Good day, ladies and gentlemen. Thank you for standing by and welcome to the Xinyuan Real Estate Company second quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time. Now, I will turn the call over to Julia Qian, Managing Director of The Blueshirt Group Asia. Ms. Qian, please proceed.

[indiscernible]

Julia, pardon the interruption. We are having trouble hearing your line.

[Indiscernible] me today are Mr. Yong Zhang, Chairman and Chief Executive Officer, Mr. Brian Chen, Chief Financial Officer and Mr. Hongwu Zhang, Vice President. Mr. Yong Zhang will deliver opening remarks and Mr. Brian Chen will provide additional details on the company's financial results and outlook. Before we continue, please note that today's discussion will contain forward-looking statements made under Safe Harbor provision of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from expectations expressed today. Further information regarding these and other risks and uncertainties is included in the company's public filings with SEC. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law. With that, let me now turn the call over to our Chairman and CEO, Mr. Yong Zhang. Please go ahead, Mr. Zhang.

Thank you Julia and hello everyone. Thank you for joining our second quarter of 2020 earnings conference call. Our second quarter results reflected consumer holding consumption rebound of an economic recovery. We are on the path to catch up with the full year sales guidance with total contract sales of the first half reaching around $1.18 billion and total revenue of second quarter increasing about 126% from the first quarter. Recently in quarter three, certain major projects such as Qingdao Lingshan and Chengdu Xinyuan have successfully launched. So we are now holding a more optimistic view towards the full year sales result. With the recovery of sales and cash collection, we managed to further optimize our debt structure and improve liquidity position. Total debt and net debt kept going down while the cash balance increased at the end of quarter two. Moreover, the percentage of short debt reached record low level since 2017. We are also managing to further expand our funding channel. Recently, we have issued offshore [indiscernible] bond. The property management company also successfully completed its follow-on offering. Because we are confident in our long-term outlook as well as the near-term recovery, we will keep paying dividends again this quarter. It will be as same as the previous quarter. We are proud of our persistence of paying dividend for the past several years. With that, I will now turn the call over to our CFO, Brian Chen, who will offer more details on financial performance. Brian, please go ahead.

