Bill Zima - ICR Yong Zhang - Chairman George Liu - Chief Financial Officer

Karen Kwan - Deutsche Bank Richard Geronimo - Private Investor Peter Meyers - Private Investor

Good day, everyone, and welcome to the Xinyuan Real Estate Company Limited Fourth Quarter 2015 Earnings Conference Call. Please note that today’s call is being recorded. I would now like to turn the conference over to Mr. Bill Zima of ICR. Please go ahead.

Hello, everyone, and welcome to Xinyuan’s fourth quarter 2015 earnings conference call. The company’s fourth quarter earnings results 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 the 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 risks and uncertainties. As such our results will 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 U.S. 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, the company’s Chairman, who will comment on our operating results. He will be followed by Mr. George Liu, the company’s Chief Financial Officer, who will provide some additional color on Xinyuan’s performance, review the company’s financial results and discuss the financial outlook. Following management’s prepared remarks, we will open up the call to questions. During the Q&A session Mr. Zhang will speak in Mandarin and his comments will be translated into English. With that said, I would now like to turn the call over to Xinyuan’s Chairman, Mr. Zhang. Please go ahead.

Good morning and thank you all for joining our fourth quarter 2015 earnings conference call. We’re very pleased with our fourth quarter and full year 2015 results. Growth was driven by stronger sales activities essentially for our projects in tier 2 cities. We also continue to benefit from favorable government policies in real estate discount industry, which help in driving GFA sales. During the course of 2015, it was timely to acting [ph] development projects including our Oosten project in numerous cities, which represents a record for Xinyuan. Moving into 2016, we are optimistic about the projects in our existing markets. We also intend to acquire new land at which instances, positive trend in the overseas market. Xinyuan’s management is committed to driving contract sales and net income closing [ph] in this year. We’ll continue our commitment to our shareholders through our imminent policies and share the projects’ progress. Now, please allow me to turn the call over to our CFO Mr. George Liu. George, please go ahead.

