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Xinyuan Real Estate Co., Ltd. (NYSE:XIN)

Q2 2011 Earnings Call

August 9, 2011 8:30 am ET

Executives

Helen Zhang – Director, Investor Relations

Yong Zhang – Chairman and Chief Executive Officer

Thomas Gurnee – Chief Financial Officer

Analysts

Kevin Tracey – Global Platinum Securities

Thomas Grant – Boston Company Asset Management

Kun Tao – Roth Capital Partners

Operator

Good day everyone and welcome to the Xinyuan Real Estate Company Limited Second Quarter 2011 Conference Call. This call is being recorded. Now, I’d like to turn the conference over to Helen Zhang. Please go ahead.

Helen Zhang

Hello everyone and welcome to Xinyuan’s second quarter 2011 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 a 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 would be materially different from the views expressed today.

Further information regarding this 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 doesn’t assume any obligation to update any forward-looking statements, except as required as applicable law.

Today, you will hear from Mr. Yong Zhang, our Chairman and Chief Executive Officer, who will comment on current operations, and provide some perspectives on the market environment. He will be followed by Mr. Tom Gurnee, our Chief Financial Officer, who will provide some additional color on our performance, review the company’s financial results, and discuss our outlook for the reminder of year 2011.

Following management prepared remarks we’ll open the call to questions. During the Q&A session, Mr. Zhang will speak in Mandarin, and I will translate his comments into English. Please note that unless otherwise stated, all figures mentioned during this conference call are in U.S. dollars.

I will now turn the call over to Xinyuan’s Chairman and CEO, Mr. Yong Zhang. Please go ahead, sir.

Yong Zhang

Hello, everyone and thank you for attending us today. Overall, we were quite pleased with our strong result for the second quarter. As we expected our second quarter financial forecast for revenue, contract sales and net income. This accomplishment occurred in despite of the impact (inaudible) to mortgage and the purchase restriction policies in China.

Issued by regional government earlier this year, the good performance for the second quarter was then attributed to the offending (inaudible) including active marketing advert in launching new product and the progress in cost charges.

As expected, our customers most of whom are first time (inaudible) have learnt to comp with the new round of policy. We were pleased that average selling prices was stable for most of our development project, which reported our net income in the quarter.

Our two new project launched in Q2 are of to a strong start and contributed meaningfully to our contract sales for the quarter. We also are scheduled to launch one new project in the third quarter, which will represent about 134,000 square meter of key asset.

In the third quarter, there will be 11 major active projects, which are expected to contribute to our performance in the second half of the year.

We are proud that our (inaudible) continues to improve its record high cash and lower debt dependencies. Consequently, we were pleased to the provision of returning some money to shareholders in the form of dividend. The company will declare dividend as long-term policies as we are making projects.

We also implemented US$10 million share buyback program. We will continue to buy our share after the second quarter earnings. Our company is actively looking for opportunities of the land acquisition both by public auction or acquisition through other means such as land purchase from smaller developers who have financial problem (inaudible) element. We believe these multiple measures will secure the company a sustainable growth that have the reasonable (inaudible) course. Well, the market is challenging on the current policies we remain cautious to market trend due to tightening in mortgage and purchase restriction. I firmly believe that Xinyuan is very well positioned in the coming quarters with a highly (inaudible) to project the pipeline and stronger balance sheet.

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

Thomas Gurnee

Thank you, Chairman and thank you to those (inaudible) during these tumultuous times. By virtually all measures our second quarter 2011 financial results were beyond expectations, contract sales, revenue and net profit exceeded the mid point of guidance by fully 43%, 26% and 59% respectively. The primary driver of this performance was contract sales.

Contract sales results of Q2 were very strong on new product launches. Of the 183,000 square meter sold in total 115,000 or 62% of the total was reported in three new projects, Chengdu Splendid, which is in Jinan and Chengdu province, launched in May 2011 selling nearly 56,000 square meters of product or 11% of its total GFA in just May and June for contract sales totaling $74 million making up 33% of Xinyuan’s Q2 bookings.

