Xinyuan Real Estate's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Xinyuan Real Estate Co. Ltd. (XIN)

Q1 2012 Earnings Call

May 09, 2012 08:00 a.m. ET

Executives

Helen Zhang – Financial Controller

Yong Zhang – Chairman and CEO

Tom Gurnee – CFO

Analysts

Kun Tao – Roth Capital Partners

Presentation

Operator

Good day everyone, and welcome to the Xinyuan Real Estate Company Limited First Quarter 2012 Earnings Conference Call. Today’s conference is being recorded. And at this time, I would like to turn the call over to Helen Zhang, Financial Controller. Please go ahead.

Helen Zhang

Hello everyone and welcome to Xinyuan’s first quarter 2012 earnings conference call. The company’s first quarter earnings result were released earlier today and are available on the 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 US Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our result might 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 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 second quarter of 2012.

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 thank you for joining us today. Our first quarter results were very good and exceed our 13% [inaudible] contract sales revenue and net income. Our project in Suzhuo, Zhengzhou and Xuzhou contributed the majority of total sales in the first quarter. Our quarterly decline in contract sales was less than expected [inaudible].

Return to the market after Chinese New Year it is the improved environment was a result of better mortgage availability and our introduction of discount on several projects. There were 10 active development projects in the first quarter with total GFA sales of 115,000 square meters.

Our presales schedule is on track in the first quarter. We [inaudible] to start presales of Zhengzhou Century East A in the third quarter after we see more sales from Century East B. Our two other key projects in Xuzhou and Zhengzhou are happy to start construction in the third quarter of this year.

We are pleased to raise our full year financial forecast. This reflects higher levels of contract sales in the current operating environment [inaudible] expected easing of purchase restrictions from the Chinese government this year. Our balance sheet remains very strong, and our quality development project in Tier-II and Tier-III cities will allow us to record continued growth in 2012.

Finally, we are very pleased to declare quarterly dividend of $0.04 per ADS as we announced separately. We are firmly committed to improving quarterly return to our shareholders.

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

Tom Gurnee

Thank you, Chairman. We had a very good first quarter of 2012 despite the slow start in January. Contract sales picked up nicely in February and March and continue to pace through April and has started well in the first nine days of May as well. We managed to exceed guidance not only for contract sales but also for revenue net income earnings per share. In short we are off to a good start in 2012.

Contract sales totaled RMB1 billion or a $160 million versus guidance of $105 million to $115 million, up 45% from the mid-point of guidance. Contract sales also compared well to the first quarter of 2011, up 63% from the year ago quarter.

GFA sold in the quarter 114,400 square meters compared favorably to 111,900 square meters sold in the fourth quarter of 2011 and just 81,600 square meters sold in the first quarter of 2011. Reported first quarter 2012 contract sales and GFA were both healthy despite being impacted by 137 sales contract cancellations at our Kunshan project.

If you recall, in 2010 the company did not recognize in its revenue calculations sales reversals of $43 million related to 348 apartments. The company took the position that contracts that were not clearly executable under prevailing government policy should not be recognized as revenue under the percentage of completion method. Please refer to our fourth quarter 2010 earnings release for clarification.

Thus these Q1 2012 Kunshan contract cancellations do not impact revenue under percentage of completion method as they’ve already been excluded from revenue calculations.

As of the end of the first quarter of 2012, 190 unrecognized contracts with a total value of $25.4 million remain outstanding as of the end of Q1 2012. A further 60 contracts have been cancelled in April. The reason for this seemingly sudden cancellations, is that the company initiated a contract cleanup initiative to resolve these old contracts one way or the other so that we may market more units. So long as these contracts were in place, we cannot offer it for sale the underlying apartment units.

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