Thank you, Chairman. Hello everyone and welcome to Xinyuan’s fourth quarter 2015 earnings conference call. We are pleased with our fourth quarter 2015 financial performance, and continue to make good progress on our development activities. Overall there were several positive developments for Xinyuan in the fourth quarter. Favorable government policies in China’s real-estate sector including easy monetary policies, relaxed home purchase and lower down-payments hence supported the markets we serve. Now, please allow me to further review our financial results for the fourth quarter 2015. Contract sales increased by 42.6% to $574.5 million from $402.6 million in the fourth quarter of 2014 and increased by 85.4% from $309.7 million in the third quarter of 2015. Total gross floor area sales increased by 66.9% to 420,900 square meters from 252,200 square meters sold in the fourth quarter of 2014 and increased by 80.4% from 233,300 square meters sold in the third quarter of 2015. The average selling price per square meter sold was RMB8,492 or $1,364, in the fourth quarter of 2015 compared to RMB9,806 or $1,596, in the fourth quarter of 2014 and RMB8,196, or to $1,328 in the third quarter of 2015. The company commenced pre-sales of two new projects in the fourth quarter of 2015, Zhengzhou Fancy City and Tianjin Spring Royal Palace, which contributed 13.7% and 3.3% of total GFA sales respectively. Total revenue for the fourth quarter increased by 13.9% to $413.6 million from $362.9 million in the fourth quarter of 2014 and increased by 33.9 % from $309 million in the third quarter of 2015. Gross profit for the fourth quarter of 2015 was $81.4 million, or 19.7% of revenue, compared to a gross profit of $96.1 million or 26.5% of revenue, in the fourth quarter of 2014 and a gross profit of $82.7 million, or 26.8% of revenue, in the third quarter of 2015. SG&A expenses were $55.2 million for the fourth quarter of 2015 compared to $53.1 million for the fourth quarter of 2014 and $48.8 million for the third quarter of 2015. As a percentage of total revenue, SG&A expenses were 13.3% compared to 14.6% in the fourth quarter of 2014 and 15.8% in the third quarter of 2015. Net income for the fourth quarter of 2015 was $19.1 million compared to $23.8 million for the fourth quarter of 2014 and $22.7 million for the third quarter of 2015. We saw higher levels of low-margin units in tier 2 cities during fourth quarter, which had an impact on our net profit. Diluted net earnings per ADS attributable to shareholders, was $0.26 compared to $0.30 per ADS in the fourth quarter of 2014 and $0.31 per ADS in the third quarter of 2015. Now, allow me to quickly review the highlights of our full-year 2015 financial results. For the year ended December 31. 2015, total revenues increased 26.6% to $1.1643 billion from $919.7 million in 2014. GFA sales increased 56.7% to 986,100 square meters from 629,100 square meters in 2014. Contract sales increased 34.5% to $1.4011 billion from $1.0416 billion in 2014. Gross profit was $273 million or 23.4% of revenue in 2015 compared to a gross profit of $242.2 million or 26.3% of revenue in 2014. The company commenced pre-sales on six projects in 2015. SG&A expenses were $167.5 million or 14.4% of revenue compared to $145.1 million or 15.8% of revenue in 2014. Net income was $66.5 million in 2015 compared to $48.5 million in 2014. Diluted earnings per ADS were $0.91 in 2015 compared to $0.58 per ADS in 2014. As of December 31, 2015, Xinyuan’s cash and cash equivalents, including restricted cash, increased to $750.7 million from $555.9 million as of September 30, 2015. Total debt outstanding was $1.74 billion, a decrease of $52.2 million compared to $1.79 billion at the end of the third quarter of 2015. The balance of our real estate property under development at the end of the fourth quarter of 2015 was $1.88 billion compared to $2.01 billion at the end of the third quarter of 2015. During the fourth quarter of 2015, we continued to make good progress in our Oosten project based in Brooklyn, New York. As of the end of the fourth quarter, we had pre-sold approximately 64% of its total units. Unit demands with [indiscernible] at our project and average selling prices were also very healthy in the fourth quarter. Last month, we acquired our second land parcel in New York City to expand our presence in this residential real estate development market. This city block from parcel of land located in the midtown of Manhattan, allows for approximately 105,000 square feet or 9,755 square meters of gross build-able development. The company’s plan for the next year projects, include approximately 75 to 90, one and two-bed room condo with rest rooms with remarkable amenities and the landscape real estate as well as approximately 20,000 square feet of ground floor retail space. We look forward to providing you with updates on this project in the months ahead. As we move into 2016, we hope to benefit for our existing government real estate policing, incrementing over the last year as well as from the more recent government policies implemented since the start of this year such as lower taxes on home transactions, which could also benefit home buyers in the market that we serve. We have made strides improving our balance sheet, highlighted by our increased cash position, lower debt level and improve coupon rates associated with our outstanding debt. In December 2015 and February 2016, our China subsidiary completed the issuance of our First and Second Tranche of Onshore Corporate Bonds in China. The issue size of the First Tranche Bonds is RMB1 billion, with a coupon rate of 7.5% and the issue size of the Second Tranche Bonds is RMB700 million with a coupon rate of 7.47%. In the fourth quarter of 2015, we repurchased 495,759 ADS at a total cost of approximately $1.7 million. For the full year 2015 we will purchase 1.09 million ADS at a total cost of approximately $3.35 million. Today, we also announced a cash dividend for the fourth of 2015 of $0.025 per common share or $0.05 per ADS, which will be paid to investors on March 29, 2016 to shareholders of record as of March 15, 2016 of this year. At this time, we do not have any intention to change our dividend or share repurchase policies. Now, I would like to conclude my comments by discussing our full year financial outlook of 2016. While uncertainty spilled demand in China real estate market, we expect the favorable government policies to drive additional demand for our projects. For the full year of 2016, we expect contract sales to grow between 10% to 15% and net income to grow, between, 15% to 20% compared to the prior year period i.e. 2015. Please note that our 2016 forecast also include a partial contribution for our Oosten project in Brooklyn. This concludes my prepared remarks for today's call. Operator, we are now ready to take some questions. Thank you.

[Operator Instructions]. We’ll take our first question from Greg Mary [ph].

Yes, I had a question regarding the 2016 operations. You were saying sales were going to be up 10% to 15% that indicates if that includes the Oosten project that indicates that China sales will be down roughly 10% to 15% because, if completed in 2016 would account for 30% to 35% of revenues not quite that much contract sales? Thank you.

As we have already elaborated in my remarks, our 2016 forecast already include a partial contribution for our Oosten project in Brooklyn. You are right that we probably account between, 30% to 40% of our Oosten project in our 2016 financials.

Okay. One last question on Oosten. You should be getting fairly close to the completion of the construction phase. What is your total estimated construction cost on the Oosten project?

We are still finalizing the number but I would suspect that any total cost of the Oosten project is probably in the range of $200 million to $300 million.

That’s a pretty wide range.

Yes, it is but as, you know that all those regulations in the space is very heavy. We are yet to finalize all those regulatory requirements.

Okay, thank you very much.

Thank you.

We’ll go next to Karen Kwan with Deutsche Bank.