Yipinxiangshan II, which was acquired from the minority owned joint venture we acquired in November last year, it launched at the end of March and sold 50,000 square meters or 25% of its total GFA in the second quarter with contract sales totaling $52 million comprising 23% of Xinyuan’s Q2 contract sales.

Finally, Zhengzhou Century East B, which was launched in June 2011, sold 10,000 square meters in the quarter or just 6% of its total GFA with contract sales reaching $13 million or 6% of Xinyuan’s Q2 contract sales. Century East sales should accelerate in Q3 was just launched at the tail end of June.

Our other projects under development launched earlier. They continued to perform reasonably well with no anomalies to report. However, we are trying to bring some extra life into few of our older projects.

In May, we lowered prices on our Xuzhou International City Garden project from a range of 14,000 RMB to 15,000 RMB per square meter previously to about 11,000 RMB to 12000 RMB today.

GFA sales did respond and jumped from a monthly run rate of 700 GFA, 700 meters per month in the second quarter to nearly 2,000 GFA in June. In July, we increased agent commission rates in Kunshan substantially with obtainment of mortgages being a thorny problem in Kunshan. The company is experimenting with offering installment plans to expires whereby they make take several months to achieve government policy down payment levels before applying for mortgages.

In isolated cases, mainly for non-resident buyers, we may bypass mortgages all together. That being said, Kunshan contract sales did expand over Q1 by 89% of 13 million of contract sales in Q2 2011. Finally, in Chengdu we have selectively lowered prices by 10% on 200 units or about 10.7% of our remaining inventory of 1,870 units.

So to summarize on contract sales, I want to make three points; first, our newly launch projects executed very well with strong marketing programs having the desired effect on demand. Second, once again in fairly short order Chinese buyers have evaluated and coked with government policy initiatives. The most recent being in February and slight update in July.

And finally, we have taken isolated pricing of commission actions on legacy projects to push up second half 2011 sales and these actions are showing early results.

Now let me turn to the financial statements and first address second quarter revenue. For the quarter ended June 30, 2011, the company’s total revenue using the percentage of completion method was $182.7 million compared to $91.8 million for the quarter ended March 31, 2011, so nearly double. Our midpoint guidance had been $145 million.

Two key factors drove the 26% up side to guidance, the primary factors was a gain in contract sales as described previously. The second factor was better progress on percentage of completion on active projects than we had experienced the previous quarter. I went into great detail on this last quarter on this call, resident boarding with the same tutorial but under opposite conditions, let me summarize.

In the first quarter 2001, we did not meet our construction milestones and the percentage complete of nearly all projects fell below expectations for the end of the first quarter. Chinese New Year was certainly a factor that always is at that time of the year. In the second quarter, our construction teams executed very well resulting in a catch up to earlier establish milestones. This execution is probably illustrated by our very successful product launches late in the first quarter and in Q2 2011 which enable presales activity during suite expectation.

In short, we executed well in the second quarter 2011 and it showed up in the percentage of completion statistics. Gross margin; gross margin totaled 29.8% of revenue in the second quarter edging up from 27.3% in the pervious quarter, Q1 of 2011.

Having a minimal impact on margin was our quarterly review of total project cost and sales estimates. This resulted in $1.1 million of cumulative gross profit being recognized in the second quarter under the percentage of the completion method. This is the smallest change in estimates impact I’ve seen since I joined the company.

As a whole, we can expect Xinyuan margins to stay near 30% for the foreseeable future. Selling general and administrative expenses totaled $10.2 million in the second quarter, up from $7.4 million in the first quarter 2011. As a percent of revenue, SG&A dropped sharply from 8% to 5.6%.

Net expenses followed along established pattern with selling expenses largely variable and general and administrative expenses largely fixed, look for selling expenses to grow a slightly more than revenue as commission rates take hold in the third quarter, but general and administrative spending should hedge down as a percent of revenue.

