Benzinga | Dec 17, 2021 06:04AM EST

KE Holdings Refutes Muddy Waters Short Report

KE Holdings Inc. ("Beike" or the "Company") (NYSE:BEKE), a leading integrated online and offline platform for housing transactions and services, today issued the following statement in response to allegations made in a report by Muddy Waters Capital LLC ("Muddy Waters").

Yesterday, Muddy Waters issued a short seller report attacking Beike. Based upon the Company's preliminary review and evaluation of the report, the Company believes the report is without merit and contains numerous errors of fact, unsubstantiated statements, and misleading speculations and interpretations. The report also shows a lack of basic understanding of the housing transactions industry in China.

GTV and revenues of new home transactions -- Muddy Waters' methodology to capture number of transactions is wrong and the calculation of Gross Transaction Value ("GTV") and revenues is incomplete. For example, it ignores the Company's other sources of revenues. As previously disclosed by the Company, it offers new home transaction services not only through the Lianjia stores that it directly owns and operates and through connected stores with which it does business, but also through its dedicated new home sales team and other new home sales channels--additional sources of revenues that the Muddy Waters report does not appear to have taken into account. The Company reaffirms the accuracy of its previously disclosed GTVs for new home transactions in the second quarter and the third quarter of 2021, which were RMB 498 billion and RMB 410 billion, respectively. The commission rate of new home transactions in the second quarter and the third quarter of 2021 was 2.79% and 2.77%, respectively. Revenues from new home transactions in the second quarter and the third quarter of 2021 were RMB 13.9 billion and RMB 11.3 billion, respectively. Cash collection from developers in the second quarter and the third quarter of 2021 were RMB 13.8 billion and RMB 14.8 billion, respectively.

GTV and revenues from existing home transactions --The number of transactions captured by Muddy Waters is incomplete and inaccurate. Also, calculations relating to GTV and revenues from existing home transactions are wrong because Muddy Waters does not purport to rely on the Company's actual data for existing home transactions. Rather, it uses the average sales prices found in the China Real Estate Associate platform ("CRE Prices") for so-called comparable properties to derive the GTVs for Beike's existing home sales. Simulation of the incorrect data collected for the period 76 days from May 25 to August 8 for the entire second quarter period, involves subjective and manipulative approach. For example, Muddy Waters applied an upward adjustment of 9.66% in calculating the GTV for the second quarter, assuming factoring in market movement. In fact, GTV for the Company's existing home transactions actually decreased by 42.0% from the second quarter to third quarter, primarily due to the general downturn in the Chinese real estate market. As previously disclosed by the Company, GTV of existing home transactions in the second quarter and the third quarter of 2021 were RMB 652 billion and RMB 378 billion, respectively. Revenues from existing home transactions in the second quarter and the third quarter of 2021 were RMB 9.6 billion and RMB 6.1 billion, respectively.

Store and agent count -- Muddy Waters' methodology to attempt to verify the numbers disclosed by the Company concerning its agents and stores is also defective and incomplete because it again relies on incomplete information. Contrary to Muddy Waters' mistaken assumption, the "Find Agent" function on the Company's home page does not include sales agents responsible solely for new home sales. Instead, these agents are listed separately on another page on the Company's website--the "New Home" subpage--and who, in their discretion, can opt out from the search results page. In calculating the total number of stores, the methodology used by Muddy Waters to capture stores through the 'Find Agent' function is deficient.

Other allegations, including those related to acquisitions, R&D expenses, are also unfounded because they rely on incomplete data, erroneous estimation methodologies, unsupported speculations, and a mistaken understanding of industry practice.

The Company's Board of Directors has authorized the independent audit committee to conduct an internal review of the key allegations contained in the Muddy Waters' report, with assistance and advice from independent third-party advisors to be engaged by the audit committee. The Company will provide updates on the internal review when appropriate.

The Company reiterates that it has always been and will remain committed to maintaining high standards of data integrity, corporate governance and internal control, as well as transparent and timely disclosure in compliance with the applicable rules and regulations of the Securities and Exchange Commission and the New York Stock Exchange.