Hi, I have a few questions. First of all, can you let us know what the 2015 capitalized interest was? And secondly, any plans for onshore asset backed securities issuance or offshore bond issuance? And my last question is, what is, your expectation of foreign currency debt as a portion of total debt at the end of 2016? Thanks a lot.

Firstly our capitalized interest for the full year, for the fourth quarter it’s roughly around $40 million. So for the full year you’ll probably expect something like around $150 million. And your second question is about the onshore bond, yes, we have got approval from the authority to issue RMB2.2 billion onshore bonds. We have issued already RMB1.7 billion and we do plan to issue the rest RMB500 million in near future. Whether we are going to do it more, if the market is good and cost is low, I would consider we have good idea to issue further low-cost onshore bond to kind of further reduce our financing costs. And I didn’t quite get your third question, you are talking about some numbers, can you repeat it?

Sure, basically at the end of 2016, what do you expect the portion of foreign currency debt, like U.S. dollar, Hong Kong dollar as a percentage of total debt?

At the end of this year, we are still expecting, we haven’t - actually we haven’t decided on how much offshore debt we are going to retire this year. But I would still expect roughly 15% to 30%, 15% to 25% of our debt will be - will remain in foreign currency.

Thanks a lot.

Thank you.

[Operator Instructions]. We’ll go next to Richard Geronimo.

Hi, George. How are you?

Good, how are you?

I’m good thank you. Couple of questions, it appears that Malaysia is doing a little better. Is there any interest in the project there?

We do have a, kind of an option like that we have acquired in Malaysia project. Are we going to do? This is probably not one of our, focus in future market development. But we thought our Malaysia project at a very low price. So if any up-trend in local market actually increases our value, upholding that project.

Okay, great. Thanks. Now, with the tranches you just completed and potentially more. Do the 13.25 bonds in the U.S. denominated, does that come into play or are you going to try to reduce your Chinese bonds before?

We actually haven’t issued any Chinese bond before these two tranches. So, this is like the first time ever that Xinyuan has made a presence in the domestic capital market of China, which definitely also attracts some attention of domestic investors in both our bonds and our equities. Are we going to retire our offshore bonds, we don’t know for the moment. But we are evaluating - actively evaluating any kind of possible options to have us reduce our financing cost. And accrual of onshore bonds is definitely an option on the table.

Okay, great. So, with that money that you would receive, are prices becoming more reasonable in China that you might purchase more land or what do you have in mind as far as increasing your, I mean, as we all know you have to buy good land at a good location at a reasonable price to make money in a real-estate development company. So, what are your thoughts about that?

We are going to, we do. Yes, we do plan to acquire more lands this year than last year. But still it will be less than 2014. And actually in the first quarter of 2016 we have acquired a few land parcels, land lots in Zhengzhou and in Beijing. So, we actually - but all those fields are being finalized. And once we do plan new announcement once it has been fully finalized.

That’s good news, okay. I appreciate it. And thank you very much.

Thank you.

[Operator Instructions]. We’ll go next to Brett Mayo [ph].

Yes, hi, George.

Hi.

First off, a shout out to management, a good execution, good quarter, the net margin was a little lower than I might have thought but I thought that they - explanation of kind of turning through, for lack of a better word, higher levels of low-cost buildings in the tier 2 cities drove the margins down a little bit, if I understood that right. One question, what are your thoughts on the Yuan devaluation and is that a big deal for XIN or not? And if it is a big deal, are there any things that you all are trying to do to kind of hedge your risk on that?

Certainly, we are watching now for those currency depression issues. So, if at all possible, we are going to match our U.S. dollar liabilities with our U.S. dollar access in hopefully ASAP. And also, we are, for instance, we are using our domestic financing to cover our domestic real-estate environment in China. That helps to balance our currency risks. And about lower margin, I guess this has probably raised some queries in the minds of some of our investors. In a way, consider that in a market that is not so good, only good products pass. That’s why we actually had a better margin in the second quarter of last year. But in the fourth quarter, when you see our contract sales and GFA sales have increased significantly. That means that given that not so good projects and not so good markets in tier 2 cities, that’s being selling well which is actually a good sign for the overall performance of this company. Thank you.

Yes, that’s actually a great answer and thank you for that color on that. And just to you personally George, I would say the road shows in New York, in Beijing and the hard work pushing through the onshore bonds and all that I could not be happier with the job that you’re doing. A question on the Oosten project in New York, I read the 64% are sold. When will, or to the best of your knowledge, when will the revenue and profit start being reported, I know that you said partial contribution in I guess towards the end of this year. But are you saying that probably 30% or 40% of the Oosten, the expenses and profits from it will come in this year and the balance of the 60% or 70% will into 2017’s numbers or just some color on when we might expect to starting being able to kind of measure? I think back in the envelope we know that Oosten has been a great success and it’s really good. But it would be nice to start seeing the actual numbers come in from that project.

