gross
profit of US$18.4 million, or 21.8% of revenue. In the fourth quarter,
the Company recognized estimated future losses of $21.6 million on its
Suzhou International City Garden project and additionally recorded an
impairment charge on the same project of $72.6 million.
-- The Company recorded a net loss of US$77.5 million versus a net profit
of US$7.8 million.
-- The diluted loss per share attributable to ordinary shareholders was
US$0.51, equivalent to a US$1.02 loss per American Depositary Share
("ADS") compared to US$0.05 diluted earnings per share, or US$0.10
per ADS, in the prior year period.
-- During the fourth quarter of 2008, the Company completed Anhui Wang
Jiang Garden and Shandong Elegant Scenery projects.
-- No new projects were started during the quarter and no land was
acquired.
Highlights For The Full Year 2008 Ended December 31, 2008
-- 2008 total revenues increased over 2007 by 15.1% to US$356.6 million in
2008.
-- Gross loss totaled US$0.2 million versus a gross profit of US$101.6
million. 2008 included recognition of future losses and an impairment
charge on the Suzhou International City Garden project of $21.6 million
and $72.6 million, respectively
-- The Company recorded a net loss of US$23.6 million in 2008 versus net
income of US$45.7 million in 2007.
-- The diluted loss per share attributable to ordinary shareholders in
2008 totaled US$0.16 equivalent to a US$0.32 loss per ADS compared to a
US$1.28 diluted loss in 2007, or US$2.56 per ADS. 2007 results included
the impact of a US$182.2 million deemed dividend.
-- The Company maintained a cash balance of US$193.6 million.
“The environment in the real estate sector remains difficult,” said Mr.
weak and buyers appear to be waiting for more attractive pricing. During
these unprecedented economic times, the Company is focused on controlling
costs and preserving capital. While we are hopeful the actions implemented by
the government can positively influence demand in the second half of the year,
we are maintaining a conservative approach toward investing in new projects.
We have also modified our production schedule to maximize cash flow until
markets and demand stabilize.
“We remain positive on the long term prospects of the real estate sector
in
expected cash flows from existing projects sufficient to settle all
outstanding debt maturities through 2010, we remain confident that Xinyuan can
weather the storm and emerge a stronger Company when the cycle turns,”
concluded Mr. Zhang.
Financial Results for the Fourth Quarter
For the quarter ended
Percentage of Completion method of accounting under United States Generally
Accepted Accounting Principles (see discussion of “Percentage of Completion
Accounting” later in this release), changes in project estimates negatively
impacted reported revenue by
The Company sold 60,300 square meters in the fourth quarter 2008, versus
84,500 square meters in the third quarter 2008. The average selling price per
square meter sold was
third quarter 2008, representing a decline of 4.3%. At
Company held undeveloped land reserves in
219,000 GFA square meters, respectively.
Geographic breakdown of revenues
Revenue (US$'s 000)
2007Q4 2008Q3 2008Q4
Amount % Amount % Amount %
Anhui 13,750 15.3% 10,388 12.7% 4,559 8.1%
Chengdu 0 0.0% 1,418 1.7% 2,636 4.7%
Henan 6,710 7.5% 21,763 26.6% 12,163 21.7%
Kunshan 0 0.0% 1,913 2.3% 2,444 4.4%
Shandong 45,430 50.7% 30,156 36.8% 15,910 28.4%
Suzhou 23,751 26.5% 16,213 19.8% 18,301 32.7%
Total 89,641 100.0% 81,851 100.0% 56,013 100.0%
Gross Profit
Gross loss for the fourth quarter 2008 was
gross profit of
2008 and
the fourth quarter the Company recognized estimated future losses of
million
recorded an impairment charge on the same project of
Percentage of Completion (POC) adjustments on changes of estimates for all
other projects impacted gross profit by
The recognition of future losses and impairment charge on the Suzhou project
and POC adjustments on other projects were all non-cash items.
Selling, General, and Administrative Expenses (SG&A)
SG&A expenses were
to
fourth quarter 2007, respectively. As a percentage of total revenue, SG&A
expenses for the fourth quarter 2008 were 15.2%, versus 16.3% and 15.2% in the
third quarter 2008 and fourth quarter 2007, respectively.
The sequential improvement is primarily attributed to lower compensation
expense on lower headcount (
spending (
Share of Income of Equity Investee
In the fourth quarter of 2008, the Company recognized a loss of
million
(“Jiantou”) compared to booking income of
2008 and income of
encountered soft demand in the fourth quarter. The Company recorded an
exchange loss in the fourth quarter 2008 of
exchange gains of
in the fourth quarter 2007.