Net income for the second quarter of 2011 was $31.8 million compared to just $11.6 million in the first quarter of 2011. Our net income guidance for the second quarter had been $20 million. So we beat that by nearly 60%. Net income as a percent of revenue reached 17.4% versus 12.7% last quarter and guidance of 14.3% of revenue.

Diluted earnings per share for the first quarter were $0.20 equivalent to $0.40 per ADS, this compares to $0.08 equivalent to $0.16 per ADS in the first quarter of 2011. Our balance sheet just keeps getting stronger. As of the 30th of June, 2011, the company reported cash and cash equivalents including restricted cash totaling $407 million compared to $349 million as of March 31, 2011.

Total debt edged lower from $324 million at the end of March, 2011 to $318 million at the end of the June, 2011. And by the end of the second quarter 2011, total cash exceeded total debt. This is the Xinyuan milestone reached last quarter and expanded in this quarter. Real estate property under development rose from $659 million in March of 2011 to $695 million as of June 30, 2011. This reflects the project milestone achievements discussed earlier, which led to generally a higher percentage of completion of our projects.

Cash flow from operations totaled $77 million, up from $35 million last quarter and it’s the highest we’ve seen since the fourth quarter of 2009. Our outlook for the third quarter and the year remains bullish. In the third quarter of 2011, contract sales are expected to reach $230 million to $250 million, up about 7% over the second quarter of 2011. And this is the low-end of our expectations.

Revenue under the percentage of completion method is projected at $215 million to $235 million up approximately 23% over the second quarter revenue. Net income is expected to top $35 million in the third quarter.

Significant event expected in the third quarter is that Zhengzhou Royal Palace will launch in August perhaps September of 2011.

So from the total year of 2011, the outlook is also very good. Contract sales are expected to range between $810 million to $850 million, that’s 25% of our previous guidance.

Revenue for the year should reach $740 million to $780 million, that’s 19% above our previous company guidance, and net income guidance has increased from $75 million to over $100 million in excess of the 33% guidance increase.

So in the second quarter roll on, I’ll bring that share valuation. As you all know, we distributed in June a dividend of $0.10 per ADS, it’s our expectation that the dividend be sustainable over the long-term. We anticipate decline in dividend year after the filing of the 20-F and, but we’re discussing whether we can do this quarterly or annually we will announce something separately. At current metrics, the dividends provide a yield of about 5.9% to our shareholder.

At Friday ADS price of $1.70 now lower from yesterday’s trading. The current PE ratio based on guidance profit of $1.33 per ADS its down to $1.20 to $1.28 the ratio. The June 30, 2011 book value at $566 million indicates a discount of book value of $436 million or 77% discount to book. We continue to buyback program at the maximum rate allowable under SEC rules. In the second quarter we bought nearly 600,000 ADSs at a cost of $1.2 million. Purchases will resume after the blackout period expires later this week.

So, this concludes our prepared remarks for today’s call. I hope today’s market is kinder than yesterdays. Good luck to everyone. Operator, we’re now ready to take some questions.

Question-And-Answer Session

Operator

Thank you, sir. (Operator Instructions) We’ll here first from Kevin Tracey at Global Platinum Securities.

Kevin Tracey – Global Platinum Securities

Yes. Thank you for taking my call. My first question is regarding the land auction environment in China (inaudible) about few quarters were cash balances driven significantly, and I was wondering if that was because prices have risen and then a lack of opportunities with the right price?

Thomas Gurnee

Well, I think what you said is correct, but I think the best person to answer that is probably the Chairman. So bear with me. We will have this translated and we will have and answer back in just a moment.

Yong Zhang

The land offerings in different cities is less than the same period last year, and the land price is about 20% lower than the levels last year. The rate of a sale in the land auction increased than the same period last year. And it varies depending on geographies in the range of 10% to 15%. And we expect that the land cost in the future probably will continue to go down.

