Xinyuan's CEO Discusses Q2 2012 Results - Earnings Call Transcript

| About: Xinyuan Real (XIN)
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Xinyuan Real Estate Co., Ltd. (NYSE:XIN) Q2 2012 Results Earnings Call August 10, 2012 8:30 AM ET


Helen Zhang – Financial Controller

Yong Zhang – Chairman and CEO

Tom Gurnee – Chief Financial Officer


Liang Sun – CICC

John Herron – Herron and Associates

Albert Jones – Jones Capital Management


Please standby. We are about to begin. Good day, everyone. Welcome to the Xinyuan Real Estate Second Quarter 2012 Earnings Conference Call. Today’s conference is being recorded.

At this time, I would like to turn the conference over to Helen Zhang for opening remarks and introductions. Please go ahead, ma’am.

Helen Zhang

Hello, everyone. And welcome to Xinyuan’s second quarter 2012 earnings conference call. The company’s second quarter earnings result 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 result might be materially different from the views expressed today. Further information regarding these and other risks and uncertainties is included in our registration statement and our Form 20-F and other documents filed with the U.S. Securities and Exchange Commission. Xinyuan does not assume any obligation to update any forward-looking statements, except as required under applicable law.

Today, you will hear from Mr. Yong Zhang, 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 second quarter and rest of the year.

Following management’s 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. Zhang. Please go ahead, sir.

Yong Zhang

Hello, everyone, and thank you for joining us today. We are very encouraged to announce the best quarter in our operating history with recorded contract sales. Revenue and net income, all of our major projects is experiencing the healthy level of GFA sales and ASP trend in the second quarter.

It will reflect on our effective pricing and marketing strategy, our affordable and high quality development projects, as well as improving overall property market environment. At the metro level, the Chinese government has taken action to expand the economy, which bode well for the property industry as a whole.

As a result, we have seen consistent improvement both traffic and demand activity in our development projects over the past three quarters. We expect that property market to remain stable for the rest of the year.

Yesterday, we acquired a new parcel of land in Suzhou with GFA of 128,000 square meters at a total cost of RMB270 million. We are pleased to share our profit and success with our shareholders.

In the second quarter we continued the quarterly dividend program begin last quarter and announced the additional US$20 million share buyback program, after completing the US$10 million repurchase program announced in May 2011.

Xinyuan has stronger balance sheet with a solid management team and a proven development strategy to continue our growth momentum into last year. As a result, we are pleased to increase our year end financial forecast.

Now, I would turn a call over to Tom Gurnee, our Chief Financial Officer.

Tom Gurnee

Thank you, Chairman. The second quarter 2012 was simply an extraordinary quarter, with all of our projects performing well, GFA sales surged, prices hedged higher, and on top of that we resolved some tax issues in the quarter that added $2.6 million to net income, more on that later.

Let’s get started with contract sales. At $258 million in the second quarter contract sales highly exceeded our expectations and blew away our admittedly timid guidance. At this time last quarter we had seen a very low January followed by February and March recoveries. We were not quite sure how this might segue into the second quarter, so we expected normal seasonal quarter-on-quarter growth 20%.

Quite simply we were wrong. There was more of this Q2 performance and seasonality as evidence by the greater than 60% sequential growth. It appears the buyer sentiment has improved markedly.

Unless we get overexcited by this development, it should be noted that the government is recently made several statements consistently over the last several months in the press about the results keep building on housing prices. These statements may put a damper on buyer sentiments, we remained cautious in our projections as I will describe later.

Let me comment briefly on the contract sales project-by-project within the group. Our biggest single project at 565,000 square meters is Chengdu Splendid located in the city of Jinan, while we have had our shares, the way we are getting these projects up to ground, contract sales in the second quarter more than doubled over the first quarter giving a sales momentum to the remaining life of the project.

Kunshan, the project on the outskirts of Shanghai is considered to be more Tier 1.5 city than Tier 2 city, recorded RMB141 million or US$23 million of contract sales in the second quarter net of cancelations after recording a negative RMB38 million or $6 million in sales last quarter.