Net Income
Net loss for the fourth quarter 2008 was
income in the third quarter 2008 and the fourth quarter 2007 of
and
Diluted loss per share for the fourth quarter 2008 was
to diluted earnings per share in the third quarter 2008 of
diluted loss per share in the fourth quarter 2007 of
Full Year 2008 Results
For the twelve months ended
contribution of new Kunshan International City Garden, Suzhou International
City Garden, and Chengdu Splendid projects was partially offset by the
completion of the Anhui Wang Jiang Garden, Henan Financial Square, Suzhou Lake
Splendid, and Shandong Elegant Scenery projects.
Total gross loss was
profit of
International City Garden project described earlier plus the impact of revised
estimates on the other projects resulted in decreased gross profit. In
addition, the increase of Suzhou,
percentage of total revenues had a negative mix effect on margins as these
less mature projects with relatively high land acquisition costs carry lower
margins than projects in the Company’s more traditional markets in the Anhui,
For the twelve months ended
revenue, in 2007. The year-over-year increase is attributable primarily to
increased advertising and promotion expenses on new projects, and the full
year impact of stock-based compensation and professional fees associated with
being a listed company including Sarbanes Oxley consulting fees.
The Company’s net loss was
net income of
share in 2008 was
Balance Sheet
At
million
value at year end stood at
per ADS.
2009 Outlook
Q1 2009 GFA sales are expected to range from 38,000 to 42,000 square
meters, a decrease of roughly 35% from the previous quarter due to some market
weakness and the seasonal impact of the
revenue is expected to total
loss in the range of
Full year 2009 GFA sales are anticipated to be in the range of 250,000 to
290,000 square meters. 2009 revenues are expected to be
million
breakeven. No new projects are included in these projections although the
Company is ready to evaluate new projects if market conditions warrant.
Mr. Zhang commented, “With respect to our initiatives in 2009, we are
focused on pacing the construction efforts of our large projects in Suzhou,
Kunshan, and
cash. We intend to refocus our investments in smaller projects in Tier 2
cities in the
better suit our operating structure and where we have traditionally had our
greatest success. Reducing overhead and operating expenses are also a key
priority for our business in 2009.”
“Additionally, the strengthening of our senior management team is a major
priority in 2009. We have streamlined certain positions to ensure greater
efficiency and cost savings. At the same time, we are adding select senior
team members in certain key areas such as finance and operations, who can help
position Xinyuan for better performance and success.”
Percentage of Completion Accounting
Most of Xinyuan’s projects recognize revenue under the percentage of
completion method. This requires the Company to re-evaluate our estimates of
future revenues and costs on a quarterly basis project by project. Cumulative
revenue is determined by multiplying cumulative contract sales proceeds times
cumulative incurred cost divided by total estimated project cost. Cumulative
cost of sales is calculated by multiplying cumulative incurred cost times
cumulative contract sales divided by total estimated project revenue. Whenever
Xinyuan makes changes to expected total project life profit margins, a “catch-
up” adjustment must be made in the quarter of change to account for the
difference between profit previously recognized using the previous profit
margin estimate and the comparable profit using the new profit margin
estimates. Further, if the updated profit margin indicates that the Company
will have to sell units at a price less than our costs to develop them, it
must recognize the full expected gross loss over the life of the project at
that time regardless of whether the units have been sold. Additionally for
such unprofitable projects the Company must also determine whether an
impairment exists, and, if so, write down the cost to the fair value of the
project which, in turn, may be less than the basis after recognizing the
effect of future losses. In the fourth quarter of 2008, Suzhou ICG was the
only such unprofitable project subject to recognition of total project gross
loss and impairment reviews.
Non-GAAP Measures
This release contains non-GAAP financial measures, as such term is defined
by the U. S. Securities and Exchange Commission. These non-GAAP financial
measures, which are identified in this release, are used by management as
measures of the Company’s performance, and should be considered in addition to,
not in isolation or as a substitute for, measures of the Company’s financial
performance prepared in accordance with GAAP. The Company’s non-GAAP financial
measures may be defined differently than similar terms used by other companies.
Accordingly, care should be exercised in understanding how the Company defines
its non-GAAP financial measures.
Reconciliations of the Company’s non-GAAP measures to the nearest GAAP
measures are set forth in the section below titled “Reconciliation of GAAP to
Non-GAAP Results.” These non-GAAP measures include non-GAAP gross profit, non-
GAAP operating expenses, non-GAAP income from operations, and non-GAAP net
income.