Thank you Chairman. And good morning everyone and thank you all for joining today's call. We hope that all of you and your families are safe and healthy during this tough time. Before I go through the detailed information, we acknowledge that this is a difficult quarter and some [indiscernible] number in the quarterly revenue release. I do want to talk about at least two key points beyond this number. One, Xinyuan's revenue does have a strong recovery. Although the revenue recognition has little bit lagged behind, our contract sales had already had double digit increase compared to the same time last year. Secondly, our cash position and our liquidity has solid improve. Now let me go into details. As Mr. Zhang just mentioned, we are on the path to recovery with sales growth year-over-year. However, the pandemic still caused a significant impact on the construction progress and the revenue recognition in Q2. This caused a topline decline on a year-over-year basis. In order to catch-up, we made good progress in major projects opening in Q3 and expected in Q4. For example, Qingdao, Lingshan Bay and Tongzhou Xinyuan project had pre-sales in July and August and the Beijing Tongzhou project is expected to launch in September. The construction has already begun actually. We will continue to accelerate our progress in project openings construction and will further improve our sales efforts. We view the topline decrease only a temporary effect and expect revenue recognition coming back to a normal on a full year basis. In this quarter, we have further optimized debt structure. Our total debt was $3 billion as of June 30, 2020. This is $0.6 billion lower year-over-year. Short term debt was $1.2 billion, which is 41% of total debt. This has been decreased from about 47% comparing to the last quarter-end. Compared with Q1, we have reduced our short term debt by about $197 million and total debt reduced by $32 million. Moreover, our funding channel has been further broadened and diversified. Recently, we successfully issued offshore RMB note or what we call the income note of total size around RMB515 million. Our property management sector which got listed in Hong Kong last year under the code of 1895 also made its follow-on share offering with about HKD127.2 million of net proceeds. We also have apprised of RMB3 billion onshore bond and has been proceeded by Shanghai Stock Exchange. The application of the creative funding the eco has demonstrated the capability of our capital market operation and provide more flexibility on cash flow management. From a broader view, the industry remained promising. We are seeing very encouraging signs of the residential business in China. Although, according to the National Bureau of Statistics of China, the total real estate investment reached about RMB6.3 trillion from the first half of the year and the urbanization rate reached to 60.6% in 2020 and expecting to further increase in the year. We are very optimistic about the long term growth potential of China's real estate industry and we believe Xinyuan as one of the leading real estate developers in China may emerge from this period of crisis with innovative business model and strong execution capability. Now let me go through some key financials in the quarter. The contract sales, as mentioned earlier, of the first half of the year was about $1.18 billion which is about 15% increased compared with same time last year. Total revenue recognition was a bit high but still reached about $284 million this quarter, quarter-over-quarter, increasing 126% from the first quarter this year. Gross profit for the second quarter of 2020 was $19.2 million, or 6.8% of total revenue. But gross margin decreased dramatically from the previous quarter, but this is mainly because we made some prudent adjustment. In considering the current market price affected by the epidemic, we reduced the expected selling price or the value of several projects and this one-time adjustment resulted in a significant reduction of the gross margin of about $35 million. Without this adjustment, gross margin, our normalized gross margin for this quarter would be 22.5%. The SG&A expense was $51.4 million compared to $44.0 million for the first quarter. We strive to managing our costs prudently in order to improve our operating efficiency. Net loss for the second quarter of 2020 was $30.1 million comparing to a net income of $19.8 million in the same quarter last year. And once again, we normalize and adjust the one-time adjustment on gross margin, we actually are breakeven and even have about $33 million profit, if we normalize that adjustment. Now let me discuss the balance sheet. Our cash position and liquidity are solid. At quarter-end, we had cash and restricted cash of about $1 billion comparing to $933 million as at the last quarter-end. As Mr. Zhang mentioned, we will again pay the dividend this quarter. Moving to our project update. Our overall asset position remains strong. Real estate properties under development was $3 billion and real estate properties development complete was $415 million. Total saleable GFA was approximately 4.3 million square meters which would translate into around RMB50 billion saleable value. Most of our projects are located in the Tier 1 and Tier 2 cities. In our market, our projects are pre-sell. So we expect to generate meaningful cash flow from these quality projects. We remain confident in the outlook. At this point, we still expect contract sales of RMB20 billion to RMB22 billion this year. Notably, as Mr. Zhang mentioned, our Hong Kong listed property management company continues to perform very well. In July, it concluded its follow-on offering and sold on aggregate of 50 million new shares of its common stock. This successful capital raise has provided us with additional resource and capital to pursue our future goals. In the second half of 2020, we will continue to focus on improving our operating efficiencies, optimizing our debt structure and further improving the liquidity level of the company. Meanwhile, we will further strengthen our capital operation and explore more opportunity in the capital market in order to generate greater level for our shareholders and bond investors. With that, let's open the call for questions. Operator, please go ahead.

[Operator Instructions]. All right. And we will take our first question from Alex Mac [ph], a private investor.

Hello. Sorry. My name is Alex Mac. Can you hear me?

Yes. Alex, we can hear you loud clearly.