86 apartment contracts with the contract value of RMB72 million or $6 million were canceled by mutual agreement versus 137 apartment contracts with the value of 19 million being canceled last quarter. Just 73 units with the contractual value of $6 million remained unresolved of the nearly 300 units contracted, but unrecognized in revenue in 2010 that we started negotiating earlier this year.

And on Royal Palace locate in the city of Zhengzhou recorded contract sales of 30 million, nearly 80% above the first quarter, as we operate high rise units for the first time albeit at lower ASPs than the low raise units earlier sold.

Yipin Xiangshan II locate in -- also located in Zhengzhou was up 70% sequentially with no particularly event to report, just higher traffic and higher demand. Other active projects such as Chengdu Splendid I and II, Xuzhou International City Garden and Henan [Modern] City maintained sales at Q1 levels.

So let’s review pricing trends for a moment. In short there are really no noteworthy pricing trends to report. A glance of the GFA and ASP table in our press release seems to apply the prices decline while in fact it really have not.

Chengdu once ASP was up in Q1, was way up in Q1, due to sales in parking space with associated square meters, just did not occur in Q2 to the same degree and that led the appearance of the drop in ASPs, but it didn’t really, our pricing by partners did not changed.

Chengdu Splendid II apartment prices were up 1.3% over Q1. Zhengzhou Modern City apartment prices shifting slightly higher, but the overall ASP drop is higher price retail space sales build from an exceptional Q1.

Zhengzhou Royal Place sold lower price, high rise units for the first time, we drove the overall ASP down, although contract sales total were up. Kunshan pricing has held firm with the ASP declining slightly due to the selling of lower less price apartments.

Suzhou International City Garden prices rose surprisingly by 9% and continued the strong sales volume. The Chengdu Splendid or sometime we call it Jinan Splendid pricing edged up slight on GFA of more than doubled sequentially.

And finally, Yipin Xiangshan II was a mix bag with the low rise prices drifting slightly lower and the high rise prices drifting slightly higher. So, in short, there was really no noteworthy in prices in the second quarter.

On the subject of seller financed contracts, we have been reporting on that for several quarters now. As mortgage availability improved over the last two quarters, the use of seller financed contracts has dropped pretty significantly.

As a percent of the total value of contract signed, seller financed contracts fell from 26% in the fourth quarter last year to 17% in the first quarter last year, and 11% in this quarter. So seller financed contracts are becoming lower in the mix of our sales.

Revenue, in the second quarter of 2012, the company’s total revenue used in percentage completion method was $253 million, compared to $183 million in the second quarter of 2011, and $173 million in the first quarter of this year. Revenue exceeded the midpoint of guidance by fully 30%.

Gross profit, gross profit for the second quarter was $77.5 million or about 30.6% of revenue, compared to $54.5 million or 29.8% of revenue in second quarter last year and gross profit last quarter of $49.2 million.

As we do every quarter, the company revised total project cost estimates and cost projections at the end of the quarter. In the second quarter, $7.6 million cumulative gross profit was recognized under the percentage of completion method due to the change in estimates.

The biggest contributor to this improved estimate was Zhengzhou Modern City at a cumulative gross profit impact of $7.2 million, as sales of commercial space began in earnest at over double the ASPs, but this project is expected to sell out by the end of this year.

Couple comments on SG&A, SG&A expenses were $15.8 million for the second quarter, compared to $10.2 million in the second quarter of 2011 and $12.0 million for the first quarter of 2012. As a percentage of total revenue, SG&A were 6.2%, compared to 5.8% last year in this quarter and 6.9% in the first quarter of 2012.

Major factors in this sequential SG&A increase were the $1.3 catch-up accrual of employee bonuses and an additional expense of $0.8 million related to share-based compensation. In essence, the improvement in outlook for 2012 really drove both of these adjustments.