The Company’s management uses certain non-GAAP financial measures to gain
an understanding of the Company’s comparative operating performance (when
comparing such results with previous periods or forecasts) and future
prospects. The Company’s non-GAAP financial measures exclude certain items,
including stock-based compensation charges, unrealized foreign exchange gain
or loss, amortization of intangible assets, amortization of convertible debt
issuance cost and charges arising from changes in fair value of derivative
warrant liabilities, from its internal financial statements for purposes of
its internal budgets. Non-GAAP financial measures are used by the Company’s
management in their financial and operating decision-making, because
management believes they reflect the Company’s ongoing business in a manner
that allows meaningful period-to-period comparisons. The Company computes its
non-GAAP financial measures using the same consistent methods from quarter to
quarter. The Company’s management believes that these non-GAAP financial
measures can provide useful information to investors and others in the
following ways: 1) in understanding and evaluating the Company’s current
operating performance and future prospects in the same manner as management
does, if they so choose, and 2) in comparing in a consistent manner the
Company’s current financial results with the Company’s past financial results.
The Company’s management further believes the non-GAAP financial measures can
provide useful information to both management and investors by excluding
certain expenses, gains and losses (i) that are not expected to result in
future cash settlement or (ii) that are non-recurring in nature or may not be
indicative of its core operating results and business outlook.
The Company’s management believes excluding stock-based compensation from
its non-GAAP financial measures is useful for itself and investors as such
expense will not result in future cash payment and is otherwise unrelated to
the Company’s core operating results. The Company’s management believes
excluding the non-cash stock-based compensation charges, unrealized foreign
exchange gain, amortization expense of intangible assets and charges resulting
from changes in fair value of derivative warrant liabilities from its non-GAAP
financial measure of net income are useful for itself and investors because
they enable a more meaningful comparison of the Company’s cash performance
between reporting periods. In addition, such charges will not result in cash
settlement in the future.
Conference Call Information
Xinyuan’s management will host an earnings conference call on
2009
1-913-312-1459. A webcast will also be available through the Company’s
investor relations website at http://www.xyre.com . A replay of the call will
be available through
1-719-457-0820, access code: 4116963.
About Xinyuan Real Estate Co., Ltd.
Xinyuan Real Estate Co., Ltd. (“Xinyuan”) (NYSE: XIN) is a developer of
large scale, high quality residential real estate projects aimed at providing
middle-income consumers with a comfortable and convenient community lifestyle.
Xinyuan focuses on
developed urban areas with above average GDP and population growth rates.
Xinyuan has expanded its network to cover a total population of over 34.5
million people in six strategically selected Tier II cities, comprising
estate developer from
more information, please visit http://www.xyre.com .
Safe Harbor Statement
This press release contains forward-looking statements. These statements
are made under the “safe harbor” provisions of the U.S. Private Securities
Litigation Reform Act of 1995. These forward-looking statements can be
identified by terminology such as “will,” “expects,” “anticipates,” “future,”
“intends,” “plans,” “believes,” “estimates,” “confident” and similar
statements. Statements that are not historical facts, including statements
concerning our beliefs, forecasts, estimates and expectations, are
forward-looking statements. Forward-looking statements involve inherent risks
and uncertainties that could cause actual results to differ materially from
those projected or anticipated, including, but not limited to, the risk that:
our financing costs are subject to changes in interest rates; our results of
operations may fluctuate from period to period; the recognition of our real
estate revenue and costs relies on our estimation of total project sales value
and costs; we may be unable to acquire desired development sales at
commercially reasonable costs; increases in the price of raw materials may
increase our cost of sales and reduce our earnings; we are heavily dependent
on the performance of the residential property market in
relatively early development stage;; PRC economic, political and social
conditions as well as government policies can affect our business; the market
price of our ADSs may be volatile, and other risks outlined in our public
filings with the Securities and Exchange Commission, including our annual
report on Form 20-F for the year ended
provided in this press release is as of
law, we undertake no obligation to update or revise publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise, after the date on which the statements are made or to
reflect the occurrence of unanticipated events.
Notes to Unaudited Financial Information
This release contains unaudited financial information which is subject to
year end audit adjustments. In addition, we are in the process of conducting
further evaluations of our internal control over financial reporting for
compliance with the requirements of Section 404 under the Sarbanes-Oxley Act.
We make no representation of management’s assessment regarding internal
control over financial reporting or include an attestation report of the
Company’s independent auditors due to a transition period established by rules
of the Securities and Exchange Commission for newly public companies.
Adjustments to the financial statements may be identified when the audit work
is completed, which could result in significant differences between our
audited financial statements and this unaudited financial information.