Thomas Gurnee

So Kevin, I’ll say this about the company’s expectation. We certainly expect to make land acquisitions in the second half of this year. And as the Chairman said in his opening remarks, we are continuing to go into land auctions, we attended one today, and we also expect to be looking for purchases from third parties of land at lower values. So we are expanding our business model and little bit to look at land that might be available through non-auction means. But we definitely would build a lot of cash and the purpose of that cash is to build and to make land acquisitions. So we definitely [interstate] making land acquisitions in the second half.

Kevin Tracey – Global Platinum Securities

Okay. Can you give us an idea of what kind of – what term is on investment you guys targeted in terms of may be a hurdle rate , something like that?

Thomas Gurnee

You mean an ROI type hurdle rate?

Kevin Tracey – Global Platinum Securities

Yes, yes.

Thomas Gurnee

Well, right now our gross margin is running about 30%. We look for gross margins on our projects of 25%. The reason we’re running 30% is because prices did went up a year ago, so we’re benefiting from that. But generally we set a benchmark at 20% to 25% is the minimum gross margin we’ll expect on the project and this works out to an ROI of roughly 20 plus percent the land actually tended today we set a target of a premium over the asking price and the option went much higher than that. So we took that from that bidding. So generally it is in the, the gross margin is in the 20s, mid 20s, ROI in the 20s.

Kevin Tracey – Global Platinum Securities

Okay. So I guess assuming the company believe that the shares they are working these book value. So I guess is there any possible real estate project that have higher returns on capital and buying back the stocks less than three tens of book value. I guess I am curious very opportunistic time to buy back a lot of shares.

Thomas Gurnee

Well we are buying the maximum, we are buying in the market now, we have a 10 million program, we are buying at the there is SEC rules governing what percent of open market purchases you can make as a percent of volume. We are buying back at those maximum percentage during non-black out periods. We will see how this goes. There are no block trades that we know that are available and so we have implemented a stock buy back, where we just started in June, we bought a million two bank we will continue to buy.

Kevin Tracey – Global Platinum Securities

Okay so going forward these (Inaudible) continue to buy back of maximum possible shares you can.

Thomas Gurnee

Well under the constrained buying the fact that we only got board approval for 10 million but also constrained by SEC trade rules that govern percent of previously traded volume.

Kevin Tracey – Global Platinum Securities

Correct.

Thomas Gurnee

But your point is there an investment out there that we give us a better return than buying Xinyuan shares we don’t think so. And so several investors bring up your same question why don’t you just buy your own shares, we would like to remind the New York Stock Exchange list of companies over the long term and the Chairman has a very long term view and so we are not about to go private and so I don’t want to start any rumors to that effect. We are going to remain a publicly traded company and that is definite.

Kevin Tracey – Global Platinum Securities

Okay. Thank you. My last question was related to accounting and customer deposits preferred revenue accounts. I guess I am curious I would have expected accounts to increase more than it did given the spread between contract sales and recognized revenue. Can you explain why the customer deposit account growth has lagged the spreads between contract sales and recognized revenue?

Thomas Gurnee

12% you will see here, well I just told you about a – I just mentioned on my remarks about some installment that we initiated where we put – where we say some one has by government policy has to make 60% down payment. We are allowing them to make three payments to get there. And so we don’t have that 60% now on when we do have deposits that are less than that 60% we are not recognizing revenue for those contract sales.

Now lets see you are looking at a gap between you expected our customer deposits asset to increase faster than now let me try and think how to answer that one.

Our revenue – well one thing in this quarter our revenue did increase a lot because of contract sales but also because of percent complete of our projects accelerated. And under the percentage of completion accounting when your percentage completion is higher than you expect the amount of revenue in your book will be higher than you expect. So this is a factor in and you can't just view it as simple matter of taking that and dividing by revenue or contract sales.

But it look if you would (inaudible) sending me email with little bit more detail on your question I would be happy to respond.