Invested employee options granted in 2011 was conditional, based on the company's annual profit performance. In 2011, those performance criteria were met and options invested were eligible.

Earlier in 2012, it appears that meeting the criteria for 2012 would be highly unlikely. Now, after this quarter it appears highly likely. I should also note that spending on consultants has spiked a bit in the last two quarters, up about $700,000 over two quarters ago and the fourth quarter of 2011, with several consulting projects underway, including IT, management strategy, process engineering and construction engineering review projects.

So we not only talk about the big news of the quarter which is income taxes. The second quarter was an exceptional period for income taxes of Xinyuan, as we reversed fully $26 million of previously accrued liabilities. These reversals were long-time coming and the result of some very hard work over the past few years.

The net result is that we actually recorded net tax benefit of $5.8 million in the second quarter. The largest impact of these adjustments at $21.6 million was LVAT or land value added tax. Since before IPO, we’ve been accruing LVAT taxes at statutory rates in all provinces including the non-provinces.

LVAT taxes are paid at deemed rates and above under the larger and the life of project and when soaked by the tax payer, our accrued up in settlements with local tax bureaus after our project has been completed. Such settlements processes were rare in the past as Henan province -- in Henan province, as these payments were in practice and accepted as final payment of LVAT.

Responding to pressure from Beijing, we begin selling up LVAT on completed projects. In May 2010, the Zhengzhou local tax bureau published its Circular No. 55, in which it stated that projects completed before May 1, 2010 should be settled under the collection method in affect when the project was completed. Projects completed after May 1st were subdued tax credit settlements only.

In July 2010, the Xinyuan International City Garden project received an LVAT final settlement report and a taxation matters notification from the local tax bureaus amount of RMB28 million. This is an accrued amount of liability under the tax rate method of RMB130 million, in short, the deemed method was accepted as final settlement by the Zhengzhou tax bureau.

But due to the newness of the March -- May 1, 2010 circular, we were not certain, their interpretation of this circular would ultimately matched that of the tax bureau, as it gained experienced in the settlement process. Thus, we determined that reversal of the statutory versus deemed LVAT liability difference was probably premature.

Since that time, we’ve successfully settled LVAT on eight other projects of Xinyuan, completed before May 1, 2010. And in Q1 and Q2 of this year, we dissolved two companies and canceled their tax registration certificates of clearance from LVAT and CIT bureaus in Henan.

This recent final step in the LVAT clearance process, along with the history of nine successful LVAT settlements in the simple passage of time without reinterpretation by the tax bureau, we just didn’t included that our reinterpretation was correct and that the improved liability for the difference between statutory and deemed LVAT methods on projects completed before May 1, 2010, should be reversed. So that's what happened with LVAT.

Also in the second quarter, we canceled the tax registration of a long dormant Henan company called Henan Wanzhong. Several years ago before our 2000 IPL, this company had recorded a tax provision of $5 million for the possible disallowance of the deemed method of calculating corporate income tax that they enjoyed in its local Zhengzhou tax jurisdiction.

Henan Wanzhong duly received approval of its treatment in the form of the tax certificate in the second quarter of 2012. The $5 million accrued liability was reversed in this quarter.

And going -- so these are unusual items, going forward, however the effective tax rate hasn’t changed much. Before unusual items it’s projected to be 36.0% for 2012, down slightly from 36.5% in ’11.

So to summarize, net income for the second quarter of 2012 was over $69 million, compared to $32 million for the same period in 2011 and $23 million in the first quarter of this year. Our previous guidance for the second quarter had been $27 million to $30 million net profit.

Net margin was -- our net income was 27.4%, compared to 17.4% in the second quarter of 2011 and 13.5% in the first quarter of this year. Fully diluted earnings per ADS were $0.94 in the quarter, compared to $0.40 per ADS in the same period in 2011 and $0.31 per ADS in the first quarter of this year.

The largest single factor obviously in the favorable forum versus guidance was the reversal of tax liabilities of approximately $26.6 million described earlier. This single factor equates to $0.36 per ADS. The other major profit improvement factor was of course the actual sales and margin performance also described earlier.

