Good day, everyone, and welcome to the Xinyuan Real Estate Co., Ltd. Second Quarter 2019 Earnings Conference Call. Please note that today's call is being recorded. I would now like to turn the conference call over to Mr. Bill Zima of ICR. Please go ahead.

Hello, everyone, and welcome to Xinyuan's second quarter 2019 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 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 Form 20-F and in other documents filed with the US Securities and Exchange Commission. Xinyuan does not assume any obligations to update any forward-looking statements, except as required under applicable law. Today, you will hear from Mr. Yong Zhang, the company's Chairman and Chief Executive Officer, who will comment on the company’s operating results. He will be followed by Mr. Brian Chen, 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. 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 2019 earnings conference call. We're pleased to announce that, in the first half of 2019, Xinyuan maintained a stable growth and commenced pre-sales of three new projects in China. Total revenue of contracts signed in the first half was $1,080 million [ph], representing a 5.2% increase compared to 1,026.7 million [ph] in the first half of 2018. In addition, we achieved top and bottom line growth despite downward pressure on sales across the industry. In the first half of 2019, total revenue increased 103.5% year-over-year. However, we were able to reduce SG&A expenses as a percentage of total revenue to 11% in the first half from 16.4% in the first half of 2018. As a result, gross profit increased by 96% year-over-year and the net income was $38 million compared to net loss of $22 million in the first half of 2018. Furthermore, our overseas projects continue to proceed as planned and presales of our Manhattan projects are expected to launch at the end of the fourth quarter of 2019. We are also pleased to be able to continue to deliver value to our shareholders with another dividend payment this quarter. Despite market and political uncertainties, we remain optimistic about our ability to achieve positive operating performance. We will remain focused on our core business, leveraging our competitive advantage and strengthening our market-leading position. Now, please allow me to turn the call over to our CFO, Mr. Brian Chen.

Thank you, Mr. Zhang. Hello, everyone. Welcome to Xinyuan second quarter 2019 earnings conference call. Allow me to take you through the financial results for this quarter, further discuss our latest operations and initiatives, and conclude by updating you on our financial outlook for the remainder of the year. Please note that all figures are in US dollar terms unless otherwise stated. As mentioned by Mr. Zhang earlier, we had a pretty good sales first half of this year. The total contract sales in RMB terms for the first half of the year was RMB 7.3 billion, representing a 12% increase compared to the RMB 6.5 billion in the first half of last year. In terms of the overseas contract sales, which is only counting those contract sales that have over 30% of the down payment, the amount increased by 3.4% to RMB 6.8 billion from RMB 6.45 billion in the first half of 2018. Contract sales were $507.4 million in the second quarter of 2019 compared to $633.9 million in the second quarter of 2018 and $479.7 million in the first quarter of the year. Total GFA sales in China were about 233,200 square meters in the second quarter comparing to 282,900 square meters in the same quarter last year and 411,400 square meters last quarter. Total revenue increased by 71.3% to $609.4 million from $355.8 million in the second quarter of 2018 and increased by 30% from about $458.9 million in the first quarter of the year. The average selling price per square meter sold in China was about RMB 14,800 in the second quarter of 2019 comparing to about RMB 15,300 in the last quarter and about RMB 14,200 in the second quarter of 2018. SG&A expense as a percentage of the total revenue decreased to only 10.3% from the 13.2% in the second quarter of 2018 and 12% in the first quarter of 2019. Interest expense this quarter was about $28.4 million comparing to about $24.3 million last quarter and $24.7 million in the same quarter last year. Due to FX, our exchange fluctuation, exchange loss in this quarter was about $4.4 million comparing to about $3.5 million exchange gain last year. Altogether, for the first half of this year, the net FX loss is about $0.9 million, which is offset by the hedge we put down this year. So, the net FX impact is close to nil for this year-to-date. Net income for the second quarter increased to $19.8 million comparing to a net loss of $9.3 million for the second quarter of 2018. Diluted net earnings per ADS considerable to shareholders were $0.19 comparing to a net loss of $0.10 per ADS in the second quarter of 2018. The company repurchased about 1.4 million ADS in the second quarter of 2019. On the balance sheet side, as at June 30, 2019, the company maintained a really strong cash and cash equivalent position. Including the restricted cash, the position is about $1 billion comparing to $1.1 billion as of March 31, 2019. Total debt outstanding was about $3.6 billion, increasing from about $3.5 billion at the end of the first quarter of 2019. The balance of the company's real estate properties and the development at the end of the quarter of 2019 was about $3.8 billion comparing to $4 billion at the end of the first quarter of 2019. Shareholders' equity at the end of the second quarter of 2019 was about $753 million comparing to about $769 million at the end of the first quarter of 2019. The slight decrease of $16 million in shareholders' equity is mainly impacted by the FX impact, which is about $24 million. Project update. As at June 30, 2019, our total unsold land bank was about 5.2 million square meters. On US project update, as at June 30, 2019, our Oosten project in Brooklyn, New York, has recognized total revenue of about $250.1 million from the sales of 173 units out of the total of 216 total units. The BLOOM ON FORTY FIFTH project, which is our Hudson Garden project in Manhattan Hell's Kitchen, completed the superstructure construction and closed out 90% of its external walls and windows. During the past year, the project design drawings were optimized and the total number of units subsequently increased from 82 to 92. 29,000 square feet of the project, 38,000 square feet of total retail space, has been leased to US department store retailer, Target, for a 20-year term. Pre-sales are expected to begin at the end of the fourth quarter this year. We continue to execute on the pending governmental approval and predevelopment activities of the RKO project, which is our ground-up development project in Flushing, New York. After the Landmark Protection Committee's approval on our landmark protection plan, we were awarded with a Certificate of Appropriateness. [indiscernible] work of the site's landmark artifacts was completed at the end of February 2019. The artifacts are now stored in a warehouse for restoration work. UK project update. The second quarter of 2019, the structural frame of The Madison in London was completed and construction remains on track for completion in 2020. By the end of the second quarter of 2019, all of the 104 affordable housing apartments of the project had been presold. Of the remaining 319 apartments, 134 apartments have been sold. In terms of the leasing at our Xinyuan property management subsidiary, our Xinyuan property management company subsidiary has achieved rapid growth in recent years. To further drive its development, we have applied to list the subsidiary in Hong Kong. The listing is expected to be completed around the end of September this year. After the listing, we will continue to be the controlling shareholder and we will fully consolidate the subsidiary or company. We believe that listing on a high-quality platform where many of its peers are listed will benefit all our shareholders. On the dividends side, we announced a cash dividend for the second quarter of 2019 of $0.10 per ADS which we will pay before September 17, 2019 to shareholders of record as at September 3, 2019. And finally, on to our full-year 2019 financial forecast. For the full year of 2019, we expect an increase in the contract sales of about 10% and an increase in consolidated net income of 15% to 20% over 2018. This concludes my prepared remarks for today's call. Operator, we are now ready to take some questions.

