Bill Zima - ICR, Investor Relations Lizhou Zhang - Chief Executive Officer Helen Zhang - Chief Financial Officer

Good day, everyone. And welcome to the Xinyuan Real Estate Company Limited Second Quarter 2017 Earnings Conference Call. Please note that today’s conference 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 second quarter 2017 earnings conference call. The company’s second 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 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 in 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. Lizhou Zhang, the Company’s Chief Executive Officer, who will comment on our operating results. He will be followed by Ms. Helen Zhang, 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. Now with that said, I would now like to turn the call over to Xinyuan’s CEO. Mr. Zhang, please go ahead.

Thank you, Bill. Good morning and thank you all for joining our second quarter 2017 earnings conference call. We are pleased to report the second quarter 2017 financial results were in line with expectations. Despite ongoing government restriction policies, we achieved 54% year-on-year contract sales growth and 30% year-on-year revenue growth. We are also pleased to report that we made five land acquisitions in China this quarter to further expand and establish our presence in new and old markets. Out of five new land purchases, two were made in Zhengzhou and the other three in Changsha respectively. Recently, we completed early redemption of the 13% senior notes due 2019. This lowers our debt levels and allows us more flexibility to develop our projects. While ongoing governmental policies still have impact on the overall real estate market in China we remain committed to our long term growth plans. We are confident that Xinyuan is well positioned to take advantage of opportunities through many different channels whether market is difficult or when it is seeing growth. We are also pleased to continue our quarterly dividend and share repurchase program which reflects our commitment to deliver value to our shareholders. Now please allow me to hand over to our CFO, Ms. Helen Zhang. Helen, please go ahead.

Thank you, Mr. Zhang. Hello everyone and welcome to Xinyuan's second quarter 2017 earnings conference call. Allow me to take you through the financial results for this quarter, further discuss our latest operations, initiatives and conclude by updating you on our financial outlook for the rest of the year. Contract sales increased 54% to $732 million from $474 million in the second quarter of 2016 and marks quarterly increase of 140%. Contract sales in China totaled $712 million in the second quarter up 50% from $474 million in the same quarter of $2016 and 25% [ph] quarterly. Total revenue increased 30% to $488 million from $777 million in the second quarter of 2016 and increased 74% from first quarter of 2017. Both the increases in contract sales and revenue have reflected the company's solid marketing performance and strong product demand under current restrictive policies. Total gross floor area sales in China were 410,000 square meters in the second quarter of 2017 up 19% year-on-year and up 192% from first quarter 2017. The average selling price for square meters sold in China was about RMB12,000 compared to about RMB9,000 in the second quarter of 2016 or about RMB11.8000 in the first quarter of this year. Selling, general and administrative expenses as a percentage of total revenue decreased to 9.9% from 11% in the second quarter of 2016 and 13% last quarter as a result of our efforts to control expense percentage. Net income was $21 million in the second quarter down from $28 million same quarter last year and up from $7 million end of first quarter this year. Diluted net earnings per ADS attributable to shareholders were $0.14, compared to $0.39 in the second quarter of 2016 and $0.11 per ADS in the first quarter of 2017. The net income this quarter ended lower than that of the same period last year mainly for three reasons. First, we spent more selling and distribution expense on commercial products to cope with under restrictions which have turned out to substantially support our revenue. Second, interest expense increased partly because our new bond issuance of $300 million U.S. was completed in February, yet our $2 million bond was redeemed in July which caused lower debt amount in this quarter. Another reason is some of our own financings in this quarter haven’t been capitalized yet. This from another perspective demonstrates the company's financing capability since most of our peers are facing financing challenges, both onshore and offshore. Our financing highlight will be discussed later. And the third reason is in the second quarter last year we enjoyed a one-time LVAT refund during the final settlement of one project totaling around US$9 million. Taking these factors into consideration, the company's overall operation in this quarter has been solid and we aim to further improve this during the second half of this year. And now let's come to balance sheet. As of June 30, 2017 the company's cash and cash equivalents including restricted cash increased to about US$1.3 billion from $1.25 billion as of the end of Q1 2017. Total debt outstanding is around $2.7 billion an increase of $320 million compared to $2.3 billion at end of first quarter this year. The incremental part is mainly domestic financing both company level and project level including a domestic bond issued in April totaling about RMB1.1 billion. The balance of the company's real estate properties under development at end of the second quarter this year was about $2.1 billion compared to $1.9 billion at the end of the first quarter of 2017. This number doesn't reflect all the new projects that we have purchased. Some of them are currently booked at other deposits considering project status. And then I'll come to project updates. During the second quarter we continued our strategy of expansion through strategic land acquisitions we increased our prices in Zhengzhou by acquiring two additional land parcels. One of them in prime location to fully expand our city pool development project which we originally announced in 2016. The other project is located around Zhengzhou's central business district, downtown of the city. We also expanded our presence in Kunshan market by securing a land parcel in an attractive location being auctioned by local port. The project will help refill our land bank around Shanghai where the company has already gained some reputation and track record. Additionally, we acquired a second project in the city of Xi'an, the capital of Shaanxi Province. We are confident for the market in Xi'an as it is the starting point of the so called economic belt which is part of the one belt where [indiscernible] China's largest inland port and logistics program to connect over 16 countries and 18 Chinese provinces. Apart from these existing markets we're glad to report that we have made our entrance into a new city, Zhuhai an important composition of Guangdong, Hong Kong and Macao Bay Area as mentioned in the annual government work report this year. With these five projects we have added a total about 800,000 square meters of planned development in the second quarter. These will support our growth up to years to come. Now, some update of our U.S. projects, all our three U.S. projects are proceeding in accordance well with our plan. For project Oosten in Brooklyn, it recognized the revenue of about $21 million this quarter which brings total revenue reported to $238 million year-to-date and construction loan has been prepaid. Also, the project has just been recognized by the Brooklyn Chamber of Commerce by winning the first residential condominium building category of the 2017 Building Brooklyn Awards. This is the first time that special award being won by a non-U.S. based developer. For project Hudson Garden in Manhattan we are continuing its foundation work in due course. And of our project RKO Theater in Flushing, the company has been continuing to execute on planning governmental approvals and pre-development of the ground-up development. And now debt refinancing, recently we announced the completion of the early redemption of the 13% senior notes due 2019. The refinancing improves our debt structure and allows us greater flexibility to continue executing our real estate development projects. And then our dividend and share repurchase. During the second quarter, we repurchased about 950,000 ADS’s at a total cost of about $4.7 billion. We also announced a cash dividend for the second quarter of 2017 of $0.10 per ADS, which will be paid to investors on September 15th to shareholders of record as of August 31st this year. We see our dividend policy as a long-term commitment for shareholders. And now, let's come to financial forecast for the rest of the year. For the third quarter this year we estimate our contract sales to be around RMB4 billion. This will make our total nine months contract sales to reach around RMB11 billion and 30% year-on-year growth compared to the same period 2016. And this concludes my prepared remarks for today's call. And operator, we will now open to questions.