So now that I have covered net income, let me talk about land acquisitions for a few moments. The company did not acquire any land parcels in China in the second quarter of 2012, as there was a shortage of attractive offerings in our preferred geographies. We did participate in a few auctions but we didn’t prevail.

However, as noticed -- as noted in today's earnings press release, yesterday, August 9th, we did acquired parcel of land in Suzhou with a GFA of gross floor area of 128,000 square meters at a cost of RMB270 million or about $43 million at a price per square meter of RMB2,107.

Payment will be made in three tranches, 30% now, 64 -- 60% more in November and the final 10% by year end and margin on this project is expected to exceed 30%. We expect several more land actions -- land actions to take place in the third and fourth quarter. It will be interest to us.

Also the Chairman and his land acquisition team are actively employing non-auction methods of acquiring land, including direct government negotiation resales and [discrete] sales. However, thus far, we have no transactions to report at this time.

With regardless to our activities in the USA that we disclosed earlier this year, in the second quarter of 2012, the company acquired real estate project portfolio in Northern Nevada in the Reno area from a major U.S. bank comprised of 325 finished lots and 185 acres raw land at eight different sites at a cost -- total cost of approximately $7.4 million. The company plans to develop certain strategic pieces of this portfolio and to resell the remainders to other developers.

One minor unentitled raw land parcels have already been sold in July at 30% above its allocated cost, while several other parcels are in negotiation to be sold as of this conference call.

And also very recently in last week, earlier this month we also acquired 15 luxury apartments in Irvine, California in the first of three optional contractual phases of marketing this property in U.S. and China.

The balance sheet, as of June 30, 2012, the company reported $605 million in cash, cash equivalents, including restricted cash, compared to $516 million as of August 31, 2012. So our cash balance has increased by $89 million in the second quarter.

Total debt outstanding was $229 million, a decrease of $54 millin, compared to $283 million at the end of the first quarter 2012. Thus, cash less debt improved by $143 million in the quarter in one single quarter.

Several factors drove this, including very high contract sales and improved the mortgage environment resulting in faster settlements. Diminish use of the seller financed contract as mentioned earlier and improved license effort by our team both in the field and imports.

The value of the company’s real estate underdevelopment at the end of the second quarter was $605 million compared to $705 million at the end of the first quarter 2012. Well, on the subject cash that we point out that recently the company introduced the cash balance verification program whereby our internal audit staff and we do have a disproportionally large IA staff of 11 people.

So, our internal audit staff makes unannounced visits to base in the field and then headquarters in deposits. They prepare a bank balance plus transaction history and subsequently compare it to the book balance and bank reconciliation’s. We have nearly 240 bank accounts of Xinyuan. We intend to verify our larger accounts at least twice per year in addition to the annual personnel audit.

And while we have full confidence in Xinyuan and their cash verification procedures with their cash balance getting so large and the fact that revise audits are annual, we felt the need for additional comfort on interim balances.

Let me talk about the outlook for few minutes. This quarter, we’ve increased our guidance for 2012 significantly. The company expects contract sales in the third quarter to be in the range of $215 million to $225 million, down slightly from an exceptional Q2 bit strong and low asset.

Revenue under the percentage of completion method is expected to range between $225 million and $235 million and net income in the two quarters is expected to be in the range of $30 million to $33 million. Fourth quarter contracts sales, revenue and net income are expected to be lower than the third quarter on lower sellable inventory as project sellouts at Suzhou International City Garden, Chengdu and Modern City and Henan in Zhengzhou will not be replenished by new projects until early 2013.

For the full year 2012, contract sales are expected to be in the range of $770 million to $790 million versus $660 million to $680 million guided last quarter. Revenue under the percentage completion method is expected to range between $825 million to $845 million versus previous guidance of $760 million to $780 million.