Thank you. [Operator Instructions]. And we will take our first question with Alexandria Wang [ph] with Citibank. Please go ahead.

Hi. I have three questions. The first one would be, what is the actual cash flow in first half 2019 and the cash flow guidance for 2019 full year? My second question would be that, what is the breakdown of total debt as of the first half of 2019 and how much is the onshore non-bank borrowing? And how much did we finance during the second half? And then, my last question would be, what is the on-book revenue in the estimated GPM? Thank you.

I would like to answer the second question first. I may need you to repeat the first and third one. The voice is a little bit low. In terms of the outstanding loan as at the end of the Q2, we had overall $3.6 billion. Out of the $3.6 billion, 61% coming from onshore and 39% coming from offshore. So, the 61% onshore, 30% of them coming from the construction loan extended by the mainstream bank and 24% also construction and land loan related loan from the trusts. And 7% of the onshore is coming from onshore corporate bonds. In terms of the offshore debt, 31% of them coming from the senior notes and 3% coming from back-to-back loans. And this remaining 5% coming from EB-5 and some local construction loans from a local financial institution in New York. In terms of the first one, I cannot catch the question. Can anyone repeat that? Do you mind repeating your first question?

Yeah, yeah, yeah. Sure. Yeah, sure. Yeah, sorry if I was a little bit unclear. So, what was the actual cash flow in first half 2019 and what is the cash flow guidance for the full year 2019? Thank you.

So, in terms of the cash movement for the first half of the year, we are starting – we had collected the cash payment from the clients of about RMB 6.3 billion and had a return. So, the land acquisition sum [ph] are about RMB 1 million. And the expenditure on the land is about RMB 19 million and construction expenditure is about RMB 30.4 million. And the tax payout is RMB 10.4 million. And the other operating expenditure is about RMB 10.4 million. RMB 7.4 million is also used on the repurchase of the share and bonds and dividend payout. At the same time, we drew down another RMB 6.9 billion loan. And we're paying back RMB 5.8 billion and we paid interest of RMB 1 billion. So, at the beginning, we have about RMB 8.2 billion cash at the end in RMB 7 billion. This is RMB. What's your third question?

Thank you. Thank you very much. I will repeat my last question. What is the on-book revenue in the estimated GPM? Thank you.

Thank you. Would you please repeat that question? We don't actually catch it.

Yeah, sure. What is the on-book revenue in estimated GPM? Thank you.

GPM, you mean gross profit margin? Sorry, what you mean the on-book revenue? Do you mean the deposit we collect for the customer or do you mean the deferred revenue?

Hi. If you have the information on both – it will be great if you can provide both, please. Thank you.