Okay. Good. Because I was late at the conference call, I just joined about five minutes ago. I missed the beginning. And I have been a long term investor for over 10 years for the company and I have participated in the conference call in your Q4 of last fiscal year, about six months ago. And I don't know whether you recall, at that time I was the one who asked for a reduction of company dividend so that you have enough money to buyback more shares. So anyway, you did reduce the dividend in the last quarter Q1. But as you know, the share price still remains so low and hasn't gone up at all. Obviously, it is a disappointment for me and I am sure for a lot of investors as well. And especially when you look at the company's financial statistics, the company's value, the book value is about more than $10. I believe it is above $12 per share. But yet it is trading at around $2. And as an investor, I mean as a developer while your focus is on the operations to make that the development is going on smoothly and making money. But as an investor, we are mostly focused on making sure that we are getting a proper return for our money invested in the company. So anyway, just real quickly and do it. I don't want to take too much of your time, because your company has invested for more than 10 years now in the New York Stock Exchange and in fact, the IPO of the company was probably more than $10 and today it's sitting at about $2. So it does look to me that there is either a lack of interest totally or the U.S. investors have no appreciations of the valuation of your company. So in light of, for various reasons, maybe because the company is too small, real estate development is so far away in China, they cannot really see it, feel it or maybe they have concern about corporate governance and possibly of course, the U.S.-China trade tensions, a few of the company being delisted from the U.S. So my question now is, have you thought of maybe also listing, do a dual listing of your real estate development in Hong Kong Stock Exchange, just like what you have done for your estate development companies? Because over in Asia, as you have seen, your real estate management company has performed quite well in the market showing that the investors in the Asia can give more due recognitions of the valuation of the company compared to the U.S. And based on regional example also, not just your real estate company, but companies like Alibaba, JD.com, they also have recently added their company listing to the Hong Kong Stock Exchange and the stock prices have performed there well ever since then. So as an investor, myself, I am pretty miserable to see the stock price remain at $2 because obviously something should be done.

Pardon my interruption, caller. If you would please ask your question to the speakers?

Okay. So my question is two. Number one, would you consider adding the listing of your company to the Hong Kong Stock Exchange? And then number two, how much of stock buyback have been done in the last quarter? Thank you so much.

Okay. Thank you Alex. I appreciate all this input. So first of all, I also want to acknowledge that we don't think the current share price reflect the company's true value. The dollar amount per ADS you mentioned earlier had the whole impact as internal calculation. And Zhang even mentioned that just for the property management company got listed in Hong Kong alone, already had the market value for our share, which is 55%, already able to turn into about $140 million while our total company only at about $100 million, $105 million or $106 million. So I really feel that a lot needs to be done. So coming back to your question, the first question is that whether are considering coming back or dual list in Hong Kong Stock Exchange. We are currently exploring all kinds of alternatives. This is one of them. We will provide an update any time when we come to that certain points. And when it is in compliance with our regulatory requirements, we will share this progress with our shareholders. Yes, but this is absolutely one of the alternative that we are exploring for the moment. But to increase the value, we are not saying that we give up the U.S. shareholder in the market. We will continue to improve, for one thing, our communication. We need to be out there with the shareholder. But also, we are going to reach out to the other institutes and bigger investors to make better communication and tell a better story and tell who we are and what is the true value of this company to the New York or U.S. shareholder to improve the liquidity and confidence on the company. So there is a lot that needs to be done. On your second question about the share buyback, we had sufficient capital or loan got approved from the Board of Directors. We are actually looking at the opportunity in this area. For the last quarter, for varied reasons, we actually didn't buy back a lot of significant amount. When we come to this point, we will look at this area more actively and looking for opportunity when time is right for the share buyback. With that, I hope I answered your question?

Hello. Thank you. Yes, I am glad you are exploring the listing option in Hong Kong as well, because all I can say is that, I am a Chinese myself, for your company to attract the U.S. investors, especially financial institution has no interest in a small company and a company so far away in China, because they cannot see it. And they also are being attracted to other companies like high techs, technologies companies. Your company is a real estate company. So I would urge you to take serious consideration to do the same thing as what you have done for your property management operations. Because we have been 10 years in the U.S. exchange. Why would you want to continue along with and not doing anything about it? If I sell a product in New York and nobody wants to buy it, obviously I will take that product somewhere else to sell, right? You can see --

And pardon the interruption, Alex. We do need to move on the Q&A session.

Okay.

Thank you very much. And next, we will take a question from Steven Ralston with Zacks.