Net income is expected to be in the range of a $130 million to $140 million for the year up from $97 million to $102 million projected last quarter, I’m sorry, from $97 million to $107 million projected last quarter. A preliminary look at 2013 because of wider range of outcomes depending on execution of new projects by our demand, assuming there are no 2013, there is no sales impact in 2013 of any new land acquisitions including yesterdays.

Contract sales could be as lower flat for 2012 or it could be nearly 20% above 2012 contract sales. Yesterdays land acquisition does provide a possible upside to this guidance range. Profits will be healthy in 2013, albeit they will be down somewhat from our 2012 projections due primarily the fact the favorable tax -- in 2012 will not be repeated in 2013.

So let me comment on shareholder initiatives and then we will finish this up. On July 24, 2012 the company announced that it confirmed a quarterly dividend payout of $0.04 per ADS to be made on August 20th. It is the company’s intent to continue this payout far into the future.

In June 2012, we completed the $10 million authorized buyback announced last year. And on June 21st, we announced a newly authorized buyback program of $20 million. In the second quarter of 2012, the company purchased over 894,000 ADS on the open market at a total costs of around $2.5 million.

Including just $0.5 million or about 175,000 ADS is under the new $20 million, the newly authorized $20 million program. That’s because the $20 million authorized program was approved very late in the quarter.

Businesses were made throughout May and June but ceased in July due to our customary quarterly blackout period. Purchases will resume three day after this call. We and our IR consulted team are planning a non-deal road show on the West Coast in the first week of September and the East Coast in the second week of September.

We will announce dates, times and venues forehand so please contact us, if you would like to see us. And of course you can always email me at any time at Anyway, thanks for listening and back to David. David?

Question-and-Answer Session


(Operator Instructions) And we’ll take our first question from [Liang Sun]

Liang Sun – CICC

Hi, Tom. Good morning.

Tom Gurnee

Hi, Liang.

Liang Sun – CICC

Hey, congrats another great quarter. I’m just wondering, what’s your second quarter EPS going to be like without a tax benefit on no more tax rate? Thank you.

Tom Gurnee

I’m sorry. You asked what second quarter, what?

Liang Sun – CICC

The earnings per share, to be recorded $5.1 million tax benefit in the quarter and…

Tom Gurnee

$0.36, the unusual tax interest were $0.36 per ADS impact and okay. And so just fact the $0.36 from our $0.94 and we’ve got about…

Liang Sun – CICC

I see. I see. Yeah. So, I saw the $0.36. It just I wasn’t sure, okay. So, that is that truly $0.36 impact from the tax benefit.

Tom Gurnee

Correct. Correct.

Liang Sun – CICC

Okay. Got it.

Tom Gurnee

We worked on this for -- we worked on those for over two years to get those results in (inaudible) and we’re gratified that that’s it working out.

Liang Sun – CICC

I see. So it’s about like a $0.63, okay. The true case, okay. Got it. Thank you. Great quarter.

Tom Gurnee

Thank you.


Thank you. We’ll go next to John Herron with Herron and Associates.

John Herron – Herron and Associates

Good morning and fabulous quarter. With that said, earnings from quarter-over-quarter is so volatile and I’m just wondering with the chance of 2013 profit outlook actually maybe lower than 2012. As the company then approached, we thought about going private because it just seems like getting real tracked market so difficult, especially when possibly looking into the future the lower year, next year than this year, even though it will still be great.

Tom Gurnee

Well, what was the name, John was it?

John Herron – Herron and Associates


Tom Gurnee

John, we have been approached many, many times. And in fact, when I see in front of investor such as southern and western, our funds I asked that every time. And in fact, we have considered it, but as we consider at the chairman is very ferment his beliefs that he likes being in the New York Stock Exchanges listed company for several reason.

One is he likes the discipline that comes from it. He also likes the stature that comes with it. It helps us in contract negotiations in certain times. But mainly he likes to discipline that comes with it the SOX requirements et cetera.

