Xinyuan Real Estate Co., Ltd. ( XIN)

Q1 2011 Earnings Conference Call

May 12, 2011 08:30 AM ET

Executives

Helen Zhang – IR Director

Yong Zhang – Chairman and Chief Executive Officer

Tom Gurnee – Chief Financial Officer

Analysts

Kun Tao – Roth Capital Partners

Presentation

Operator

Good day everyone. Welcome to the Xinyuan Real Estate Company Limited First Quarter 2011 Earnings Conference Call. Today’s conference is being recorded. At this time, I’d like to turn the call over to IR Director, Helen Zhang for opening remarks and introductions. Please go ahead.

Helen Zhang – IR Director

Hello everyone and welcome to Xinyuan’s first quarter 2011 earnings conference call. The company’s first quarter earnings results were released earlier today and are available on a company’s IR website as well as on Newswire services.

Before we continue, please note that a discussion today will contain forward-looking statements made under the Safe Harbor provisions of the U.S. 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 this and other risks and uncertainties is included in our registration statement and our Form 20-F and other documents filed with the U.S. Securities and Exchange Commission. Xinyuan doesn’t assume any obligation to update any forward-looking statements, except as required under 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 reminder of 2011.

Following management 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 U.S. dollars.

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

Yong Zhang – Chairman and Chief Executive Officer

Hello, everyone and thank you for attending us today. Our first quarter performance was below our expectations as sales were impacted by the new government measures to curb housing prices and speculation, which caused buyers to become more cautious. At the end of January, the government issued new restrictions, which do not allow local residents to have more than two houses or apartments and are even more strict for non-local residents.

While many of our apartment and home purchase (indiscernible) are first time buyers, the new regulation has resulted in purchasing delays by buyers hoping that the new restriction will cause prices to decline in the near future.

As we have seen with past regulation impacting home purchasing demand, we believe that the consumers will learn to cope with these policies. In fact, we have seen the trend improve in April. We cannot predict or control what the government will do, but we do believe our strategy and we’ll continue to focus on affordable developments in Tier II and III cities. Speculation has been lower in these cities and migrations to these cities continue to increase.

According to research of the Development Center of the State Council, the urbanization rate in China will grow at 0.9% annually during 2007 to 2020 and expected to reach 75% in 2017. We believe that urbanization and migration patterns will be the growth driver for the long-term development of the company. Overall, Xinyuan has strong financial position and ample cash presence, low debt ratio, and sizable land bank.

Our Shandong project will start pre-sales in the second quarter. As a result, we continue to be positive about our prospects for the future.

I will now turn the call over to Tom Gurnee, our Chief Financial Officer.

Tom Gurnee – Chief Financial Officer

Thank you. As noted by the Chairman, our sales results in the first quarter were less than expected due to the short-term effects of government policy pronouncements. But, as I will try to show you later in this call, margin and profit numbers were solid. After a drop in February, contract sales have sequentially increased in March and April and we look forward to a very strong May particularly with Jinan Splendid being launched this month. In short, our outlook for the year remains positive with sales and revenue guidance just slightly lower than our previous guidance, but with net income unchanged.

Let me talk about contract sales first. In the first quarter 2011, we recorded contract sales of 98 million which was 32% below the last year’s previous quarter, first quarter and 50% below last quarter and 15% below the company guidance provided last quarter. GFA sales comparisons are similar with virtually no price movement in the quarter. It should be noted again here that we have not lowered prices of any apartment category of any project. Anyway, it would be unfair to point the contract sales short fall versus guidance on Chinese New Year, although seasonality is definitely a key factor when comparing sequential quarters. In other words, we did factor Chinese New Year into our previous guidance. The primary reason we fell short of the first quarter contract sales expectations was the impact of additional mortgage and purchase restrictions imposed by central, regional and municipal governments.

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