For more information, please contact:
In China:
Mr. Tom Gurnee
Chief Financial Officer
Tel: +86-10-8588-9390
Email: tom.gurnee@xyre.com
Mr. Jacky Zhang
Deputy General Manager of Investor Relations
Tel: +86-10-8588-9262
Email: zhengang.zhang@xyre.com
Mr. Bill Zima
ICR, Beijing
Tel: +86-10-6599-7969
Email: Bill.zima@icrinc.com
In the United States:
Mr. Ken Avalos
ICR, Inc.
Tel: +1-203-682-8341
Email: ken.avalos@icrinc.com
Ms. Kristin Brown
ICR, Inc.
Tel: +1-646-277-1229
Email: kristin.brown@icrinc.com
(Financial Tables on Following Pages)
XINYUAN REAL ESTATE CO., LTD. AND ITS SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(All US$ amounts and number of shares data in thousands, except per share data)
Three months ended
December 31, September 30, December 31,
2007 2008 2008
Revenue 91,425 $82,951 60,821
Cost of revenue (61,145) (64,569) (136,646)
Gross profit 30,280 18,382 (75,825)
Selling and distribution
expenses (4,558) (5,251) (2,321)
General and administrative
expenses (9,340) (8,249) (6,980)
Operating income 16,382 4,882 (85,126)
Interest income 681 559 687
Interest expense (1,765) -- 0
Share of income in an
equity investee 2,867 3,186 (644)
Exchange gains 1,561 668 (819)
Change in fair value of
warrant liabilities (2,416) 2,026 324
Income from operations
before income taxes 17,310 11,321 (85,578)
Income taxes (9,131) (3,536) 8,029
Net Income 8,179 7,785 (77,549)
Accretion of Series A
convertible preference
shares (572) -- --
Deemed Dividends (182,229) -- --
Net income attributable to
ordinary shareholders (174,622) 7,785 (77,549)
Earnings (loss) per share:
Basic $(1.51) $0.05 (0.51)
Diluted $(1.51) $0.05 (0.51)
Shares used in computation:
Basic 115,361 149,007 150,770
Diluted 115,361 160,200 150,770
XINYUAN REAL ESTATE CO., LTD. AND ITS SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(All US$ amounts and number of shares data in thousands, except per share data)
Twelve months ended
December 31, December 31,
2007 2008
Revenue 309,725 356,632
Cost of revenue (208,135) (356,794)
Gross profit 101,590 (162)
Selling and distribution expenses (10,515) (13,578)
General and administrative expenses (17,077) (32,530)
Operating income 73,998 (46,270)
Interest income 1,417 3,492
Interest expense (3,204) 0
Share of income in an equity investee 8,686 9,843
Exchange gains 3,083 3,603
Change in fair value of
warrant liabilities (8,602) 16,422
Income from operations before income taxes 75,378 (12,910)
Income taxes (29,715) (10,730)
Net Income 45,663 (23,640)
Accretion of Series A convertible
preference shares (2,739) --
Deed Dividend (182,228) --
Net income attributable to ordinary
shareholders (139,304) (23,640)
Earnings (loss) per share:
Basic (1.28) (0.16)
Diluted (1.28) (0.16)
Shares used in computation:
Basic 108,690 149,147
Diluted 108,690 149,147
XINYUAN REAL ESTATE CO., LTD. AND ITS SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(All US$ amounts and number of shares data in thousands, except per share data)
Audited Unaudited
December 31, December 31,
2007 2008
ASSETS
Current assets
Cash and cash equivalents 309,315 135,659
Restricted cash 48,267 57,951
Accounts receivable 257 3,299
Other receivables 4,750 20,229
Other deposits and prepayments 12,864 28,735
Advances to suppliers 3,052 733
Real estate property development completed 4,917 328
Real estate property under development 379,142 523,634
Other current assets 7,782 8,562
Total current assets 770,346 779,130
Real estate property under development 9,738 101,590
Real estate properties held for lease, net 6,811 14,851
Property and equipment, net 4,649 5,255
Other long-term investment 242 242
Interests in an equity investee 9,344 20,157
Deferred Tax Asset -- 11,646
Other assets 6,065 8,111
TOTAL ASSETS 807,195 940,982
XINYUAN REAL ESTATE CO., LTD. AND ITS SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(All US$ amounts and number of shares data in thousands, except per share data)
Audited Unaudited
December 31, December 31,
2007 2008
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable 45,490 89,032
Short-term bank loans 49,284 168,967
Customer deposits 25,261 14,252
