Xinyuan Real Estate Company LTD Q2 2010 Earnings Call Transcript

Xinyuan Real Estate Company LTD Q2 2010 Earnings Call Transcript
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Xinyuan Real Estate Company LTD (XIN)

Q2 2010 Earnings Call Transcript

August 10, 2010 8:00 am ET

Executives

Helen Zhang – Director, IR

Yong Zhang – Chairman and CEO

Tom Gurnee – CFO

Analysts

Liang Hsu – Brean Murray

Xin Li Zhang [ph] – Roth Capital Partners

Rachel Yu [ph] – Rodman & Renshaw

Rafael Mernay [ph] – Morning Glory Capital Management

Presentation

Operator

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Good day, everyone. Welcome to the Xinyuan Real Estate Company LTD second quarter 2010 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Helen Zhang. Please go ahead.

Helen Zhang

Hello, everyone. And welcome to Xinyuan's second quarter 2010 earnings conference call. The company's second quarter earnings results were released earlier today and available on the company's IRS site as well as on Newswire services.

Before we continue, please note that the discussion today will contain forward-looking 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 registration statement and our Form 20-F and other documents filed with the US Securities and Exchange Commission. Xinyuan does not assume any obligation to update any forward-looking statements, except as required by applicable law.

Today, you will hear from Mr. Yong Zhang, our chairman and chief executive officer, who will comment on current operations and provide some perspectives on the market environment. He will be followed by Mr. Tom Gurnee, our chief financial officer, who will provide some additional color on our performance, review the company's financial results, and discuss our outlook for the remainder of year 2010.

Following management's prepared remarks, we'll open the call to questions. During the Q&A session, Mr. Zhang will speak in Mandarin. And I will translate his comments into English. Please note that unless otherwise stated, all figures mentioned during this conference call are in US dollars.

I will now turn the call over to Xinyuan's chairman and CEO, Mr. Yong Zhang. Please go ahead, sir.

Yong Zhang

Hello, everyone. And I thank you for joining us today. Our results for second quarter for Xinyuan were reflective of new real estate government policies established in mid April. This policy is more designed to curb speculation in the real estate market, and has resulted in restricted mortgage lending, which we have seen an impact on our results.

However, the impact of these policies has varied by region. In Kunshan, lending was suspended fully. Therefore, we didn't know the record and the sales until the second half of June. Suzhou government took a different approach by declaring (inaudible) to sell at no higher than registered pricing. Since our registered building price is set in December 2009, it was 20% lower than the current market price. The company took not to sell any in May and in June. In Chengdu, the pricing was – the policies were implemented quickly and the banks adjusted. As a result, our sales overall were not affected.

Fortunately, we have entered this period with a solid cash position and a balance sheet. We were able to repay our floating rate notes and bonds. We're also using new debt. We also used a portion of our cash to fully pay for our bank debt.

Well, we expect the third quarter will also be soft due to the continued impact of the government policy. We are expecting a better fourth quarter. We have seven projects which are now fully paid for. Four of these began presales in the second quarter. And this will begin to contribute to our sales in the fourth quarter and through the first quarter of 2011. We will be very well-positioned for growth next year, with a total of 10 active projects.

Overall, we already note that there's still some market uncertainty in the short term. We are excited about our prospects for the fourth quarter and beyond.

I will now turn the call over to Tom Gurnee, our chief financial officer.

Tom Gurnee

Thank you, Chairman. Let me begin this review by commenting on recent government policy initiatives and their impact on our sales rates. As most of you know, on April 17th, 2010, the central government published the circular giving guidelines, not necessarily orders, to the provinces and municipalities on actions that could be taken to moderate residential real estate price increases going forward.

The menu of measures included differentiating first home buyers versus second home buyers, freezing up third home buyers, tighter scrutiny over what constitutes a family unit for determining first and second home buyers, distinguishing residents and non-residents for mortgages, and the – even allowing for rolling backup prices to original permits, et cetera. These policy measures have been inconsistently applied by regions – in the regions we do business in.

And so, let me address the policy status and the impact by the area where we operate. Let's start with Kunshan. Kunshan before April – before this April announcement was approximately 60% of our sales rate in the first quarter and in April until the policy took place. In Kunshan, the policy is implemented mostly at the discretion of different banks.

Under these rules, only official city residents, that is hukow holders. Hukow is a Chinese form of registration. Only Hukow holders in the city of Kunshan or taxpayers in the city of Kunshan are eligible for the most attractive first home buyer mortgages of 80% principal and a 15% discount to the benchmark mortgage lending rate. Local second home buyers are eligible for 50% mortgages at the benchmark rate plus 10%. Non-local residents, including Shanghai residents, are eligible for second home buyer terms on their first Kunshan home purchase.

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