Kevin Tracey – Global Platinum Securities

Okay sure. Thank you so much.

Thomas Gurnee

You are welcome.

Operator

(Operator Instructions) We will hear next from Thomas Grant with Boston Company Asset Management.

Thomas Grant – Boston Company Asset Management

Hi, there can you hear me right.

Thomas Gurnee

Yes, Tom. Thank you.

Thomas Grant – Boston Company Asset Management

Great quarter guys.

Thomas Gurnee

Yeah thanks.

Thomas Grant – Boston Company Asset Management

Just want to make sure I understand so the remaining buybacks about 8.8 million?

Thomas Gurnee

I am sorry the remaining what amount 8.8 million.

Thomas Grant – Boston Company Asset Management

Okay and then just sort of bigger picture questions. I will just less than for you and you can go ahead. Just want to see if you had any sort of change in corporate strategy in terms of expanding into commercial real estate or looking at sort of broader opportunities for a mergers and acquisitions either as a buyer or seller and then on a separate topic just wanted to get a fuel for the mortgage lending environment and the borrowing environment for your customers if there has been any change.

Thomas Gurnee

Okay let me answer them briefly and then I will have the Chairman comment deeply on a couple of those. On commercial we are sort of experimenting with our first project Modern City of about 15% of the GFA of Modern City has in fact commercial space. In our normal business model we would sell that but we are actually going to rent that and so we didn’t actually building commercial property this is part of an integrated property that was residential. So we are experimenting a bit with the commercial side on that project. As far as other commercial buildings, we have – we did attend an auction for small commercial project when we’re quite serious about it, but the (inaudible) stripped are calculated to maximum amount. So we’re – we have been jumped in both deep into a new strategy on commercial, but we experimented with that.

On the M&A front, yes, I’ve been active on M&A, but I frequently get disappointed, because value expectations of Chinese entrepreneurs, CEOs are sometimes very unrealistic. So we haven’t consummated anything although I do have a couple of things pending.

So we are looking at M&A, sometimes the accounting of some of these targets can be a little messy or related party transactions so we got to careful, but we are looking at M&A opportunities. And then you asked about mortgage lending environment, maybe that’s a good one for the Chairman to address yes for him to comment on the mortgage lending environment.

Thomas Grant – Boston Company Asset Management

Just real quickly before I get there. What about being approached as selling the company? I would think that private equity firms might be interested in acquiring you at this point?

Thomas Gurnee

Yeah, they are. And we’re not selling…

Thomas Grant – Boston Company Asset Management

Okay.

Thomas Gurnee

And our Chairman, this is his career? He’s not really tired. So no, we’re not selling, we are approached by PE firms all the time, offering to help with buyback your shares or offering to buy the company or whatever.

Thomas Grant – Boston Company Asset Management

Understood.

Thomas Gurnee

So the Chairman will talk about mortgages here, mortgage environment.

Yong Zhang

(Foreign Language) In the timely environment, the limited quarter of different banks and we are seeking some difficulties in accordance get the receivables within one month and now it might extend in to three months. And in terms of the lending environment, we had some advantages; we have good credit and events will put us into the priority. So there are some delays in the lending process, it could be extended from one month in the past and to three months in the present time. Now the common picture is, if you try on different job (inaudible) top 10 to top 20 we’re on as developers and has the lending from the banks on schedule. In short, in term of the mortgage and borrowing environment, yes we were having some challenges, but it’s not material.

And talking about the [positioning] out the company we’re still in process on the real estate, residential real estate development and at the same, we’re looking for some other opportunities for future growth of the company.

And the management and the board has been in discussion to see whether there is some opportunities for us to get into commercial property and probably if there is any opportunity that we can (inaudible) our real estate fund to financing.

Thomas Gurnee

So, Tom three or five provoking questions. I just want to assure you that, we spent a lot more time than we ever did before on mortgages, so it is more of a focus for us. A year, two years ago, we didn’t spend much time on it was pretty simple. But now, we spend a lot of time approaching banks and trying to get more [quota] et cetera, but so far, it’s been manageable.