So, where he is not prepared at this time to do a side buyback. We’ve of course argued it very passionately over the past few years. But the Chairman is pretty steadfast and with good purpose too. He believes that the stock price will come back particularly, if we can convince investors such as yourself that we are a legitimate company with and a strong company whose numbers actually mean something.

John Herron – Herron and Associates

Well, I have no doubt about the China forecast. What you guys can do over -- I wasn’t in China all last week and we always -- you always hear us about how China is slowing down and I stated that, if it slowing down, it’s slowing down from light speed to work speed because I counted no less than 500 trains and once you’re alone, you reckon these structures. It is just crazy growth still even with this, so called slowdown.

But going back to the share buyback for a moment, we’ve seen stocks gain much better traction with increased dividend as opposed to share buybacks. As the Chairman thought about that at all rather than buying back stock just increasing a dividend?

Tom Gurnee

Well, we just started our -- we are fairly new or little bit nervous on the dividend right now. And we deferred an annual dividend last year and investors convince us that we should be doing quarterly dividends. We started that this year and we increased to 60% over the previous year. So that’s pretty good increase to dividend rate.

So I would say, yeah, he’s considered dividend increases. We didn’t discuss it this quarter. We were pretty reconciled to paying our normal dividend. So and we expect -- I hope I made that clear in my prepared remarks, we expect to pay this indefinitely. We don’t see an end to this and of course, like most companies we hope to raise dividends over time.

But no we have -- if you’re pointing us, we’re considering a largest ordinary dividend, no we have not discussed that.

John Herron – Herron and Associates

Okay. I appreciate that. Got one last comment, recently a Chinese company, Longwei Petroleum, symbol LPH, had an intimate audit actually posted to SAT and SAIC filings on the internet, the actual copies of what was filed with the administration offices over there in China and I hear that move was fabulous. I think, every Chinese company should do that. Is the company contemplating possibly doing that?

Tom Gurnee

Well, no -- look, we used the percentage of completion accounting. This is varied under the U.S. GAAP. Even our competitors don’t use this. We have to use that because we we have set the U.S. GAAP.

The SAIC results will not bear much of the relationship to U.S. GAAP POC accounting. Let’s be honest. So we’re not -- we don’t hide SAIC but we don’t think anybody is -- any of our investor is equipped to reconcile between SAIC and U.S. GAAP.

So I suppose we could publish it but it would be really, really hard for anybody to reconcile it because of the huge differences between PRC gap which or you recognize revenue only after delivery of units. We recognize revenue under the POC method as units are being built.

It is the longest of collections, not a question. So it’s a huge structural difference between the two numbers. I don’t know if it would help to publish SAIC numbers. What do you think?

John Herron – Herron and Associates

Well, I know that you made your short sellers that’s the first thing that they look for. They look for discrepancy to what’s filed in China versus what’s filed with the SEC.

Tom Gurnee

They’ll find it because the method is so different.

John Herron – Herron and Associates

Well, there are companies that have exact matches in some or way, way off. Some report revenues of $20 million in China and $200 million to the SEC.

Tom Gurnee

Yeah. And some of those are fraudulent. Some of them use the same accounting method as PRC to file with SAIC but probably they don’t do POC accounting under U.S. GAAP. This would lead to a large difference.

John Herron – Herron and Associates

Okay. Well, I do know that there is a lot of people, kind of, right on the line with your company. I mean, there are lot of people on the outside looking in right now, seriously considering investing in the company, giving them to take that next step is another story.

Tom Gurnee

John, this very fact are working. I will consider -- by the way, I’m taking a few days off next week. So please allow me to take a few days. I will consider to reconcile what we file with SAIC or lose reconciliation to what we have and it’s going to be wildly different because of the different accounting methods but we’ll think about that. And we’ll think about China with investors.

John Herron – Herron and Associates

Okay. I appreciate it. Congrats again.

Tom Gurnee

Okay. Thanks.


(Operator Instructions) We’ll go next to Albert Jones with Jones Capital Management

Albert Jones – Jones Capital Management

Staying on the same theme about, doubts about Chinese companies being completely [illicit]. I’m an investor first of all. So I’m a lone investor here.