You need a number as at the – for the first half of the year or do you mean a forecast for the end of the year in terms of the gross profit margin?

Again, if you could provide both, it would be great. Thank you.

Gross profit margin for the first half of the year is 27%. We estimate the whole year is about 26%. So, maybe we can move on to the next person.

Thank you. We'll take our next question from Edward Choi with TT International HK. Please go ahead.

Hi, management. Thank you for allowing me asking a question. So, the first question I have is about your capital structure. As I looked at that, we're glad to see that – at least your net gearing and also cash to short-term debt has been at least stabilized in the second quarter. But at the end of the day, your bonds are trading at 14%, 15 yield. You're still showing a lot of liquidity question mark regarding your capital structure. Can you share us your thoughts about how do you want to tackle your total debt pile? Are you thinking about – how are you going to do reduce your leverage going forward? Are you going to slow down some land acquisition going forward like some of your peers? What do you think about it? And also, even from an equity standpoint, so a substantial portion of your operating profit actually went to interest payment. And once again, your bonds are trading at 14% and 15%. So, how do you balance the interest between your equity shareholder and your debt – bondholders? How do you balance the two of them? Because your dividend payment is definitely high that we're very glad on it, but if you're pulling back the debt here, we will never get the net profit for our equity side of the valuation. So, how do you balance the interest between the equity side and the debt side, between the stock buyback and also your dividend payout and also your cost of financing? Thank you.

Thanks for the question. Good question. We did acknowledge that, although the situation has stabilized, but our overall debt is pretty high. But let me specify that, although the overall debt amount has increased, but structure wise, the current portion of this long-term debt has improved significantly. If we look at the current portion of all this long-term debt, you recall, by the end of the Q1, 51.9% of the overall debt, they are current. Now, through the whole quarter's optimization and operation, the current component already go down to 33.6%, which means that the current portion of this overall debt reduced by 33.8%. It's still high. So, from the overall debt pile, our intention is to have the overall balance – bring it under control and reduce it in the next three to six months. We'll achieve this through a few means. First of all, we will improve our performance by increase the profitability, improve the turnover, more cash generated coming from the operating activity. We'll use this fund to pay down certain outstanding debt. As at this point, facing the current portion of the debt, which mature in the next 12 months, we are either laying down funding prepared for those debt payments. Or some of them, as at this point, we already pay it down. So, overall, you will see a decrease of the overall debt as well as the improve of the debt related ratio in a quarter or two. We do need to strike a good balance between our equity shareholder and the debt holder. We want to maintain a track record and pay out consistent dividend to our equity shareholder, but we only do so by doing a careful cash planning and make sure that we have sufficient funds to not only keep the liquidity at our operation, but have all the funds prepared to deal with the maturity of our debt out there. Overall, we'll need to strike this balance. As time passing by, when we improve our profitability and when we tap into further equity issuance opportunity, we believe that, in a few quarters, we will have a good balance between – a better balance between the equity investor and the debt investor. The overall cost of the borrowing or the overall cost of the capital will reduce in two to three quarter. I hope I have answered your question.

Thank you. And also, I have a second question. So, in terms of your FX exposure because majority of your cash flow is inside China, so do you hedge your US dollar bond? So, what is your currency FX policy going forward? Are you planning to hedge? Or are you planning to reduce your US dollar exposure?

Yeah. Majority of our FX exposure, which is those – when you talk about those US dollar denominated senior notes, it was listed in our US dollar functional currency entity. So, they're not subject to the FX fluctuation. The only exposure is coming from some intercompany loans that the overseas subsidiary extend to the Chinese domestic entity. [indiscernible], last year, we had about $400 million – actually Chinese yen denominated loan sitting in the USD functional currency. Right now, the exposure go down to – equal to $170 million. Facing those exposure, we actually step up our FX strategy. That's the reason you see that. Comparing to last quarter, we achieved a pretty good FX hedge effect. The net FX movement after the hedge is only $29,000 for that $170 million exposure.

Okay. So, can you share with us actually what proportion of your debt or your cash flow, revenue stream is actually hedged?

The hedge exposure is in the company loan. That extends from our USD functional currency to the Chinese domestic, which is Chinese yen functional currency entity. The intercompany loan was denominated in RMB. So, on the domestic side, there's no FX fluctuation, but on the US dollar functional currency side, we had that exposure equal to about $170 million. And we expect the balance will be reduced when we pay down two-thirds of those balance from Chinese entity to the US functional entity in prepare for the settlement of these senior notes that are going to expire on August 31, 2019.

Sorry, we understand the company has US dollar as a functional currency in the balance sheet, but at the end of the day, it's majority of your revenue and your cash flow is in in terms of Chinese yen. So, at the end of the day, just try to get a sense, how do you resolve this currency mismatch between your RMB/CNY cash flow and your US dollar debt?