Thank you. [Operator Instructions] Our first question comes from John Sheehy [ph] a Private Investor. Hello, your line is open. It appears Mr. Sheehy may have stepped away. Our next question comes from George Ghu [ph] a Private Investor.

Hi, what is your reason for such a high tax rate? It used to be I remember is like 30%, 40% tax, and now it is always 60%?

Our effective tax rate for the second quarter of this year is around 55% and if we compare the effective tax rate of last quarter it was 56%, so this quarter was lower than the previous one.

I see, but a few years ago, I remember that the tax rate was lower, you know just this year somehow the tax rate is higher, just can you clarify on that?

I don’t think the tax rate is much higher compared to previous years, but I guess two reasons, one is this year 45% of our sales are coming from commercial projects. So, commercial projects has higher LVAT tax rate compared to residential. And second one is we issued about $600 million bond and some of the interest expense hasn’t been capitalized in our projects which is not tax deductable.

Okay. Another question is what is the non-controlling interest, what entity is that since you pay a quite a bit of money after tax for that?

For this quarter there is one project named Zhengzhou International New City which attributed 50% of our overall contract sales. It was a joint venture between Xinyuan and another company and we hold 51%, the other party holds 49%.

Okay. Do you pay your tax in U.S. separately or is that accounted for the project in Brooklyn?

Yes, we pay tax in U.S. separately as long as we accrued net profit.

Okay, thank you.

You’re welcome.

[Operator Instructions] Our next question comes from John Sheehy, Private Investor.

Hello, everybody, thank you for the presentation, thank you for taking my call. I would like to ask Xinyuan’s website mentioned sales of RMB1.3 billion in two minutes at the Zhengzhou International New City project in June, can you explain how this was achieved and how the sales will be recognized in Xinyuan’s financial statements?

Okay, thank you John. Actually, the project you are talking about is the one we just talk about is Zhengzhou International New City. And we got this program COG [ph] subscription. The procedure goes like this. The potential buyers need to deposit RMB50,000 and then sign a letter of intent to become valid for this program. And then the company will illustrate the layouts of each housing unit online and then we announce an online pre-sale date. So, at the official start of the online pre-sale the units will be normally placed, or subscribed by the first applicant who chose it. So, under this program there were about 2,000 people who registered and then we had 970 units sold. And then the buyer was required to complete 30% down payment within certain time after the online pre-sales and then sign a formal purchase agreement. And I have to mention that these 200 people who registered on this program actually are qualified buyers under the restricted policy, that’s what had happened.

And how much of those sales were reported in the second quarter or were some of them not be recognized until the third quarter or later?

Most of the sales were reported within this quarter, because as I mentioned almost all of the buyers are qualified buyers under restriction policy and they paid 30% down payment after signing of the formal contract.

Okay, that’s great, that’s very helpful. And could you give us an update on Xinyuan’s Blockchain business?

As many peer companies in China, Xinyuan is also actively looking for opportunities to merge the traditional real estate and then cutting edge technologies. And to be more specific our program actually is called [indiscernible] which is aimed to utilize the Blockchain technology to provide credit evaluation services related to property transactions. And this is the update and then we will readily disclose if anything material happens.

Okay, thank you. And my last question is, can you give us an update about Xinyuan’s land acquisition plans for the rest of this year?

We had a budget for land acquisitions this year. The budget is in the range of RMB7 billion to RMB8 billion RMB. And this year we already paid RMB3 billion for certain projects we already acquired and the unpaid amount related to the projects we acquired is about RMB2 billion. And then for the rest of this year probably we’re going to spend another RMB2 billion for merger and acquisitions. We will see the change of the market if more opportunities are coming up, if it fits the criteria of the company and we will see whether we are going to spend more or less, that’s the plan.

That’s great, thank you for those answers.

You’re welcome.

[Operator Instructions] It appears we have no other questions at this time. I would now like to turn the conference back over to management for any additional or closing remarks.

And we thank you very much 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 very much.

That does conclude today's conference. Thank you for your participation.