Hello and thank you for taking my question. Could you help me understand the impact of COVID-19 on Xinyuan? And could you narrow your scope of the question to the primary area where you are developing in Zhengzhou? It seems that's where 40% to 50% of your construction projects are and have been. And so I think we can probably have a better feel of what's happened there and be less impacted by other regionalities? What is the emphasis for the slowdown in sales? Is it because potential customers are delaying their purchasing decisions? Or is it because of the delay in the completion of the projects? Or if there is some sort of impact to the disposable income of the potential buyers? Could you just help me understand that?

Sure. Thank you Steven for your call. First of all, the impact of the COVID-19 is really coming from all of those areas that you were talking about earlier. So let me start one by one. First of all, when did COVID-19 happen in pretty much all months in the Q1 and this is not really coming back until the second half or until by the end of Q2. A few things happened. First thing is that the sales office was closed for months. So our customer and potential customers, they pretty much stay home without able to go into the sales office and understand the property, let alone to finish those procurement activities and mortgage activity with the banker. So that's one. Second is, because of all the construction activity was forced to cease, the subcontractor cannot start the work. In China, without the construction coming to certain point, we are not allowed to or you won't be able to apply for the permit to do the pre-sales. So literally we are not allowed to sell. Last but not least, because when people just walk out of the lockdown, they still are not sure whether we fully walk out of this. People still know about the big ticket item acquisition. So overall, although we see the sales recovery happen, but this is really happen at the very end of the Q2, middle or the end of Q2. So although we recognized a lot of sales, contract sales, but the revenue recognition normally has some time lag behind, which caused the revenue recognition and the gross margin and profit on the growth that kind of looks bad. But the good thing is that, we said big sales from 2Q and with activity coming back, with the pending demand going to release in the next few months and quarters, we have the confidence that the company as well as our peers can walk out of this epidemic and achieve the annual goal by picking up the loss for the first half of the year in the second half.

Thank you. Let me just try to rephrase that and see if I understand it correctly. Now recessions really don't happen in China that often. You have been on a good growth path for years. But it seems like you are saying there is a pent-up demand and it's not like a recession, it's just that the sales have been delayed and you expect this pent-up demand to return once the restrictions of COVID-19 are reduced and then you expect to come back to your growth path?

Yes. That's what we are talking about. We see urbanization and we see middle class growth, as well as because Xinyuan focused on targeting our market in the Tier 1 and Tier 2 cities in China, typically we are not that worried about the demand. The demand is always there. What we are worried about is that we don't have sufficient property that come to that critical point, then you can obtain a pre-sales permit. Normally when we are paying the pre-sales permit, we can achieve the sales goal within the time period. So with all the land at hand and with what we have sold and with our partner ready to make sure that we have sufficient inventory to sell to our high demand property sales to our target customers, we believe that we will have a loss in the first half of the year. But demand is always there. It's just a timing that those sales got postponed for the second half of the year on top of what is a reasonable normal demand there, naturally in the second half.

Thank you very much.

And next, we will take a question from Sean Shaw [ph], a private investor.

Hello. Can you hear me? Hello?

Yes, Sean. Thank you.

Hi Brian. Yes.

Go ahead, Sean.

First of all I want to begin, yes, okay. So first of all, I want to begin by thanking your Chairman and Board members and as well as all the employees of Xinyuan for the hard work during this pandemic. So I have three questions. My first question is, I saw Xinyuan file to issue RMB3 billion bond in Shanghai Stock Exchange, about $450 million equivalent. The bond got a credit rating of AA. So what would be the expected interest rate on those bonds? And is Xinyuan going to use more domestic financing going forward?

Thank you Sean. For the first question, typically I would say that the rate will be around 8%, depending on the costs, depends on the investor and depending on the specific timing. So I would say that around 8% would be a reasonable range. Talking about whether we will have more financing from the domestic. I would like to emphasize that first of all, the company is on a path that we would like to deleverage it. We want to control the overall debt. So we would like to look into more opportunity to unlock the underlying value for the land, our land bank that we already have. Don't forget that for the last few years, we raised a lot of debt and in exchange we have a lot of high-quality land bank at hand. So for the next 12 to 18 months, I would say that we are more focused on the operating activity to have more positive cash flow from the operating. As a matter of fact, for the last three to four quarters, we have really achieved really positive cash flow from operating. We will continue this path. In terms of the financing, we don't really have a strong preference really whether it is overseas or domestic. We look at the specific timing. We look at the potential lender. We will look at the opportunities and decide which deal is fit in the best interest and provide the best balance sheet to the company. We will look at these two markets, onshore and offshore, at the same time.