Yeah. As we mentioned in our business model, overall, we are reporting in US dollar, but with majority net asset and revenue and costs resides in China, which is RMB functional currency. In a sense, we are facing with a kind of FX impact. For this, we're just closely monitoring it. We analyze it. But our FX hedge is only focused on the foreign currency monetary balance. We don't really hedge the revenue and cost, neither hedge on our net asset.

Okay, thank you.

[Operator Instructions]. We'll take our next question from Herman Tai [ph], private investor. Please go ahead.

Hi. Thanks for taking my call. So, my first question is that, about six years ago, in 2012 and 2013, when Mr. Zhang was the CEO, the company had a much lower leverage, a smaller land bank and a higher inventory turnover. But then, for the past few years, the company increased its leverage dramatically and also have a much larger land bank and a high revenue growth. Now Mr. Zhang is back, if we're going to the old way of running Xinyuan conservatively or are we going to continue the high leverage, high growth strategy?

To some extent, you're right that Mr. Zhang is considering that approach. Like, increase the debt level and increase those kind of inventory is not sustainable. We do believe that relying on our operating efficiency, increase the turnover, increase the profitability might be a better way to address the uncertainty and the challenging external environment. We're looking at that kind of possibility. So, overall, leverage – yeah, to bring the debt level down, more relying on our own cash inflow from operating, to be more healthy and more sustainable growth could be the direction. Thank you.

Okay, thank you. So, my other question is that, there was an article published by the author called Leah Moss [ph] in June. So, the article talked about Xinyuan and she said that Xinyuan hired some external CEOs and other high-ranking executives from Wanda for the past few years. So, Wanda is another real estate giant from China. And she said that, overall, the strategy was a failure because comparing Xinyuan to other competitors from Henan, like the [indiscernible]. Xinyuan was – the growth was much slower even though it tried to internationalize, took a lot of additional capital. I wonder if the Chairman and CEO read the article and what you feel about it and what kind of mistake you think Xinyuan have made for the past few years. Thank you.

So, first of all, Xinyuan as the first and only Chinese domestic real estate developer listed in the New York Stock Exchange, we really care about the in compliance and stable and have a growth – healthy growth. Comparing to a lot of peer company, including the listed ones and private ones, Xinyuan is famous for our compliance and health growth, which means that all of our entities are consolidated or fell under the listed company umbrella. We don't have any off-balance sheet financing. We don't have any not so in compliance and cheeky operation, like a lot of our peer companies in China. In the last few years, we are not focused on the short-term growth. We also are looking at the strategy, how to upgrade our business model, which including that – on top of the mainstream – it's a development business. We invest and trying to build up another five subsidiary that are related to the listed business as an overall strategy. So, with all these things coming in, you might see that our growth might no be as fast as our peer company, but when we strike the balance between health growth and the speed and the scale, we prefer to go by our healthy and steady growth path. We do have lesson in the past, but we pick up lesson from there. We will focus on Xinyuan's way and we are also open for different kind of alternative opportunities.

Okay, thank you very much.

We will take our next question from Rupesh Patel [ph], private investor. Please go ahead.

Hello. I had three questions. The first one, in the second quarter earnings, there was a net loss attributable to non-controlling interest of $9.171 million. My question is, who is this non-controlling interest and why is this figure so large? And then, the second question I had is, on the earnings forecast for 2019, you say it will be 15% to 20% more than 2018. Is that based on ASC 606 or the percentage of completion method that 2018 had used compared to 2017? And the last question is, there is some talk about Xinyuan delisting from the US. Is that really true or is there any chance for that? Thank you.

We will answer the first question first and I will rewind the third one to Chairman and CEO. The first one is about the – in Q2 about the net income contributed to the minority interest. They are related to two projects in Zhuzhou and Kunshan, which are two cities closeby Shanghai – in Shanghai suburban. For those two projects, we own – our equity is about 17% and 2% respectively. And for those two projects, they are pretty profitable, which contribute about $5 million and $4 million respectively to these two minority shareholder. And the second question is about…

Earnings forecast.

Earnings forecast, sure. I got you. The earnings forecast is based on our US GAAP reporting standard. So, those kind of the revenue and net profit is actually contributed by a combination of the full accrual method as well as the POC method. In terms of the third question, give me a sec rewind to our Chairman and CEO. As at this point, in terms of the privatization, we hear that from time to time. At this point, the board haven't decided – or haven't made any decision on that one. We're open to all kinds of alternative to optimize our capital structure.

Okay, thank you.

It does appear that there are no further questions at this time. I'd like to turn the call back over to management for any additional or closing remarks.

Okay. Thank you, everyone, for joining us on today's call. And we appreciate your ongoing support. We look forward to updating you on our progress in the weeks and months ahead. Thank you again. Appreciate your time.

And this concludes today's conference call. Thank you for your participation. You may now disconnect.