Thomas Grant – Boston Company Asset Management

All right, great. Thanks a lot guys.

Thomas Gurnee

Thank you.

Operator

(Operator Instructions) We’ll here next from Kun Tao with Roth Capital Partners.

Kun Tao – Roth Capital Partners

Hi. First, congratulations on the good quarter. So, I have a couple of questions. First one is that, as you may know, a lot of comments about the housing price going downward in the near future, and so I want to know from the company’s standpoint, what do you see of the housing price trend in the second half of 2011?

Thomas Gurnee

Okay. I’m going to turn it over to the Chairman again.

Yong Zhang

We have seen for the first half of this year, especially (inaudible) that we have presence. Since we say those and in some areas it goes up slightly and we said that the trend will continue in the second half of this year and probably in some provinces will go a little bit.

Thomas Gurnee

One thing is, such a high percentage in the second quarter and the third, are being generated from new projects that it sort of the benchmark kind of goes up the window. These are new projects at new prices and they will have very healthy acceptance. So we are not feeling any pressure yet except in the isolated cases, Suzhou and Chengdu, but we’re not seeing any pressure yet on price. In fact a good example is Kunshan. Kunshan, we are increasing commission rates et cetera but we don’t see the problem as being price, it’s mortgages and cash flows for our buyers, but it’s not price. So we haven’t taken any pricing actions on Kunshan.

So can you have another question?

Kun Tao – Roth Capital Partners

Okay, thanks. So let’s go into the details of the projects. So of course the good project is at Xinyuan, two projects in June at Zhengzhou achieved a very good starting in May and June. So I want to know that do you expect to maintain this kind of the good sale in next quarter? So you will see a little bit up.

Thomas Gurnee

That’s a good question. So let’s go to Shandong Splendid which sold like 56,000 square meters. The first quarter is always a little bit high, because we’ve done a lot of marketing. But we have a lot of momentum going into the third quarter. So we expect Shandong for example to be about 15% and 20% lower than Q2 but still very high at about 45000 GFA. The other new projects this quarter, which was Zhengzhou Century East B which introduced very late in the quarter, so the real momentum, is really this quarter. So we expect the GFA next in Q3 to be about three times what it was in Q2.

And then of course we have Royal Palace coming in Q3 which will contribute something like 6000 square meters, again being introduced late in the quarter its biggest impact will be in Q4. As you really can usually in the first quarter or so is the best selling quarter and then it diminishes because of the heavy marketing upfront. But would these new projects coming in with Century East B, Century East A I am sorry and Royal Palace coming up both of those provide a lot of momentum for the second half.

Kun Tao – Roth Capital Partners

Okay. So besides the marketing effect the beginning so what else contributed to the quarterly opportunity for projects, say maybe I am wondering whether operating of critical projects a little bit lower than the comparable housing projects in GFA.

Thomas Gurnee

Well let me ask Chairman that, I am not sure about that. With the launch is successful just because of the marketing programs or are they priced attractively locally versus the competition?

Yong Zhang

(Foreign Language) We believe the key factor of the success of this new launch to projects our locations, nice locations most of them are within the town. The second point is the size of the project and most of them are in the range of 200,000 and 500,000 square meters with very nice facilities such as kindergarten and schools which are very convenient for the buyers. And also the convenience of the surrounding such as hospital, shopping mall and some other facility. We believe that these newly launched project even in the construction basis we’ll have a very nice ASP growth trend; this will give us contribution for our future performance. We are very confident about the prospect of these newly launched or project construction.

Thomas Gurnee

(Inaudible) you still with us?

Kun Tao – Roth Capital Partners

Okay. Yeah, so my next question is about your cash flow from operations. So, Tom you mentioned is that in this quarter the cash flow from operations or marketed at $77 million both things are (inaudible) very good. So I want to know that, can you provide some color on the outlook of the cash flows from operations for the second half and may be for year 2012.