Yes, that’s right. I would say that at the moment, the best estimate for the booking of Oosten project is what probably we would put 30% to 40% of the project in 2016 and another 30% to 40% in 2017 and the rest will probably be put in 2018.

All right. Thank you George again. Good quarter and great job on the road shows, New York, Beijing, getting the company’s name out there. And really good job on onshore bonds, whoever the group was that helped to work on that. Thank you, George.

Okay, thank you.

[Operator Instructions]. We have a follow-up question from Richard Geronimo.

Yes, George, you mentioned getting into the cinema business and I was wondering how that is helping Xinyuan. And also, you mentioned potential partnerships or some diversity, what can you tell us about that?

Yes, cinema business, we have invested actually a very amount of money, it’s probably less than $2 million for the moment. It does help our business. One of the things is that, we are able to have cinemas in other projects that we are developing. And we actually have a better bargaining too with the other cinema chains that are probably better brands and bigger chains but now since we have our chain we actually have a big bargaining to negotiate with them. And of course, there is also a good chance that we might be able to spin-off this cinema chain in a couple of years. So, this was one thing. But so far it’s a small investment and I think we are getting because even in terms of promotion is, what is money. And apart from cinema business, we are also exploring some new initiatives, one is like the property management we’re trying to coupon the proxy management with some of the interest investment and hopefully this could increase the value of those businesses. And we are working on certain projects to see whether we are able to spin it off in terms of China for instance or in other possible star changes. And again, this is a small part of our business. And we are also taking other initiatives. And in general our investments on those new initiatives, is very small. If we add them altogether it’s probably like a portion of one land lot we acquired. So we don’t want to raise the expectations of our investors. But we do think that accounting led us to explore to spend - at least to spend some money to explore some new opportunities apart from working well and hard on our core business of home building.

No, I think actually any type of public relations that puts Xinyuan’s name out there is a very healthy thing regardless of the investment. Hopefully the return will be very healthy. Then the next question is, every company wants to expand and get larger and you mentioned a while ago that you were talking about some potential partnerships. Is there any fruition going on there?

Yes, we are partnering with a few outside partners to develop our projects as well. One, of the recent environment is that, in a new land lots that we acquired in Zhengzhou where this company was founded, we have filed a partnership with [indiscernible] Group on developing those real estate projects. And we’re also having partnership with other partners in other projects, like we also have a partner in Xi'an that we might buy if the project goes well, but so far we are still having a third party partner in that project. And generally of course, if the terms are good we are open to any kind of partnership.

Okay, thank you. I’m impressed with the chairman’s English. It’s getting better every quarter and also I would go along with Ryan Mayo and say, congratulations on a good quarter. And hopefully it will continue.

Thank you.

We have another follow-up question from Karen Kwan with Deutsche Bank.

Hi George, sorry, couple of maintenance questions. First of all, can you give us any cash flow guidance for 2016? Secondly, what was your 2015 depreciation and amortization? And lastly, any sort of 2016 level for total resources that you can disclose?

Because you are asking some projected numbers of 2016, it’s probably hard to elaborate those, the detailed numbers at this moment. So, if you want to look at the numbers of our last year, you are expecting [indiscernible] that will commence very soon. So, probably in a few weeks, it’s advisable for you to look into details in 2015 filing. And about the depreciation, actually when we look at, if you look at the numbers that of our balance sheet you can actually, you can look at, you can actually see from the portion of shareholders equity that you can kind of get an idea. Our RMB depreciation, even though our RMB denominated shares equity had increased but our U.S. denominated shares equity has decreased a little bit. And the impact is probably around $60 million to $80 million.

I’m sorry, I don’t mean the renminbi depreciation I just mean normal property depreciation and amortization.

Okay. Normal depreciation is roughly $5 million last year.

Great. Thanks a lot.

Thank you.

It’s really a small amount in the size, in the context of this company size.

We’ll go next to Peter Meyers.

Hi, this is Peter. I apologize if my question has already been answered. Some of the sound quality has not been good, I apologize for that. I’m a little puzzled this is a very general question. I see that contract sales in Q4 are well up from last year and the previous quarter and the same for total gross flow area, revenues are well up expenses are not well up. So, I’m trying to understand why net income for the fourth quarter is down in relation to the previous quarter Q3 and also in relation to the previous year. Is it because prices per unit have fallen greatly in China and also because of the exchange rates or have I misunderstood. I hope the question is clear, revenues, physical measures like gross flow area, contract sales are well up, revenues are well up, costs are not well up and yet profit, net income per ADS is not up, it’s down in relation to the previous quarter and also last year. So, I’m trying to understand why that is?