Okay. Great. My second question is, it's more about your individual projects. So previously I recall you mentioned in one of the investors' conference call that some projects are delayed, some project in the north got delayed, especially Qingdao project and Beijing project and those two have very high average selling price and was delayed for a long time. So you said the Qingdao project is already open and is selling well, right. And so what's the current status of your Beijing project? And how is the Beijing and Qingdao project going to affect your yearly guidance? And is the company on track to meet your sales goal this year?

Yes. Thank you for that. Beijing and Qingdao are one of the few key projects or major projects that we are on the right track to launch and realize the value from. For Beijing, just to give you some context, our average sales price per square foot for our properties is around RMB13,000 per square meter. For Beijing project, the sales price is expected about RMB60,000 per square meter. So you can imagine, it is quite profitable and can bring in sizable cash proceeds for the second half of the year. For that project, we are already starting construction in earlier this month and we expect to achieve the permit for the pre-sales next month, middle or late of the September, i.e. and probably not all the projects are going to be launched, but at least a portion of it will be go phase-by-phase. For the Qingdao project, we have already started pre-sales for the first batch in July. Sales have come up pretty good and sales price are averaging about RMB20,000 per square meter. And some of the attraction, some of them will go even higher, go as high as RMB30,000 per square meter. So yes, these two projects is on the right track, will bring in sizable cash proceed and high profit margins to the company.

That's great. So the company, as of now, is still relatively confident that if project goes well, that you should meet your sales target in your guidance this year? Am I understanding this correctly?

Yes. That's correct. We have a sizable land bank and about RMB22 billion worth of the land bank available for sale for the second half of the year. And as mentioned in the release, first half of the year, we have already achieved about RMB8.3 billion, to maybe RMB20 billion to RMB22 billion target. We think we are pretty confident that we can achieve this goal from the contract sales part of it.

Yes. That's great. Look forward to it. My third question is actually about your book value. So Xinyuan holds a lot of assets, mainly as you said, land bank properties and also your projects under development and obviously as well as your subsidiaries, one of them is your Hong Kong listed property management. So obviously, Xinyuan record all your land and properties and assets on your book based on the historic prices or the cost when Xinyuan acquired them. So in the last few years, the real estate market in China is generally, I mean, both the land price and home price are on the rise. So based on the market condition, is it fair to say that the fair market value of Xinyuan's assets should be higher than what's showing on your book, based on the accounting principles? I mean, based on my guess is, maybe after the home price increase after a few years, my guess is Xinyuan's assets should be worth higher than book value. Do you think that's the right assessment?

On the increase, yes it is. And you know that Xinyuan is one of the very few Chinese real estate developers that's reporting under U.S. GAAP. So our inventory and the property and held for lease they are all reporting on the book value which is based on the historical cost basis. You look at our balance sheet, we had $3.6 billion raise of the building construction and the building available for sale. They all stay at the book value and we use the fair market value, if you look at it, we feel we can add another 25% to 30% more value on those book value. Another thing is that we also had some sizable properties there that we have lease, some plaza, some commercial properties or other peer developer company they would actually already fair value there and change the game in their financial statement. Xinyuan is only one that never doing that. If we do the fair value on those properties held on lease, easily you can see RMB2 billion to RMB3 billion more on fair value. Thus, for the product side and the commercial products held on lease or loan. So yes, you are right, it increases.

All right. Yes. When you say commercial property, you mean office buildings, shopping malls or parking lot or all of them?

More like shopping mall. More like plaza and shopping mall.