Income tax payable 5,406 6,263
Deferred tax liabilities 7,532 21,513
Other payables and accrued liabilities 18,296 22,038
Payroll and welfare payable 3,105 2,210
Total current liabilities 154,374 324,275
Long-term bank loans 137,858 105,007
Warrant liabilities 16,592 170
Deferred tax liabilities 4,776 4,816
Unrecognized tax benefits 11,925 12,745
Other long-term debt 91,771 93,714
Total liabilities 417,296 540,727
Shareholders' equity
Common shares 15 15
Additional paid-in capital 490,361 499,155
Statutory reserves 12,145 13,167
Accumulated deficit (123,704) (148,365)
Accumulated other comprehensive earnings 11,082 36,283
Total shareholders' equity 389,899 400,255
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 807,195 940,983
XINYUAN REAL ESTATE CO., LTD. AND ITS SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(All US$ amounts and number of shares data in thousands, except per share data)
Note (1) Diluted Earnings per Share for the three months ended December 31,
2007, September 31, 2008 and December 31, 2008
The diluted earnings per share for the three months ended December 31,
2007, September 31, 2008 and December 31, 2008 are calculated as follows:
(All US$ amounts and number of shares data in thousands, except per share data)
Three Months Ended
December September December
31, 2007 30, 2008 31, 2008
Numerator:
Net income $8,179 $7,785 $(77,549)
Accretion of Series A convertible (572) -- --
Deemed Dividends (182,229) -- --
Net income attributable to
ordinary shareholders - diluted (174,622) 7,785 (77,549)
Denominator:
Number of shares
outstanding - basic 115,361 149,007 150,770
Convertible subordinated notes -- 9,597 --
Incremental shares of
Burnham warrant -- -- --
Stock options -- 1,596 --
Number of shares
outstanding - diluted 115,361 160,200 150,770
Diluted earnings per share $(1.51) $0.05 $(0.51)
XINYUAN REAL ESTATE CO., LTD. AND ITS SUBSIDIARIES
RECONCILIATION OF GAAP to NON-GAAP RESULTS
(U.S. Dollars in thousands, except per share data)
Three months ended
December 31, 2008
Non-GAAP
GAAP Adjustments Results
Gross profit (75,825) (75,825)
Operating expenses 9,301 (a) (1,036) 8,180
(b) (85)
Operating income (85,126)(a) 1,036 (84,005)
(b) 85
Net income (77,549)(a) 1,051 (75,918)
(b) 85
(c) (324)
(e) 819
Three months ended
September 30, 2008
Non-GAAP
GAAP Adjustments Results
Gross profit 18,382 18,382
Operating expenses 13,500 (a) (1,537) 11,878
(b) (85)
Operating income 4,882 (a) 1,537 6,504
(b) 85
Net income 7,785 (a) 1,621 6,797
(b) 85
(c) (2,026)
(e) (668)
Three months ended
December 31, 2007
Non-GAAP
GAAP Adjustments Results
Gross profit 30,280 30,280
Operating expenses 13,898 (a) (4,437) 9,005
(b) (85)
(d) (371)
Operating income 16,382 (a) 4,437 21,275
(b) 85
(d) 371
Net income 8,179 (a) 4,437 13,927
(b) 85
(d) 371
(c) 2,416
(e) (1,561)
(a) To adjust stock-based compensation charges
(b) To adjust amortization of property management rights
(c) To adjust changes in fair value of derivative warrant liabilities
(d) To adjust amortization of convertible debt issuance cost
(e) To adjust unrealized exchange gain
XINYUAN REAL ESTATE CO., LTD. AND ITS SUBSIDIARIES
RECONCILIATION OF GAAP to NON-GAAP RESULTS
(U.S. Dollars in thousands, except per share data)
Twelve months ended
December 31, 2008
Non-GAAP
GAAP Adjustments Results
Gross profit (162) (162)
Operating expenses 46,108 (a) (8,189) 37,578
(b) (341)
Operating income (46,270) (a) 8,189 (37,740)
(b) 341
Net income (23,640) (a) 8,576 (34,748)
(b) 341
(c) (16,422)
(e) (3,603)
Twelve months ended
December 31, 2007
Non-GAAP
GAAP Adjustments Results
Gross profit 101,590 101,590
Operating expenses 27,592 (a) (4,546) 22,705
(b) (341)
Operating income 73,998 (a) 4,546 78,885
(b) 341
Net income 45,663 (a) 4,858 57,493
(b) 341
(c) 8,602
(d) 1,112
(e) (3,083)
(a) To adjust stock-based compensation charges
(b) To adjust amortization of property management rights
(c) To adjust changes in fair value of derivative warrant liabilities
(d) To adjust amortization of convertible debt issuance cost
(e) To adjust unrealized exchange gain
SOURCE Xinyuan Real Estate Co., Ltd.