Thomas Gurnee

Well, the figure known is, what are we going to spend on land. Because I don’t know which piece of land we’re going buy and when. So leaving that out of the equation cash flow should be good, revenue contract sales are going to up in the third quarter slightly a bit and may be even higher, because I am conservative and the fourth quarter should be good too. So, contract sales will be good, it will be offset a little bit by these installment programs we’re putting in, but not too much might have an impact of one months collection so in the third quarter you might have a little bit. So I would expect third quarter to dip a little bit just because of the implementation of this bit of installment sales for some customers, but then about the back fourth quarter, so I expect similar cash flow numbers you know in the 50 to 80 range.

Kun Tao – Roth Capital Partners

Okay. Thank you very much.

Yong Zhang

(Foreign Language) The current project now we’re having with the (inaudible) performance from this year and year 2012. So the (inaudible) land acquisition happened in the second half this year will contribute to the sales in the year 2013.

In even tightening environment, we are excited that company was going to have a sustainable profit. We want to grow at (inaudible) time and then there will be a valued company. And the company has kind of a plan to clarity within in the coming years to fix some rewards for our long-term investors. The sell side is going to be very deep this time based on the growth module, these are (inaudible) and also basically more for the investor.

Kun Tao – Roth Capital Partners

Okay, okay. That is all my questions. Thank you very much and Gurnee, congratulations again.

Thomas Gurnee

Thanks.

Operator

We’ll move to a follow-up question from Kevin Tracey.

Kevin Tracey – Global Platinum Securities

Yeah. Hey, I just have a quick follow-up about the market generally; there has been all those concern about this Chinese real estate bubble. I was hoping you guys could comment on how the real estate environment might differ from city-to-city and market-to-market, and how Xinyuan tries to avoid getting in this property markets?

Thomas Gurnee

That’s another one for the Chairman. Just a minute.

Yong Zhang

(Foreign Language) According to my personal intending, I think that in the past two years, the real estate sector in China had a very positive aspect with ASP increased drastically and we believe that the controls on the local government is trying to stable the overall market. There are not big bubbles here.

In last year, the overall sales at Xinyuan reached about 5 trillion. I believe that this year, it will be more or less the same level.

Talking about the first half of this year, the contract sales in some middle cities increased by 10% to 30%.

As we had in the coming years, the overall contract sales probably will be around 4 trillion (inaudible) and ASP will flatter a little bit.

Thomas Gurnee

So Kevin is really trying to get at with the general bubbles, the Chairman says, there is no general bubble. General bubble, how do we position ourselves to not be substitute, that’s a… Kevin, it’s a tough question. We are where we are. We’re in those cities and we have projects. There’s only one Suzhou that’s under, really we had to act to our price, because of local pricing changes, other than that we haven't had that pressure. and I think the Chairman pretty clearly disagrees with you that there is a bubble. He believes that there is a softening, yes and due to government policy. But I don’t think that Chairman believes there is a bubble.

Kevin Tracey – Global Platinum Securities

All right, okay. I see, and just a quick clarification regarding the share repurchases, are you guys have been limited in the amount you can buyback because of SEC rules and how much of the volume, daily volume you can buyback that you’ve been buying back to maximum you possibly can under those rules that (inaudible) to the program?

Thomas Gurnee

Yeah. And it wasn’t a very long period. We only bought back for about a month, not even that. No, the buyback that we bought so far… 20 days; we only done 20 days of buyback.

Kevin Tracey – Global Platinum Securities

Right, okay. Thank you so much and congratulations on the quarter.

Thomas Gurnee

Thank you Kevin.

Operator

There are no further questions in the queue; we will turn the call back to management for any closing or additional remarks.

Tom Gurnee

Thank you all for attending and I will repeat myself, good luck on the market today let’s keep our fingers crossed, and we’ll talk to you next quarter. Thank you.

Operator

That does conclude the conference. Thank you all for your participation.

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