Shopping mall. Okay. Shopping mall. Are they mainly located in Zhengzhou or just where Xinyuan's past projects located like Chengdu, Beijing, Zhengzhou, Xi'an?

As you mentioned, like mainly in Zhengzhou, Chengdu, Xi'an, in these areas. You know in China in local communities, you typically need to build a small to medium to large size of the commercial product to provide more value, add value to the residential. Yes, correct.

Yes. And then after you sell the residential ones, you hold the commercial ones, right, as well as like the parking lot and something like that, right?

That's correct, yes.

Okay. I understood. Yes, that's my question. And also I want to appreciate all the employees for their hard work during this pandemic. And I look forward to the future quarters. Thank you.

Thank you, Sean.

And up next, we will take a question from George Guo [ph], a private investor.

Hi Brian. You know, I am very surprised to see you have such large increase in contract sales. Can you break down the quarter two? How much is sales? And what's the average price increase or decrease from the last year?

[FOREIGN LANGUAGE]

So give me a sec, let me pull all the detail here. But I can give you some high level. So the contract sales recognized in the quarter-on-quarter, most of them is coming from the Henan, Chengdu and the Shandong and Guangdong area. The average selling price for these new contract sales is at about RMB30,000 per square meter.

Okay. But what is the large demand? What is the total contract sales on quarter two? Because you didn't break up if it's in the quarter one or quarter two?

Overall, we had about RMB8.3 billion contract sales for the first half of the year. First quarter is about RMB1 billion and about RMB6 billion to RMB7 billion happened in the second, although majority of them happened in the last, I would say, the last one week or two of the quarter.

Okay. Thanks. So your prediction about the year-to-quarter profit will be similar to last year. So do you expect lot of sales and increase of the construction, more construction in the second half?

Yes. George, at this point, we still maintained the outlook that we can achieve between $60 million to $80 million profit, kind of in line with what we had last year. Economically, this is a very challenging goal, although not totally impossible. The company, like the management team, pretty much working 7/27 hours trying to achieve this goal for the last three quarters. So as you see that in the last month of Q2, we had a sizable contract sales and we are going to increase the investment and funding in a lot of key construction to make sure that more and more of this project can meet the pre-sales threshold and available to deliver to the customer. At the same time, as mentioned earlier that we had a few key projects like Beijing, like Qingdao, like in Henan, like in Xi'an and Chengdu. We have broken down the sales target month-by-month, week-by-week and have specific people and team on top of those targets. This is really a huge challenging, aggressive goal. We acknowledge that. But overall, the whole company is trying and commit to still try to make this happen. That being said, I have to put in a caveat that this is a challenging environment. The company still needs to strike the balance between the liquidity and profitability, which means that we have no proceeds coming back from operating activities to meet and improve our liquidity. Some time we have to make tough decision to adjust the profitability. So we will see as we go further along this path whether the net profit can still be met. At this point, we have a goal, we have an inner goal that we want to make it, try to make it happen.

Okay. Thank you. That's very good. Last question from me is that, you mentioned something about the new funding for stock purchase from Board of Directors. I didn't catch it. Can you repeat that again? Are you running low on the repurchase fund? Are you getting more funds?

No. At the beginning of the year, we got a big backhaul, a blanket approval from the Board of Directors that authorized the management team to do the share buyback when it is appropriate, when it is the best timing. The management team are actively looking at the market condition everyday. And we also need to strike a balance between our bond investor and the share investor. So we have, at the management team's discretion, when the timing is right, we can do it, any time we think is right.

Okay. Thank you very much.

Thank you. And we are at the top of the hour for this call. If you have more questions please reach out to the company directly by email. Let me turn the call back to Brian for closing remarks.

[FOREIGN LANGUAGE] Okay. Thank you operator. And thank you all for participating on today's call and thank you for all your support. We appreciate your interest and look forward to reporting to you again next quarter on our progress. Operator, now I turn it back to you.

Thank you. And ladies and gentlemen, that does conclude today's call. We thank you for your participation and you may now disconnect.