Yong Zhang


Albert Jones – Jones Capital Management

What do large funds or any funds or any investors, what are their first questions to you as far as them taking that step to become a shareholder. What are their doubts? What are they asking you Tom and is it just a matter of the macro China thing right now and investors will eventually come back to legitimate companies. Well, I’m currently interested in the thoughts of the investors when you do road shows, what kind of questions do you get and what is stopping them from investing in your great company?

Tom Gurnee

Well, thanks for saying great company but first of all I would say the following. We are badly undervalued and those are too good to be true quality about us. And then I got to fight. I’ve got to get on the road and fight them.

Second is the fact that perhaps we use POC accounting and that’s maybe hard to understand but we’re required by U.S. GAAP to use it. The main concern of the large funds is liquidity that we have a small float and that they’re not going to be able to go in and out of large positions easily in our shares.

So it’s my job that I suggest I haven’t done it very well but it’s my job to try and get that liquidity up to these players. I need to get recognition from the investment community their numbers of real, they are repeatable, they are reliable and they are solid. And so in order to get some confidence in our shares. But U.S. what’s the main question I get. I get question about -- most often with larger funds is liquidity. It’s quite simple with that.

And then, there is concern about a bubble in China or there was. I don’t think people are talking about bubble anymore in China. They are talking about hard landing. I don’t think anybody is that convinced that China is going to be a real hard land. It may be a semi hard landing but nobody is talking about the bubble anymore right now in China.

And then there is the fraud risk. We have companies, Chinese companies that are -- there are too many frauds. In fact, I’ll say this publicly. I was audit committee chair of Longtop Financial and this company had fraud. And so it did happen anyway and that particular company, the CEO had worked on a scheme for up to years, three, four years before the IPO. And the IPO took place with Goldman and with Deutsche Bank with the auditors being devoid and we had extensive cash procedures there and we still had a fraud.

So this makes people little bit concerned. And I’m concerned, I mentioned earlier in my -- I'm concerned about what investors think. So we have in this company about 240 bank accounts. We reconciled every one of those matters every month and every one of those reconciliations is verified by H2. So there is two sets of buyers looking at that.

In addition, we recently implemented a cash verification procedure by internal audit and then finally we have an annual audit by EY that’s at the top of their game as far as increasing scrutiny over cash balances. So the best response I can give to investors like you is we’re doing our best to demonstrate the quality of our financial statements and the quality of our assets. Have I answered your question? I’m sorry, I talked in circle a little bit there.

Albert Jones – Jones Capital Management

No. That’s very helpful. I just want to mention that your company instituting the buybacks and executing them fully and paying the dividend is unique in the space and should get people confidence and how this company is run and the legitimacy of this company. So I just want to say thank you for that. And may be you can grab the ear of small cap funds and micro cap funds and somebody has the colonies to step up and invest in your company in a large way. Thank you so much.

Tell the chairman, he is doing a fabulous job. And I have no doubt that land acquisitions will come for -- through the end of year and early next year and a 2013 numbers will be above 2012 numbers. Thank you again for your time.

Tom Gurnee

Okay. By the way, where are you located?

Albert Jones – Jones Capital Management

I’m in the Detroit area.

Tom Gurnee

Okay. I’m going to go to Chicago I think, second week of September. I hope to see you.

Albert Jones – Jones Capital Management

Okay. I’ll try and make it.

Tom Gurnee

All right. Thanks.

Albert Jones – Jones Capital Management

Thank you.


(Operator Instructions) And it appears we have no further questions in queue. I’d like to turn the conference back over to management for any concluding remarks.

Tom Gurnee

Well, this is Tom Gurnee speaking for our whole team of the company. And there is about 12 other senior on this table. We thank you very much for dialing in. We’ve enjoyed the questions and the Q&A and we hope to see you next quarter with some really good numbers again. Thank you very much.


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

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