Your Chinese is also very good. This question I actually have kind of described a little bit in the last reply. But I can elaborate it further in trying to give you an idea. Basically, the same implies in the China real estate market, it’s actually getting better. It’s getting actually crazy in recent weeks but it’s getting better in the last quarter of last year, I mean, 2015. And one of the main reasons, main drivers why the contract sales is up, GFA sales is up. But the property’s fund is mainly because the margin of the projects that we sold is lower as compared of the margin of the projects we sold - we have sold in the quarter before or in the same quarter of the prior year. And this is in a way it’s actually a good sign, because in the markets as you might know that usually the good products sells faster and earlier than the bad products. So in the last quarter of 2015, there is one of the reasons that caused this is because we are able to sell some of our bad projects or I’ll say the project with lower margins in a much bigger scale than the quarter before and the quarter in the prior year. That is increase of our asset turnover, which is a good sign for the market and for this company. And otherwise those projects just remain in our books in inventory while the selling actually very slow. So, generally that is the main course of such numbers as you correctly pointed out.

Okay. So, there has been a bit of a mix shift if I understand a mix shift towards projects with lower margin. What then happened to the kind of projects that were going in the previous quarter, Q3 and last year? Are there just fewer of those kinds where the margins were higher and hence income per ADS was higher? Are there fewer of those on your books now than they were before or have they gone into hibernation a bit with prices not being so good? In other words, what’s the prognosis for the future regarding net income per ADS please? Thank you.

Generally speaking, the margin of the real estate projects, are actually getting smaller as compared with prior years. That’s an industry trend it’s not just Xinyuan. Everyone is going down. But in our specific particular case, we are actually raising our pricing in our good products. And just to make it, and also it might be worth mention that even in the same project there are good products and bad products. And we intend since the pricing of those good projects, it’s actually getting running high in a crazy way so we are raising our price significantly basically we slow down the sales of our good products while we are trying to push sales of our bad products in such a heated market. I then give you two interesting examples, like one of the bestselling project, is, our Suzhou project. We’ve raised average price of the Suzhou project from around 9,500 per square meter in September to roughly 15,000 per square meter in December of last year. And for Shanghai project, we were selling in 22,000 in February of 2016 but as you might know the real estate market in Shanghai is getting overheated so we probably will increase 30% to 40% of our pricing in March or in April. So, that would definitely spill down our sales but actually will increase the value of our inventory but for the inventory, for the projects that we are not that certain of its future sales when the market turns sour. And we are still pushing big sales of those projects.

I still have one more question if you don’t mind. It’s a very general one, I’m just an individual investor and it’s the kind of question that maybe proper analysts can’t answer so I have an advantage there. It appears to me having been a shareholder for many years that your net income per ADS is now approximately $1 per year, one $1 per year and that you have been for a long time and continue to give away one fifth of that, 20% in dividends. The share price is barely even $4 so your dividend rate is 5%. And your price to earnings ratio is extremely low, presently about $4 if I calculate right, share price $4, net income per ADS about $1. Do you have anything that you can offer in the way of public relations or speaking to American shareholders in general that would increase such an absurdly low price to earnings ratio? Maybe just to general but something seem wrong here, you have a great company, your accounting is complete honest. You have genuine auditors, you have a genuine business. But there are a lot of Chinese businesses that maybe on that way but yours is just of a very high quality. So it doesn’t seem acceptable that the PE is so low, given that the business is so good. Is there anything that you could say to the public, to the American market or Wall Street, like to improve the situation?

Yes, we understand your concerns. As you know I just came on board in last April, less than a year. And once I have come to board, with the support of our Chairman and the Board we start doing more in this regard. And the share price has since increased roughly 80% and if you add out the dividends you have received, you basically got probably 100% return in the last 52 weeks. Are we going to do better, we certainly hope so. And we do plan to do more in terms of both PR and IR and media exposure. But again, whether our stock will be popular, we’ll be chased by the investors, remains to be tested by the market. But I assure that, across the board, the Chairman and myself, will do every effort to increase shareholders’ return.

All right. Thank you for taking the time to answer such a general question.

Thank you.

At this time, I’d like to turn the conference back to management for any additional or closing remarks.

We thank you for joining us on today’s call. And appreciate your ongoing support. We look forward to updating you on our progress in the weeks and months ahead. Thank you again.

This concludes today’s conference. You may now disconnect.